Q4 2020 Papa John's International Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by.
And welcome to Papa John's and fiscal 2020 Q4 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised at todays conference maybe recorded at.
At require any further assistance, please press star zero and.
I would now like to hand, the conference over to your Speaker, Mr. Steve Coke.
Senior Vice President of financial operations accounting and reporting.
Thank you and good morning, everyone.
Joining me on the call today are president and CEO, Rob Lynch, and our CFO Ann Gugino, Robin and will have comments on our business and provide a financial update.
After the prepared remarks, both will be available for Q&A.
Our discussion today will contain forward looking statements involving risks that could cause actual results to differ materially from these statements.
And we're looking statements should be considered in conjunction with the cautionary statements and our earnings release and the risk factors included in our SEC filings. Please refer to our earnings release and the Investor Relations section of our website for a reconciliation of non-GAAP financial measures discussed on this call.
Finally, we ask any members of the media to be in a listen only mode.
Now I'd like to turn the call over to Rob Lynch for his comments Rob.
Thank you, Steve and welcome everyone to our 'twenty and 'twenty year end earnings call.
I'm thankful to be here this morning to discuss our 'twenty and 'twenty results.
Last year was a year without precedent for our company and for the World.
At the challenges of 'twenty and 'twenty Papa John's was able to move forward with its new strategy delivering significant business growth and the process.
Before I talk about our results, let me begin by acknowledging that the impact of the pandemic has been felt by everyone.
And many of incurred tremendous losses.
To everyone, including every Papa John's team member of franchisee and customer who has lost.
A lot of ones or experienced significant hardship I want to extend our deepest sympathy on behalf of the Papa John's family.
And we all hope for the end of the pandemic as soon as possible.
Despite the challenges that we faced 'twenty and 'twenty was a transformational year for Papa John's.
For four straight quarters, Papa John's comp sales of outperformed at the pizza delivery peers.
And I see this as an indicator that something truly different and sustainable is happening at Papa John's and that we're well positioned for the future.
When I joined the company in August of 2019, the enormous potential of our brand team members and franchisees was at parent.
And my mind, there was no doubt the Papa John's can become the best Pizza delivery company and the world.
Today after lots of hard work during a very difficult time for US all the company is at a very different position than it was a year and a half ago.
More than at any time, and our history Papa John's has a clear path forward.
No longer does the idea of becoming the world's best Pizza delivery company feel unreachable.
In fact, today's strong momentum has been steadily building since the second half of 2019.
At that time, we established our company purpose values and strategic priorities.
We rebuilt our leadership team who of flux, who reflected those values and we removed the guardrails around innovation.
At the start of 'twenty and 'twenty Papa John's innovation mindset was taking hold as proven by a wave of successful new products, including garlic, parmesan crust Papa D S and jalapeno poppers, which drove strong Q1 performance and a third consecutive quarter of positive comp sales at that time.
And March we moved quickly and North America to execute against the playbook that we have developed as a result of our experiences of quad across our global footprint.
And particular, we focused on making the necessary investments to protect our team members and customers. So that we could keep our doors open and continue serving our communities and their time of need.
And April and continuing through the remainder of 'twenty and 'twenty, our restaurant operations vertically integrated supply chain E Commerce platform and last mile delivery business model all prove their worth driving record results and strong outperformance in North America and internationally.
As we reported this morning Papa John's Q4 results continued the momentum we achieved in Q2 and Q3.
Comparable sales rose 13, 5% and North America, and 21 four per cent internationally.
Adjusted earnings per diluted share grew to 40 cents from an adjusted loss of 25 cents a year ago, excluding special items.
For the full year, our system delivered record sales driven by comps up 17, 6% and North America and $12 six per cent internationally.
And both cases growth was driven by a healthy balance of higher ticket and higher transactions.
Adjusted earnings per diluted share for the year grew to $1 44 from just three cents in 2019, excluding special items.
For the year, we also achieved record average unit volumes or <unk> for the first time crossing the 1 million dollar threshold and North America.
We also generated significant free cash flow and ended 'twenty and 'twenty with of balance sheet and enables us to invest and our future and to drive long term shareholder returns.
And we'll discuss our results in more detail in a moment.
Looking back at what made Papa John's stand out in 'twenty and 'twenty innovation has been the consistent theme behind our success and strong performance.
At Papa John's innovation means challenging how we can be better at everything that we do.
Looking ahead at 'twenty 'twenty, one we expect to build on this momentum across four key areas of our business.
First and our product marketing and customer experience as we build on our premium position and the marketplace.
Second and our development strategy and infrastructure as we work to realize our huge unit growth white space opportunity.
Third and our operational and financial performance as we improve to deliver better service better margins and better cash flow and finally through the inclusive and diverse company that we're building.
Our focus on diversity and inclusivity and winning is how we foster and innovation mindset.
Having different backgrounds and perspectives at our table is how we will continue to challenge ourselves to get better and accomplishing and accomplish everything I just mentioned.
I'd now like to quickly address our progress in 'twenty, and 'twenty and outlook in 'twenty and 'twenty one for each of these areas.
As I previously discussed new product marketing and customer experience innovation with an overarching headline and Papa John's 'twenty and 'twenty story, especially our record comp sales.
It's also a pillar of our plan for fiscal 'twenty, 'twenty, one and and achieving our long term growth objectives.
For Papa Johns being the best Pizza company in the World starts with having the best food.
We invest a lot and our products and we fundamentally believe that we of the best food and the industry.
Fortunately Papa John's differentiated premium position also gives us a lot of runway for great product innovation.
Last year, we introduced many new products, including Papa D is our Italian flatbread style sandwich Jalapeno, Papa Rolls and the limited time Chaperoning Pizza developed in partnership with our board member and franchisee Shaquille O'neal.
We managed to seamlessly introduce new products at a time when our restaurants, we're meeting and an unprecedented rise in demand.
