Q2 2025 Papa John's International Inc Earnings Call

Good day, and thank you for standing by. Welcome to the Papa. John's second quarter 2025 conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question answer session to ask a question during the session. You will need to press star 1, 1 on your telephone. You will then hear an automated message advising. Your hand is raised.

To withdraw your question, please press star 1 1 again.

Please be advised that today's conference is being recorded, I would now like to hand the conference over to your speaker today. Heather Hollander SVP of investor relations. Please go ahead.

Good morning and Welcome to our second quarter 2025 earnings conference call.

Earlier this morning, we issued our second quarter earnings release which can be found on our investor relations website at IRP Papa, johns.com under the news and events tab or by contacting, our investor Relations Department.

Joining me on the call this morning are Todd pinnegar president and chief executive officer and Robbie. Thano Wallace Chief Financial Officer and executive, vice president, International.

Comments made during this call will include forward-looking statements within the meaning of the federal Securities laws.

These statements may involve risks and the 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. Filings in addition, please refer to our earnings release and our investor relations website for the required reconciliation of non-gaap financial measures. Discussed on today's call.

Lastly, we ask that you please limit your questions to 1 question and 1 follow-up and now I'll turn the call over to Todd.

Thank you, Heather, and good morning, everyone. I'm pleased to be with you today to discuss our better than expected second quarter results and provide an update on the meaningful progress. We are making in transforming the business.

It's been just over a year since I joined the Papa John's team, and we've accomplished a lot in a short period of time. Thanks to the hard work and dedication of our team members and franchises. The progress we've made is substantial for example. We've successfully returned the company to positive comparable, sales and transaction growth in North America, with our barbell strategy, and enhanced loyalty program in place. Our brand strength has improved significantly and strategic Investments are enabling us to deliver great experiences for our customers.

Taken together, I am confident that we are on the right path towards profitable growth.

Our goal is to be the best pizza makers in the business and we are laser focused on continuing to execute our strategy. To grow restaurant sales, generate sustainable profits through the system and build long-term value for all of our stakeholders.

I stepped into this role knowing that Papa John's was a resilient 1 of A Kind brand with a commitment to Quality. Ingredients Superior operations, and outstanding customer service.

While the company had a great foundation in place, we needed to make additional changes to improve our operations and deliver better financial results. And we are.

over the last year, we've spent time in our restaurants restaurant, support centers and qccs across the company, and have been meeting with our franchises team members vendors and Community Partners,

1 of my first priorities was building out the Papa. John's leadership team. We supplemented our strong bench of existing Talent with the addition of several key industry leaders to build a consumer. Focused, insights driven experience team with years of Quick Service, Restaurant, digital and Retail experience.

With our team in place, we came together to establish a strong strategic plan built around 5 key priorities.

Focusing on our core product and premium innovation amplifying. Our marketing message across consumer channels is investing in our technology infrastructure.

Differentiating. Our customer experience and partnering with and evolving, our franchisee base.

Our second quarter results, which exceeded our expectations, are evidence that our strategy is working.

The North America business returned, a positive comparable sales ending the quarter up 1%.

We also delivered sequential Improvement across several key International markets, driving 4% comparable, sales growth in Q2.

Ravi will share additional details about our second quarter performance in a few minutes.

But before he does, I'd like to review each of our 5 priorities and share more about the progress. We've made against our plans to transform the Papa. John's business.

First, we are focused on improving our core product proposition and premium menu Innovation throughout our restaurants.

We're building a menu to not only capture the hearts and stomachs of customers but also generate margins that improve profitability for our franchises.

Our consumer research consistently shows that exciting menu innovations bring in new customers.

And the second quarter. We introduced cheddar crust made on our fresh. Never Frozen original dough in our North American restaurants.

Our cheddar Crest Innovation combined with the addition of a fan favorite shaq-a-roni. Pizza is a long-term menu item plus continued. Strong value message with our popular 699 Papa pairings delivered an increase in both the average number of Pies per order and overall pizza sales versus last year.

