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Papa Johns' franchisees raised prices to offset inflation, but turned off customers in the process.

Papa Johns’ franchisees struggle to perform as same-store sales drop 1%

The pizza restaurant struggled to grow during the second quarter in what the company dubbed a ‘challenging operational environment’, especially for franchisees

Papa Johns International, Inc. continues to struggle during what the company called a “challenging operational environment” as same-store sales drooped 1% during the second quarter ended June 25. According to Papa Johns CEO Rob Lynch, April 2023 was the worst month of same-store sales since he joined the company in August 2019, attributable to low-performing franchisee stores, which lagged behind company-owned store performance.  

“Over the past year, our franchisees have been increasing their prices at a faster rate than our company owned restaurants in an effort to preserve margins during this highly inflationary period,” Lynch said during Thursday’s earnings call. “As a result, they have experienced a larger decline in transactions relative to our company owned restaurants this past quarter….There are a lot of macro issues and company-specific issues [this quarter] and that was when we really discovered the pricing that had gotten out in front of where the consumer was willing to spend.”

Although Lynch mentioned that performance of company-owned restaurants was on par with what they expected, “it was not enough to offset” the lower-than anticipated results of franchise-owned restaurants, and the company has been working with franchisees on finding new ways to boost customer spending. The areas they’re working on with franchisees include revenue management, operational principles, and marketing optimization. Working on these strategies led to some improvements later in the quarter, Lynch said.

Besides making sure that franchisees do not run away with menu price increases, Papa Johns’ growth strategy moving forward is rooted in improved digital marketing and continued menu innovation. This quarter, Papa Johns introduced the Doritos Cool Ranch Papadia, which “generated a significant amount of buzz” on their digital channels and drove engagement. Most recently, Papa Johns introduced garlic stuffed-crust pizza at the start of the third quarter, and will be soon introducing a spicy garlic stuffed-crust pizza to “keep the momentum going.”

National promotions throughout the quarter also helped boost lagging performance, as well as improved “out the door” times, particularly for company-owned restaurants. As a result of these strategies, Papa Johns is optimistic that the rest of the year, the company will deliver positive same-store sales.

For the second quarter ended June 25, Papa Johns reported total revenues of $515 million down 2% from the same quarter the year prior. Net income was $17.8 million or $0.54 earnings per share, down from $25.4 million or $0.70 per share the same quarter in 2022.

Papa Johns reported 47 net unit openings in the second quarter, largely driven by international growth for a grand total of 5,780 stores systemwide.

Contact Joanna at [email protected]m

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