I want to thank all of our corporate and franchise restaurant teams, who worked hard to deliver these new products to our customers with excellence.
We even more excited about 'twenty 'twenty, one beginning with epic stuffed crust, which we launched and the last week of 'twenty and 'twenty and.
And it's a big part of our 2021 plan stuff.
Stuffed crust lovers are passionate pizza fan and stuffed crust of something that our customers have been asking us for for quite some time pop.
Papa John's epic stuffed crust is nothing like anything in the market today at.
And it begins with our original fresh never frozen six ingredient, though which we enhanced with extra cheese that his hands stuffed to create a delicious and differentiated product.
Product innovation will continue to be an integral component of our strategy moving forward.
We also continue to push forward with our marketing and technology innovation last year of Papa John's at a 10 million, new and lapsed customers through our digital channels alone, helping Papa rewards our loyalty platform gained more than 5 million new members.
This opens up a big opportunity for us and two in 'twenty and 'twenty, one as we rollout more targeted unique experiences to our best customers now I'd like to turn to development, which is also benefiting from innovative new thinking and energy.
And 'twenty and 'twenty, we rebuilt the foundations of Papa John's development efforts all of it focused on maximizing our franchisees' long term profitability and return on investment.
We appointed a new Chief development Officer, who rebuilt our development team and added strong new talent and new capabilities to the organization.
We invested and innovative new tools and resources to support profitable franchise growth, including helping new and existing franchisees identified development areas and find the optimal sites and negotiate leases and then guide them throughout the design and construction process.
Papa John's has always had a very attractive restaurant investment thesis with a low upfront capital requirements and one of the fastest paybacks and the restaurant industry.
Growing at you vs and improving unit economics make it even more attractive to invest and new Papa John's stores, both of our franchisees and for the company is and will discuss in a moment.
While the pandemic restrictions largely prevented or slowed new store openings last year, we're confident that in 'twenty and 'twenty. One we will return to historical levels of development.
We have a robust domestic and international development pipeline in place, including as I said before many new company stores.
We are excited about the opportunity to build more company stores. It's also creates more optionality in terms of driving profitable growth as we seek out perspective, and current developing franchisees to open up and new territories and accelerate our development growth.
Next I want to discuss how Papa John's company wide spirit of innovation is driving operational and financial excellence as we build a model for sustainable long term growth and value creation that benefits all of our stakeholders.
Our restaurants are focused on developing our people improving our operations and development delivering greater levels of profitability with a comprehensive plan, which we're calling customer first always.
Our goal here is to improve restaurant productivity, while we consistently exceed customer expectations.
We are building off of a remarkable year and I am so proud of our team despite.
At historic rise and sales volume of record number of new menu items, and a fun and fundamental changes that we made to our operating model model like no contact delivery, our restaurant staff rose to these challenges without allowing them to negatively impact our customer satisfaction levels.
Now that we have adapted the higher volumes and a more rapid pace of innovation, we couldn't be better positioned for continued improvement and excellence.
We continue to lean into our efforts to remove complexity and simplify our operations in 'twenty and 'twenty. One we're focused on maximizing the impact of a number of productivity initiatives that we launched last year, including deploying dose spinners enhancing the make line and retrofitting our cut stations. We will also we will continue to.
Rollout of initiatives to maximize the productivity of our team members like Papa call, our centralized order, taking and customer service center, which allows our stores to focus on making great pizza not answering the phone.
This results in incremental transactions and labor savings not to mention and better customer experiences.
Our strategic partnerships with the National delivery Aggregators also continue to be a key differentiator for our operating model, enabling us to scale delivery to more customers door and peak times.
This has the dual benefit of generating incremental profitable sales and improving staffing utilization.
'twenty and 'twenty was a transformational year and these partnerships as we saw sales through Aggregators increased four fold contributing in part to a record growth and we expect these partnerships to be a key part of her of long term growth plan.
Next I want to turn to the inclusive diverse and values driven company that we're building.
I'm very proud of the fact that we have such a diverse leadership team.
Having a diverse equitable and inclusive culture is consistent with our values.
But even more importantly, I see every day, how diversity and inclusivity enable the innovation and makes us a better brand and drives our long term success.
Building, a company, where everyone belongs helps us attract and retain talent and a highly competitive environment.
And it helps us drive innovation and that reflects and resonates with the increasing diversity of our customers both domestically and globally.
As an outcome of this commitment I'm proud to share that Papa John's received a score of 100 and on the human rights campaign's 'twenty 'twenty, one corporate equality index measure and corporate policies and practices related to LGBTQ workplace of quality.
Papa John's is the only pizza company to earn a score of 101 of only 42 companies and the food beverage and grocery category to earned top marks this year.
I'm also proud of how the Papa John's family lived up to its values last year supporting our fellow team members our customers and the communities we serve during very challenging times.
For example, we donated over 500000 pizza is to first responders frontline workers and communities in need and raised over $3 6 million for COVID-19 relief and the fight for racial justice.
We hired over 30000, new team members, many of whom had been displaced from other jobs by the pandemic.
And we paid a special end of year hero bonus to approximately 14000 and frontline team members and the company's corporate restaurants and supply chain and addition to mid and end of year bonuses and expanded benefits for corporate employees like free virtual Doctor visits.
There is no greater asset that our company has and our employees and we will continue to do everything we can to take great care of them as they continue to take care of great care of our customers.
As we begin 'twenty 'twenty, one and we're committed to building our company and brand that we are all proud of.
As we look ahead, we are optimistic about the impact of the vaccines and how they will help all of us overcome this terrible pandemic.
And the meantime, we continue to focus on taking care of our employees and customers, while moving forward with new product marketing and technology introductions as we did in 'twenty and 'twenty.
I'll now turn the turn the call over to Ann to discuss our financial results in more detail.
And.
Thank you, Rob and good morning, everyone as Rob said, it's a very exciting time for Papa John's and innovation drives excellence across our company, including our strong financial performance record free cash flow and balance sheet and ultimately a great outlook for 'twenty and 'twenty, one and long term sustainable growth.
