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Papa John’s to maintain focus on pizza

Operator plans to stick to core product following first-quarter same-store sales increase

Papa John’s International Inc. reported Tuesday a 6.5-percent increase in first-quarter same-store sales, and 16-percent growth in sales over the past two years.

But don’t expect the Louisville, Ky.-based operator to expand beyond pizza to maintain that momentum in the coming years, executives said during a call Wednesday discussing earnings.

“Pizza will be our focus,” Papa John’s chief operating officer Steve Ritchie said. While he noted that the company offers desserts to increase average check and profitability, “Do not expect to see us introduce an extensive development of sandwiches, side items, that would create complexity within the operations model.”

A combination of service, quality and technology are all contributing to strong sales of late, executives said. Yet the pizza category as a whole is growing, and particularly large chains like Papa John’s and Domino’s Pizza.

Ritchie noted that the category is growing 2 percent to 3 percent overall, and that “large players are really taking from independents and regionals.”

Technology is playing a significant role in allowing large chains to steal market share. More than half of orders at Papa John’s come through digital channels, and the chain recently added PayShare, which enables consumers to split the bill for digital orders.

But Papa John’s founder, chairman, president and CEO John Schnatter suggested that the chain’s food quality is winning customer loyalty.

The company delivered more than 1 million pizzas on the Super Bowl, Feb. 1, and Schnatter said those customers came back for more afterward.

“That’s our best day of the year,” he said. “And people who try our pizza during the big game come back to us again during the year.”

Schnatter also said that quality is attracting younger consumers.

“A lot of our business is coming from Millennials, because, like Chipotle, we have better ingredients,” he said. “The kids can taste the difference.”

Papa John’s net income increased 15.1 percent during the first quarter ended March 29, to $22.2 million, or 55 cents per share, from $19.3 million, or 45 cents in the same period a year ago. Revenue rose 7.7 percent, to $432.3 million, from $401.4 million the previous year.

Same-store sales rose 7.7 percent at international units. The company said it opened a net 36 new locations systemwide during the first quarter. It had a total of 4,700 units at the end of the quarter.

Papa John’s same-store sales were higher than expected. Jefferies analyst Andy Barish said in a note Tuesday that the result “alleviates one of the key fears” for the coming year. Many investors expected a slowdown in sales following a strong 2014. The company’s stock rose 6 percent in Wednesday morning trading.

“Thanks to our discipline and focus on fundamentals, customers continue to reward us not just with their samplings, but with their loyalty,” Schnatter said. “We had a strong start in 2015, with excellent first-quarter results.”

Contact Jonathan Maze at jonathan.m[email protected].
Follow him on Twitter: @jonathanmaze

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