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Papa John's (PZZA) Q3 Earnings Miss, Stock Up on Solid Comps

Zacks Equity Research

Papa John’s International, Inc. PZZA reported mixed third-quarter 2019 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same. However, the biggest takeaway from the quarter was positive comparable sales growth, which was reported by the company for the first time in two years.

Positive comparable sales growth may have gone down well with investors, as shares of Papa John’s gained 6.9% on Nov 6. Also, the company’s shares have increased 53.5% so far this year, outperforming the industry’s rally of 15.8%.

Its adjusted earnings of 21 cents per share lagged the Zacks Consensus Estimate of 23 cents by 8.7%. However, the bottom line increased 10.5% from the year-ago figure.

Revenues totaled $403.7 million, which outpaced the Zacks Consensus Estimate of $388 million. The top line also increased 5% on a year-over-year basis. This upside can be attributed to positive comparable sales achieved by the company in North America for the first time in two years.

During the third quarter, it opened 15 restaurants in North America and exited 38, with the global restaurant count being 5,343. Additionally, it opened its first restaurant in Portugal. Notably, the company is presently operating in 49 countries and territories worldwide. It re-franchised 21 company-owned restaurants, which include 19 in Georgia, for $5.6 million.

Global Restaurant Sales & Comps

In the third quarter, global restaurant sales moved up 2.3% against the year-ago quarter’s fall of 6.6%. Excluding foreign currency impact, global restaurant sales rose 3.3% versus the year-ago quarter’s decline of 5.9%.
Domestic company-owned restaurant comps were up 2.2% in the reported quarter versus a 13.2% decline in the year-ago quarter.

At North America franchised restaurants, comps rose 0.6% against a decline of 8.6% in third-quarter 2018. Also, comps at system-wide North America restaurants moved up 1% against 9.8% decline recorded in the year-ago quarter.

Comps at system-wide international restaurants were up 1.6% against a decline of 3.3% in the prior-year quarter.

Operating Highlights

Total operating income was $4.9 million in the third quarter against operating loss of $14.2 million in the year-ago period. Total costs and expenses amounted to $400.5 million, up 0.3% from third-quarter 2018.

Papa John's International, Inc. Price, Consensus and EPS Surprise

Balance Sheet

As of Sep 29, 2019, cash and cash equivalents totaled $28.4 million compared with $33.3 million on Dec 30, 2018. Long-term debt was $346.1 million at the end of third-quarter 2019 compared with $601.1 million at 2018-end.

Inventories at the end of the reported quarter declined to $25.2 million from $27.2 million on Dec 30, 2018. Free cash flow at the end of third-quarter 2019 summed $15.8 million compared with $74.4 million at 2018-end.

The company paid out cash dividends of $10.5 million in third-quarter 2019 and declared fourth-quarter cash dividend of approximately $10.6 million.

2019 Guidance

Papa John's — currently carrying a Zacks Rank #3 (Hold) — expects adjusted earnings per share (EPS) within $1-$1.20, indicating a decline from $1.34 in 2018. North America comps are now expected to decline 1.5-3.5% compared with the prior guidance of 1-4% decrease. International comps are anticipated to be flat to up 2% compared with 3% expected earlier. Capital expenditure for 2019 is still expected in the range of $45-$50 million. Additionally, net global unit growth is anticipated in the band of 85-115 units compared with earlier expectation of 100-150 units due to temporary slowdown of openings in Russia and Spain.

You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Peer Releases

Dunkin' Brands Group, Inc. DNKN reported mixed results in third-quarter 2019, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Its adjusted earnings of 90 cents per share surpassed the consensus estimate of 81 cents by 11.1%. Revenues were up 1.7% year over year to $355.9 million but missed the consensus mark of $359 million.

Brinker International, Inc. EAT reported mixed first-quarter fiscal 2020 results, wherein earnings were in line with the Zacks Consensus Estimate but revenues lagged the same. Adjusted earnings of $41 cents per share declined 12.8% from the year-ago quarter, mainly due to increase in stock-based compensation expenses for newly retired executives. Quarterly revenues totaled $786 million, which missed the consensus mark of $788 million but improved 4.3% on a year-over-year basis.

Chipotle Mexican Grill, Inc. CMG reported third-quarter 2019 results, wherein earnings and revenues surpassed the respective Zacks Consensus Estimate. The company’s adjusted earnings of $3.82 per share surpassed the Zacks Consensus Estimate of $3.20. The bottom line also improved 76.9% from the year-ago quarter, driven by increased revenues and strong operating margins. Quarterly revenues of $1.4 billion surpassed the consensus estimate by 1.8% and improved 14.6% year over year.

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