Q1 2025 Papa John's International Inc Earnings Call
Speaker Change: Big for standing by and welcome to Papa John's first quarter, 2025 conference call and webcast [inaudible]
Speaker Change: At this time, all participants are in listen only mode. After the speakers presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. You'll need to press star 11 on your telephone.
Speaker Change: If your question has been answered, and you'd like to remove yourself from the queue, simply press star 11 again As a reminder, today's program is being recorded And now I'd like to introduce your host for today's program, Heather Hollander Senior Vice President, Strategy and Investor Relations Please go ahead Thank you for your time, and I'll see you in the next program.
Speaker Change: Good morning and welcome to our first quarter 2025 earnings conference call. Earlier this morning we issued our first quarter earnings release which can be found on our Investor Relations website at ir.papajohns.com
Speaker Change: Joining me on the call this morning are Todd Penegor, President and Chief Executive Officer, and Ravi Thanawala, Chief Financial Officer, and Executive Vice President International.
Speaker Change: Cummins May during this call will include four-looking statements within the meaning of the federal security's laws. 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 FCC filings.
Speaker Change: In addition, please refer to our earnings release and our Investor Relations website for the Requires Reconciliation of non-GAAP financial Measures discussed on today's call.
Todd Penegor: Lastly, we ask that you please limit your questions to one question and one follow-up. And now I'll turn the call over to Todd.
Todd Penegor: Thank you, Heather, and good morning, everyone. I'll begin today's call by sharing an update on the progress we made during Q1 as we execute our plans to be the best
Todd Penegor: The strategic investments we've made to improve our value proposition, drive traffic in our restaurants, and enhance our customer experience our driving momentum in the business.
Todd Penegor: As evidenced by the sequential improvement in sales and transaction comps versus the fourth quarter, along with transaction share gains despite a challenge macro environment.
Todd Penegor: While there is still work to be done to unlock our full potential, we are moving forward with a sense of urgency and confidence in our ability to deliver on our promise to be the best pizza makers in the business.
Todd Penegor: Since the second half of 2024, our team has been orientated around a strategy based on five key priorities focusing on core product and innovation.
Todd Penegor: Amplifying our marketing message, investing behind our technology infrastructure, differentiating our customer experience, and partnering with and evolving our franchisee base.
Todd Penegor: I'd like to spend the next few minutes going through each of these priorities in more detail and highlight how they're supporting our efforts to realign the Papa John's business.
Todd Penegor: First, we are relentlessly focused on our core product and innovation and innovation.
Todd Penegor: In Q1, we made the intentional decision to better leverage our traditional barbell strategy, which involves positioning our premium menu offerings alongside our popular value-orientated options to ensure that we're offering craveable menu items across occasions and price points.
Todd Penegor: To do so, we play strong messaging behind our epic stuffed crust pizza priced at $13.99 nationally while also supporting our strong-value message with our popular $6.99 pop-up earrings.
Todd Penegor: This positioning worked as our epic stuff crust pizza, which offers a significant competitive size advantage at 14 inches, delivered solid performance and increased pizza orders in March during our national promotion.
Todd Penegor: Our Barbraille strategy is a great example of how we are taking action to bolster our value proposition while also driving traffic to increase our for-while profitability.
Todd Penegor: We've also seen that our value proposition and discipline focus on pizza as our core product has consistently reinvigorated pizza orders.
Todd Penegor: From our New York style pizza that has now offered in a variety of sizes including medium to our fan favorite chequeroni to the highly shareable star shape pizza recently launched across several international markets.
We are delivering innovative, highly relevant products to our customers.
Todd Penegor: Additionally, as part of our focus on delivering a high-quality core product, we continue to review and remove under-performing excuse from the menu, and we'll continue our menu simplification efforts throughout the year.
Todd Penegor: On our path to being the best pizza makers in the business, we are focused on improving product consistency across our restaurants, starting with examining our oven calibration, bake temperatures and bake times.
Todd Penegor: Oven calibration may seem like a small thing, but our ovens are the most important equipment in our kitchens, and a key component in delivering a great customer experience and opening new
Todd Penegor: Our oven calibration efforts kicked off in Q1 and we expect to see the first benefits from this work by mid-summer.
Todd Penegor: This foundation enables product innovation across multiple layers of our menu, including new crest development opportunities.
Todd Penegor: We look forward to introducing exciting new offerings across the barbell, beginning with the second quarter, including new uses for our popular dipping sauces and even a new pizza format.
Todd Penegor: Turning to our second priority, Papa John's is a challenger brand with a fighter mentality. We've embraced this position as we amplify our marketing message to win the customer's consideration and deliver exceptional quality and strong value perception across consumer segments.
Todd Penegor: In our latest marketing campaign Meet the Makers, we developed a compelling message that showcases real team members in our restaurants answering the question why Papa John's
Todd Penegor: This campaign demonstrates the craftsmanship that goes into each pizza and the intense passion our team members have for making the products we serve.
Todd Penegor: As we continue to innovate across the menu, we're also improving our value perception relative to our restaurant peers [inaudible]
Todd Penegor: Our brand health tracker showed meaningful improvement in value perception after we shifted to consistently showcasing our Papa
Todd Penegor: We were also very pleased to see significant gains in customer awareness and consideration amongst QSRs during the quarter, indicating that our marketing strategy and investments are delivering early positive results. Thank you very much.
Todd Penegor: We are excited to build on this success with the evolution of our brand campaign. Consumer research shows that simple, fresh ingredients and handcrafted food are important differentiators that influence purchase decisions.
Todd Penegor: And we have an opportunity to be more intentional in the way we highlight the quality, simplicity, and freshness of our ingredients, which have always been our differentiator.
Todd Penegor: This insight is the foundation of the next chapter of our new ad campaign focusing on our commitments to high quality ingredients and fresh never frozen original dough made with only six simple ingredients.
