Q1 2024 Papa John's International Inc Earnings Call

Operator: Thank you for standing by. Welcome to Papa John's First Quarter 2024 conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. We ask that you please limit yourselves to one question.

Yeah.

Thank you for standing by welcome to Papa John's first quarter 2024 conference call and webcast. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if your question has been answered.

You'd like to remove yourself from the queue simply press star one again, we ask that you. Please limit yourself to one question you may get back in the queue. As time allows as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Stacey probably Vice President Investor Relations. Please go ahead.

Operator: You may get back in the queue as time allows. As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Stacy Frole, Vice President of Investor Relations. Please go ahead.

Stacy Frole: Thank you. Good morning, and welcome to Papa John's first quarter 2024 earnings conference call. This morning, we issued our first quarter 2024 earnings release. A copy of the release can be obtained on our Investor Relations website at ir.papajohns.com under the News Release tab, or by contacting our Investor Relations department at investor_relations at papajohns.com.

Stacey: Thank you.

Stacey: Good morning, and welcome to Papa John's first quarter 'twenty 'twenty four earnings conference call.

Stacey: This morning, we issued our first quarter 'twenty 'twenty four earnings release a.

Stacey: A copy of the release can be obtained on our Investor Relations website at IR Dot Papa John's Dot com under the news release tab or by contacting our Investor Relations Department at Investor Underscore relations at Papa John's Dotcom.

Stacy Frole: Joining me on the call this morning is Ravi Thanawala, our Interim Chief Executive Officer and Chief Financial Officer. Before we begin, I need to remind you that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our SEC filing.

Stacey: Joining me on the call. This morning is Ravi thought of Waller, our interim Chief Executive Officer, and Chief Financial Officer.

Stacy Frole: In addition, please refer to our earnings release for the required reconciliation of non-GAAP financial measures discussed on today's call. Lastly, let me thank you in advance for asking only one question and getting back in the queue for additional follow-ups. Now, I turn the call over to Ravi.

Speaker Change: Before we begin I need to remind you that comments made during this call will include forward looking statements within the meaning of the federal Securities laws.

Speaker Change: These statements may involve risks and uncertainties that could cause actual results to differ materially from these statements.

Speaker Change: Forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our SEC filings.

Speaker Change: In addition, please refer to our earnings release for the required reconciliation of non-GAAP financial measures discussed on today's call.

Speaker Change: Lastly, let me. Thank you in advance for asking only one question and getting back in the queue for additional follow ups.

Speaker Change: Now, let me turn the call over to Robyn.

Ravi Thanawala: Thank you, Stacy, and good morning, everyone. Before I jump into my prepared remarks, I'd like to convey my appreciation to the Papa John's team and our board of directors for entrusting me to lead the organization as interim CEO. I'd also like to acknowledge the passion and commitment of our talented team members and highly engaged franchisees who continue to deliver for our customers every day. There is so much to be proud of and excited about as we begin our next phase of growth.

Robyn: Thank you Stacey and good morning, everyone.

Robyn: Before I jump into my prepared remarks, I'd like to convey my appreciation for the Papa John's team and our board of directors for trusting me to lead the organization as interim CEO.

Robyn: I'd also like to acknowledge the passion and commitment of our talented team members and highly engaged franchisees, who continue to deliver for our customers every day.

Robyn: There is so much to be proud of and excited for as we began our next phase of growth.

Ravi Thanawala: We are navigating the current dynamic environment with a balanced approach to delivering improved unit-level economics and company operating profits while also investing in the future. As such, in January, we launched our Back to Better 2.0 strategy, and in a short period of time, we have achieved a meaningful milestone. In the areas of enhancing national marketing investment and effectiveness, we launched our newest platform, Innovation. Krispy Kupfery Roni across a trio of products and different accessible price points and introduced an all-new brand platform, Better Get You Some, that is part of our deepened commitment to and investment in our new marketing strategy.

Robyn: We are navigating the current dynamic environment with a balanced approach to delivering improved unit level economics and company operating profits, while also investing in the future.

Robyn: As such in January we launched our back to better to point out strategy and then short period of time, we have achieved meaningful milestones.

In the areas of enhancing national marketing investment and effectiveness, we launched our newest platform innovation Crispy Cup rerouting across a trio of products different accessible price points and introduce an all new brand platform better get you something that is part of our deepened commitment to <unk>.

Robyn: That's been in our new marketing strategy.

Ravi Thanawala: Regarding our focus on accelerating North America development, we improve the cash-on-cash paybacks on new North American development through attractive incentives. We also remain focused on enhancing unit-level profitability and reducing overall bill costs for new restaurant development. Finally, on our international transformation initiatives, we established international regional hubs led by proven leaders with direct industry and relevant market experience to help drive market share gains in key markets around the globe and are progressing the optimization of our UK market with the planned closure of 43 company-owned locations later in May and the active pursuit of re-franchising opportunities for other locations.

Robyn: Regarding our focus on accelerating North American development, we improved the cash on cash paybacks on new North American development through attractive incentives. We also remain focused on enhancing unit level profitability and reducing overall build cost for new restaurant development.

Robyn: Finally.

Robyn: International transformation initiatives, we established international regional hubs led by proven leaders with direct industry and relevant marketing experience to help drive market share gains in key markets around the globe and are progressing the optimization of our U K market with the planned closure of 43 company owned location.

Robyn: Later in May and the active pursuit of refranchising opportunities for other locations.

Ravi Thanawala: Our energy will remain focused on laying the right groundwork so we can continue to evolve our business, enhance our long-term performance, and create value for our shareholders and ultimately become the QSR pizza brand of choice for consumers and franchisees around the world. Now, I'd like to touch on our first quarter performance.

Robyn: Our energy will remain focused on laying the right groundwork. So we can continue to evolve our business enhance our long term performance and create value for our shareholders and ultimately become the <unk> pizza brand of choice for consumers and franchisees around the world.

Robyn: I would like to touch on our first quarter performance.

Ravi Thanawala: In our North America business, results were mixed, but thanks to the highly disciplined approach of our operators, especially in our company-owned restaurants, remaining diligent throughout the quarter, restaurant-level margins exceeded our expectations, leading to higher adjusted operating income despite near-term sales pressure. In the first quarter of 2024, North America comparable sales were down roughly 2% from a year ago. This was primarily due to lower transactions as the continued growth in our aggregator channel was more than offset by a decline in organic delivery, while our carryout business remained consistent with the prior year.

Our North America business results were mixed but thanks to a highly disciplined approach of our operators, especially in our company owned restaurants remain diligent throughout the quarter restaurant level margins exceeded our expectations, leading to a higher adjusted operating income despite near term sales pressure.

Robyn: In the first quarter of 2020 for North America comparable sales were down roughly 2% from a year ago.

Robyn: This was primarily due to lower transactions as the continued growth in our aggregator channel was more than offset by a decline in organic delivery or carryout business remained consistent with the prior year.

Ravi Thanawala: This shift in channel mix also led to a slightly lower average ticket as a relatively profit-neutral revenue from our organic delivery fee decline. Strategic pricing actions by our revenue management team helped to somewhat mitigate this delivery fee impact. In the current environment, we're also seeing customers become more deliberate in managing their overall order cost. So while our core offering, pizza, remained higher year over year, sides, and beverages were lower.

Robyn: This shift in channel mix also led to a slightly lower average ticket as a relatively profit neutral revenue from our organic delivery fee decline strategic pricing actions by our revenue management team helped to somewhat mitigate this delivery fee impact.

Robyn: In the current environment, we're also seeing customers become more deliberate in managing their overall order costs. So while our core offering pizza remained higher year over year sides and beverages were lower.

Ravi Thanawala: It has been my experience that brands that win consumers' hearts and minds on the most important days of the year have a unique role in their lives that brands are able to build upon. We are encouraged by our performance on traditionally high-volume occasions for the pizza category during the first quarter, including Valentine's Day, Super Bowl weekend, and March Madness, reinforcing our confidence in the strength of our brand. From an international perspective, we are pleased with the progress we continue to make in this dynamic environment. As anticipated, our Middle East region impacted our first quarter international comparable sales due to the ongoing conflict in this part of the world.

Robyn: And that's been my experience that brands that when consumers Hearts and minds of the most important days of the year have a unique role in their lives that brands are able to build upon.

Robyn: We are encouraged by our performance on traditionally high volume occasions for the pizza category during the first quarter, including Valentine's Day Super Bowl weekend at March Madness, reinforcing our confidence in the strength of our brand.

Robyn: From an international perspective, we are pleased with the progress we continue to make in this dynamic environment.

As anticipated our middle East region impacted our first quarter international comparable sales due to the ongoing conflict and Thats part of the world. Excluding this region our international comparable sales were up approximately 1% from a year ago.

Ravi Thanawala: Excluding this region, our international comparable sales were up approximately 1% from a year ago. For the first quarter of 2024, global system-wide restaurant sales were $1.23 billion, down 1% in constant currency compared with the prior year's first quarter. The lower sales were largely due to the strong prior year first quarter, which had a benefit of approximately $10 million from the high volume week between Christmas and New Year. The decrease in sales due to the calendar shift was partially offset by 3% net unit growth from the prior year.

Robyn: For the first quarter 2020 for a global system wide restaurants sales were one point to $3 billion down 1% in constant currency compared with the prior year's first quarter.

Robyn: The lower sales were largely due to the strong prior year first quarter, which had a benefit of approximately $10 million from the high volume week between Christmas and new year's.

Robyn: The decrease in sales.

Robyn: Due to the calendar shift was partially offset by 3% net unit growth from the prior year.

Ravi Thanawala: Total revenues for the first quarter were $514 million, down 2% from a year ago, primarily reflecting a $9 million decrease in North America commissary revenues due to lower commodity prices in the quarter and, to a lesser extent, lower transaction volume.