This morning, I'd like to discuss each of these areas beginning with our financial performance.
As Rob indicated the record momentum and the second and third quarter continued in Q4.
A 15 per cent rise and global restaurant sales for the quarter and combination with the end of the we win together franchise support program resulted in a $29 million increase and adjusted operating income.
I know we achieved these superior results at the same time, we made continued investments to protect and support our team members, including the 2.7 million dollar special end of your bonus we paid to corporate frontline team members.
And our segment basis higher adjusted operating income was driven by North America of franchising and international which bolts and demonstrated the high flow through of royalties and higher comparable sales and by substantial improvements on the unallocated corporate expenses line, reflecting the end of the we went together.
Program and the third corner.
And domestic company owned restaurants and number of factors were at work, resulting and a decline and operating income, but importantly core performance improved.
First of segment operating income was impacted by proactive investments and productivity like the rollout of Papa call and and customer experience initiatives as well as our investments to protect and support our people for example, with a year end bonuses.
Second there was of $3 2 million dollar headwind from our Papa rewards loyalty program, and addition to $2 9 million and refranchising gains affecting the year over year comparison.
Setting aside those factors corporate restaurant operating income improved with the significant benefit of sales growth and operating leverage.
Continuing to earnings on a GAAP basis earnings per diluted share increased to 28 and compared to a loss per diluted share of <unk> 18 cents a year ago.
These results included a number of special items and <unk>.
At 12 and expense associated with our strategic corporate reorganization announced in September and a net seven and one time gain from Refranchising a year ago. Excluding these special items adjusted earnings per diluted share relative from a loss of 25 cents a year ago to 40 cents this year.
Improved operating results drove the 65 cent year over year increase slightly offset by a three negative impact from the allocation of undistributed earnings to participating securities primarily the series B preferred shareholders.
Special year end bonus I previously mentioned impact EPS by approximately six months and the corner.
Let me now turned of restaurant profitability, which is a fundamental driver of results for our company and our franchisees.
This too was a great story, and 'twenty and 'twenty double digit comp sales contributed to record breaking average unit volumes are E vs and North America exceeding the $1 million Mark for the first time and the company's history.
Food labor and mileage costs, we're also at the lowest level ever at <unk>.
Sales in spite of increased spending related to enhanced hygiene.
As a result of fiscal 'twenty and 'twenty median unit profits and margins were some of the highest and the Companys history and.
In fact, we saw the greatest improvements and the bottom quintile of stores, which is very encouraging because it means the brand's strong performance is benefiting all of our franchisees.
Now turning to development to the third quarter, New restaurant openings had slowed as a result of the pandemic, however, and the fourth quarter development picked up with 25, new restaurants opening in North America and 73 internationally.
As for closures and we achieved some of the lowest closure rates and North America, and several years and the second and third quarters, reflecting our sales momentum and improved unit profitability.
And the fourth quarter closures picked up slightly with 22, and North America and 36 internationally.
However, this largely reflects strategic actions to close unprofitable locations. We believe this has created a more profitable foundation going into 'twenty and 'twenty, one and freeing up capital and management focus for us and our franchisees to develop new profitable opportunities.
Now I'd like to turn to free cash flow and our balance sheet.
Strong earnings as well as favorable changes in working capital, including and approximately $40 million benefit from the timing of payments associated with our marketing fund contributed to a dramatic increase in free cash flow last year.
Defined as cash flow from operations less capital expenditures and dividends paid to preferred shareholders and free cash flow jumped to $137 1 million versus 14.002 million 19.
As a result, we ended the quarter with net debt of only $220 million down at 120 million from a year ago and.
And of debt to EBITDA leverage ratio of 2.4 times Indeed.
Indicating the strength of Optionality and security provided by our balance sheet.
Papa John's and free cash flow generation, which has an inherent aspect of our franchise and business model and strengthening our balance sheet and positioning us to invest and long term growth, while continuing to return cash to shareholders.
During the fourth quarter, we paid a cash dividend of $10 9 million and to our common and preferred shareholders.
Subsequent to the fourth quarter on January 25th our board of Directors declared first quarter cash dividends of approximately 10.8 million to be paid to common and preferred shareholders. The first quarter common stock dividend is 22, and a half cents per common share.
Last quarter, we also opportunistically repurchase 32000 shares for $2 7 million or $83.90 per share under our previously announced at 75 million dollar of share repurchase authorization.
We continue to evolve our capital allocation strategy as our balance sheet has dramatically strengthened over the past 12 months.
As we said we seek to balance three key priorities.
Investing in high return opportunities, maintaining a strong balance sheet and returning capital to shareholders. We look forward to providing further updates on future calls.
I'd like to wrap up with a few points on our outlook.
As Rob discussed innovation across the company positions Papa John's with great momentum and prospects in 'twenty and 'twenty, one and beyond.
Bridging the strength of our balance sheet, we will invest to accelerate our momentum increase in capital expenditures to $65 million to $75 million focused on three areas.
First we are ramping up investments and new store development, which in and of itself is of high return use of capital. It is also of strategic one as our company owned stores are often the seed for franchise development activity and new markets of.
Or for investors, who want to begin with a turnkey operation on which to build.
Second we will continue to invest and innovative new products and technology that build on our differentiated brand and exceed customer expectations.
Third we are moving forward with investments to improve productivity and restaurants and across the system.
Given the volatility and business uncertainty surrounding the future impact of the pandemic, we are not providing revenue and earnings outlook for 'twenty and 'twenty. One at this time, but I can provide a few comments at this point.
First as a reminder, we're coming off spending nearly $30 million last year, and we went together program to support our franchisees, which further strengthens our earnings position going forward.
Second we expect to incur approximately $9 million to $14 million and further one time severance relocation and other expenses related to our realignment and new Atlanta office plans.