Todd Penegor: In Q1, we also put media dollars to work across the barbell showcasing premium offerings, such as our epic stuff crust platform and our strategic boost [inaudible]
Thank you.
Todd Penegor: These incremental media investments have reinforced the Papa John's brand while also improving transactions.
Todd Penegor: We recognize that pizza is a game played nationally, but one locally . .
Todd Penegor: As we amplify our marketing message, we are investing to win share of voice at both the national and regional levels, drive transactions, support continued testing of value propositions, and increase our agility.
Todd Penegor: In the first quarter, we invested approximately $7 million in incremental marketing to test media mix, customer communications, and messaging tactics while reinforcing our core message. Papa John's Pizza delivers a high quality meal at an attractive value.
Todd Penegor: We were pleased with the early learnings and anticipate investing up to an additional $25 million in marketing this year above our spend in 2024 to build on this success.
Todd Penegor: The third area of our strategic road map is investing behind our technology infrastructure.
Todd Penegor: More than 70% of our sales are made on our own digital channels, so we have a tremendous opportunity to improve customer engagement, win market share, and improve for well profitability through technology and data science.
Todd Penegor: We're seeing substantial gains in our app conversion rates and higher repeat purchases as we further develop our CRM capabilities and improve our end-to-end digital customer experience.
Todd Penegor: As a part of this, we announced a long-term partnership with Google Cloud, which will enhance our ordering and delivery experience and take personalization to the next level, leveraging the power of AI.
Todd Penegor: Google is a clear leader in technology and their capabilities will help us unlock opportunities like anticipating customer cravings, optimizing delivery routes and setting the standard for an elevated experience from click to crust
Todd Penegor: This is one example of how we are moving at an accelerated pace to transform our technology and regain tech leadership.
Todd Penegor: Our fourth priority is differentiating our customer experience to meet and exceed convenience, value and quality expectations within the customer's channel of choice.
Todd Penegor: In November , we lowered the redemption threshold for our Papa Rewards Loyalty Program, allowing members to unlock Papa Doe Faster.
Todd Penegor: Well, the change decreased our overall order ticket by approximately 130 basis points. We saw significant improvement across our loyalty platform, adding approximately 1 million more loyalty members in Q1 and bringing our total popper rewards membership to over 37 million.
Todd Penegor: Importantly, we saw growth among our medium and high frequency loyalty consumers and faster repeat orders
Todd Penegor: We are pleased with the response to the loyalty changes we've implemented and plan to build on this progress by further enhancing our loyalty program throughout 2025.
Todd Penegor: Consistent with our focus on improving our customer experience, we conducted a holistic mystery shop program in partnership with a third party to assess our competitive performance across a range of order experiences.
Todd Penegor: Well, we are pleased to see that our carry out experience and enhanced digital platforms exceeded industry standards. The results also highlighted an opportunity to continue to improve our delivery experience.
Todd Penegor: We know we can do delivery better and leveraging our new partnership with Google. We will improve driver dispatch and routing, increase the accuracy of our delivery time estimates and provide better driver tracking. Thank you.
Todd Penegor: Our last strategic priority is partnering with and evolving our franchisee base to be growth oriented as we strive to increase our market share and accelerate restaurant development in our most impactful markets. We'll sustainably improving our restaurant economic model.
Todd Penegor: Currently, we have 539 company-owned restaurants across North America that operate with the highest standards and operational excellence which we believe present a compelling opportunity for a franchisee looking to grow or diversify their own business.
Todd Penegor: With that in mind, throughout the quarter, we have evaluated refranchising select company-owned restaurants to future focus franchisees as they look to scale across various markets.
Todd Penegor: Ultimately, we are focused on improving the profitability of all Papa John's restaurants, and we have a number of active work streams in our supply chain to reduce our overall cost to serve.
Todd Penegor: We remain committed to high-quality, better ingredients, such as our fresh, never-frozen, original dough with six simple ingredients But we know we can deliver that same quality at a lower cost to our restaurants [inaudible]
Todd Penegor: We are in the midst of aggressively evaluating opportunities to optimize the value proposition of our vertically integrated supply chain and better serve our franchisees. We look forward to updating you on these efforts on a future call.
Todd Penegor: We are very encouraged by the progress we have made as we execute on our strategic priorities, aimed at improving sales, strengthening the restaurant economic model, and delivering profitable growth.
Todd Penegor: Our improved value proposition, optimized creative, and enhanced customer experience are driving improvements in sales and transactions, as well as transaction share gains.
Todd Penegor: We plan to build on this momentum in the second half of the year with accelerated product innovation, including new piece of formats, crust flavor and topping innovation.
Todd Penegor: We are excited about the many opportunities ahead and confident that we have the right plan and the right team to create great experiences for our customers and increase value for both our franchisees and shareholders
Todd Penegor: And with that, I'd like to turn it over to Ravi to discuss our first quarter financial results in greater detail. Ravi?
Ravi Thanawala: Thank you, Todd, and good morning everyone. Our first quarter performance was in line with our expectations.
Ravi Thanawala: Global Systemwide Restaurant Sales were $1.22 billion for the first quarter, up 1% when compared with the prior year quarter in constant currency.
Ravi Thanawala: Consistent with our expectations, North America comparable sales decreased 2.7% in the first quarter compared with the prior year quarter
Ravi Thanawala: The second quarter in a row, comps, improves sequentially, totaling 290 basis points of improvement since we implemented our value proposition work following the second quarter of 2024
Ravi Thanawala: We are also encouraged that comp sales improve sequentially each month throughout the first quarter.
Ravi Thanawala: North America Transaction Comps were down less than 1% when compared with the prior year and improved 120 basis points sequentially compared with Q4 as we focus on improving our value perception and investment in transaction driving initiatives.