Robyn: Total revenues for the first quarter were $514 million down 2% from a year ago, primarily reflecting a $9 million decrease in North America commissary revenues due to lower commodity prices in the quarter and to a lesser extent lower transaction volumes a nine.

Ravi Thanawala: A $9 million decrease in other revenues, which includes a $5 million impact from the sale of Preferred Marketing, our formerly wholly-owned print and promotions business, and a $4 million decrease in domestic company-owned restaurants, reflecting lower transaction volumes somewhat offset by higher average tickets. Partially offsetting these revenue declines was an approximate $10 million contribution from the 2023 UK Franchisee Acquisition. Turning to profit, adjusted operating income for the first quarter of 2024 was $43 million, up from $39 million a year ago.

Robyn: The decrease in other revenues, which includes a 5 million dollar impact from the sale of preferred marketing, our formerly wholly own print and promotions business and a $4 million decrease in domestic company owned restaurants, reflecting lower transaction volumes somewhat offset by higher app.

Robyn: Bridge ticket.

Robyn: Partially offsetting these revenue declines was an approximate $10 million contribution from the 2023 U K franchisee acquisitions.

Robyn: Turning to profits.

Adjusted operating income for 2020 for first quarter was $43 million up from $39 million a year ago. The key drivers of our improvement over last year's first quarter included an approximate $2 million benefit from improved North America company owned restaurant margins and domestic commissary margins.

Ravi Thanawala: The key drivers of our improvement over last year's first quarter include an approximate $2 million benefit from improved North America company-owned restaurant margins and domestic commissary margins, an approximate $3 million benefit from reduced local marketing reserves at our company-owned restaurants, a result of the recent change to our local and national marketing spend requirements, and an approximate $4 million benefit from equity forfeitures primarily resulting from the recent CEO departure. These positive impacts were largely offset by a roughly $4 million year-over-year impact related to the operations of our UK franchisee acquisitions when taking into consideration a first quarter 2024 operating loss and the first quarter 2023 franchisee royalty. Higher DNA expenses of approximately $3 million as we continue to invest in our restaurants and technology platforms, along with the consolidation of the acquired UK restaurants and lower North America comp sales.

Robyn: An approximate $3 million benefit from reduced local marketing reserves at our company owned restaurants, a result of the recent change to our local and national marketing spend requirements and an approximate $4 million benefit from equity forfeitures, primarily resulting from the re.

Robyn: Since CEO departure.

Robyn: These positive impacts were largely offset by a roughly $4 million a year over year impact related to the operations of our UK franchisee acquisitions, when taking into consideration a first quarter of 2020 for operating loss and the first quarter 2023 franchise.

Robyn: The royalty fees.

Robyn: Higher G&A expenses of approximately $3 million as we continue to invest in our restaurants and technology platforms, along with the consolidation of the acquired UK restaurants, and lower North America comp sales.

Ravi Thanawala: Adjusted operating margins for the first quarter were 8.4%, up from 7.4% a year ago, primarily reflecting improved margins at our domestic company-owned restaurants and supply chain improvements. Overall, our domestic company-owned margins improved by 220 basis points compared with the prior year first quarter. Deriving the improved margins was an approximate 110 basis points benefit from lower food basket costs as we continue to see relief in cheese and dough prices.

Robyn: Adjusted operating margins for the first quarter was eight 4% up from seven 4% a year ago, primarily reflecting improved margins at our domestic company owned restaurants and supply chain improvements.

Robyn: Overall, our domestic company owned margins improved 220 basis points compared with the prior year first quarter driving the improved margins was an approximate 110 basis points benefit from lower food basket cost as we continue to see relief in Chile.

Robyn: And Doe prices.

Ravi Thanawala: Lower operating costs and a slightly higher ticket at our company-owned restaurants also contributed to our margin improvement, while labor costs were only slightly higher by approximately ten basis points. Our teams did a great job in the first quarter optimizing our labor model to meet consumer demand and delivering an excellent customer experience while also adjusting for shifts and channeling. Moving on to cash flow and our balance, in the first quarter of 2024, net cash provided by operating activities was $12 million, down from $41 million a year ago.

Robyn: Lower operating costs and a slightly higher ticket at our company owned restaurants also contributed to our margin improvement while labor costs were only slightly higher by approximately 10 basis points.

Our teams did a great job in the first quarter optimizing our labor model to meet consumer demand and delivering an excellent customer experience. While also adjusting for shifts in channel mix.

Robyn: Moving onto cash flow and our balance sheet.

In the first quarter of 2024 net cash provided by operating activities was $12 million down from $41 million a year ago after accounting for $13 million in capital expenditures for the development of new domestic restaurants and investments in technology innovation, we generated it.

Ravi Thanawala: After accounting for $13 million in capital expenditures for the development of new domestic restaurants and investments in technology innovation, we generated a cash outflow of $1 million. This compares with free cash flow of $22 million generated in the first quarter of 2023, primarily reflecting unfavorable working capital changes driven by the timing of payments in the first quarter of 2024. Our liquidity continues to be strong, with $260 million in cash and borrowings available under our revolving credit facility and a gross leverage ratio of 3.1 times.

Robyn: Cash outflow of $1 million. This compares with free cash flow of $22 million generated in the first quarter of 2023, primarily reflecting unfavorable working capital changes driven by the timing of payments in the first quarter of 2024.

Robyn: Our liquidity continues to be strong with $260 million in cash and borrowings available under our revolving credit facility and a gross leverage ratio of three one times.

Ravi Thanawala: Overall, our teams around the globe continue to take a disciplined approach to running the business. We've improved restaurant-level margins and operating profits through commodities normalization, revenue management, and labor optimization in the quarter despite the lower sales. Our efforts are having a positive impact on our bottom line. However, as I mentioned earlier, in January, we launched multi-year strategic initiatives that are designed to drive higher system-wide sales.

Robyn: Overall, our teams around the globe continue to take a disciplined approach to running the business.

Robyn: We've improved restaurant level margins and operating profits to commodities normalization revenue management and labor optimization in the quarter. Despite the lower sales our efforts are having a positive impact on our bottom line. However, there is more work to do.

Robyn: As I mentioned earlier in January we launched multi year strategic initiatives that are designed to drive a higher system wide sales enhanced restaurant level profitability and reinvigorated development over the long term in key markets around the world.

Ravi Thanawala: I'm pleased to say, while still in early stages, we've made meaningful progress against the foundational improvements we are implementing in our marketing platforms, our supply chain, and our international operations. First, product innovation remains a cornerstone to our brand promise of better ingredients and better pizza and will continue to be a focus of our strategy. In April, we launched our newest platform innovation, Krispy Kupperoni, which is available across a trio of products at different accessible price points.

Robyn: I am pleased to say, while still in early innings, we've made meaningful progress against the foundational improvements we are implementing in our marketing platforms, our supply chain and our international operations.

Robyn: First product innovation remains a cornerstone to our brand promise of better ingredients better pizza and we will continue to be a focus of our strategy in April we launched our newest platform innovation crispy copy Roni, which is available across a trio products at different accessible price points.

Ravi Thanawala: In conjunction with this new platform innovation, we launched a modern refresh of our brand visuals, tone, and message with Better Get Yourself. This amplification of our brand is a culmination of our efforts over the past nine months, where we focused on improving audio segmentation, building customer loyalty, and driving cultural relevance. This combination of brand and product innovation helps the consumer to appreciate the strong value proposition Papa John's provides. While it's only been five weeks since we launched our new brand platform, early research of the campaign showed an increase in consumers' purchase intent.

Robyn: In conjunction with this new platform innovation, we launched a modern refresh of our brand visuals tower and message with better get yourself.

Robyn: Fifth amplification of our brand is the combination of our efforts over the past nine months, we're refocused on improving audience segmentation building customer loyalty and driving cultural relevance. This combination of brand and product innovation helps the consumer to appreciate the strong value proposition Papa.

Robyn: John's provides.

While it's only been five weeks since we launched our new brand platform early research of the campaign showed an increase in the consumer's purchase in fact.

Ravi Thanawala: Moving ahead, we're focused on improving sales via revenue management strategies, ongoing loyalty improvements, and adapting our media strategy mix to maximize effectiveness across channels. Second, to support the new brand platform and leverage the scale national investments deliver, our franchisees voted last year to increase the contribution rate to the National Marketing Fund by 100 basis points of sales, beginning in the second quarter. As part of the consolidation to national funding, we made local marketing spend optional for the system.

Robyn: Moving ahead, we're focused on improving sales by our revenue management strategies ongoing loyalty improvements and adapting our media strategy mix to maximize effectiveness across channels.

Robyn: Second to support the new brand platform and leverage the scale national investments to deliver our franchisees voted last year to increase the contribution rate to the national marketing fund by 100 basis points of sales beginning in the second quarter.

Robyn: As part of the consolidation to National funding, we made local marketing spend optional for the system.

Ravi Thanawala: For our domestic company-owned restaurants, we intend to optimize our local marketing spend in 2024 and still see value in investing in certain local marketing co-ops and brand partnerships within specific markets to build upon the strong community relations already in place. Many of our franchisees are taking a similar strategic and targeted approach given the additional optionality the new marketing fee structure provides. The initial customer response and reviews to our new product innovations and brand platform have been positive, but the highly competitive promotional environment has been a headwind to transactions. We believe Papa John's perceived value is about providing high quality product innovation at the right time, at the right price.

Robyn: Domestic company owned restaurants, we intend to optimize our local marketing spend in 2024 and still see value in investing in certain local marketing co ops and brand partnerships within specific markets to build upon the strong community relations already in place.