In Q2 the number of pizzas ordered increased 6% demonstrating both the power of our deep focus on our core product as well as value.

Internationally, we made global QSR news with the launch of our expertly handcrafted Croissant Pizza in our Dubai restaurants. Our Croissant Pizza pairs the flaky texture of a buttery croissant with the bold flavors of Papa John's Pizza for an elevated pizza experience.

After 1 year in development, an extensive consumer. Validation croissant Pizza is a prime example of how our talented culinary teams are blending. Global food culture with the high quality Pizza. Craftsmanship that only. Papa John's can deliver.

We look forward to expanding the launch of this exciting product to other International markets.

We're also making progress in our oven calibration work, which allows us to advance our innovation while also delivering greater product consistency across our restaurants.

Our ovens are the single most important piece of equipment in our restaurants, and by regulating bake time and temperatures. We're able to improve our ability to deliver a consistent pizza with each and every order.

Our oven calibration work kicked off and the first quarter and were already seeing benefits with improvements and our product quality and taste scores.

This work also opens a variety of new product Innovations and layers across our menu, including new crust and formats.

Beyond oven calibration, we are making great progress. Rebuilding, our Innovation pipeline leveraging, deep consumer insights, worldclass suppliers and our strong culinary team.

In fact, our consumer Insight work led us to develop an on-trend, shareable Pizza format and a new lineup of dipping sauces.

These are 2 of the innovations that will be launching over the second half of the year as we lean into abundant value and expand into new flavor profiles.

Turning now to the progress we've made on our second priority, which is to amplify our marketing message.

We've been hard at work, creating a marketing message that speaks to Papa John's differentiation among qsr pizza companies.

At the end of June, we launched the second chapter of our popular meet the makers marketing campaign leaning into the 6. Simple ingredients of our fresh, never Frozen original dough.

6, simple ingredients is a strong point of differentiation with high importance among consumers.

Our customers have told us that using simple fresh ingredients is our biggest and most important, differentiator, and we've doubled down on that message and our national marketing campaign.

Emphasizing our points of differentiation and showcasing select core products at relevant price points.

This will be part of our long-term strategy to win customers and deliver compelling for wall economics.

Ultimately, we think the world deserves better Pizza.

And we are here to deliver it.

We continue to proactively invest in local marketing efforts at our company-owned restaurants. We said it before, and we'll say it again. Pizza is a game played nationally but 1 Loc.

In the second quarter, we invested approximately $9 million in incremental marketing versus last year.

Well, a portion of this spend was allocated to working media, to support on a large scale. Our improved value proposition. We also invested in our test and learn platform expansion to evaluate new promotions and CRM tactics.

We are also leveraging analytics and a strong testing protocol to optimize the allocation of our marketing spend across channels further, improve our marketing Roi and better meet customers where they are.

As we continue to invest in marketing, we are continuously measuring and adjusting our mix towards the most efficient and effective use cases to drive long-term growth supported by data driven insights.

Overall, our Target approach to amplify our marketing is paying off. As we've seen continued improvement in our brand Health, including a significant increase in consumer, consideration following the launch of our meet, the makers campaign.

We've also grown our share of voice on social channels and launched compelling activations. Including Cheney dirty, soda and stress. No balls, which are resonating particularly well with Gen Z.

For pleased to see that our work to strengthen and amplify our creative Advance, our social presence and optimize mix is increasing the impact of our marketing efforts.

Our third strategic priority is investing in our technology infrastructure under Kevin Vons leadership. We are implementing our technology roadmap with the goal of reestablishing. Papa John's as a best-in-class, technology leader in qsr.

By better utilizing data and leveraging AI. We believe, we can create a more seamless experience across our digital assets and own channels, and better connect with customers.

This work is especially powerful because it builds on the advancements. We're making in marketing by inviting customers into the brand and then layering in hyper personalization to drive additional engagement and retention.

We're already seeing the benefits from this work with substantial engagement gains and our CRM, platform higher app, conversion and improving. Repeat purchase rates amongst our digital users.

