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Papa John’s competes for ‘cautious’ consumers

The company says it is positioned to build on the double-digit growth in profit and revenue it achieved in fiscal 2012.

Papa John’s International Inc. said competition for cautious consumers remains intense, but that it is positioned to build on the double-digit growth in profit and revenue it achieved in fiscal 2012, company officials said in a fourth-quarter earnings call.

Consumer spending is still far from robust, noted founder and chief executive John Schnatter, meaning Papa John’s would have to continue to market quality to differentiate itself from competitors.

“We’re seeing a cautious consumer right now,” Thompson said. “From the beginning of the year, the tax holiday expiring, fuel prices and the delay in income tax returns all are playing into consumer confidence. Value and choice are going to remain for some time, but the pizza category not only is resilient, but also a great value in an environment like this, and we believe a quality positioning will continue to serve us well. People are going to make a choice for something that’s better.”

Chief marketing officer Andrew Varga said Papa John’s would continue to price its products just above its main competitors, Pizza Hut and Domino’s Pizza. The chain is currently promoting an $11 Steak and Cheese specialty pizza, only $1 above the $10 price point where competitors have advertised their large pizzas.

Still, Papa John’s reported same-store sales gains for fiscal 2012, marking the ninth consecutive year its same-store sales were positive or flat. The company also opened 280 net locations worldwide, its largest increase in unit count in more than 10 years.

“Given the global climate we’re operating in during the quarter and the year, I honestly am very impressed with these results,” Schnatter said. “We certainly expect this continued growth to keep happening. Today we’re approaching 4,200 restaurants globally, with a strong global development pipeline with agreements in place to open approximately 1,400 restaurants over the next six years.”

NFL partnership goes into overtime

Papa John’s also signed an extension with the National Football League to continue its sponsorship of the league and the Super Bowl. The company just completed the third year of an initial three-year partnership.

Varga would not disclose the length of the new deal, but said, “Suffice it to say, we’ve been thrilled with the first three years of our partnership.”

The executives also noted the marketing coup of signing Denver Broncos quarterback Peyton Manning first as a spokesperson and then as a Denver-area franchisee.

“It gives us such a fantastic brand-building platform with some of the most intense pizza consumers in the United States, and in some cases around the world,” Varga said. “Adding Peyton Manning into the mix with our founder just provides enormous authenticity for the brand as we go to communicate using this platform.”

Papa John’s also continues to drive incremental adoption of its online-ordering system.

“We continue to improve our online sales mix,” Varga said. “I think we’ve said in the past that we’ve been north of 40 percent, and we continue to believe that online is just critical, not only for the customer experience but just in general for being able to drive more top-line sales. We love the progress we’re making there.”

Fourth-quarter profit, sales rise

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Louisville, Ky.-based Papa John’s restated its financial statements for earnings in fiscal 2009, 2010 and 2011 after discovering an accounting error with a joint venture from 2009. Comparisons to prior net income and earnings per share figures were affected, but revenue and same-store sales figures were not. The company does not expect the restatements to materially impact operating results in future periods.

For the Dec. 30, 2012-ended fourth quarter, Papa John’s net income rose 9.2 percent to $17.4 million, or 74 cents per share, compared with a restated net income of $15.9 million, or 65 cents per share, a year earlier.

Revenue rose 19.9 percent to $367.3 million for the fourth quarter, compared with $306.2 million a year earlier. Papa John’s opened 134 restaurants worldwide in the quarter and drove same-store sales gains of 5.2 percent in North America and 7 percent in its international division.

Full-year net income increased 12.7 percent to $61.7 million, or $2.58 per share, compared with a restated $54.7 million, or $2.16 per share, in fiscal 2011.

Revenue for fiscal 2012 rose 10.2 percent to $1.34 billion, compared with $1.22 billion a year earlier, reflecting a 7.2-percent increase in worldwide store count to 4,163 restaurants and annual same-store sales gains of 3.6 percent in North America and 7.1 percent abroad.

Fourth-quarter and full-year results also benefited from a 53rd operating week in fiscal 2012.

Conservatively bullish on 2013

Papa John’s officials predicted 2013 earnings growth of 10–14 percent per share, to a range of $2.85 to $2.95 per share. The company also projects 2013 same-store sales to rise 5–7 percent, and it aims to open 120 to 135 new restaurants.

The momentum of the brand’s international division was a major factor in that guidance.

“We’ve been able to grow our global footprint due in large part to the solid progress we’re seeing in our international operations,” Schnatter said. “In addition to strong comp sales for the quarter and full year, our international business was profitable in 2012. This is significant on many levels, including the validation that our international business model is improving and that our brand is resonating with consumers worldwide.”

Despite 2013 growth targets in North America of 110 to 125 restaurant openings and an expected same-store sales increase between 1.5–2.5 percent, Papa John’s is expecting flat unit-level profit margins. Chief operating officer Tony Thompson said commodity prices for cheese have eased from their fall 2012 levels, but they are expected to rise before the end of the year.

In North America, Papa John’s operates 648 company-owned units and franchises another 2,556 locations in all 50 states. Its international system comprises 959 restaurants in 35 countries.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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