Robyn: Many of our franchisees are taking a similar strategic and targeted approach given the additional optionality the new marketing fee structure provides.

Robyn: The initial customer response and reviews to our new product innovation and brand platform had been positive, but the highly competitive promotional environment has been a headwind to transactions. We believe Papa John's perceived value is about providing high quality product innovation at the right.

Robyn: Hi.

Ravi Thanawala: It is important that we maintain discipline in our limited-time offers, pricing strategies, and product innovations for the long-term success of the business. However, we won't hesitate to make short-term adjustments as we deem appropriate on a market-by-market basis to remain competitive. Third, as previously discussed as part of our Back to Better 2.0 strategy, we're evolving our domestic commissary business to support additional investment in supply chain productivity. Beginning with the first quarter, we increased the fixed operating margin that our domestic commissaries charge by 100 basis points from 4% to 5%.

Robyn: <unk> price. It is important that we maintain discipline in our limited time offers pricing strategies and product innovations for the long term success of the business.

Although we won't hesitate to make short term adjustments as we deem appropriate on a market by market basis to remain competitive.

Robyn: Third as previously discussed as part of our back to better to point our strategy, we're evolving our domestic commentary business to support additional investment and supply chain productivity.

Robyn: Beginning with the first quarter, we increased our fixed operating margin that our domestic conversation charged by 100 basis points from 4% to 5%.

Ravi Thanawala: We plan to continue this annual increase until 2027, when the fixed operating margin reaches 8%. At the same time, our franchisees can now earn incentive-based rebates by delivering higher volumes and new restaurant developments. Through the first quarter, more than 40% of our franchisees are on track to earn a rebate in 2024. As we drive higher volumes through our supply chain model, we intend to reinvest in this segment to increase productivity throughout the system, making our supply chain even more effective.

Robyn: We plan to continue this annual increase until 2027, when the fixed operating margin reaches 8%.

Robyn: At the same time, our franchisees can now earn incentive based rebates by delivering higher volumes and new restaurant development.

Robyn: Through the first quarter more than 40% of our franchisees are on track to earn a rebate in 2024.

Robyn: As we drive higher volumes through our supply chain model, we intend to reinvest into this segment to increase productivity throughout the system, making our supply chain even more effective.

Ravi Thanawala: Modernizing Equipment, Automating Processes, and Negotiating Contract Renewals as we continue to scale are just a few examples of our opportunities available to Papa John's. Fourth, unit-level productivity is a primary driver of unit development, and we are confident supply chain efficiencies will deliver improved results over the next several years. In addition, we have been focused on rebuilding and elevating our development team to accelerate North America's new unit growth through franchising cultivation. Quality site selection, lower cost to build, and quicker speeds to open.

Robyn: Modernizing equipment automating processes and negotiating contract renewals as we continued to scale are just a few examples of our opportunities available to Papa Johns.

Speaker Change: For it.

Speaker Change: The level of productivity is a primary driver of unit development and we are confident supply chain efficiencies will deliver improved results over the next several years.

Speaker Change: In addition, we have been focused on rebuilding and elevating our development team to accelerate North America unit growth do franchisee cultivation quality site selection lower cost to build and quicker speeds to open.

Ravi Thanawala: As part of this process, we're evaluating and revamping every aspect of the development process, from general contractor selection and architectural costs to leasehold improvements and furniture, fixtures, and equipment. These improvements are delivering real-time cost savings and will offer franchisees more resources throughout the development process, in addition to greater contractor, supplier, and equipment optionality based on market and anticipated restaurant volume. The development incentives announced last November, combined with the improving cost to build, significantly improve the cash on cash payback for our developing franchisees who open new units in 2024 and 2025.

Speaker Change: As part of this process, we're evaluating and revamping every aspect of the development process from general contractor selection and architectural cost for leasehold improvements and furniture fixtures and equipment.

Speaker Change: These improvements are delivering real time cost savings and will offer franchisees more resources throughout the development process. In addition to greater contractors supplier and equipment Optionality based on market and anticipated restaurant volumes.

Speaker Change: The development incentives announced last November are combined with the improving cost to build significantly improves the cash on cash payback for our developing franchisees, who opened new units in 2024 and 2025, the attractive ROI on new builds and the strength of our brand gives us confidence.

Ravi Thanawala: The attractive ROI on new builds and the strength of our brand gives us confidence that new unit development in North America will continue to accelerate. Now, moving to our international transformation initiatives. Our number one focus is to ensure we have the right foundation to support and drive long-term success. This means being closer to the consumer, continuing to focus on menu innovation that is locally relevant, and making sure we have the right insights to help our franchisees in their market. In the first quarter, we launched our international regional hub structure with proven leaders that have direct industry and relevant market experience.

Speaker Change: New unit development in North America will continue to accelerate.

Speaker Change: Now moving to our international transformation initiatives. Our number one focus is to ensure we have the right foundation to support and drive long term success. This means being closer to the consumer continue to focus on menu innovation that is locally relevant and making sure we have the right insight.

Speaker Change: To help our franchisees within their markets.

Speaker Change: In the first quarter, we launched our international regional hub structure with proven leaders that have direct industry and relevant market experience.

Ravi Thanawala: These hubs are designed to help our international franchisees to drive sales and profitability by aligning global best practices with local preferences and the resources to accomplish our long-term objective of increasing share in key markets around the world. We are also advancing our efforts to optimize the UK business model. Most recently, we announced plans to close 43 underperforming company-owned restaurants later this month.

Speaker Change: These hubs are designed to help our international franchisees to drive sales and profitability by aligning global best practices with local preferences and the resources to accomplish our long term objective of increasing share in key markets around the world.

Speaker Change: We are also advancing our efforts to optimize the UK business model. Most recently, we announced plans to close 43 underperforming company owned restaurants later this month.

Ravi Thanawala: We'll continue to evaluate our remaining portfolio, as well as our franchisee locations, focusing on sales trends, overall profitability, and their lease and loan obligations. Through this process, additional strategic closures and re-franchising opportunities will be considered as we look to drive profitability and strengthen our franchisee base. We believe with these actions, the UK market will become profit accretive in the second half of this year. Finally, we're investing in our international consumer-facing technology and digital infrastructure to improve purchase conversion, increase customer retention, and deliver faster consumer insights to franchisees. There remains significant white space for the Papa John's Brand International.

Speaker Change: We will continue to evaluate our remaining portfolio as well as our franchisee locations focusing on sales trend overall profitability and their lease and loan obligations.

Speaker Change: Through this process additional strategic closures and refranchising opportunities will be considered as we look to drive profitability and strengthen our franchisee base we.

Speaker Change: We believe with these actions the U K market will become profit accretive in the second half of this year.

Speaker Change: Finally, we are investing in our international consumer facing technology and digital infrastructure to improve purchase conversion increased customer retention and deliver a faster consumer insights to franchisees.

Speaker Change: There remains significant white space for the Papa John's brand internationally.

Ravi Thanawala: And while we still have more foundational investments to make, we're confident the actions we are taking are setting our largest international markets up for profitable market share gains over the long term. Looking at our outlook for the balance of the year, for the first four weeks of the second quarter, North America comp sales were down approximately 1% and may remain under pressure in the near term as the challenging macroeconomic environment continues. Timber Confidence Software

Speaker Change: And while we saw more foundational investments to make we are confident that the actions. We are taking are setting our largest international markets upper profitable market share gains over the long term.

Speaker Change: Looking at our outlook for the balance of the year for the first four weeks of the second quarter North America comp sales were down approximately 1% and may remain under pressure in the near term as the challenging macroeconomic environment continues and consumer confidence softens.

Ravi Thanawala: Because of this, we have chosen to update our full year guidance with a more cautious outlook. If orders remain at a similar level as the past four weeks, we anticipate 2024 North America comps to be flat to down low single digits for the full year 2024. As a reminder, we are in the early stages of our Back to Better 2.0 investments and are committed to providing updates as the year progresses. Internationally, we remain in a dynamic environment and continue to maintain a cautious outlook on international comps in 2024.

Of this we have chosen to update our full year guidance with a more cautious outlook.

Speaker Change: If orders remain at a similar level as the past four weeks, we anticipate 2020 for North America comps to be flat to down low single digits for the full year 2024.

Speaker Change: As a reminder, we are in the early stages of our back to better to point, our investments and are committed to providing updates as the year progresses.

Internationally, we remain in a dynamic environment and continue to maintain a cautious outlook on the international comps in 2024.

Ravi Thanawala: Based on the lower sales outlook and assuming we remain at similar levels for the remainder of 2024, we would anticipate 2024 adjusted operating income to be between $145 and $155 million. Our teams remain focused on executing against our strategies and maintaining cost discipline.

Speaker Change: Based on the lower sales outlook and assuming we remained at similar levels for the remainder of 2024, we would anticipate 2024 adjusted operating income to be between 145 and $155 million.

Speaker Change: Our teams remained focused on executing against our strategies and maintaining cost discipline.

Ravi Thanawala: We continue to expect benefits from the increase to our fixed commissary margin. Additionally, our International Transformation Initiative, notably the closure of UK restaurants we mentioned earlier and an increase in North America development. However, these benefits will likely be offset by lower North America comparable sales combined with higher G&A expenses and higher DNA expenses that have been discussed previously. In terms of other non-operating expense items, we expect net interest expense to be between $40 million and $45 million, our capital expenditures to be between $75 million and $85 million, and our tax rate to be between 23 and 26 percent, all consistent with our prior guidance.

Speaker Change: We continue to expect benefits from the increase to our fixed commentary margin.

Speaker Change: Our international transformation initiatives, notably the closure of UK restaurants, we mentioned earlier and an increase in North America development.

Speaker Change: However, these benefits will likely be offset by lower North America comparable sales combined with a higher G&A expenses and higher D&A expense that had been discussed previously.