In April, we announced our partnership with Google Cloud aimed at transforming our customer experience from click to crust while driving operational efficiency in our restaurants.

We are currently in the beta testing phase for new omni-channel experiences, including the planned introduction of an all-new customer-facing app that is designed to improve navigation, reduce clicks to purchase, improve order tracking, and enhance targeted communication.

Leveraging, the power of AI, we plan to enhance the ordering experience better anticipate. Our customers needs generate proactive recommendations and share relevant offers and messaging based on learned customer preferences.

We are also working to utilize voice, AI solutions to drive customer orders and deliver operational efficiency.

We look forward to updating you on this and many other exciting advancements.

Our partnership with Google Cloud is only one of the mechanisms that we're employing to make the customer ordering journey more personalized, more consistent, and more impactful.

With approximately 70% of our system sales generated by our own digital channels. We believe that building a more robust technology infrastructure will lead to higher Revenue improved, operational, effectiveness and better Returns on our marketing Investments.

our fourth priority, differentiating, our customer experience, across all of our channels under pins each of our strategic pillars,

Starting with our loyalty program. We continue to benefit from the lowering of our Redemption threshold late, last year and allowing members to unlock papao faster.

Though, this enhancement decreased our overall order ticket by approximately 100 basis points. In the quarter, the benefits far away, the ticket impact

As a result of this change, we are acquiring new proper rewards, members, more members are redeeming, papao and our loyalty customers are returning for their next order more quickly.

To our pop-up Rewards program. Since the November relaunch.

The enhanced loyalty platform has proven to be a great customer acquisition tool for our brand, while also driving higher order frequency among all customer cohorts.

As we look ahead, we will continue to pursue opportunities to build on this progress and enhance our proper rewards programs to drive additional activation and recruit more new customers to our loyalty program.

As a consumer-driven and insights LED brand, it is critical that we serve our customers on their channel of choice.

That means continuing to partner with third-party aggregators.

Pizza, as a category, is underrepresented on aggregator platforms, and we see many opportunities for category growth, as well as growth for Papa John's specifically.

We were a first mover among qsr, pizza companies in the aggregator ecosystem. Having first partnered with third-party delivery providers in 2019.

We command a leading position in the category in terms of sales per store, and this has not changed with the entrance of competitors onto the platforms.

Within the aggregator Marketplace. We believe that the most successful players will be those who best serve the customers and provide the highest quality product.

Papa John's, with our premium positioning, high-quality simple ingredients, and great value, has a strong competitive advantage.

We are encouraged by the strength, we're seeing within the aggregator Channel, as overall sales and orders continue to grow High. Teens in the second quarter versus the prior year.

As we mentioned in our last earnings, call our Mystery Shop, study revealed that our carry out in digital platforms. Were top in class among qsr, pizza restaurants.

Also, showed us that we need to improve our delivery experience and we are taking action to do just that.

For example, we are currently rolling out a systemwide delivery tracking service that will provide better driver tracking for our customers. So they will know exactly when they're hot maid to order, pizza will arrive at their doorstep.

Currently approximately 60% of our restaurants offer are updated delivery tracking service and we expect to substantially complete. This roll out to all North American restaurants by the first quarter of 2026.

delivery is a very important component of our business and we are committed to consistently, providing a great delivery experience,

Finally, our operations team have been hard at work and proving execution and delivering a more consistent experience in our restaurants.

Through restaurant visits and evaluations, coaching, and tools to improve product quality, we are improving our customer satisfaction scores in line with our goal to be the best pizza makers in the business.

Our fifth strategic priority is partnering with and evolving our franchisee base to drive profitable growth through market share gains, accelerating restaurant development in our most impactful markets, and sustainably improving our restaurant economic model.

After the quarter closed, we signed an agreement for the sale of our ownership stake and a joint venture that operates 85 restaurants.

we expect the transaction to close by the fourth quarter of this year, and we plan to use proceeds to fund investments in our strategic initiatives, as well as pay down debt

We also continue to evaluate reranch opportunities across our portfolio of company-owned restaurants in North America.