This is the remaining portion of the approximately $15 million to $20 million and total expenses, we previously announced.
As we have said, we see these costs as an investment and both the company's innovation and topline growth as well as and our efficiencies and commitment to reduce overhead.
Third as we think about the shape of the year, while last year's first quarter comps were modest our comps were significantly stronger and the back half of the year. When we started and acceleration of our strategy and successful response to the pandemic.
And my last specific point on 'twenty and 'twenty, one free cash flow will reflect the higher strategic capex and the reversal of the working capital timing benefit we saw in 'twenty and 'twenty, which I just described.
To wrap at my comments I want to emphasize again, our optimism about Papa John's near term and long term outlook innovation across Papa John's has also reflected and our financial results, which positions us very strong for 'twenty and 'twenty, one and long term growth. We are very excited about our future and look forward to updating you on upcoming calls.
I'll now turn the call back over to Rob for some final comments from thank you and I couldn't agree more.
Papa John's continues to move forward on a sustainable long term growth path with tremendous promise and potential thanks to the hard work of our team members and our franchisees.
And 'twenty and 'twenty, our innovation engine proved that it can drive significant comparable sales growth through new products marketing and technology now.
Now with our development infrastructure and franchise investment thesis stronger than ever we are poised to move forward on our vast unit growth opportunity, which represents a second key lever for topline growth.
Given our business at a substantial operating leverage and excellent free cash conversion topline growth positions us strongly for accelerating long term earnings and free cash flow, which we can reinvest in growth and generates shareholder returns and very optimistic about 'twenty and 'twenty one for our company for our.
And it is and for the World.
I'd like to thank our shareholders and everyone on this call for their interest and our company and for their continued support.
That I will turn the call over to our operator for Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key and the interest of time, we ask that you. Please limit yourself to one question and one follow up please standby when we compare the current day roster.
Our first question comes from Alex Slagle with Jefferies. Your line is now open.
Okay.
Thanks, Good morning.
On the 'twenty 'twenty, one development outlook, you talked about getting back at historical levels of growth.
Appreciate any additional color there and just the growth is sort of buried in the last few years.
And then.
If you think there could be an elevated level of closures and certain markets and others and cure Q S. R has seen and I know you guys haven't seen as much but and.
Any thoughts on what to expect in 'twenty, one and that Brian.
Hi, Alex Thanks for the question Yeah, we couldn't be more excited about development 2020, and with a year of rebuilding our infrastructure. We brought on a lot of new team members of new leadership.
And we built new capabilities of both to support our domestic development efforts as well as our international development efforts and and we did see.
And some closures in 2020 more than than than the sales growth warranted and I think that helped us to kind of clean up the system, a little bit and make sure that we were well positioned for disproportionate growth of moving board and so we're already starting to see those seeds that we have.
And bear some fruit.
Very excited about our start to 2021 and then the restaurant.
Barry opened this year and our pipeline is very robust.
And a lot of new franchisees that have come on with with development agreements.
And planning to open up new white space opportunities as well as franchisees who are continuing.
Continuing to develop the white space that we have and the markets. We already of competing so 'twenty and 'twenty, one will be at year and is dramatically different than the development of resolved and we delivered in 2020.
Got it and then just wanted to follow up and you've done so much work repositioning the brand and the image and spots of exciting innovation. So I'm curious what your metrics on brand sentiment and.
Guest satisfaction are telling you.
And if there's any areas you want at focus additional attention on going forward.
Our brand and our overall brand sentiment is very strong obviously coming off from some of them. Some lows back end 2018, and 19, there's been a big bounce back and overall brand and sentiment, but what I'm really excited about and our restaurants.
At huge had a huge increase in demand and transactions and 2020 and a lot of time.
<unk> put stress on the operations and can therefore.
Resolved and lower customer satisfaction scores, so not necessarily brand kind of at the customer satisfaction and we didn't see that in 'twenty and 'twenty. Our team stepped up to the challenge and as we highlighted and in our and our comment stepped up to the challenge to outweigh the incremental transaction and you know we have to bring on a lot of new team members of Eva.
Handle the influx of transactions, but our teams did at our franchisees did it and now it's just become the new norm, our operating model and set up to be able to deal with these types of volte.
Volumes and and the customer satisfaction scores have not been at negatively impacted despite all of that incremental volume.
That's great. Thank you.
Thank you and our next question comes from Brian Bittner with Oppenheimer and company. Your line is now open.
Great. Thanks, good morning.
Company owned store level margins, they seem to jump around a bit and there's a lot of moving pieces, there, particularly and this this quarter, maybe you can help us understand.
What a clean company owned margin would look like or what you didn't anticipate to generate at these current <unk> trends that you're seeing and your company owned stores.
Yeah, and Theres, a fair amount of noise, given some onetime benefits that we saw and 2019 and then some.
And some investments we've made in 'twenty and 'twenty.
The investments and our team members and our frontline worker of bonuses that we made at the end of the year that takes our restaurant and P&L and so without kind of really digging in deep at can look like a restaurant or less profitable than than they were a year ago and nothing could be further.
From the true we've seen a lot.
Mental productivity out of a restaurant and we're also seeing great flow through from the AAV level that we reached this year and so I mean, I can turn it over to and she can walk you through a little bit more of the detail of why the that can be a little bit misleading.
Sure. So I think of you pointed out.
There's a number of moving pieces and the one time benefits and in addition, our Q4 performance reflects proactive investments and productivity and customer experience initiatives at <unk>.
You pointed out our unit economics are strong and I've never been more compelling so of Btu.
The one time benefit from the fourth quarter of 2019 that we lap, namely Papa rewards and Refranchising gain and at one time investments and bonuses.
Of these discrete items equate at close to about $9 million of pressure year over year.
And so when you exclude those items, absolutely our core profit and our restaurants has been improving when I think about going forward and we're moving that noise and thank you can look at that $10 million.