Ravi Thanawala: Conjections continue to perform well on key occasions in the quarter, such as the Super Bowl, Valentine's Day, Pi Day, and more recently, the NCAA Basketball Tournament.
Ravi Thanawala: We grew transaction chair in the first quarter and we remained focused on driving transaction growth given the high variable profitability of our transaction and the opportunity to improve for wall profitability for our franchise needs.
Ravi Thanawala: First quarter ticket comms were down 2% versus the prior year.
Ravi Thanawala: with more than 50% of the decline driven by a strategic decision to lower the threshold for rewards redemption in our loyalty program in the fourth quarter.
Ravi Thanawala: Additionally, we sold a higher mix of medium pizzas in the quarter as we focused on value driving transaction.
Ravi Thanawala: Finally, we saw a continued shift in our fulfillment channel mix driven by the relatively profit neutral impact of reduced delivery fees
Ravi Thanawala: These pressures were partially all set by the positive impact of increased items per order.
International Comparable Sales increased 3% year-over-year in the first quarter.
Ravi Thanawala: We're seeing the benefits of our International Transformation Initiatives which strengthen across our focus countries.
Ravi Thanawala: Total revenues for the first quarter were $580 million, up 1% from last year as higher commentary on advertising fun revenues were mostly offset by lower revenues at our company
Taking a closer look at our segment
Ravi Thanawala: Tom Leone, Restaurants, Revenue, Decreased $17 million in the first quarter versus last year
Ravi Thanawala: This decrease was primarily driven by a $12 million decline at our international company-owned restaurants.
Ravi Thanawala: Reflecting the net impact of closing and refranchising 105 formerly company-owned restaurants in the UK, and a $5 million decline at our domestic company-owned restaurants primarily due to lower comparable sales and a $5 million decline at our domestic company-owned restaurants primarily due to lower comparable sales and refranchising
Ravi Thanawala: Commissary Revenue increased $11 million, reflecting higher commodity prices in the quarter and a hundred basis points increase to our cost plus fixed margin rate.
Ravi Thanawala: Advertising fund revenues increased $7 million to support higher levels of national marketing relative to last year.
Ravi Thanawala: First Quarter Consolidated Adjusted Evidob was approximately $50 million, down from $61 million a year ago, and in line with our expectations
Ravi Thanawala: The decline in adjusted EBITDA was primarily driven by, anticipated higher GNA expenses of approximately four million dollars related to our by annual franchisee conference.
Ravi Thanawala: Investments of approximately $7 million to drive growth such as incremental marketing to reinforce our value proposition and the loyalty platform that Todd previously referenced and higher equity for purchase in the prior year due to executive departures.
Ravi Thanawala: As a reminder, we define consolidated adjusted EBITDA as net income excluding stock-based compensation, interest expense, taxes, depreciation, and amortization and one-time charges that do not affect the underlying fundamentals of our business operations.
Ravi Thanawala: Overall our domestic company own restaurant segment EBITDA margins declined approximately 550 basis points compared with the prior year for a quarter driven by approximately 185 basis points of pressure from lower average ticket
Ravi Thanawala: A decrease of approximately 140 basis points for my investments in brand building marketing.
Ravi Thanawala: Approximately 130 basis points of pressure from higher food costs, particularly around cheese and protein
Ravi Thanawala: and a reduction of our approximately 90 basis points from labor inflation in the quarter.
Ravi Thanawala: Our first quarter North America commissary segment, adjusted EBITDA margins were 7.3% and the increase of approximately 50 basis points from a year ago. We're reflecting the flow through from the changes to our cause plus fixed margin model.
Ravi Thanawala: Turning to the balance sheet. In March, we refinance our existing revolving credit facility and secured a new $200 million dollar term loan to provide us with additional financial flexibility and liquidity to execute on our strategic priorities.
This transaction was leveraged neutral and extends our maturity profile
Ravi Thanawala: At the end of the quarter, our total available liquidity was approximately $494 million in cash and borrowings available under our credit facilities and our gross leverage ratio was 3.4 times.
Turning now to cash blows. [inaudible]
Ravi Thanawala: For the first quarter, net cash provided by operating activities was $31 million.
Ravi Thanawala: Free Cash Well was $19 million dollars and increased over the prior year, which primarily reflects the timing of cash payments for the National Marketing Fund and improved working capital along with lower capital expenditures.
Now turning to our Outlook [inaudible]
Ravi Thanawala: said, we're confident that we have the strategy in place to accelerate sales throughout the year while making the strategic investments necessary to strengthen the long-term health of the Papa John system and yield incremental growth opportunities.
Ravi Thanawala: With that in mind, we are reiterating our 2025 Financial and Operational Metrics [inaudible]
Ravi Thanawala: For 2025, we continue to expect system-wide sales to increase between 2 and 5% compared with 2024, supported by sequential improvement in North America comparable sales throughout the year, international sales growth, and continue new rush on development.
with our Barbell Strategy, Optimized Creatives, and Enhanced Loyalty Program.
Ravi Thanawala: Already Delivering Improvements in Sales and Transactions, we plan to build on this momentum in the second half of the year with accelerating product innovation, including new pizza formats, crust labor and toppings innovation.
and we know that cross-newness drives consumer engagement.
Ravi Thanawala: From a comparable sales perspective, we also anticipate that North America comparable sales will be flat to up 2% in 2025.
Ravi Thanawala: The second quarter is expected to deliver sequential improvement compared with the first quarter reaching flat monthly comparable sales by mid-year and positive accelerating comp sales as we exit 2025
Ravi Thanawala: Through the first five weeks of the second quarter, North America comparable sales are down less than 1% when compared with the same period in 2024, and comparable transactions are up over 1%.