We believe that reranch was strategy forward. Well, capitalized and growing franchises. Strengthens the long-term health of the Papa John system and unlocks future growth opportunities.

Finally, we are working to improve the 4 wall economics at all. Papa John's restaurants and we have completed an extensive review of our North American supply chain to reduce overall costs to serve.

We have identified an opportunity to achieve more than $X in total cost savings, with approximately 40% expected to be realized in 2026.

through a series of initiatives, we will optimize our supply chain and enhance productivity while maintaining the same high quality better ingredients in our restaurants,

Overall we plan to deliver margin Improvement of at least 1 percentage point to our average North American restaurant. Once the program is fully ramped by 20208

As I reflect on my first year as Papa John CEO, I am highly encouraged by the early progress we’ve made against our strategic priorities. We’re attracting new customers to the brand while driving incremental purchases from existing customers.

We've developed marketing messages that are resonating with our most important customers.

We've established a plan to deliver significant cost savings to our franchises without compromising the customer experience. And we've implemented our technology roadmap with the goal of reestablishing. Papa, John's as a best-in-class, technology leader in qsr.

Importantly, we've returned the brand to Topline growth while making strategic investments in Innovation marketing and Technology to drive profitable growth in the future.

We've made a great deal of progress in the last year, but our work is just getting started.

We recognize the significant opportunity ahead and are moving forward with enthusiasm and determination as we Implement our plans and build on the foundation. We've established

We are in a solid position to deliver sustainable value creation to all stakeholders as we move into the second half of 2025 and beyond.

And with that, I'd like to turn it over to Robbie to discuss our second quarter Financial results in Greater detail. Robbie

Thank you, Todd, and good morning, everyone.

I will begin my comments with an overview of our second quarter results, followed by our financial outlook.

please note that all comparisons and growth rates reference today are compared to the prior year period unless otherwise noted

We delivered solid performance in the second quarter, generating top and bottom line results that exceeded our expectations.

In the second quarter, Global systemwide restaurant sales were 1.26 billion dollars up 4% in constant currency.

As Todd noted North America, comparable, sales increased 1% in the second quarter and outperformed our expectations.

Second quarter. Transaction comps in North America grew 1% and improved 220 basis points sequentially. As we further monetized our strategic investments in transaction driving initiatives.

Sales and transaction growth are a key. Focus areas for us. Given the long-term benefits for 4 wall profitability, and the high variable profitability of our transactions.

Second quarter ticket comps decreased by less than a half a percentage point, driven by the strategic changes to our loyalty programs in the fourth quarter of 2024, as well as product mix shifts. We again saw growth in the sales of medium pizzas versus other sizes in the quarter.

These pressures were partially offset by the positive impact of an increased number of pizzas sold per order.

International comparable, sales increased. 4% were pleased with the results of our International transformation initiatives, which are yielding near-term growth. While also setting the stage for long-term value creation.

Total revenues for the second quarter were 529 million and increase of 4% primarily driven by higher commissary revenues and partially offset by lower revenues at our company-owned restaurants. Mostly related to UK rep franchising activity and Market optimization efforts,

Commissary revenues, increase, 20 million driven by higher volume and pricing in the quarter.

This increase was partially offset by a million dollar. Decrease in company-owned restaurant revenues driven by an 8 million dollar decline. In our International company-owned restaurants reflecting the net impact of closing and reranch 105 formerly company-owned restaurants in the UK.

Partially offset by a million dollar increase at our domestic company-owned restaurants driven by comparable sales growth as a result of higher, average, ticket, slightly offset by the re-rating of 15 restaurants in the prior year.

While Consolidated adjusted. Ibidi decline modestly to approximately 53 million, this reflects Investments to fuel stronger, customer engagement and long-term brand equity.

Second quarter consolidated, adjusted EBITDA performance was impacted by incremental loyalty and marketing investments of approximately $9 million. As we continue to build momentum with our most valuable customers and position the brand for long-term growth.