And and $10 million that I talked about of discrete items and back that out and we would expect similar flow throughs in general.
We would expect to grow.
Restaurant EBITDA faster than our sales and the other thing that will help US next year is the we win together program.
Say.
And it's definitely a tailwind as well so we would expect our margins and continue to improve.
That's great color and I appreciate kind of the quantification around at.
My follow up question is just how do you think about.
The opportunity for <unk>, and North American and look I understand you don't want to give any specific guidance either near term of long term, but you've had an amazing year, yet your AAV store kind of at that $1 million range, which any type of analysis, which would suggest those have room to further grow. So maybe you can talk about.
And how you how you see that and and maybe you can give us some color on maybe what the <unk> look like and your top quartile stores. So we can potentially maybe understand of <unk> profile of your better stores.
Yeah I mean.
These 18 months ago, or 850000, and so the fact that we're at a million and today and a huge amount of growth and a short amount of time. So we couldnt be more excited about crossing that threshold of.
Of restaurants have never been more profitable at all from.
And our margin and net on absolute basis. So.
Our best restaurant are obviously, you know better than the average I mean, our company restaurant or average <unk> and the one and over $1 1 million. So.
We have a lot of continued upside on on the from an AAV standpoint, we have expanded our capacity at the restaurant level of as I mentioned, our transactions have been up dramatically and we've had to adjust to that and we've gotten better and better of our customer calls first always.
It is all about improving the customer experience, which is driven by the time at pace to deliver and as we shorten the time and it takes and deliver our throughput goes up which therefore can also generate greater <unk>. So we're really bullish on AAV growth domestically.
Great. Thank you.
Thank you and next question comes from Eric Gonzalez of Keybanc capital markets. Your line is now open.
Hey, Thanks for the question and good morning, I appreciate all of the comments about development in terms of the pipeline and all of that groundwork that they really got you into the position that you are and today to accelerate the unit growth.
And given all given the improvement and overall strength of the economic model. When you think of the major roadblocks or constraints of accelerating development further over the next one to two years.
Yeah.
And frankly I know that this is kind of sound maybe.
Overly.
All ish, but we don't really have a lot of room blocks I mean, we've built and infrastructure now where we are able to assist our customers or I'm, sorry of franchisees and throughout the entire process, we never have and real estate team and the past we never have.
And then and advanced mapping capability to highlight where new trade area opportunities are and we never had.
You know.
Really.
Kate at design and construction capability and we've built all of this over the last year and we're ready to deploy that up again and franchisees who have more cash than they ever really had.
These restaurants.
The new AAV and the <unk>.
Moving margins that we're seeing are generating and a lot of free cash flow from our franchisees and they want to invest it back and the brand because they believe in the future. So.
If I was to call out any type of roadblock it would be yeah.
And just people still being hesitant and some of our white space territories to dive in and not knowing how the government and their respective governments in those geographies are going to handle all of the pandemic over the next six months.
You know that but that's really a handful of geographies. We have people that we're talking to that want to go in and opened up those markets and they're still at a little bit of a wait and see mode, but once we get through that period I.
I think the governor comes off and we're ready to build a lot of restaurant and we're already seeing it and markets, where we have franchisees. There. They are building restaurants this year already.
And and we think that this year is going to be a year ROE and return to a very strong level of development and across the book.
That's super helpful and and separately in terms of sales channels can you talk about the relative growth rates between self delivery third party delivery and takeout at all now that you've never really talked about the delivery or takeout mixed, but maybe maybe you could frame it as which channel has more opportunity going forward, where the restaurant delivery or takeout.
Focus on delivery.
And this period delivery has never been more important.
And as people are kind of sheltered in place both domestically and globally. So about 75% of our business is delivering and and and you know we're really focused there in terms of the third party aggregators.
They have you know the numbers as well as I do you know, they're growing triple digits, and we are a big partner.
Of all of the National Aggregators and they become a big part of our business and we're excited about that we view those transactions is very profitable very incremental.
Our objective is to be where the customer wants to order.
And so are our most loyal customers are on our loyalty platform. The customers that are coming through the aggregator channels tend to be customers that haven't really ordered from us before our objective is to deliver great service, great food to them and as they become better.
No better customers of Papa John's and hopefully and theyre going to transition over our loyalty platform because there's benefits for them and doing so so that's kind of that's kind of our approach, which I know of a little bit different and some other than the industry, but we've been very happy and the size of the aggregator business.
All of our business with the Aggregators has tripled over the course of of.
The last year, so we're really happy about the growth there.
And.
Thanks, so much.
Thank you. Our next question comes from Peter Saleh with D. T. I G. Your line is now open.
Great. Thanks.
Just one more.
Question on the development of side.
And given where they.
Our and and the franchisee economics and.
Because of confident and accelerating the growth, but could you just give us a sense on where around the country regions of the country that you plan to target and 21 and just a sense of it you also talked about bringing in some new franchisees how much of the development of next.
And next year or maybe even thereafter do you anticipate coming from existing franchisees versus new franchisees.
Hi, Peter so.
And we believe that there is development opportunity really in every market.
Yeah, we as I mentioned earlier, we have redeveloped, our mapping tool and the path are massive and drawn by you know just wear of restaurants, where there was not a lot of analytics and not a lot of data of that went into how.
How we should optimize our delivery areas.
We have built that capability now that at a 100% data driven and we are able to apply that every market domestically and our franchisees are asking us to do that.
Is that where historically thought to be completely built out and develop have significant opportunity. We obviously have big white space and places like California, and in and out west where of less developed but we are identifying development opportunities.
And every market across the country in terms of new versus current franchisees at right now and really excited and it's a balance its a balance.
You know most of our big development agreements over the last six months of being kind of new franchisees.
Or or relatively new franchisees getting at getting involved in and wanting to build and what we're seeing really over the last few months as you know we closed last year and headed at or heading into this year and built and built this tool is that our current franchisees want us to come into their markets and Matt Remap.
