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Papa Johns

Papa John’s takes more market share

Same-store sales rise 5.5 percent and company’s unit growth increase in third quater

Papa John’s International Inc. said its balance of quality and value, combined with continued increases in digital orders, helped domestic same-store sales to rise 5.5 percent in the quarter ended Sept. 25.

It was the 24th consecutive quarter of same-store sales increases for the Louisville-based pizza chain, which is grabbing market share in a tough pizza sector.

“We continue to take share in a category that is growing modestly,” Papa Johns President Steve Ritchie said on the company’s third quarter earnings call Wednesday.

Company executives suggested its growth would continue, too, noting they’re expecting continued momentum in the fourth quarter. Investors, thrilled with the earnings, drove the stock more than 7 percent higher in morning trading Wednesday.

The biggest potential is with pan pizza, which Papa John’s introduced in October in what executives called the company’s biggest product introduction in 10 years.

The pan pizza is expected to generate market share by attracting customers who prefer pan pizza to the chain. “Our competitors have pan pizza,” Ritchie said. “We have an opportunity to cut into that and add market share.”

Papa John's new pan pizza is expected to generate market share by attracting new customers. Photo: Papa John's

John Schnatter, Papa John’s founder and CEO, did not give sales projections but noted that he uses the company’s corporate store at its headquarters as a proxy to determine products’ popularity. He said the pan pizza in recent weeks has outsold the chain’s regular pizzas at that location.

Net income at the company rose 18 percent in the quarter to $21.2 million, or 57 cents per share, from $17.9 million or 46 cents. Revenues in the period increased 8.5 percent to $422 million from $389 million.

Same-store sales increased 7.6 percent in international markets, or 15.6 percent on a two-year basis. Papa John’s domestic same-store sales rose 8.5 percent on a two-year basis.

The company has accomplished these results despite what it called “a lot of aggressive activity” in the restaurant business. Papa John’s has used a balance of quality, promotion and value to generate those sales.

“Our balanced equation has worked well for us,” Ritchie said, noting that the chain’s performance is near “the top of the heap” for the entire restaurant industry. “We feel we’ve struck the right balance.”

The company also generated sales despite weak NFL television ratings. Papa John’s is a heavy advertiser during football games, yet ratings are down this year.

Yet the chain’s new partnership with major league baseball has offset that weakness.

“We moved a little of our assets to major league baseball this year, and MLB is on fire,” Schnatter said. “We might have lost a little on the NFL. But we gained from MLB.”

Papa John’s and rival Domino’s Pizza Inc. have grabbed market share away from independents largely through their investments in digital platforms that have provided new methods for companies to place orders.

Papa John’s was the first chain to generate more than 55 percent of orders through digital channels. The company recently introduced a customized app for Apple TV. Ritchie said the company would continue to make investments in technology to increase order conversion rate, average ticket and order accuracy.

Smaller concepts have struggled to keep up, enabling the larger players to grab market share. Papa John’s will continue to focus on generating traffic.

“We’re going to continue to focus on traffic and gaining market share because there is plenty of market share to take in the U.S.,” Ritchie said.

The higher sales and increased market share has helped improve profits at company and franchise stores — prompting more operators to build locations. The chain now has 4,971 locations worldwide after adding a net of 78 locations year to date. Most of those additions have come in international markets.

And executives expect more to come. “This has been the best year in the history of the company in terms of selling franchises,” Schnatter said. “It doesn’t mean they’ll all be opened. But the pipeline is full.”

He noted that the profits are also helping the company pay store managers well, which is key in a highly competitive labor market. He noted that he recently had a top manager with him in a suite at a New England Patriots game.

“He’ll make $130,000 this year,” Schnatter said. “That’s one manager. It means we made $330,000, because managers get 25 percent of the take. When you do over $1 million per restaurant you can really take care of your people.”

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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