Anticipated elevated GNA related to 3.7 million dollars of higher incentive compensation, under our management, incentive plan, and higher food, and labor costs at our company-owned restaurants.

These higher expenses were partially offset by Revenue growth.

Declined, approximately 220 basis points, primarily driven by a decrease of approximately 210 basis points from labor inflation. Aggregator fees and advertising in the quarter, approximately 140, basis points of pressure from higher food costs, particularly around cheese, and proteins, and 60 basis points of decline driven by General expenses and Technology fees.

These declines were partially offset by 190 basis. Points improvements from average ticket growth

We accomplished this level of check growth even as we continue to support our value offerings, across the barbell.

As we move forward, our focus is driving long-term gains in transaction, share and winning in customer consideration.

We will balance restaurant level margins against strategic investments in our brands that we believe will yield stronger 4-all economics over the long term.

North America, commissary segment, adjusted evid out margins. Were 7.3% in the second quarter and the Improvement of 130 basis points reflecting higher volumes and pricing.

Turning to our balance sheet. At the end of the quarter our total available liquidity was approximately $500 million in cash and borrowings available under our credit facilities and our gross. Leverage ratio was 3.4 times

Turning now to cash flows for the first 6 months of 2025 net cash provided by operating activities was approximately 67 million. Free cash flow was 37 million. An increase of 24 million. Primarily reflecting the timing of cash payments for the national marketing fund and improved working capital.

Now, turning to our Outlook.

We continue to make meaningful progress on our strategic priorities. And with that, in mind, we are raising the range for international comparable sales guidance, while reiterating the remainder of our 2025, annual guidance. For 2025, we continue to expect systemwide sales to increase between 2 and 5%.

From a comparable sales perspective, we still anticipate that North America comparable sales will be flat to up 2% in 2025.

Through the first five weeks of the third quarter, North America comparable sales are down approximately 1% as we've seen a more cautious consumer and softer carryout business.

Given our plans to leverage our barbell strategy with strong value messaging and a compelling full-margin product, we expect that North America comparable sales will accelerate through the remainder of the third quarter. We anticipate further acceleration in the fourth quarter as we build momentum and layer in.

New product innovation.

Internationally, we are pleased with the continued Improvement that we are seeing across our restaurants.

Given recent trends and the operational strength in our priority markets, we are raising our 2025 international comparable sales growth outlook to a range of 2% to 4%.

As Todd chaired, we have entered into an agreement to sell our ownership stake, in a joint venture that operates 85 restaurants in the US.

We anticipate closing the transaction in the fourth quarter, which we expect will reduce fourth quarter consolidated revenue by approximately $15 million, including the impact of eliminations.

On the Nano basis. This transaction is expected to reduce Consolidated Revenue by approximately 60 million dollars, including the impact of elimination.

The transaction is expected to have a negligible impact on that income.

We have contemplated these impacts in our financial guidance.

For 2025, we continue to expect consolidated adjusted EBITDA to be between $200 million and $220 million.

As a reminder, our definition of adjusted ebida excludes stock-based, compensation, interest expense taxes, depreciation and amortization as well as exclusions for certain 1-time items.

Our definition of adjusted G&A expense excludes the same one-time items as they adjusted EBITDA, but does not exclude stock-based compensation.

We continue to expect stock-based compensation to be approximately $4 to $5 million per quarter.

I'd like to share several timing related nuances for our quarterly adjusted GNA spend.

5 to 7 million dollars of incremental marketing spend in Q3 compared to the same period last year.

We also expect Q3 and Q4 adjusted GNA dollars to be in line with q1 2025 levels.

2025 and 2026 are an investment periods for Papa John's. As we execute our plans to grow restaurant sales, improve for Wall restaurant, profitability and accelerate the impact of the Papa John's brand globally.

For 2025 non-operating expense items. We expect our DNA expense to be at the higher end of our 70. To 75 million range. Our net interest expense to be between 40, and 45 million, and our Capital expenditures to be between 75 and 85 million. This capex range is inclusive of an estimated 8 to 13 million dollars of spend to rebuild facilities. Following tornado damage at our Texas QC Center and Louisville restaurant support center and QC Center.