Because of because they want to grow and they've just thought and the past that they didn't have a lot of room to grow and that mindset is changing because of this new technology and so it really is we anticipate a very nice balance of current franchisees as well as new franchisees.
Thanks, that's very helpful. Can we just talk about same store sales and.
And.
How much of the you know that same store sales and you guys are getting them and the current quarter or in the fourth quarter. Do you think there's more of a sustainable type figure going forward versus how much of that do you feel is was more of a pandemic tailwind.
You know I mean, as you know Peter comps can be misleading and what we focus on and what are the sales volumes of our restaurants.
And and <unk> on a weekly per store average is half of have been extremely high Q4 of 13, 5% comp sales growth obviously not.
Not at 23, eight and at 28 that we delivered and the two quarters prior but with very high level of sale.
All through the restaurant and we're seeing those IPSA continue into 'twenty and 'twenty, one and where.
And I'm very confident of that a lot of that that's a lot of those sales are coming from the innovation, we couldn't be more excited about the launch of stuffed crust step.
Step change for our business huge amount of mix.
Representing a huge amount of mix and all of and tickets are higher than stuffed crust customer and a avid pizza fan and they had higher frequency higher ticket average is at.
And we haven't really been able to tap into that and the past. So that's a brand new launched at that.
You know happened at the start of this fiscal year and we couldn't be more excited it's exceeded all of our expectations. So we think that.
We keep coming with ideas like that if we keep coming and new product innovation, we're going to continue to grow our RPM day, and the comps will follow of Florida.
Excellent. Thank you very much.
Thank you Peter.
Thank you and.
Next question comes from James Rutherford with Stephens, Inc. Your line is now open.
Hey, Thanks for taking the questions I wanted to start off on a question on the operational complexity. It's impressive the amount of innovation that you all have driven and the last year or so I'm just curious what youre hearing from your franchisees in terms of running stores given these higher sales volumes, especially with things like you know of hand stuff.
Crust.
Papa D as in a variety of other things is that.
A big focus of priority for you all and the new year and does that sort of relate into one of those capex priorities, which I think was around sort of productivity improvements at the store level.
So we have made a lot of investments and.
Our restaurant infrastructure, if you will and Dan highlighted last year, we invested and dose spinners, which.
You know faster easier and more consistent to pound out of our Doe, we've invested and make line.
Product productivity and we've invested and are cut station. So we did all of that because we knew that we were going to be a brand that focuses on innovation and we had to make at all.
And our restaurant as operationally efficient as possible when we approach innovation, we really hold all of our innovation to three different criteria one at needs to be you know.
Customer.
Friendly and customers have the desire of the product, we do a lot of testing to understand whether or not our customers think that these are good ideas and they like these new products right and that's kind of the obvious one at the other criteria that go into our innovation is one and also have to it has to be supply chain and frankly, we're not going to add a bunch of new ingredients at kind of.
Recapping on our supply chain from supplier standpoint, and inventory management and standpoint.
That can be a really challenging and dynamic and we're vertically integrated supply chain and so we want to make sure that we are streamlining that as much as possible and then lastly, it needs to be operations friendly and I can tell you and stuffed crust was probably the most challenging innovation.
Brand and ever had at launch and that's why it took us a long time, we work on that product for a year and it wasn't just us and the company. It was us working hand in hand collaboratively with our franchise, we have been testing this and developing the process to launch at the press with our franchisees really over the course of 'twenty two.
And that's why when we launched at we were ready to launch at and at first and at a little bit of a learning curve that we put it into our restaurants of weak early and mitigated a lot of at the challenges at the operators, we're going to have before we really turned on the medium machine and launched at full scale and so when we did launch at.
We had a very seamless launch and now when you talk to operators be go in and talk to them stop process. Just another thing that we make and and so that's how we approach all of our innovation whether it be part of it is chaperoning stock price. It's gotta be you know have a lot strong customer coal, it's gotta be supply chain.
Friendly and it's gotta be operations from them.
Very helpful. And then one more question if I may during 'twenty and 'twenty it was called out.
True.
Both check and traffic were comp drivers, if there's a way to quantify that would be great, but at but importantly can you rank out some of those main check driver is and how you think about lapping those dynamics and in 'twenty and 'twenty one as perhaps you know the market maybe at the margin shifts to more of a carryout market, where check is lower or just.
Aviarist changed and how do you think about lapping check in 'twenty and 'twenty, one you've got architect our check growth was not a function of pricing.
Check growth was a function of mix I mean, our innovation came in and pop of D. S became very incremental and very quickly. So instead of buying on average two pieces people are buying two pieces and a part of that that grows check very quickly. We also as we talked about way back in 2019.
And we focus on a more targeted and surgical approach to discounting instead of sending out 50% off coupon to everybody every week.
We are leveraging our loyalty data and a purchase data to be more targeted and surgical so part of that check growth is really just more precise and efficient and productive discounting.
Strategy, so between new innovation that drove incremental items on a check or new innovation like stock price or chaperone and both of those programs and 12 dollar promoted price points, our average piece of price point at $10.
And so when you're watching innovation and that's above your average price point youre going to derive check book and so as we look forward and try and maintain.
And you know that healthy balance of trans and check which is almost 50 50 and 2020 and.
It's really true and it'd be driven by innovation and that's getting even better at being able to offer targeted surgical discounts to our customers through the almost 5 million new members that joined our royalty program. This year, so and as we continue to scale of that loyalty program, we continue to bring new folks in.
And it allows us to be more effective and more productive with our discounting and so the innovation and just and better and better targeted discounting of the ways, we're going to continue to grow that check part.
And <unk>.
Thank you and next question comes from Chris O'connell with Stifel. Your line is now open.
Thanks, Good morning, guys.
My question relates to new store economics, and I was hoping you guys could give some color on new store average unit volumes margin performance and investment levels. It.
It would be using the traditional format.
