Papa John's (PZZA) Down 18% in a Year: What's Hurting the Stock?
Shares of Papa John's International, Inc. PZZA have declined 17.9% in the past year against the industry’s 9.3% rise. The downside was primarily caused by inflationary pressures and staffing challenges. Also, deteriorating economic and business conditions in the United Kingdom added to the downside.
Let’s discuss and assess what’s hurting this Zacks Rank #5 (Strong Sell) company.
Primary Concerns
Papa John's performance has been affected by higher inflationary pressures in commodity and labor costs, softening economic conditions (in the U.K.), rising interest rates, looming European energy crisis.
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During the fiscal fourth quarter, the company’s international comps were negatively impacted by challenges in the U.K. market. Adverse macroeconomic conditions resulted in negative comparable sales and a challenging operating environment for its franchisees. During the quarter, comps at international restaurants were down 3.4% year over year against growth of 2.4% reported in the prior-year quarter. Given the macroeconomic challenges and uncertainty in international markets, the company anticipates international comp sales to remain under pressure throughout 2023.
Papa John's is continuously shouldering increased expenses, which are detrimental to margins. It has been facing significant supply-chain challenges and inflation across most commodities and categories. This resulted in cost pressure in the fourth quarter of fiscal 2022, including costs related to strategic staffing initiatives. In the fourth quarter, the company’s food basket costs were up 13% year over year. Also, it reported elevated labor costs. Although the company resorts to strategic price increases to mitigate the impact of inflationary costs, it expects inflationary pressures to persist in the near term.
High debt remains a concern for the company. Long-term debt (less current portion) at the end of the fiscal fourth quarter came in at 597.1 million compared with $548.8 million reported in the previous quarter. The company ended the fiscal fourth quarter with cash and cash equivalent of $47.4 million compared with $36.6 million reported in the previous quarter.
Although the cash balance has improved sequentially, it may not be enough to manage the high debt level. The times-interest-earned ratio at the end of the fiscal fourth quarter came in at 4.3x compared with 4.6x reported in the previous quarter.
Key Picks
Some better-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Arcos Dorados Holdings Inc. ARCO and Bloomin' Brands, Inc. BLMN.
Chuy’s Holdings currently sports a Zacks Rank #1 (Strong Buy). CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of CHUY have increased 29.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 10.8% and 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 1.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands carries a Zacks Rank #2. BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 21.8% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.1% and 4.4%, respectively, from the year-ago period’s reported levels.
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Papa John's International, Inc. (PZZA) : Free Stock Analysis Report
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Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