We also continue to expect our effective tax rate to be in the range of 28 to 32%.

Finally we expect diluted shares outstanding of approximately 33 million in the second half of the year.

Turning to restaurant development, we ended the second quarter of 2025 with 5,989 restaurants globally.

In North America, we opened 19 new restaurants and closed 18. Bring our total North America restaurant. Count to 3517,

Given the Strategic decision were making to improve the long-term health of our restaurant system. We anticipate North America restaurant closures will be at the higher end of our historical average of approximately 1.5 to 2% of the North America system.

It's worth noting that half of the forecasted restaurant closures are non-traditional or small-town restaurants that carry a blended average sales volume, which is less than half of our system average.

We continue to expect to open between 85 and 115. Gross new restaurants in North America in 2025 and over 95% of remaining projected. Openings are currently in construction design or later stages.

Internationally our transformation as well underway and is driving positive results. Our most impactful markets in the UK, a market that has undergone significant transformation. Since 2023, operational improvements has led to improved brain health stores. New marketing campaigns have acquired new customers and growth. And aggregators has contributed to sales increases.

Within Middle East and Africa. We are gaining momentum in key markets and plan to build on the trend with our croissant Pizza in the second half of the year.

In our International markets, we opened 26 new restaurants in the second quarter and closed. 57 bringing our International Restaurant, count to 2472

Consistent with our International Market optimization strategy. We closed 41 underperforming restaurants in China in the second quarter.

These closures had a minimal impact on systemwide sales and we expect they will strengthen the Chinese market over the long term.

We are taking a disciplined approach and working closely with our Master franchisee to optimize the market and ensure that the Papa John's brand is well, positioned for long-term profitable growth.

For 2025, we still expect to open 180 to 200 gross D restaurants across our International markets going forward. We anticipate International closures will be

Between 4 and 5 International systems outside of any strategic Market closures, to improve Marketplace health.

For 2025, we expect to be at the higher end of this closure range. Inclusive of the Strategic closures. I described

In closing, we are pleased to have delivered second quarter results above our expectations.

We are focused on executing our strategy, that is delivering results and positioning. Papa John's for profitable growth and value creation for all stakeholders.

With that, I'll turn it back to Todd for some closing thoughts.

Work to transform the business by executing on 5. Strategic priorities. Is resulting in tangible positive results across the organization and we are excited about the substantial upside ahead.

Now would like to open the call up for any questions you may have.

Thank you as a reminder, to ask a question. Please press star 1, 1 on your telephone, and wait, for your name to be announced.

To withdraw your question. Please press star 1 1 again.

We ask that you please limit yourselves to 1 question and 1 follow-up question. Our first question comes from the line of Jim Cera from Stevens.

Hi, this is Tyler Palace.

you know, given the recent

To return some regional marketing efforts. Could you share any insights into frequency trans you deserve particularly in the context of the to quickly accelerating cops? North America

Yeah, Tyler. I, you know, as we've started to think about spending our incremental marketing dollars and putting some money to work to uh, not only drive the business nationally, but really make sure we got the appropriate support locally. We use some of our incremental dollars to do some heavy up, testing to test and learn, um, and partner with some franchises and peace, strategic markets to see what kind of returns we could get, but it's still the early Innings of all of that.

So, um, more to come on, how we're actually going to continue to get focused, um, at the, uh, local level moving forward. Uh, as we really try to get focused on some of our, our most, impactful markets, where we know where we can spend some dollars, get the co-ops back up and running uh, to really compete even stronger, uh in partnership with uh with our franchise Community working, as a unit at the Co-op level, to really complement our national messaging. So early early, lots of learnings, a lot more to come and we're going to take our franchise community on that Journey moving forward.

Thank you. 1 moment for our next question.

Our next question comes from the line of Andrew stellick from BMO Capital markets.