Yeah.
Yeah, Chris and Jim.
Now, we're not seeing a huge disparity in our new store performance.
Performance relative to kind of our average store performance I mean, obviously the majority of our new store growth comes internationally, where our <unk> are lower than they are domestically. So if you look at it and at a macro and you say you know on average one of our new stores doing and it'll be lower than our domestic average because of lot of those are coming from international.
But we're not seeing new stores and a geography that has current stores performing significantly different than than.
And then our current already established restaurants.
Okay, and then Rob I'm wondering how your new team is thinking about approaching domestic development in noncore markets because in the past the performance and non core markets has been a little bit more inconsistent for Papa John's and so how are you guys going to go about of differently you think.
Well I mean, our new store Rois for our new stores have never been better and so our franchisees want to build more restaurants.
The economics are unbelievable I mean, the payback on these things and I haven't seen at anywhere that I.
And I have been and <unk> and in my past life. So the franchisees really wanted to develop they you know they they know that can be very profitable and make a lot of money they have been and <unk>.
You know under the mindset of their built at end markets, where we have pretty good penetration and so what we've done is we've gone and we've built this mapping tool and essentially and it takes the trade areas and it takes everything into account from household count traffic.
You know traffic.
Traffic mapping and and every other detail that can go into how we should be thinking about where to build stores and how to make sure that those stores are successful.
And and we're going into these markets debt with franchisees, who thought they were built out and showing them a lot of opportunity to build more restaurants and frankly the age of these worn and at just at this point and.
And so that's really our strategy, we've announced it to all of our onto our franchise community and now they're asking us to come into the market and show them, where they can build so that's that's the model we're seeing a lot of excitement domestically and then on of new franchisee front, where we're in discussions with a lot.
At a franchisee if you want to come in and the challenge is not of lot of current franchise just want to sell right. Now. So we're looking for white space opportunities, we're exploring opportunities for us to be able to leverage our balance sheet and our restaurant to a.
Brand, new franchisees and where it makes sense. So it's going to be a healthy balance of current franchisees developing as well as new franchisees coming in.
Okay, and then just one last one of the international comp is really accelerated on a one into your basis and I was just hoping you could maybe elaborate a little more around what are some of the initiatives. That's driving that success is at new store or a new product news customer introductions to kind of the loyalty program or something I'm, just trying to understand what's driving the.
Comp.
<unk> growth yeah.
Yeah, it's a lot of things, Chris frankly, we've kind of reorganized our international team, we announced that last year when we.
Announced a reorganization domestically and we we restructured and a way that we put more focus up against our major markets and and versus being very fragmented globally and end and kind of considering average geography equal and what that's done and that has allowed our team to really work with franchisees and new geographies and these major <unk>.
Market building out new strategies on how to be better operators and how to be better marketers and we've been working with them really throughout the pandemic and view that our U K market is our second largest market and frankly, it's our best performing market and significantly better than even.
The United States, and so markets like the UK Chile.
You know even aim of China and now has bounced back dramatically and these are big strategic market and we have put more resources up against them. Both from a you know.
Support standpoint, and making them better operators, helping them become more sophisticated but also from a marketing standpoint, and I'm excited about and we just launched part we're about ready to launch Carpathia and about 25 geography, so the innovation at taking hold.
And and it's driving excitement and internationally just like it is domestically.
Great. Thank you guys.
Thanks, Chris.
Thank you. Our next question comes from line Silberman with Credit Suisse. Your line is now open.
Hi, Thanks, so much of my question Robby and he talked about the opportunity to re franchise company and it's just sort of development with new franchisees today, you talked about the cash flow new franchisees that are a good thing.
Franchisees don't necessarily want to sell so can you provide your updated thoughts on potential of Refranchising deals at this into 'twenty and 'twenty, one of that and part of the development outlook for the year any change in your view.
Yeah, I mean, I can't give any specifics around any deals that we're working off and I can tell you that we're working on deals I mean, we are and conversations with franchisees. Both current as well as perspective, who are very interested and purchasing company restaurants at the challenge Lauren is at.
These restaurants are very profitable for us.
18 months ago, and we started talking about Refranchising restaurants, as part of development and the economics were very different around our company restaurant and so trading company owned restaurant for royalty stream seemed like.
Really easy decision to make at this point because of the margin enhancement and because of the flow through because of the avs and it's become a little bit of of different.
You know math equation. So we are working with franchisees.
And I take a lot of development for us to depart with our restaurant and so we're in active negotiations and discussions with franchisees, but at its not as simple as just going to an asset light model, because we're making a lot of money on a restaurant.
Understood and just a.
Follow up on commentary for unit growth in 'twenty and 'twenty, one to return to historical levels can you put any numbers around that and is 100 and lots of new opened North America 225 lots of international and the right way to think about it and then just any thoughts and how we think about desktop and absolute unit growth over the next two to three years.
So you know, we're not giving any guidance on new units and 2021 specific numbers, but I can tell you that we are saying that we're going to get back to kind of historical level. So you can look at kind of net new restaurants over the last five years and kind of get an idea of what we're thinking about and I can also tell you that.
We absolutely believe that has kind of accelerated year on year moving forward.
We are making big investments.
From a capacity.
A team standpoint, making sure we are at the right resources to go out of any of these markets and and work with our franchisees and opening new restaurant and we still have a ton of white space. So as we come out of the pandemic those white space opportunities become real opportunities people.
And have more confidence to enter into these development agreements were absolutely bullish on the acceleration of the number of restaurants over the next three to five years.
Okay, Great and then just on the cadence throughout the quarter or are you willing to give any color on either comp store sales volume and share out for Q and then just.
I think he mentioned something about early 'twenty 'twenty. One are you seeing any step up in early 'twenty 'twenty, one and at least on sales volume or any commentary that you are willing to give an average the performance across the market.
Yes, Q4 was pretty consistent right.
And right around between 12, and 14% really for the whole quarter.