Speaker Change: In terms of other non operating expense items, we expect net interest expense to be between 40 million and $45 million, our capital expenditures to be between $75 million and $85 million and our tax rate to be between 23 and 26% all consistent.

Speaker Change: With our prior guidance.

Ravi Thanawala: From a development perspective, the North American market is our most accretive development for Papa John's, and we remain committed to accelerating the expansion of our domestic footprint moving forward. In the first quarter, we added 14 net new North American units, bringing our total North American restaurant count to 3,447. For fiscal year 2024, we expect net new units for North America to increase more than 20% relative to 2023 net new unit openings. From an international perspective, we saw 23 new restaurant openings in the growth space. These new restaurant openings were offset by 29 closures, primarily in certain Middle East markets and China. This brings our total international restaurant count to 2,467.

Speaker Change: From a development perspective, the North American market is our most accretive development for Papa Johns and we remain committed to accelerating the expansion of our domestic footprint moving forward.

Speaker Change: In the first quarter, we added 14, net new North America units, bringing our total North America restaurant count to 3447.

Speaker Change: For fiscal year 2024, we expect net new units for North America to increase more than 20% relative to 2023 net unit openings.

Speaker Change: From an international perspective, we saw 23, new restaurant openings on a gross basis.

Speaker Change: New restaurant openings were offset by 29 closures, primarily in certain middle east market in China.

Speaker Change: This brings our total international restaurant count to 2467.

Ravi Thanawala: We are maintaining a cautious approach to our international markets and expect gross openings between 100 and 140 new international restaurants for fiscal 2024. We continue to review the performance of international franchisees and may initiate additional strategic closures to improve marketplace health or exit unprofitable locations. As such, our net openings could be impacted by the closure of underperforming locations to enhance long-term profitability. Finally, as we look to the longer term, we continue to see significant opportunities to drive higher system-wide sales, global development, and overall profitability as we continue to execute on our strategy.

Speaker Change: We are maintaining a cautious approach for our international markets and expect gross openings between 100 and 140 do international restaurants for fiscal 2024, we continue to review the performance of our international franchisees and May initiate additional strategic closures.

Speaker Change: To improve marketplace held or exit unprofitable locations.

As such our net openings could be impacted by the closure of underperforming locations to enhance long term profitability.

Speaker Change: Finally, as we look to the longer term, we continue to see significant opportunities to drive higher system wide sales global development and overall profitability as we continue to execute on our strategy.

Ravi Thanawala: Given the current dynamic environment and business trends we discussed today, our longer-term targets are under evaluation as we want to ensure our goals are achievable and aligned with our strategy. In summary, we are executing against our Back to Better 2.0 strategy. This strategy is designed to drive restaurant profitability, improve supply chain efficiency, increase marketing effectiveness, and reinvigorate global development. We are making steady progress as our teams are collaborating across departments and geographical borders, laying a solid foundation for our next chapter of growth.

Speaker Change: Given the current dynamic environment and business trends, we discussed today, our longer term targets are under evaluation as we want to ensure our goals are achievable and aligned with our strategy.

Speaker Change: In summary, we are executing against our back to better to point our strategy. This strategy.

Speaker Change: <unk> is designed to drive restaurant profitability improved supply chain efficiency increase in marketing effectiveness and reinvigorate global development.

Speaker Change: We are making steady progress as our teams are collaborating across departments and geographical borders lay a solid foundation for our next chapter of growth.

Ravi Thanawala: I'm confident in the strength of the Papa John's brand, our team, and our company's long-term performance potential. I look forward to sharing our progress with you throughout the coming year. Now, I'll turn the call over to our operator to take your questions.

Speaker Change: I'm confident in the strength of the Papa Johns brand our team our company's long term performance potential.

Speaker Change: I look forward to sharing our progress with you throughout the coming year.

Speaker Change: Now I will turn the call over to our operator to take your questions.

Operator: Certainly one moment for our first question, and our first question comes from the line of Jim Salera from Stevens Inc. Your question, please.

Speaker Change: Certainly one moment for our first question.

Speaker Change: And our first question comes from the line of Jim <unk> from Stephens. Your question. Please.

Jim: Hi, Good morning, guys. Thanks for taking my question.

Jim: Can you just give us an update on what you're seeing in the aggregator channel as far as demand, especially as we've heard more consumers kind of engaging them to value seeking behavior, how your presence on that and your own proprietary digital channel helps convey value.

Jim: Okay.

Ravi Thanawala: Yeah, well, Jim, thanks for the question. And I'll start there.

Jim: Yeah.

Jim: Jim Thanks for the question and I'll start there, but I may be G that repeat the second half of that question and evolve. So first of all we've been on the Aggregators since 2019 and have been leading in that space more broadly what we're seeing is that the pizza category continues to.

Ravi Thanawala: But I may need you to repeat the second half of that question in a moment. First, we've been on aggregators since 2019 and have been leading in that space. More broadly, what we're seeing is that the pizza category continues to perform well and take share within the aggregator universe. Second, the benefit of the aggregators is that they're highly qualified consumers that are ready to purchase when they're on those apps. What we're specifically seeing is continued growth year over year in the aggregators. They represented 16% of our business in Q1 relative to 12% in the prior year.

Jim: <unk> share within the aggregator universe second the benefit of the Aggregators is that theyre highly convicted consumers that are ready to purchase when they're on those apps. What were specifically seeing is continued growth year over year in the aggregators at rapid.

Jim: Is that 16% of our.

Jim: Of our business in Q1 relative to 12% in the prior year also we continued to see growth quarter over quarter.

Ravi Thanawala: Also, we continue to see growth quarter over quarter. We think that the aggregator experience and when consumers are on it, it is a very specific occasion. So how we communicate value and how we communicate growth there, we are continuing to stay really focused on menu innovation, cutting through, and doing great jobs of making sure navigation is coming to life. And then we're in the markets pretty consistently testing different pricing strategies to make sure we strike the right balance at a geography level between balancing the premiumness of our product as well as the value that the consumer gets.

Jim: We think that the aggregator experience and when consumers are on it is a very specific occasions, so how we communicate value and how we communicate growth there.

Jim: We are continuing to stay really focused on menu innovation cutting through doing great jobs are making sure navigation is coming to life and then we're in the market pretty consistently testing different pricing strategies to make sure we strike the right balance and the geography level odd balancing the premium ness of our product.

Jim: As well as value that the consumer.

Jim: Needs.

Ravi Thanawala: Jim, I don't know if I understood the second half of your question. Yeah, the second part was just relative to what you're seeing, you know, on your own apps, their proprietary channels. Yeah, absolutely. And so much of what we spoke about in prior quarters, we are seeing the aggregators outperform our organic delivery and carry out businesses, specifically our organic delivery business. Maybe two important points.

Speaker Change: Jim I don't know if I got that second half of your question.

Jim: Yes. The second part was just relative to what Youre seeing on your own.

Jim: Brian Terry John Yes.

Brian: Yeah, absolutely and so much of what we spoke about it in prior quarters, we are seeing the aggregators outperform our our organic delivery and carry out business has specific our organic delivery business.

Ravi Thanawala: I think the good news in this is that aggregators give us a really clear opportunity to win new consumers who are younger and more diverse overall. So we see a lot of strategic benefit and will continue to grow aggressively in this channel. Organic delivery has continued to decline year over year, and we're really focused on the second half of this year on how we communicate the value of our service and of our offers more clearly in our organic delivery business and make sure everyone understands the value that our loyalty program provides in our native channels. But there has been a spread between the two, and just as a reminder, the margin profiles on the aggregator business and the organic delivery business are slightly different given how the pricing architecture has come to life.

Speaker Change: Maybe two important points I think the good news in this is that like Aggregators gives us a really clear opportunity to win new consumers, who are a younger demographic.

Speaker Change: More diverse overall, so we see a lot of strategic benefit and then continue to grow aggressively in this channel organic delivery has continued to decline year over a year and we were really focused in on the second half of this year on how do we communicate the value of our service.

Speaker Change: All of our offers more clearly in our organic delivery business and making sure everyone understands the value that our loyalty program provides an hour.

Speaker Change: <unk> of channels, but there has been a spread between the two and just as a reminder, the margin profiles of all the aggregator business in organic delivery business are slightly different given how the pricing architecture sometimes.

Speaker Change: That's helpful. I appreciate the color I'll hop back in the queue.

Operator: Thanks. Thank you.

Speaker Change: Thanks.

Speaker Change: Thank you one moment for our next question.

Operator: One moment for our next question, and our next question comes from the line of Eric Gonzalez from KeyBank. Your question, please. Thanks for taking the question.

Speaker Change: And our next question comes from line of Eric Gonzalez from Keybanc. Your question. Please.

Eric Andrew Gonzalez: Thanks for taking the question good morning.

Eric Andrew Gonzalez: I just wanted to talk about the current strategy I mean, I wanted to maybe ask you about your confidence level that the strategy is working and I realize the environment shifted.

Eric Andrew Gonzalez: Several of your competitors have called out the more cautious consumer, but but how do you know that the shift away from regional marking marketing isn't having an adverse effect on your results as it seems like the quarter to date same store sales trends are probably quite a bit below what you had hoped for back in January.

Ravi Thanawala: Thanks for the question. And I'm going to take that in two parts. First, like more broadly, the Back to Better 2.0 strategy had a couple of really clear filters to it. The first was to find ways to improve unit economics, which comes to life through continuing to remix the total amount of marketing spend and drive RLASs, improve, and incentivize supply chain commissary margins by giving rebates for really meaningful growth. And three, this really clear focus that we're taking in terms of our new national marketing strategy.

Speaker Change: Yeah, Eric Thanks for the question.

Speaker Change: I'm going to take that in two parts first.