Ravi Thanawala: Internationally, we continue to anticipate that full year 2025 comparable sales will be flat to up 2% as we remain cautious in our outlook given the dynamic global operating environment. [inaudible]
Ravi Thanawala: For 2025, we expect consolidated justice EBITDA to be between $200 and $220 million $200 million.
Ravi Thanawala: Compared with $227 million in 2024 as our teams execute on our strategic priorities and we make investments to drive sustainable long-term growth and improved four-wall economics.
Ravi Thanawala: As a reminder, our definition of adjustedeva.excludes.base compensation, interest expense, taxes, depreciation, and amortization.
as well as exclusions for certain one-time items.
Ravi Thanawala: Our definition of adjusted G&A excludes the same one-time items as adjusted iveda but does not exclude stock base compensation
Ravi Thanawala: There were several timing-related nuances for our quarterly advertising and adjusted
Ravi Thanawala: Specific to Q2. We expect to invest five to seven million dollars of incremental marketing spend compared to the same period last year.
Ravi Thanawala: For Q2-GNA, our management incentive plan will also reset. Altogether, we expect Q2-adjust the GNA to be approximately $4 million higher than Q1.
Ravi Thanawala: Overall, we expect second half adjusted GNA to be in line with Q1 2025 levels.
Ravi Thanawala: 2025 and 2026 are investment periods for Papa John's as we execute our plans to be the best pizza makers in the business.
Ravi Thanawala: and generate high single-digit systemized sales growth, improved four-wall restaurant profitability and adjusted even that growth over the longer term.
Ravi Thanawala: For 2025 non-operating expense items, we expect our DNA expense to be between 70 and 75 million are net interest expense to be between 40 and 45 million
Ravi Thanawala: and our capable spenders just to be between $75.85 million.
Ravi Thanawala: As a reminder, we expect our tax rate to be in the range of 28 to 32% .
Turning to Restaurant Development [inaudible]
Ravi Thanawala: We ended the first quarter of 2025 with 6,019 restaurants globally.
Ravi Thanawala: We still expect to open between 85 and 115 gross new restaurants in North America in 2025, and approximately 70% of remaining projected openings are currently in the construction design or later stages. [inaudible]
Ravi Thanawala: As a reminder, due to construction and permitting timelines, the majority of our new rations tend to open in the back half of the year.
Ravi Thanawala: For restaurant closures, we continue to anticipate our closures will return to a historical average of approximately 1.5 to 2% of the North America system.
Ravi Thanawala: From an international perspective, we open 29 new restaurants in the first quarter, while closing 42, bringing our international restaurant count to 2500 and three .
Ravi Thanawala: We continue to make significant progress in our international transformation while carefully evaluating marketplace help and considering strategic closures to ensure the continued help of the Papa
Ravi Thanawala: For 2025, we still expect to open 180 to 200 gross new restaurants across our international markets [inaudible]
Ravi Thanawala: We will continue to monitor territory-specific trends as geopolitical and market dynamics continue to change.
Ravi Thanawala: Going forward, we anticipate international closures to will be between 4% and 5% of our international system outside of any strategic market closures to improve marketplace health.
Ravi Thanawala: In closing, we are confident in our strategy to deliver profitable growth and pleased with the momentum building in our business.
Ravi Thanawala: We remain laser focused on delivering a better customer experience, improving for wall profitability, and delivering value creation for all stakeholders.
Todd Penegor: with that, I'll turn it back to Todd for some closing talks.
Todd Penegor: Thank you, Ravi. Before we open it up for questions, I want to share that last month I joined more than a thousand attendees at our Biannual Franchisee Conference, which brought together Franchisee's Operation Partners, Suppliers, and team members from across the Papa John System.
Todd Penegor: We had the opportunity to share a business update, present our transformation initiatives, sample new menu offerings, and collaborate with our franchise partners to grow sales and profitability across the Papa John system.
Todd Penegor: We see very positive feedback on the event and are grateful for our franchisee's time, commitment, and engagement.
Todd Penegor: Together, we continue to make great progress towards our number one priority of creating great experiences for our customers and employees in our restaurants [inaudible]
Todd Penegor: Now I'd like to open up a call for any questions you may have.
Speaker Change: Certainly, Andrew, our first question comes to the line of Brian Bittner from Oppenheimer, your question please.
Thank you. Thank you.
Thanks, good morning!
Speaker Change: As it relates to demand trends, it seems as though you're seeing some consistent sequential improvements since the year began in your traffic.
Ravi Thanawala: Todd, I just love to hear how you're viewing this consumer environment, you're operating in from Papa John's perspective, or you may be perhaps a bit more optimistic as the year unfolds from a consumer health perspective.
Ravi Thanawala: Yeah, thanks for the question, Brian . You know, as we look at consumer confidence, it does remain challenged amid the economic and market volatility. We're all talking about it. We all see it. We've seen intensification on competitive pressures in the promotional cycles.
We've also seen some challenges on the lower income cohorts. But...
Ravi Thanawala: You know, what we're really encouraged on is we've made a lot of progress. We've improved our value perception. We're back in
Ravi Thanawala: in position on that. We continue to drive more traffic into our restaurants, as you see in with the sequential improvements, in our...
Ravi Thanawala: Same Restaurant Sales Combs and some of the transaction share gains that we noted on the call.
and we're working hard to really enhance the customer experience.
and we know you.
Ravi Thanawala: You know, value for the money is not just about sharp price points, so we've been playing the barbell strategy well with 6.99 pop of pairings and premium news
Ravi Thanawala: But we also know quality plays a big role. We've been enhancing our customer experience and our restaurants consistently over the last several quarters. So,
Ravi Thanawala: You're starting to see the benefits of all of that with the solid start now into Q2 through the first five weeks, as we noted on the call, same restaurant sales are now down less than 1% and our transactions are positive more than 1%.