We didn't see a real big rate of change from the beginning of the end of the quarter.
We're not giving any detail on Q1 performance at this point, but I can tell you that we are extremely pleased with the start of 2021, and we believe that the.
Great performance, we're seeing in 'twenty and 'twenty, one is driven by organic growth from innovation as opposed to any change that could be would be driven by any corona.
Driven behavior, so at that for us.
Q1 has given us a lot of confidence that we're going to continue to outperform the industry long after the pandemic receipts.
Great. Thanks, so much.
Thank you Laura.
Thank you. Our next question comes from Dennis Geiger with UBS. Your line is now open.
Great. Thanks for the questions wanted to ask a bit more about the domestic sales of navy opportunity this year.
Launch target a group of customers that are at peace of and they have higher frequency and higher tickets and the average piece of customer and so now that we have stuff price. We believe we're going to be able to bring a lot of those customers over to our at at.
And they.
And <unk>, they're going to come back of greater frequency and be at fans as opposed to.
The normal range of frequency with and all of a piece of customer and then lastly, the changes that were making and our operations at our customer at first always initiative are really focused on.
Improving the customer of spirit on every level delivering.
Hotter more delicious food faster with more friendly service I mean, that's what it's all about so apple that and new initiative for US, we invested and the infrastructure behind that last year and the execution of at this year. So those three factors give us a lot of confidence that we're gonna be able to retain customers at a higher rate.
And the at the store.
Oh, that's great and maybe just one more if I could just kind of another one on on margins and and I think you gave great color on how to think about EBITDA relative to the sales girl at the store level Uhm, but just wondering if you could talk a bit more about the the margin of opportunities and the efficiencies from here clearly seems like there's a lot of focus on driving.
And efficiencies for your company stores for your franchisees. So just kind of thinking about the buckets of four wall restaurant margins and then even beyond you know thinking about maybe some G&A efficiencies or commissary efficiencies overtime is there much that you can and they're on and where you are now and and where you can go on and.
And various margin buckets from here. Thank you.
And do you want to comment.
Sure after.
So yeah, we definitely see a lot of opportunity longer term. So we definitely have the advantages of scale and.
I mean, as we grow we can continue to leverage our supply chain and that development infrastructure. We just built as well as of technology footprints and our marketing aspect and definitely scale and then keep in mind and the primary way in which we create operating efficiencies and by making investments that lead to her.
And sales growth and higher strength and the business, which also eight and unit growth.
So we feel like theirs.
A lot of future opportunity.
Great. Thank you.
Thank you and final question comes from Todd, Let's let's see how King and Associates and mine is now open.
Hey, good morning, everybody just one question and two parts you talked about the epic stuffed crust performance side of of the gate and and taking the time to get that at right operationally can.
Can you maybe with at whatever details you can give but just in general talk about the cadence of new <unk>.
Product introduction and over the balance of that you know that you have rolled out of stuffed crust pizza and then if.
If we can just quickly review product promotion and when you had the periods and.
Q2, and Q3 of the element at the same store sales with the pandemic of tailwind can we talk about how we promoted then versus.
Kind of our promotional firepower that at the brand has at at these new volumes and and fiscal 21, and how you plan to use at around existing or new products. Thank you.
Thanks Scott.
Yeah. So one of the beautiful things about this model of that is very different than that.
The system of that.
I've been in and the past is our supply chain.
Is our vertically integrated sorry, or vertically integrated supply chain.
Very and.
And the huge at that for us and our strategy that make sure that the innovation doesn't negatively impact of supply chain allows us to be very flexible on the timing and of cadence of our promotions and so I think we've talked about a couple of times.
And we projected to have between call at four and five new big promotions and L. T OS all over.
Yearly basis however.
We believe that if we have a big winner send at like stuffed Prof that we are able to continue to sell that.
Ongoing and continue to drive.
Disproportionate sales.
For a restaurant and doing stuff, there's a lot of flexibility and the past a lot of two of us our team.
The calendar and you have ingredients that you need to bring in and take out and it kind of dry okay. We have to execute.
At the way we built at for this model, we're able to have a lot of flexibility a lot of optionality and so we've got something that's really resonating with customers. We can extend that and we have something that maybe isn't as big of an idea. We can shorten of the amount of time that we focus our promotions on those items, so with stuff for us.
It's been a huge success, we're going to continue to promote this probably a little longer than maybe we would have promoted something that wasn't quite as successful. So.
In terms of the amount of support that we're putting up against at relative to last year and Q2 and Q3.
The level of sales, obviously this model and our national marketing fun is and the outcome of the sales and the system and as our sales grow so to our marketing dollars. One of the things I was really concerned about early last year looking all the way ahead of 2021 with how we were going to.
Be able to.
Lap. So we went together of investments that we made and the marketing fun well not only are we lapping those investments were feeding those investments and outcome of the increased sales processes and so we are.
Year on year, we are increasing the amount of investment behind are promoted items relative to even what we did back in 2020. So lots of fuelled of drive these great idea of and lots of flexibility of how we promote them and the cadence of of renovation.
Super helpful. Thanks from.
Thank you.
Thank you. This concludes today's question and answer session and and I'd like to to end the call back of it's about Lynch the closing remarks.
Well I just want to thank you all for joining us and for your questions. This morning, they're great questions and afford us the opportunity to continue to espouse why we think this brand is so well positioned for both the short term and the long term, we hope that at all of you are of excite.
At about the future Papa John's as we are 2020 was truly of transformational year for us.
As a result, we couldn't be better positioned through 2021, and the long term and as we execute our plans for continued innovation and driving or cop sales and unit development, which in turn yield sustainable long term earnings and free cash flow.
We will also continue to make sure that we're doing everything we can to take care of our employees to take care of of our customers. We look forward to getting back with you soon on the continued momentum and our outlook I wish everyone well, please stay safe and I look forward to talking again soon and thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may not disconnect.
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