Speaker Change: More broadly the backup battery two point strategy at a couple of really clear filters to it. The first was find ways to improve unit economics.

Speaker Change: And that comes to life through continuing to remix the total amount of marketing spend in <unk>.

Speaker Change: Improve.

Speaker Change: And incentivize supply chain condensate.

Speaker Change: Condensate margins by giving rebates for really meaningful growth and three that this really clear focus that we're taking in terms of our new national marketing strategy. When we look at April results. There are few things that we wanted to call out where we're seeing.

Ravi Thanawala: When we look at April's results, there are a few things that we want to call out. Where we're seeing challenges from a traffic standpoint actually started slightly prior to when we went live with the new marketing strategy. We saw slightly softer sales in the month of March than we expected. So that's one important thing.

Speaker Change: <unk> from a traffic standpoint actually started slightly prior to when we went live with the new marketing strategy, we saw us slightly softer sales in the month of March than what we expected.

Speaker Change: So that's one important thing second is when we actually look at consumer behavior. What we're actually seeing is that consumers are check managing a little bit more and we're seeing slightly a higher exit rates at certain points of the consumer funnel those to us give us the indication that this is more about a softening.

Ravi Thanawala: Second, when we actually look at consumer behavior, what we're actually seeing is that consumers are checking in a little bit more, and we're seeing slightly higher exit rates at certain points in the consumer funnel. Those, to us, give us the indication that this is more about a softening of the consumer and a slightly higher value orientation versus directly tied to anything in a creative and media strategy. What I will say is we are five weeks into our creative and media strategy.

Speaker Change: The consumer and a slightly higher value orientation versus directly tied to anything and it created a media strategy. What I will say is we are five weeks and two our creative and media strategy, new visuals, new tone, New media mix Theres, obviously some.

Ravi Thanawala: New visuals, new tone, new media mix. There's obviously some ongoing calibration that we're gonna wanna do, but as we've actually done the consumer testing work, we are absolutely seeing purchase intent go up as we've tested this new creative and media strategy. So, we will continue to keep you in the loop and keep the investor community in the loop about our progress, but we believe we're on the right track from a creative and a media standpoint.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Sarah Senatore from Bank of America. Your question, please.

Speaker Change: Ongoing calibration now we're going to want to do but as we've actually done the consumer testing work. We are absolutely seeing purchase intent go up as we've tested this new creative and media strategy. So we will continue to keep keep you in the loop and keep the.

Speaker Change: Investor community in the loop in following quarters of our progress, but we believe we're on the right track from a creative and our media standpoint.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Sara Senatore from Bank of America. Your question. Please.

Ravi Thanawala: Oh, thank you. I guess I have one question and then a follow-up, please. The first is that, you know, at the end of March, when you announced the CEO transition, I think you reiterated or reaffirmed the guidance for fiscal 24. It sounds like you said March was a little softer than you had expected, but I'm trying to understand then maybe what's changed since, you know, the third week of March and now, given that it sounded like you were already perhaps seeing some of the softness materialize.

Sara Harkavy Senatore: Alright. Thank you I guess one question and then a follow up please the first is that.

Sara Harkavy Senatore: At the end of March when you announced CEO transition I think you reiterated and reaffirmed that the guidance for fiscal 'twenty four it sounds like you said March was a little softer than you had expected.

Sara Harkavy Senatore: I'm trying to understand then maybe what's changed since the second week of March and now given that it sounded like you were already perhaps in some of the softness.

Sara Harkavy Senatore: You realized.

Ravi Thanawala: Yeah, to be clear and clarify, we were seeing some slight softness in traffic. However, we were continuing to work towards our creative launch and media launch, and new innovation launch in the month of April. Throughout the month of April, we saw that consumer behavior continued to soften, particularly in elements of traffic and check management. And that's really the difference between what we started to see in the month of April.

Sara Harkavy Senatore: Yeah to be clear and clarify we were seeing some slight softness in traffic. However, we were continuing to work towards our creative launch media laws, New innovation launched in the month of April throughout the month of April we saw that the consumer behavior.

Sara Harkavy Senatore: <unk> to soften.

Sara Harkavy Senatore: Particularly in elements of traffic and check management, and that's really the differential but we started to see in the month of April.

Ravi Thanawala: Got it. Okay. And then, in that context, I know you mentioned, you know, you're not looking to kind of match the promotional intensity that competitors are engaging in, but I guess, ultimately, to grow transactions, you know, how, how do you, you know, how do you plan to do that if what consumers are looking for is value? And I guess, maybe said otherwise, you have a choice but to try to be more aggressive or sharper on your price points So, we think we...

Speaker Change: Got it Okay, and then in that context, I know you mentioned.

Speaker Change: You're it sounded like Youre, not looking to kind of match the promotional intensity that competitors are engaging in.

Speaker Change: I guess ultimately to grow transactions and how how do you how.

Speaker Change: How do you plan to do that at what consumers are looking for value and I guess, maybe you can't otherwise do you have a choice.

Speaker Change: Can you try to be more aggressive with sharp on your price points. If that's a consumer's line and thats whats driving traffic that announced there.

Ravi Thanawala: So we think we have multiple levers to be able to demonstrate value to our consumers. So first, when we think about Q1, what happened from a comp standpoint was that pizza sales continued to be up year-over-year for size and beverages, and the profit-neutral delivery fee is where we started to see compression. So we're actually pretty clear on where our opportunities are to continue to bend the curve from a sales comp standpoint.

Speaker Change: So we think we have multiple levers to be able to to demonstrate value to our consumers. So first like when we think about Q1, what happened from a comp standpoint was that.

Speaker Change: Pizza sales continued to be up.

Speaker Change: Year over year, two sides and beverages and the profit neutral delivery fee is where we started to see compression. So we're actually pretty clear on where our opportunities are to continue to bend the curve from a sales comp standpoint circuit.

Ravi Thanawala: Second, our loyalty program is a great toolkit and a great opportunity for us to continue to reinforce the value that we can offer in our organic channels. And lastly, and importantly, we are testing continuously and will continue to test different pricing and promotion strategies, particularly for the carryout business, to ensure that we can communicate the great service we offer plus the value in our carryout business.

Speaker Change: Our loyalty program is a great tool kit and a great opportunity for us to continue to reinforce the value that we can offer and our.

Speaker Change: And our organic channels and lastly, and importantly, we are testing continuously in.

Speaker Change: We'll continue to test different pricing and promo strategies, particularly for the Carryout business to ensure that we can communicate the great service, we offer plus the value in our Carryout business.

Speaker Change: Thank you.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Brian Mullan from Piper Sandler. Your question, please.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Brian Miller from Piper Sandler Your question. Please.

Ravi Thanawala: Thank you. Just a question on GNA. Ravi, can you speak to what your expectations are for this year and what you have incorporated into the operating income? Guidance.

Brian Miller: Okay. Thank you just a question on G&A Rami can you speak to what your expectations are for this year and what you incorporated into the operating income guide.

Ravi Thanawala: If I'm doing it right, it seems like Q1 was about $49 or $50 million on an adjusted basis. Is that a good run rate for the next couple quarters? And then just related to that, you know, you've had some more time in the seat versus CFO, now you've stepped into a bigger role. You know, do you see any opportunities across the organization to get more efficient on the bigger picture of GNA over the next couple years? Is it possible to make cuts without hurting sales? A fresh set of eyes would love to get your perspective. Yeah, so.

Brian Miller: Guidance, if I'm doing it right. It seems like Q1 was about 49 or $50 million on an adjusted basis is that a good.

Brian Miller: Run rate for the next couple of quarters, and then just related to that.

Brian Miller: <unk> had some more time in the seat first and CFO <unk> <unk> to a bigger role.

Brian Miller: Do you see any opportunities across the organization to get more efficient on G&A bigger picture over the next couple of years is it possible to make cuts without hurting sales.

Speaker Change: Fresh set of eyes would love to get your perspective.

Ravi Thanawala: Yeah, so thanks for the question, Brian. So first on G&A, I just want to remind us that in Q1, there were a number of puts and takes that were happening that were one-time in nature. So on an adjusted basis, I think we're going to be slightly above $50 million for the run rate for the next few quarters. And you have to remind everyone that we are still lapping the UK acquisition. 2023.

Speaker Change: Yeah. So thanks.

CFO: Thanks for the question, Brian So first on G&A.

Speaker Change: Your mind does that in Q1, there were a number of puts and takes that are happening that were onetime in nature. So on an adjusted basis I think we're going to be slightly above $50 million for the run rate for the.

Speaker Change: The next few quarters and you have to remind me.

Speaker Change: Remind everyone that we are still lapping the UK acquisition.

Speaker Change: That happened and.

Ravi Thanawala: When we look at opportunities like this, we're absolutely taking a really focused cost-disciplined approach to running and operating the business. We're going to want to continue to invest in our strategic growth drivers of the company in the future, which are really around product innovation, marketing, and our tech stack. We're continuously looking for opportunities to be highly streamlined as an organization and continue to look to drive foundationally better unit economics for our Russia.

Speaker Change: In 2023, when we look at like opportunities, we're absolutely taking a really focused cost discipline approach to running and operating the business, where they don't want to continue to invest in our strategic growth drivers of the company and a feature which is really around product innovation marketing and AD Tech stack.

Speaker Change: We're looking for opportunities continuously to be highly streamlined as an organization.

Speaker Change: And continue to look to drive foundational better unit economics for our restaurants.

Speaker Change: Okay.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Yeah.

Speaker Change: Okay.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Brian Bittner from Oppenheimer. Your question, please.

Speaker Change: And our next question comes from the line of Brian Bittner from Oppenheimer. Your question. Please.

Operator: Thank you. Good morning.