Hey, good morning. Thanks for taking the questions. Um,

You know you mentioned 2q exceeding your expectations uh North America costs are a little ahead of what what? It seems like you would expected. Where do you think you're getting more traction than, than you anticipated across those initiatives? And then, just kind of as a follow-up? I know it's only 1 month so I don't want to make too much of that. But um, what gives you confidence in the react over the balance of the year? Uh, based on? What's in your pipeline, thanks?

Yeah, thanks for the question, Andrew. You know, very proud of the work. The team has done to uh, you know, get North America growing again at plus 1% on same restaurant, sales comps really on the heels of uh, you know, transaction growth being up 1%. So we are bringing in more customers more often. I think it's a combination of everything that we have out there. Return to a more traditional barbell, um, had some Innovation, uh, for the first time in a while. Um, which helped on the high end of the barbell with the cheddar Crest Pizza. Putting shaq-a-roni on as a, you know, more permanent long-term item is been a positive but, you know, the foundational work that we've done, um, over the last 9 months to really make sure we have the tools that are disposal to lean in to CRM to make sure we can better connect to our consumer, to leverage our loyalty program which is driving a lot of frequency. And you know we continue to gain members on that front. We're seeing uh some really nice growth and our our loyalty program. And as we look forward, the opportunity is to really leverage Innovation. A little bit more to

Recruit customers back into our brand. Um, we know if we can bring some laps in, we can bring some new in, we can get them converted into our loyalty program, and we can grow, uh, and drive some nice momentum in our, uh, in our business, moving forward. Yeah, we're in the early Innings of third quarter, um, you know, more cautious consumer, we're watching nor carry out business, probably started a little bit softer than we, uh, had hoped for at the beginning of the quarter, but we can quickly check and adjust on that front. We're lapping over at the beginning of the quarter uh some heavier promotional.

Um throughout the back half uh to deliver on our commitment in North America flat to plus 2 and then importantly we still have a lot of momentum on International, right? Um, we ended up calling up the year on on International was flat to 2 to, you know, 2 to 4. And, and the momentum that we saw in the second quarter continues into the third quarter.

Thank you. 1 moment for our next question.

Our next question comes from the line of Sarah senator from Bank of America.

Oh, thank you. Um, I guess a question and then maybe just a clarification on an earlier comment, uh, if if I could the, uh, you mentioned that the 4-wall economics, you know, something that you're you're working to improve. Um, you talked about some of the benefits from the supply chain optimization. I guess, as I, as I think about this, you know, I think 1 of the things that you, you disclose that the, um, investor day was that, you know, they sort of 4-wheel drive margin was in that 12% range for franchisees. But it was, it was a subset of franchises and I guess as you look more, broadly, are you seeing that that's representative? Um, and if so you know, is that sufficient to kind of catalyze for the referencing um, or unit growth, you know, or do you need this, you know, uh, 100 basis Points Plus to really, you know, to really uh in increase the appeal. Um, so that was a question, just a clarification was on. You said, carry out was a little bit softer, am I

Right in thinking that that tends to be a more um economically sensitive consumer. I'm just I'm just trying to sort of decouple what might be company specific versus, you know, continued pressure on on that you know either lower income or or economically stressed consumer. Thank you.

Yes, sir. I'll start on carry out and the comment on carry out, just being a little softer than anticipated was the start of the third quarter. I mean, our carry out business was strong in, uh, in the second quarter and I think it's really around. What messaging do we have nationally in place for our brand? What do we have at the local to really make sure we're competing um, and connecting to the consumers. So, um, it's something in our control and and we can check and adjust quickly, you know, on the margin front, I'll have Robbie talk a little bit more about it, but, you know, we've made some nice sequential Improvement on our margins from the first quarter into the second quarter. You know, we still seen significant commodity inflation in the first half of the year. Um, it turns deflationary in the back half of the year, which will certainly be a help. Um, you know, as we continue to bring in more customers, more often, um, The Leverage that we see both at the Restaurant level. And, and through our supply chain Network, certainly helps to the, the margins for the company and the and the franchise Community. Um, but we know we got work to continue to do to strengthen those margins, and that's why we're embarking. And now, executing a supply chain optimization project that can

