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PZZA Q3 Earnings & Rev Miss; Ups View

Zacks Equity Research

Following the release of third-quarter 2013 results on Nov 5, leading pizza restaurant chain, Papa John’s International Inc.’s (PZZA) share price declined nearly 2% in the past two days’ regular trading session due to soft share market conditions.

Papa John’s’ third-quarter earnings of 64 cents per share, missed the Zacks Consensus Estimate of 66 cents by 3.03% due to higher costs.

However, quarterly earnings were up 18.5% from the comparable year-ago quarter’s earnings of 54 cents. The year-over-year rise in revenues was driven by the company’s higher top line.

Total revenue increased 6.4% year over year to $346.3 million, led by higher comparable restaurant sales (comps) growth in the domestic as well as international markets, increased sales at the company-owned units, improved franchise royalties and unit expansion. However, revenues missed the Zacks Consensus Estimate of $348 million by 0.6%.

Behind the Headline Numbers

Papa John’s earns revenues from its North America and International markets.

Domestic company-owned restaurant revenues increased 6.5% year over year to $152.7 million, led by 5.1% rise in company-owned comps.

North America Franchise royalties also went up 3.4% year over year to $19.4 million, gaining from a rise in net franchised units and positive franchise comps growth of 0.6%. However, Papa John’s’ increased incentives to franchisee affected royalty revenues.

Domestic commissaries sales also climbed 4.1% year over year to $138.0 million with the rise in sales volume and higher commodity prices.

International revenues increased 24.2% year over year to $22.4 million, powered by a system-wide international comps growth of 8.1% and unit growth.

Operating Income

In the quarter under review, Papa John’s’ operating income grew 1.1% year over year to $21.4 million as increased top line made up for the higher costs. Operating income for the domestic company-owned restaurants remained flat year over year as lower gross margin offset the 5.1% rise in comps.

Unit Growth

During the quarter, the company opened 90 restaurants while closing 46 units worldwide. As of Sep 30, 2013, Papa John’s had 4,296 restaurants across 34 countries. The company expects net unit growth to be within 245–275 up from 230–260.

Share Repurchase

During the third quarter, Papa John’s bought back 0.2 million shares worth $10.3 million. Currently 21.5 million shares remain under the company’s existing $80.1 million share repurchase program.


Papa John’s increased its earnings guidance for 2013 based on earnings and top-line growth and lower outstanding share count. The company now expects earnings within $3.02 to $3.10, up from the previous guidance of $2.92 to $3.00.

The company has also raised its comps guidance. Papa John’s expects North American comps to increase in the range of 2.5% to 3.5%, up from the prior guidance of 1.5% to 2.5%. International comps are expected to increase in the range of 7.0% to 8.0% from 5.0% to 7.0% in 2013.

Our Take

Though Papa John’s’ earnings and sales missed the estimates during the quarter it has witnessed double-digit earnings growth during the quarter. The company’s focus on menu innovation and international expansion are quite encouraging. However, a weak macroeconomic environment remains a headwind.

Other Stocks to Consider

Papa John’s holds a Zacks Rank #2 (Buy). Some other players in the restaurant industry which look attractive at the current level include Red Robin Gourmet Burgers Inc. (RRGB), Cracker Barrel Old Country Store, Inc. (CBRL) and Bob Evans Farms, Inc. (BOBE). All these companies carry a Zacks Rank #2.

Read the Full Research Report on CBRL
Read the Full Research Report on RRGB
Read the Full Research Report on BOBE
Read the Full Research Report on PZZA

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