Brian John Bittner: Thank you good morning.

Brian John Bittner: My question is on the new EBIT outlook for 2024, I understand that you are now assuming lower same store sales than you originally were but when I take a step back and I look at <unk> EBIT. It was very strong margins expanded 100 bps EBIT grew 10%.

Ravi Thanawala: My question is on the new EBIT outlook for 2024. I understand that you're now assuming lower same-store sales than you originally were. But when I take a step back and I look at 1Q's EBIT, it was very strong, and margins expanded by 100 dips.

Ravi Thanawala: EBIT grew 10% and beat consensus by a meaningful amount on negative low single-digit same-store sales, which you're assuming moving forward. The guidance would assume this trend in EBIT changes pretty meaningfully for the rest of the year. Can you maybe just unpack some of the assumptions? in EBIT moving forward versus maybe the strength that you saw in the first quarter.

Speaker Change: <unk> be.

Speaker Change: Be consensus by a meaningful amount on our negative low single digit same store sales that youre, assuming moving forward.

Speaker Change: The guidance would assume this trend in EBIT changes pretty meaningfully for the rest of the year can you maybe just unpack some of the assumptions.

Speaker Change: And EBIT moving forward versus maybe the strength.

Speaker Change: That you saw in the first quarter.

Ravi Thanawala: Yeah, Brian, thanks for the question. And first, I just want to reinforce that we are taking a really disciplined approach to running the business once we're in a quarter, and we're thinking about how we're investing going forward. More broadly, if you actually look at the Q1 results from EBIT and unpack the one-time items, we are slightly above last year on an adjusted basis if you exclude the impact of one-time items this year versus last year.

Speaker Change: Yeah, Brian Thanks for the question.

Speaker Change: First I just wanted to reinforce that we are taking a disciplined approach to running the business once we're in court.

Speaker Change: We're thinking about how we're investing going forward.

Speaker Change: <unk>.

Speaker Change: More broadly if you actually look at the Q1 results driven EBIT and unpack. The one times, we are slightly above last year.

Speaker Change: Adjusted basis, if you exclude the impact of one times this year versus last year more broadly if you look at the full year guide and take the midpoint of that that's effectively flat.

Ravi Thanawala: More broadly, if you look at the full-year guide and take the midpoint of that, that's effectively a flat OI versus last year on a 52-week basis. So I just want to provide that little bit of context.

Speaker Change: Versus last year on a 52 week basis. So I just wanted to provide that little bit of contacts.

Ravi Thanawala: Second, as we look through the balance of the year, we know that the consumer is going to be more value-conscious as we see check management happening, and we're watching exit rates and abandonment rates throughout the consumer funnel. Second, we're going to want to take a more aggressive approach to testing strategies related to pricing promotions and our media mix for the balance of the year. So we're just taking a more cautious approach to how we think about EBIT.

Speaker Change: Second.

Speaker Change: As we look through the balance of the year, we know that the consumer is going to be more value conscious as we've seen check management happening and we're watching exit rates in our bedroom and rates throughout the consumer funnel second we're going to want to take a more aggressive approach to testing strategies related to pricing and promotions and our media mix.

Speaker Change: For the balance of the year. So we're just taking a more cautious approach to how we think about the EBIT.

Ravi Thanawala: ROI outlook for the balance of the year. But I want to give you confidence that if you look at our results in Q4 of 2023 and Q1 of 2024, we're highly focused on driving unit level economics, which we think will spur the right development for the brand over the long term.

Speaker Change: Or a Y outlook for the balance of the year, but I want to give confidence that if you look at our results in Q4 of 2023 in Q1 of 2020 or we're highly focused on driving unit level economics, which we think will spur the right development for the brand over the long term.

Speaker Change: Yes.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Lauren Silberman from Deutsche Bank. Your question, please.

Speaker Change: Yes.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: And our next question comes from the line of Lauren Silberman from Deutsche Bank. Your question. Please.

Lauren Danielle Silberman: Thank you very much I wanted to ask about the international Com.

Lauren Danielle Silberman: Are you seeing there one are you seeing any signs of improvement in the middle East.

Lauren Danielle Silberman: If you can quantify the impact and then two can you talk about the performance across some of the other markets outside of Italy.

Speaker Change: Great. Thank you.

Speaker Change: Wow.

Operator: Thanks, Lauren. So we are seeing that the Middle East performed better in Q1 relative to the run rate that we had been on in the prior quarters. And just as a reminder, it's a small component of our business from a system-wide sales standpoint but has historically been a really meaningful development driver of the company. We have seen more than a 10-point acceleration in terms of the comp run rate as we progressed from 2023 in the fall and winter to what we're seeing in the first quarter of 2024.

Speaker Change: Thanks Art.

Speaker Change: We are seeing that the middle East performed better in Q1 relative to the run rate that we had been on.

Speaker Change: In the prior quarters and just as a reminder, it's a small component of our business from a system.

Speaker Change: System wide sales standpoint, but that's been historically, a really meaningful development driver.

Speaker Change: The.

Speaker Change: We have seen more than a 10 point acceleration in terms of the comp run rate as we progressed from two.

Operator: More broadly, when we think about our international strategy, we set up this hub strategy to give us laser focus on a few regions that mattered the most for the business and company. The way that's coming to life is a really clear, sharp perspective on product innovation and the consumer target. So in the UK, we've seen flats of slightly negative comps in the first quarter.

Speaker Change: 2023, and the fall and winter so what we're seeing.

Speaker Change: The first quarter of 2024.

Speaker Change: More broadly what we think about our international strategy, we set up this hub strategy to give us laser focus on a few regions that matter the most for the business.

Speaker Change: The way, that's coming to life with like who really clear sharp perspective on product innovation and the consumer target so in the U K.

Speaker Change: We've seen flat flat to slightly negative comps through the.

Ravi Thanawala: And what's important there, as we unpack it, is that restaurants have changed hands to more seasoned operators, and we're seeing double-digit increases in terms of sales performance. We recently launched a new product innovation across a platform of products, which had the highest penetration we've had for an innovation LTO for a couple of years. In LATAM, our largest market, Chile, we saw the strongest performance in this quarter and got us back on a good trajectory.

Speaker Change: First quarter and what's important there is as.

Speaker Change: Is that.

Speaker Change: Restaurants that have changed and so more seasoned operators, we're seeing double digit increases in terms of sales performance.

Speaker Change: Recently launched a new product and innovation across our platform of products.

Speaker Change: <unk>, which has the highest penetration we have had for it in innovation L. T O for a couple of years.

Speaker Change: In Latam, our largest market we saw the strongest performance in this quarter and got us back on a good trajectory.

Ravi Thanawala: It's easy to look at China and say we had some strategic closures. I think the way that everyone should look at that and think about that is that we're taking on the necessary pruning of locations that aren't productive, that aren't as fit to our go forward strategy from a real estate standpoint. But ultimately, we are even seeing improvements in our China business from a comp standpoint in Q1 relative to the run rates that we've been on. So we have a laser focus on the few regions and the few countries that matter the most on the internet.

Speaker Change: It's easy to read into like China, and saying, we had some strategic closures I think the way that everyone should look at that and think about that as well.

Speaker Change: Taking all the necessary pruning.

Speaker Change: Locations that arent productive.

Speaker Change: Arent as fit to our go forward strategy from a real estate standpoint, but ultimately we are even seeing improvements in our China business from a top standpoint.

Speaker Change: In Q1 relative to the run rates that we've been on so we have a laser focus on quite a few regions and a few countries that matter the most and international.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question.

Operator: Thank you for our next question. And our next question comes from the line of Analyst Strelzik from BMO Capital Markets. Your question, please.

Speaker Change: And our next question comes from the line of analyst from.

Speaker Change: From BMO capital markets. Your question. Please.

Operator: Hey, good morning. Thanks for taking the time to answer the question. I wanted to ask about the development pipeline in North America and how you're seeing that build. If you have a few more months of the incentives under your belt, what kind of visibility do you have on the guidance that you've given for this year? Do you have any visibility to next year as well? Given the top line outlook that maybe some of those conversions get pushed out or don't come to fruition. I guess, how are you thinking about that? Yeah.

Speaker Change: Hey, good morning, Thanks for taking my question I wanted to ask you about the development pipeline in North America, and how Youre seeing that build as you have a few more months of the.

Speaker Change: Of the incentives under your belt.

Speaker Change: What kind of visibility do you have to the guidance that you've given for this year do you have any visibility.

Speaker Change: Next year, as well and I guess.

Speaker Change: I know you're doing a lot of things too.

Speaker Change: Support the economics.

Speaker Change: Currently, but I guess do you see risk as well.

Speaker Change: Given the top line outlook that maybe some of those conclusions.

Speaker Change: It did get pushed out or don't come to fruition I guess, how are you thinking about that thanks.

Ravi Thanawala: Yeah, well, thanks for the question, Andrew. And there are quite a few things there that I want to unpack.

Speaker Change: Yeah, well thanks for the question, Andrew and there's quite a few things there that I want to unpack it.

Speaker Change: First is just a little bit of context.

Speaker Change: Myself and Joe Cvs had.

Speaker Change: Restaurants in North America, and also leads development. We're meeting every single month with a cross functional team to talk about the pipeline of restaurant openings for North America, and a couple of really impactful things one.

Ravi Thanawala: And first, just a little bit of context that myself and Joe Stevie, our head of restaurants in North America, and who also leads development, meet every single month with the cost function team to talk about the pipeline of restaurant openings for North America and a couple of really impactful things. One, we reaffirmed that development in North America is going to be upgraded at 20% year on year. As I look at the pipeline of restaurants that are in the pipeline, whether they're leases that are being negotiated at LOI that are in construction design, we're beating fully above that 20%.

