The momentum that Papa Johns International, Inc. saw throughout the pandemic is beginning to slow down as inflationary pressures continue to rock the restaurant industry. Papa Johns reported same-store sales growth of just 0.9% in North America, while same-store sales decreased 8% in international markets for the second quarter ended June 26, with any growth driven by international development. International sales growth was tempered by particularly challenging results in the U.K.
To combat inflationary pressures from rising food basket and labor costs, Papa Johns took a 7-8% price increase (on average, systemwide) already in 2022 and have not been aggressively rolling out national discounts in order to bring in more price-conscious customers.
“We think we will mitigate our need to take pricing up in the back half of 2022,” Papa Johns CEO Rob Lynch said during Thursday’s earnings call. “We took almost no pricing during pandemic, all of our growth was driven by innovation, we’re not driving sales with pricing, we’re just trying to mitigate the costs.”
Costs on the labor front are stabilizing, Lynch said, but wages are still much higher than they had been before the pandemic, and staffing levels are starting to improve, especially with the help of third-party delivery aggregators where Papa Johns drivers are in short supply. Papa Johns is currently working on building new labor optimization tools to improve on some of these staffing challenges the foodservice industry is still seeing.
“We’re nowhere near fully staffed and nowhere near where we want to be but help from aggregators, coupled with organic recruiting and retention has eased strain on restaurants,” Lynch said. “We have a long way to go but it is moving in the right direction, especially from December/January [during the peak of the Omicron COVID-19 variant]."
Still, even though momentum for Papa Johns, which boomed over the last two years, has slowed, Lynch is confident in the pizza category’s success as a whole, especially when consumers become more price-conscious during tough economic times.
“As consumer sentiment softens, pizza offers tremendous value as compared to other segments,” Lynch added.
Moving forward, Papa Johns wants to focus on unit development, particularly in North America where almost all of the company’s top 25 franchisees already have deals in place to build out more restaurants.
“We continue to sign new deals which further reinforces our confidence in our multi-year development goal to grow global net units by 6- 8% annually from 2023-2025,” Lynch said. “Continuing the acceleration we have seen over the past year, when franchisees open up the new Papa John's restaurant, or sign a new development deal, they're making a long-term investment decision due to solid development activity, and new deals are a strong indicator of our brand's long term momentum and profitable growth potential.”
For the second quarter of 2022, total company revenues grew 1.5% to $522.7 million. Net income dropped from $35.3 million or $2.30 per share the same quarter last year to $25.4 million or 70 cents per share this quarter.
Papa Johns opened 47 net new stores last quarter bolstered by international growth, for a total of 5,571 restaurants systemwide.
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