Ravi Thanawala: and we know we've got a lot more news coming in the back half of the year as we really start to lean into a more traditional innovation approach where we're bringing some news to life on a more consistent basis around crust flavors. [inaudible]
Ravi Thanawala: Some new pizza formats, some topping innovations, and even some dipping options. So we think we will be able to actually recruit new customers into the brand and continue to wear wind share a stomach along the way.
Ravi Thanawala: Thanks for that. And just a quick follow up is just as it relates to the incremental advertising, are you able to dive perhaps a little deeper into?
Speaker Change: Any early learnings on how the deployment of this is impacting demand or how you expect it to potentially impact demand moving forward just based on based on what you've seen. Thank you very much.
Speaker Change: As we talked about, we had about seven million dollars of incremental media to test marketing in the first quarter and about the same that we've got planned here in the second quarter . . . . . . . . . .
Speaker Change: You know, we continue to check and adjust. The team's been not doing a great job really trying to find the optimal mix between national and regional spend. We've got a lot of media mixed tests out there to make sure we got the right balance between linear social digital and continual involve our social and digital voice.
Speaker Change: and a lot of work with the refinements on leveraging our data better around customer communications in the CRM space.
Speaker Change: under Original Doe with Sink Simple Ingredients. When you get the flour, water, sugar, oil, salt, and the yeast, that's a differentiator in the category and we're going to amplify that and it's relevant to today's consumer when you think about the quality message that we deliver day in and day out.
Great, thank you
Speaker Change: Thank you, and our next question comes from the line of Andrew Strelzik from PMO Capital Market. It's your question, please.
Andrew Strelzik: Hey, good morning. Thanks for taking the question. Obviously a lot of different areas that you're working on and making progress on. I guess I'm curious where you feel like you've made the most progress within those initiatives or maybe where you feel like you're pacing ahead or behind with some of the key areas that you've been working on.
Andrew Strelzik: I think there's two pieces where I feel really good. I mean, on the technology transformation, as we provide Kevin Vasconi into the organization who's built out his team and partnership with the marketing team.
Andrew Strelzik: You know, we've been really leveraging our data significantly different when you think about how we're managing CRM and connecting to our consumer.
Andrew Strelzik: The Change in Loyalty Program clearly allows us to leverage the engagement with the loyalty consumer. It's really been some trends with a great value proposition and really having cash that's rewarded that bounces you back for every visit.
Andrew Strelzik: So I feel really good about the progress we're making on the technology front
Andrew Strelzik: I love that we're really making some really good progress on telling our story around pizza craftsmanship and the quality message that we have around better ingredients and better pizza, and we've made some great strides there Thank you very much.
and operationally. [inaudible]
Andrew Strelzik: The opportunity is we're really rebuilding our innovation pipeline. You know, you've seen we've been fastballed down the middle back after last year or early this year with the promotional cadence that we've had.
Andrew Strelzik: It's allowing us to deliver better pizzas and as we talked about on the prepared remarks our core pizza business you know more pies delivering up about 4% you know we got some leaky buckets around papadillas and and papal bites but those are rhythm breakers they get us back to making really core pizza. So, I'm going to give you a little bit of a little bit of a little bit of pizza.
Andrew Strelzik: But you're going to see a start to really have some consumer lead insight driven innovation in the back half [inaudible]
Andrew Strelzik: that is durable and sustainable, and news that attracts some of those new customers into our business. And we're really working hard to build a great shelf of strong innovations, not just to finish this year, but into 2026.
Speaker Change: Okay, great. That's helpful. And the international momentum continues to pick up from the same store sales perspective. Can you just talk about some of the drivers there regionally where you're seeing particular strengths just a little bit more color on the outlook? Thanks.
Speaker Change: Yeah, as I've talked about over the killing four quarters, we're in the middle of international transformation, and we've been pleased with the initial results, but I still say we're in early endings.
Bob.
Andrew Strelzik: We've laid out like what our focus countries are, when I take a step back and look at them, the vast majority of those markets are growing mid single digits or double digits at this point in time.
Thank you. Thank you.
Specifically to the UK, we're up 1% and... [inaudible]
Q1 and we're accelerating.
Quarter to Dave in Q2. We're seeing them a couple of things play out. One, we've accelerated our pace of innovation in those markets and I've been really thoughtful about how we roll out innovation over time. We're going back and
Andrew Strelzik: Taking a hard look to make sure that we're executing on our quality proposition as great as we can.
Andrew Strelzik: And I think the third thing is that, like, as there's a little bit of shake out or market consolidation happening across the globe in the pizza category, we're seeing that we are gaining share and
Andrew Strelzik: in Spain, in Middle East, and a number of the countries in the Middle East were already back to like three conflict levels, and we're excited about the growth opportunity that we have in the United States. Thank you.
Great. Thank you very much
Speaker Change: Thank you, and our next question comes from a line of Eric Gonzalez from Keybank. Your question, please?
Eric Gonzalez: Hi, thanks for the question. I think you mentioned the potential to improve supply chain costs for your franchisees. I'm just curious how big that opportunity could be relative to your franchisees overall for all margins. And would you expect a path on all that savings for the franchisees?
Eric Gonzalez: Distribute to our stores day in and day out. We think there's meaningful savings that we're going to see. They will be passed along, you know, through to the system to really enhance the restaurant economic model and we'll get to benefit with our company ownership there along the way.
Eric Gonzalez: and we start to see, we'll probably start to see some of the savings really take hold in 26. So we'll talk a lot more about this on the next call where...
Eric Gonzalez: in the midst of really deciding what levers we can and should pull and bring in the franchise community along on that journey.
Eric Gonzalez: But we are absolutely committed to finding efficiencies and the supply chain to help offset some of the margin enhancements that we're taking on with some of the retraining we did with the franchise community last year. I think that was dropping. Maybe a few things that I'd want to add, like first and foremost, quality is part of our competitive mode, and as Todd's kind of talked about, like Adel was made with six simple ingredients.