Speaker Change: We reaffirm that development in North America is gonna be upgraded at 20% year on year as I look at the pipeline of restaurants that are in the pipe whether their leases that are being negotiated that allo why that are in construction design, we're beating fully above that 20.

Speaker Change: So we feel good that we're tracking against those objectives second we are.

Ravi Thanawala: So we feel good that we're tracking against those objectives. Second, we are really focused on unit-level economics at Papa John's, and everything we do is balanced in things that we're doing that drive top line and great consumer demand and make sure that it's flowing through to penny profits in our restaurants. And as we look at Q1, we talked about the fact that our restaurant margins were up 220 basis points. And when we actually looked at the month of April and looked at what's happening from a product margin standpoint, even though we had a negative comp, we did deliver positive product margins for the month of April.

Speaker Change: Really focus on unit level economics.

Speaker Change: At Papa.

Speaker Change: Johns and everything we do is balanced and things that we're doing that drive top line and great consumer demand and making sure that's flowing through to any profits and.

Speaker Change: In our restaurants and as we looked at Q1, we talked about the fact that our restaurant margins were up 220 basis points.

Speaker Change: When we actually even look at the month of April and looked at what's happening from a product margin standpoint, even though we had a negative comp.

Speaker Change: We did deliver positive.

Speaker Change: The margins for the month of April what that means is we believe that we are on the right strategy to continue to focus on delivering.

Ravi Thanawala: What that means is that we believe that we are on the right strategy to continue to focus on delivering really meaningful improvements in terms of our unit economics from a restaurant standpoint. And then lastly, from a construction and a build-out cost standpoint, we shared a little bit more detail in our prepared remarks around the stringent and thoughtful RFP process we're going to use to make sure we're driving costs out in an effective way from general contractor spend to furniture and fixtures.

Speaker Change: Really meaningful improvements in service about unit economics from a restaurant standpoint, and then lastly.

Speaker Change: From a construction and build out cost standpoint, we shared a little bit more detail on our prepared remarks.

Speaker Change: Around the <unk>.

Speaker Change: <unk> and thoughtful.

Speaker Change: RFP process, we're going to make sure we're driving cost out in an effective way from general contractors band to furniture and fixtures and we're also doing things like taking a step back and looking at a holistic architectural design and making sure that we're optimizing for construction call. So we are we are.

Ravi Thanawala: And we're also doing things like taking a step back and looking at our holistic architectural design to make sure that we're optimizing for construction costs. So we are, and we're focused on it. And we're focused on making sure development comes to life because we have solid unit-level economics and we are delivering strong restaurant profitability.

Speaker Change: We're focused on it and we're focused on making sure development comes to life, because we have solid unit level economics, and we are delivering strong restaurant profitability.

Speaker Change: Great. Thank you very much.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Alexander Slagle from Jefferies. Your question, please. Good morning.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Alexander Slagle from Jefferies. Your question. Please.

Alexander Russell Slagle: Thanks, Good morning.

Alexander Russell Slagle: Ravi I wanted to get at.

Alexander Russell Slagle: Your perspective, I guess, a follow up on Ken's question earlier in the third party and kind of what.

Alexander Russell Slagle: What point does the third party business get to an optimal size and I know, it's continued to grow nicely and you've called out more opportunity for some of the noncore day parts and other growth.

Alexander Russell Slagle: Avenue's, just trying to get a sense, how big you think it could be and if you get the sense franchise.

Alexander Russell Slagle: Franchisees are continuing to be happy with this trajectory and where it's gone.

Ravi Thanawala: Thanks for the question. Fundamentally, we're taking the mindset that the consumer is. We are going to make sure that we are in the right places, at the right time, at the right price. And while the aggregator business has continued to accelerate, we see that as a consumer pattern that pizza is taking more share in the aggregators, and we've continued to perform well because we've executed well in that space. So while I don't know what the ideal mix is, I think we should be watching consumer behaviors to see how much are consumers migrating to that.

Speaker Change: Thanks for the question.

Alexander Russell Slagle: Fundamentally we're taking the mindset that the consumer decides we're going to make sure that we are at the right places at the right time at the at the right price points and while the aggregator business has continued to accelerate we see that as a consumer pattern.

Alexander Russell Slagle: <unk> that pizza is taking more share and the aggregators and we've continued to perform well because we've executed well in that space. So while I don't know what the ideal mix is I think we should be watching consumer behaviors to see like how many how much are consumers migrating to that but I would.

Ravi Thanawala: What I would say is what is unique to the organic channels is that we have a strong loyalty business. We have a large base with a high active rate. When I look at my experience at other digital-first companies, we have a really solid active rate in terms of members, and we get to offer value to our most loyal consumers in a different way. So our objective, long-term, is not to have our organic business decline and only our growth come out of aggregators.

Alexander Russell Slagle: Say is what is unique to <unk>.

Alexander Russell Slagle: The organic channels as we have a strong loyalty business, we have a large base with a high active right. When I look at my experience at other digital first companies, we have a really solid active rate in terms of members and we get the offer value to our most loyal.

Alexander Russell Slagle: Consumers in a different way so our objective long term is not to have all our organic business.

Alexander Russell Slagle: Alright, and then only our growth coming out of Aggregators. We believe that there is going to be opportunity for us to continue to focus in delivering great service and offering great value to our loyalty.

Ravi Thanawala: We believe that there is going to be an opportunity for us to continue to focus on delivering great service and offering great value to our loyalty that has unique value that you can only get on our organic delivery and Joey Achen.

Alexander Russell Slagle: That has unique value that you can only get on our organic.

Alexander Russell Slagle: Delivery and certainly our channels.

Speaker Change: Great. Thanks.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Dennis Geiger from UBS. Your question, please.

Speaker Change: Thanks.

Speaker Change: Thank you one moment for our next question.

Alexander Russell Slagle: And our next question comes from the line of Dennis Geiger from UBS. Your question. Please.

Ravi Thanawala: Thank you. Ravi, I was wondering if you could talk a little bit more on the new build cost topic. Is there anything you can share on sort of how much lower you're targeting maybe, how much lower those costs could be, or even if you look at it from a returns or payback period, is there something you're targeting there that you guys are able to share between lower build costs as well as incentives where you're at X and you're trying to get those paybacks to Y, you know, and that's kind of the Thank you.

Dennis Geiger: Thank you Ravi I'm wondering if you could talk a little bit more on the Newbuild cost topic is there anything you can share on sort of.

Dennis Geiger: How much lower you are targeting maybe how much lower those those costs can be or even if you look at it from a returns or payback period is there something youre targeting there that you guys are able to share between lower build costs as well as incentives where youre at X and you're trying to get those paybacks to y.

Dennis Geiger: And Thats kind of a magic number for the U S franchisees anything there to to share. Thank you.

Ravi Thanawala: Thanks for the question, Dennis. While we don't share what the buildout cost is, I did reference earlier that Joe Seve and myself are consistently on corporate real estate committees, and we're looking at both franchisee deals as well as corporate restaurant opportunities. And what I can say is that really solid pipeline of corporate restaurants that are generating solid IRRs that we, as Papa John's, would continue to invest our capital in. Specifically, in terms of what we're doing to drive down costs, we're looking at a few big areas, but we're looking at the biggest blocks of expense, which is truly like in general contracting, and second is around equipment.

Speaker Change: Okay. Thanks for the question Dennis while we don't share what the build out costs as I did reference earlier that Joe <unk> and myself are are consistently in corporate real estate committees and we're looking at about franchisee deal.

Dennis Geiger: Deals as well as corporate restaurant opportunities in what I can say is that we have a solid pipeline of corporate restaurants that are generating solid irr's that we as Papa John's will continue to invest our capital and specifically in terms of like what we're doing to drive.

Dennis Geiger: Down cost.

Dennis Geiger: We're looking at a few big areas, but we're looking at the biggest blocks of expense, which is truly like in general contracting.

Ravi Thanawala: And we're running through a really deliberate process to ensure that we are getting great regional rates on our equipment and GC costs. We're providing more optionality for our franchisees based on the volume of the store to make sure that we are building out the store appropriate to the volume that it's going to do and the location. So while we don't share specifics, what I'll tell you is we're doing the right strategic and tactical efforts to drive down costs. And as a franchise, we're continuing to develop, and we're developing because the IRRs are healthy on the deals we're signing. Thank you.

Dennis Geiger: Second is around equipment and we're run into it really deliberate process to ensure that we are getting great regional rates on our equipments in GC costs, we're providing more optionality for our franchisees based on volume of the store to make sure that we are building out the store.

Dennis Geiger: Appropriate to the volume that it's going to do and the locations. So while we don't share specifics, but I'll tell you is we're doing the right strategic and tactical efforts to drive down cost and as a as a franchise or we're continuing to develop and we're developing because the IRR.

Dennis Geiger: Ours are healthy on the deals we're signing.

Speaker Change: Thank you.

Operator: Thank you. One moment for our next question, and our next question comes from the line of Todd Brooks from The Benchmark Company. Your question, please.

Speaker Change: Thank you one moment for our next question.

Ravi Thanawala: Hey, thanks for taking my question. I'm wondering, Ravi, you talked about the lower attach rate of beverages inside. Can you comment on the average check and what the decline was during the first quarter, just so we can get a sense of what that headwind's manifesting itself as? And just following up on a couple of the third-party delivery questions, I know the company's long talked to new entrants growing the category, but when you look at Uber Eats specifically, is Papa John's growing their share on that channel given the new entrants recently Thanks.

Speaker Change: And our next question comes from the line of Todd Brooks from the Benchmark Company. Your question. Please.

Todd Morrison Brooks: Hey, Thanks for taking my question I'm wondering Robert you talked about lower attach beverages and sides.

Todd Morrison Brooks: Key comment what average check.

Todd Morrison Brooks: The decline was during the first quarter just so we can get a sense of what that headwind is manifesting itself hasn't just following up on a couple of the third party delivery questions I know the company's long talk to new entrants growing the category, but when you look at <unk> specifically.

Todd Morrison Brooks: As Papa John's growing their share on that channel given new entrants recently.

Todd Morrison Brooks: <unk>.

Ravi Thanawala: Todd, thanks for the question. So first, when it comes to average ticket, we just want to make sure we remind you and everyone that average ticket was actually up slightly for the slightly up to flat for the quarter, driven by pizza sales being up, sides, beverages, and delivery fees coming down. We still believe that we can unlock some real value by having the right balance of focus on driving attachment but also leaning into our core product proposition itself, where we have been performing, given that the competitive space has And as we previously stated, we believe that there is enough volume for the large chains to be on there.

Speaker Change: Thanks for the question. So first when it comes to average ticket. We just wanted to make sure. We remind mind you and everyone that like ticket was actually up slightly for the for the <unk>.

Speaker Change: Slightly up to flat.

Speaker Change: For the quarter.

Todd Morrison Brooks: Yeah.

Todd Morrison Brooks: Driven by pizza sales being up size beverages and delivery fee coming down.

Todd Morrison Brooks: We still believe that we can unlock some real value by having the right balance of focus on driving attachment, but also leaning into our core product proposition at Sal.

Todd Morrison Brooks: Specific to Uber eats we had been tracking where.

Todd Morrison Brooks: Where we had been performing given that the competitive space is guidance.

Todd Morrison Brooks: There are more competitors on it and as we previously stated that we believe that there is enough volume for us.

Todd Morrison Brooks: The large chains to beyond there and we've been continue to feel good that we are on track and are in our business on that channel relative to what our expectations were.

Ravi Thanawala: And we've been continuing to feel good that we are on track in our business on that channel relative to what our expectations were. And Todd, I actually want to clarify that our ticket was down about half a percent for Q1. And again, that was all specifically related to sides, beverages, and delivery.

Speaker Change: Okay, and so I actually wanted to clarify that our ticket was down about half a per sat for Q1, and again that was all specifically related to sides beverages add the delivery fee.

Operator: Thanks, Ravi. Thank you. Bye. Please take one moment for our next question. And our next question comes from the line of Peter Saleh from BTIG. Your question, please.

Speaker Change: Thanks Rami.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Peter Saleh from BTIG. Your question, please. Yeah, great. Thanks for taking the question.

Speaker Change: Thanks.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from line of Peter Your salary from <unk>. Your question. Please.

Ravi Thanawala: Thanks for the question, Peter. So there it is.

Ravi Thanawala: A couple of factors. One, we believe in this notion that the consumer decides. So what we're seeing is that the consumer is mixing into their channels differently and into their dayparts differently as well. So as we see check management coming to life, we're seeing that the organic carryout business was effectively flat in Q1 versus the organic delivery business that was down. Naturally, when your mix moves more towards carryout versus organic delivery, you see a slight decline in the attachment rate just because the mindset and the occasion for the consumer are slightly different.

Speaker Change: Okay, Danny delivery business that was down naturally when you make some moves more towards carry out versus organic delivery you see a slight decline in the attachment right just because of the the the the the.

Speaker Change: The mindset and the occasion for the consumer is slightly different.

Ravi Thanawala: I think more broadly, consumers are coming to Papa John's right now while they're doing check management. They're buying the things that we are famous for, and that is our core offerings of pizza and our specials. So we're seeing that the consumer is spending more year over year on pizza, and they're pulling back on sides and beverages. We think that we're gonna continue to test offers that continue to improve that mix, but ultimately, we're seeing that consumers are using the channels of aggregators, delivery, and carry out slightly differently.

Peter: More broadly like consumers are coming to Papa Johns right now, while they're doing check management, they're they're buying the things that we are famous for and that is for a core offerings of pizza and our specialty pizza. So we're seeing that the consumer is spending more you over a year and pizza.

Peter: And they're pulling back and sides and beverages weeping that we're gonna continue to test the offers that convenient to improve that mixed by the ultimately we're seeing that consumers are using the the channels of.

Speaker Change: How often they're using the channels of aggregators delivery carry out slightly different and second that we're seeing that the consumer vote for the things that were most famous for specific to loyalty versus non loyalty, we continued to see that our loyalty consumers.

Ravi Thanawala: And second, that we're seeing that the consumers vote for the things that we're most famous for. Specific to loyalty versus non-loyalty, we continue to see that our loyalty consumers are the core of our business, and they are a highly active and engaged group. Well, I don't have any specifics at my fingertips in terms of the differential in behavior there, but what I will say is with our loyalty consumers, we have the ability to touch them much more frequently through emails and through app pushes that allow us to nudge behavior a little bit differently.

Speaker Change: Are the core of our business and it is a it is a highly.

Speaker Change: And engage group well I I don't have any any specifics at my fingertips in terms of like differential behavior, there, but <unk> is like with all loyalty consumers, we have the ability to touch that much more frequently through email and through app pushes that allow us to nudge behavior.

Speaker Change: A little bit differently.

Speaker Change: Thank you very much.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Tim Sanderson from North Coast Research. Your question, please? Hey, thanks for the question. I wanted to go back to the international segment. I think you mentioned

Speaker Change: Thanks Peter.

Speaker Change: [noise]. Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of tomb Sanderson from North Coast Research. Your question. Please.

Tom Sanderson: Hey, Thanks for the question I wanted to go back to the International segment I think you mentioned expecting that the back half of the year could be accretive and that you were also reviewing potential closures can you just provide a little bit more detail about what that entails and that's in the context of mcdonalds recently announcing that they did buy out a franchisee in the mid.

Tom Sanderson: At least just wondering if that's on the table and other marketplaces.

Speaker Change: <unk> yeah okay.

Ravi Thanawala: Thanks for the question, Jim. And I just want to make sure I clarify for the group that we were specifically talking to the UK Turning It Creative in the second half of the year. We believe the fundamental of our business model is to be a franchisor. And that is the core of what we do. We provide great unit economics, and we provide great brand and product innovation. As we think about the success in the UK, I think there's some like real natural learning that we can continue to apply to other markets.

Speaker Change: Thanks for the question Chairman and I just wanted to make sure I can clarify for the group were specifically talking to the UK, turning get creative and the second half of the year.

Speaker Change: We believe this on fundamentals of our business model is to be a franchise or and that is the core of what we do is we provide great you'd need economics with like great brand names and product innovation as we think about like the success in the U K I think there was some like real natural learning. So we can continue to apply to other <unk>.

Ravi Thanawala: We got highly consumer-centric, in terms of what the consumer was telling us they needed from a value and a product innovation standpoint. We made sure we were positioning our franchisees to deliver fantastic service. And as we started to change hands between franchisees and continue to get our stores into More Seasoned Operators, we saw a meaningful sales list. And third, as we went back and remapped our trade zones, our DMAs, we saw opportunities where we should be making strategic closures because it makes the overall market more profitable.

Speaker Change: Markets, we got highly consumer centric in terms of like what was the consumer telling us they needed from my value in a product innovation standpoint <unk>.

Speaker Change: We made sure we repositioning our franchisees to deliver fantastic service and as we started to change fans between franchisees and continue to get our stores into season four season operators and we saw meaningful sales list and third as we went back and re mapped our trade.

Speaker Change: <unk> R. D M. As we saw opportunities, where we should be making strategic closures because it makes the overall market more profitable. It improves you knew that economics. It allows us to have really cohesive trade zone. So we're partnering back with our franchisees across the world to take a similar.

Ravi Thanawala: It improves unit economics and allows us to have really cohesive trade zones. So we're partnering back with our franchisees across the world to take a similar playbook of being highly consumer-centric, making sure product innovation is coming through, and pushing us as an organization to make sure we're laser-focused on the trade zones, the DMAs, and cities we want to win. Okay, and just a quick follow-up: in the UK specifically, do you think your service levels are improving? Yes. When we look at delivery time, when we look at out-of-the-door times, we are seeing improvements.

Speaker Change: Hey, bug or being highly consumer centric, making sure product innovation is coming through and pushing.

Speaker Change: US as an organization to making sure we're laser focus on the trade zones D. Amazing cities, we want to live in.

Speaker Change: Mmk and just a quick follow up in the UK, specifically do you think your service levels improving.

Speaker Change: Yes, but when we look at delivery time, when we look at it out the door times, we are seeing improvements.

Speaker Change: Alright, thank you.

Ravi Thanawala: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Ravi Thanawala for any further remarks.

Speaker Change: [noise]. Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to rugby 10 wala for any further remarks.

Ravi Thanawala: Thank you. I'd like to sincerely thank all of you for your time this morning and your continued interest in Papa John's. I hope that you've taken away from our conversation today that we're facing a challenging macro consumer environment where customers are really being thoughtful about check management and their wallet, but we have a plan of action and remain confident that our Back to Better 2.0 strategy is going to set us up for long-term growth and success. We look forward to keeping you up-to-date on our progress and connecting again for our second quarter results in August.

Speaker Change: Thank you I I liked this silly. Thank all of you for your time this morning, and and your continued interest in Papa Johns I Hope that you have taken away from my conversation today that we're facing a challenging macro consumer environment, but customers are are really being thoughtful about check management there.

Speaker Change: Wallace and their wallet, but we have a plan of action and remain confident in our back to better a 2.0 strategy is gonna set us up for long term growth and success and we look forward to keeping you up to date on our progress in connecting again for our second quarter results in August.

Speaker Change: Thank you.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference.

Speaker Change: Thank you, ladies and gentlemen for your participation in today's kind of.

Speaker Change: [music] [music].