Eric Gonzalez: First. Our cheese is real cheese made from mozzarella. Our sauce goes from fine to sauce in 24 hours. Those are things that are part of our competitive mode. But at the same time, we see opportunities to improve the four wall economics. Let's see what we can do.
Eric Gonzalez: for our franchisees, and as Todd talked about, we're relentlessly focused on that and we see this as a multi-year initiative that both from a focus for us as well as benefit for the franchisee community, and we look forward to sharing more of it.
That's great and then-
Eric Gonzalez: on the, you know, talk about the company own restaurants and some potential refranchising that you're considering.
Eric Gonzalez: Do you have an idea of maybe where you would take your franchise mix over time as you try to spark that growth with the incentive of being able to buy some of those company owned stores?
Eric Gonzalez: Ultimately, as we shared back in December , we're really focused on our core markets where we have a strong one or two position [inaudible]
We've got some other great markets that could allow...
Eric Gonzalez: You know, growth-minded franchisees to take on to scale up or bring some fresh blood into our system to really set ourselves up for long-term success but
Eric Gonzalez: When you think about that corridor from Indianapolis, down to Louisville, Nashville, Atlanta, that's really core [inaudible]
Eric Gonzalez: and we'll have to take a hard look at everything else, but we're really focused on running those restaurants really well and making an impact in our business for the long run in the company restaurants to be a great brand steward and showcase operational excellence in every restaurant that we own.
Eric Gonzalez: fantastic growth oriented franchisees who have been really striking the right balance of price value, transaction oriented orientation and we think that they'll to play a big and outsize role in helping us to continue to flesh out the events.
Markings of Strength
That's great. Thank you
Speaker Change: Thank you, and our next question comes from the line of Peter Saleh from BTIG, your question, please.
Thank you. Bye.
Peter Saleh: Price Premium for the higher quality ingredients you guys offer. Looks like you guys are going to double down on that campaign. Can you just talk a little bit about the timing of the campaign on more higher quality ingredients? And do you still feel like the customer appreciates that as you belong to pay a little bit more of a premium for the higher quality ingredients? And then I have a follow up. Thanks.
Peter Saleh: Yeah, we'll see over time whether the consumer really pay for the quality of the ingredients, clearly it'll always be a tiebreaker and we think over time as we execute well at the restaurant level, the spirit of worth what you pay the consumer will start to reward us for that work.
Peter Saleh: You know, if you think about where we started the year, we wanted to get back to our core. And it was really around this Meet the Makers campaign that is really focused on the pizza craftsmanship and what we do
around handcrafted food in our restaurants. That's relevant today.
Peter Saleh: And as we really looked at messaging that the consumer is looking for, high quality value for the money, feed the family affordable, we can play that role with the great quality. And you'll see our Meet the Makers campaign evolve in short order here.
Peter Saleh: to not only talk about the great things we do in the restaurant but really highlight our unique differences, really being proud of the six simple ingredients that we have in our original dough and we'll continue to leverage that message moving forward.
Speaker Change: Great. And then just as a follow-up on the oven calibration, Todd, that you mentioned that kicked off in 1Q, can you elaborate a little bit on what exactly that is? I know you have several different types of ovens in the market. Does that need to be completed before you start the innovation in the back end of the year? Just trying to get a little bit more color on that. Thanks.
Speaker Change: Yeah, we're moving really fast on that and it's really around, we started to really speed up our ovens a few years back and as you look at, you know slowing down the oven speed adjusting the bake temp
Speaker Change: There's an opportunity to really drive a better bake on our core pizza You know we're working on that initiative in earnest and you know if we'll have that largely completed here in the first half of the year so we'll start to see those benefits in the back half
Speaker Change: That will complement all the innovations that are coming to market, but not necessarily something that really needs to be the lead to make that happen at the moment.
Speaker Change: But over time, it opens up a lot more opportunity for us. We slow that oven down. There's different crust types that we can start to bring to life on our core pizza.
Speaker Change: and a tool in our restaurants and oven that can unlock a lot of opportunities for years to come around what we bring to life for our consumer.
Thank you.
Speaker Change: Thank you, and as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 111 on your telephone. Our next question comes from the line to Jim Salera from Stevens. Your question, please.
Good morning. Thanks for taking our question.
Speaker Change: I wanted to ask about just the kind of expectations for QSRP's category. I believe on the previous call, you guys mentioned traffic for the category of flat to slightly down.
Speaker Change: And since then, consumer sentiment, I feel like it's probably gotten marginally worse.
Than what the expectations were at that time. [inaudible]
Speaker Change: Given the reiterated guidance, could we bridge that to point to maybe some market share gains that you guys are anticipating or just any thoughts on that dynamic will be helpful?
Thanks, Jim, for the question. I'll be in, I'm, so...
Speaker Change: We think that there are company-specific growth drivers for Papa John's, and as Todd talked about in the prepare remarks, our strategy across how we're focused on their core product [inaudible]
Speaker Change: New Sales Layers coming in the back half of the year, the Envancements and Loyalty, our new innovation partnership with Google. We believe that even if the category is a bit challenged.
Speaker Change: We are well positioned to take transaction share and that's what we've seen in the business through the first five months of the year and we are [inaudible]
Reading and reacting in the business. [inaudible]
Continue to improve.
Speaker Change: Well, thanks for that, Ravi. I mean, we've been really focused on bringing in more customers more often. And we've talked about that for a while. We had to get back into position.
Speaker Change: and we do think it allows us on a transaction share basis to continue to bring more folks in more often.
Speaker Change: You know what we need to continue to do then is turn that into you know higher average checks over time and working on that between pricing and innovation and the promotional cadence and and we know we can we can bring that to life and we know that we got high variable margin on every incremental transaction that we bring in so we feel good about all of that.
Speaker Change: and you know, Ravi mentioned the Google Cloud partnership and we really look at that as an innovation partnership opportunities to enhance ordering and delivery experience and a hurry, you know, take personalization to the next level or as Kevin likes to say hyper personalization and we got the opportunity to bring that to life.
Speaker Change: Things like anticipating customer cravings, or optimizing delivery routes, or elevating the experience from click to crust.
Speaker Change: You know, others may have done some of those things already. Those are all in front of us and opportunities to really capitalize to better connect to our consumer to drive frequency. And remember, our focus has really been around driving folks into the loyalty in our core consumer to date and really driving frequency around the core. We haven't had news in a while to really recruit new customers into our portfolio and you will see a steady cadence of some news in the back half of the year.
Great, and maybe a quick follow up on the rewards program.
Speaker Change: Are you able to quantify or give us see what percentage of orders are redeeming Papadot before and after you guys reduce this threshold? And I don't know if there's like an ideal mix of orders that you would like to see redeeming some type of rewards and just any thoughts there would be helpful.
Speaker Change: Yeah, we've seen a substantial increase in the number of our loyalty members.
Speaker Change: who are earning, it's about 75% of our loyalty members actually earn a reward every time that they purchase on our first party channel. And what we're seeing is about 50%.
of our loyalty.
consumers actually redeeming. [inaudible]
and what's felt? [inaudible]
really exciting about this experience. [inaudible]
is that if you purchase [inaudible]
Speaker Change: from on like the Sunday evening, Monday morning or Monday afternoon you're getting a push notification.
So, to re-engage with the brand and it's really helping us to stay relevant up in mind from
Speaker Change: of the consumer, and just for context, like we more than doubled the number of consumers who are redeeming Papa Dow. And I think the bigger point for us here was like
Speaker Change: Data Science and our understanding of the consumer is a core part of our competitive mode and really like pairs nicely with this notion of like
Speaker Change: Focus on quality, focus on the simplicity of our ingredients, and we think that it's a long-term durable strategy for us to continue.
Speaker Change: You know, lean into like our product proposition and lean in and take advantage of a great data science [inaudible]
Text back.
Speaker Change: Our loyalty program is working as we intended it to, and when you think about providing...
Speaker Change: Cold Hard Cash for your next bounce back, that's a differentiator. We're not bouncing you back to a different product or something you might not want. We're giving you two value on the next purchase and we're seeing the time to the next purchase, you know, improve and we think that's an opportunity for the life cycle of that customer. Thank you very much, Eric.
Speaker Change: to really have a good investment and a great return. So we're going to continue to recruit more folks into the loyalty program. You see that with over our loyalty members up another million people over the last quarter. And we think it's a big opportunity to drive the business moving forward.
Speaker Change: Great. I appreciate all the color. I'll hop back in here.
Thank you.
Speaker Change: Thank you, and our next question comes from the line of Sara Senatore from Bank of America. Your question, please?
Sarah Thanator: Thank you. I have a, I guess, one small, one big question. The smaller one is just, you talked about improving the economics of a franchisee margin.
Speaker Change: You know, are they seeing the same kind of pressure and I guess in that sense, you know, it sounds like you still feel good about the re-francizing but I'm just trying to understand if, you know, the extent to which if pressure continues does that does that hamper that and then the bigger question maybe it's just [inaudible]
Peter Saleh: To your point, you offer better quality, particularly competitive on price and you're sort of a smaller scale than some of your competitors. So maybe Todd haven't worked for challenger brands. How do you square that circle where maybe your cost is not the lowest cost? What's the cost?
Peter Saleh: But you know, you need to offer better quality at a very compelling or competitive value. So where do you, you know, where do you see the opportunity to do that if you kind of subscale? Thanks.
Speaker Change: Yeah, a couple of thoughts, and I'll turn it over to Ravi to finish on the franchise economics, you know, and refranchising the good news is there's a lot of interest in folks that want to become a part of the Papa John's family. We've had
You know, on the quality front, you know...
Speaker Change: and to more social and digital, and really having a voice that's unique to Papa John's to point out our unique quality differences.
Speaker Change: There's a huge opportunity to connect to the next generation of consumer, and we're seeing that right now as you think about next generation, the consumers that were more in the consideration set in our brand awareness is improving. And we're going to continue to lean into that, and things like six simple ingredients on our original dough and real cheese from mozzarella and pizza sauce from buying to sauce from 24 hours, those things matter, and they matter a lot. And it's a huge opportunity to make sure that you're ready for the next generation.
People know that, that's only can come from Papa John's [inaudible]
Speaker Change: and we can do it at a very affordable price point because pizza is a very good value for the money category and if things get a little tougher I think the consumer truly realizes that on around what they can do to feed a family of three or four at a very affordable price but franchise economics some of the things we're doing to enhance margin and kind of the company versus franchise.
Perspective, I'll turn it over to Ravi. Ravi.
Ravi Thanawala: Yeah, so a couple of days one we think the level of four-wall pressure we saw in Q1 for the corporate rash on is somewhat transitory and will obey it as we progressed.
Ravi Thanawala: through the year, and there are a couple of factors there, just what I look at, like period three or March results, where we are recently, we've seen meaningful improvement in what our fruit costs. [inaudible]
Ravi Thanawala: A couple of that adds not only fixed cost leverage, but better. [inaudible]
Variable Properability through the model.
Ravi Thanawala: Deal Optimization and Pricing Shredged at this point that we strike that right balance
Ravi Thanawala: of winning consumers hearts and minds, given where the consumer is today, but protected before while economics for the long term.
Ravi Thanawala: to protect the known as the franchise or and now we're thinking about like what is our market share strategy and growth plans for the balance of the company markets and then over the right time horizon we'll pair them up with
Ravi Thanawala: Great Growth-oriented franchisees and will lean in because like as we talked about in a number of our corporate markets, we're in the 20s from a market share standpoint. We don't think we're done and there is clear growth opportunity left for us. [inaudible]
Ravi Thanawala: You know, our growth oriented franchisees, they don't really care about the system average at all. They care about how they're performing and the franchisees who have been focused on delivering fantastic service
at Grey Price Values. [inaudible]
and balancing profitability. [inaudible]
Ravi Thanawala: are faring quite well and they continue to be optimistic and we see that their business is actually accelerating in many cases right now.
Ravi Thanawala: Other franchisees who have may have been playing a slightly different game in terms of the transaction versus price value that they may be going through a little bit more of a reset.
Ravi Thanawala: But, broadly, we've seen a lot of interest in the assessment to continue to look for system optimization opportunities and interest in talking to us about our corporate markets.
Thank you. Appreciate both your insights. Thank you.
Thank you. Bye.
Speaker Change: Thank you, and our next question comes from a line of Brian Mullan from Piper Sanderson. Your question, please.
Brian Mullen: Thank you. Just wanted to ask about the asset-based potential to remodel stores.
Brian Mullen: At the annual state, you talked about this as something that could help moving forward, particularly on carry out Just talk about one, maybe one of the plans for the company own stores in terms of remodeling
Brian Mullen: and then two, you know, how about the Franchise Z base? Is there work on your end to encourage Franchise Zs to go down this path as well? Any color would be great.
Brian Mullen: Yeah, now we're in the early innings of really working out the business case on re-imaging. We partner with some franchisees down the Orlando market. Got that almost completely re-emmaged at the stage and we've got to now bring it to life and activate to make sure we drive customers back to our restaurants.
Brian Mullen: We'll continue to lean into that and build into our guidance in a company market as the year progresses to
Brian Mullen: We really test and learn and see how re-imaging can really re-engage with the consumer and driver-carrier of business and complement the value perception of our overall brand. We won't really see a lot of the re-imaging start to take place until 26-27.
Brian Mullen: And we'll talk a little bit more about that as we get into the later parts of this year and some of our thoughts and guidance on how we're going to bring that to life as we move forward. But we do think it's important our asset base has got to older and tired.
We got an opportunity to re-image.
Brian Mullen: We just got to continue to refine the economics to make sure that it works for the franchise community and we know it may take a little bit of incenting and a little bit of push to bring that to life to life.
Brian Mullen: But I think our entire system realizes that it's an important part of what we need to do to drive the brand image over time. And we'll start to lean into that more as this year progresses and we get into early next year. Let me just two things I would add is just like, like we're probably more convicted now that we were even a quarter ago on the carry out opportunity. Ready.
Brian Mullen: Kerry out, what was up low single digits and Q1 from an order standpoint, the top mid single digits quarter to day Q2, we see meaningful opportunity for us to continue to take share in that space. What we're also seeing is as we reset the value proposition.
Brian Mullen: Leaning in a little bit more into medium pizzas at certain points in the year.
Brian Mullen: Connecting that to a carryout consumer, we see that this could be a sales driver and an incremental sales layer for us to continue to build on, that's going to benefit the four wall economics.
Brian Mullen: Benefit, Frequency, and Benefit, the business for the long-term. I think Keobie is, we get into some of our high market share markets and really focus on where do we drive some in-fill opportunities with new builds, but how do we make sure that the existing restaurants are re-imagined and how do we really leverage kind of one plus one to equal three to unlock a lot of market share growth in those markets and play from a position of strength, the big part of our strategy moving forward.
Okay, thank you guys.
Speaker Change: Thank you and our final question for today comes from the line of Jim Sanderson from North Coast Research Your Question Please
Jim Sanderson: Hey, thanks for the question. Just wanted to follow up on the Seagrish opera study you did.
Jim Sanderson: If you could provide any feedback on what current delivery times you observed and if this was potentially a gating factor that...
Jim Sanderson: Limit consumers from ordering during peak periods and more or less what type of opportunity you see ahead to improve that delivery time and drive a deeper customer engagement. Thank you.
Jim Sanderson: Yeah, thanks, Jim, and what I would say is that there is meaningful variation in terms of what the total time to deliver is from.
Jim Sanderson: Friday night at 7 p.m. at one market to Friday night at 7 p.m. and another market. But probably more importantly is like how we're working with our innovation partnership with Google to like want to improve the tech stack holistically that's going to benefit the entire system. And two, in the particular trade zones and markets where we have meaningful market share, where are the ways that we're going to are going to benefit the entire system. And that's going to benefit the entire system. And that's going to benefit the entire
Jim Sanderson: strategically split the market, continue to lean into carryouts, drive incrementality, and improve the service level.
Jim Sanderson: Well, we know is that temperature plays an important role in terms of consumer satisfaction and taking the food. So, as Todd talked about this, this, this, of in calibration, this has meant to work on multiple layers. It helps us to unlock new innovation. It's also going to help us to continue to deliver the best quality product for the consumers from a delivery experience standpoint.
Jim Sanderson: You know, we do know we have some opportunities on the delivery experience, both first party and third party and those are all addressable and we got actions in place and we know we can make meaningful difference to great better consumer experiences, which will drive the business moving forward. So,
Jim Sanderson: We appreciate the work that the team did to really make sure we had that visibility and can have those discussions with our franchise community.
Speaker Change: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Todd Penegor for any further remarks. Thank you very much.
Todd Penegor: Well, really appreciate you all joining us today. Thanks for the great questions as usual. It's an exciting time for Papa John's as we continue to reinvest to transform our business.
Todd Penegor: I really want to thank our team members and our franchise community for the hard work and the partnership as we work really to serve our customers even better and connect to the communities that we're in. Have a great day everyone and look forward to talking to you soon.
Todd Penegor: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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