Realize significant savings um over time. So I will return to a more of a traditional barbell strategy with a little more Innovation on the top end to complement the bottom end. So lots of work uh to make that all come to life. Um, so Robbie, any other thoughts that you think about, um, Sarah's question. Yeah. Um, so first like as we talked about in in December uh, we think a core part of our recipe to continue to accelerate for law margins is about taking advantage of the slack capacity. And our, our restaurants, we think that there are there's more transactions here left for us to go get and we want to go win consumers, uh, specifically to like what we're seeing in the franchisee base. What what I'd say is like the franchisees who have been driving a transaction orientation have performed very well um and continue to deliver strong profitability, the franchisees where there's been a little bit more price taking and a little bit less focus on transactions that they're probably at a slightly different spot. But when

when I back way up and look at the 2020 to 2024 time period, the Papa John's system on an average restaurant, level performed pretty well from a profitability standpoint and our our corporate restaurants. If you just look at an average corporate restaurant on 2020, to 2024, we made over 820,000 dollars in 4-wheel dots per average restaurant. So right now investing some profitability back into winning transactions.

Know that more than 45% of our business is carry-out, and we want to continue to make sure that we're giving great experiences for our customers when they walk into our restaurants.

Thanks.

Thank you. 1 moment for our next question.

Our next question comes from the line of Alex slagel from Jeffrey's.

Hey, thanks. And uh, congrats on the, uh, momentum in progress. Um, the question on carry out is you evaluate the performance across your system? Are there any learnings from the top performing markets, not opposite? You can take to the rest of the system and help you describe the carry out growth in some of those markets where it's been lagging.

Yeah, I think there's a couple of things. Um, you know, first and foremost, you know, having a national uh, message around carry out, certainly helps because that creates a nice Halo for the brand to get consumers thinking about showing up at our restaurants more often for carry out. But, you know, you really got to work hard with uh, with the the co-ops and the local team to make sure there's compelling carry out offers that really resonate in the communities that they serve. Uh, and it's more than just the offer. Um, it's making sure that you got friendly service when that customer shows up at the restaurant, it's out there really hustling to make sure, you know, when all those key events are happening in your trade areas and in your uh, in your communities, to make sure you're working hard to connect to those individuals.

To make sure that they understand that Papa John's, is there for them at a compelling value? Whether that's price or whether that's the quality of the food that we deliver? Um, and there's a lot of good lessons to make sure that it uh we continue to communicate to the franchise Community. If you're out there hustling, you're out there working, you're out there connecting to your community, uh you can drive a lot of growth and we're seeing pockets of that across the organization and, and across the company.

Great. Thank you.

Thank you. 1 moment for our next question.

Our next question comes from the line of Chris oal from stifel.

Thanks. Good morning guys. Um,

Todd, the incremental investment in marketing represents a pretty meaningful increase in annual spend, how are you thinking about lapping, that investment next year and then it can you elaborate on the changes you expect to make to the supply chain to reduce costs.

Yeah, so on the incremental marketing Investments, um, you know, we are spending a fair bit to, uh, to really test learn and and support the system through this year. I mean, 7 million dollars in the first quarter. Another 9 in the second quarter up to 25 million dollars on a full year. But, you know, there has been a lot of foundational work to really set up our plans to be more effective and efficient in in 2026. And I think with the learnings, um, we can figure out how we allocate, you know, existing, um, National marketing fund dollars versus company dollars to really Drive. Um,

Is the growth that we need because I know we're going to be more effective with each dollar that we're spending. Um we also have leaned into uh really test some things to make sure we could bring the franchise Community along for the journey. So we did a little heavy up marketing around the bogos. Um it wasn't just about driving a a BOGO proposition at the point in time. We did it. It's really to try to learn what's the customer Behavior beyond the BOGO. And is there a really good lifetime value in uh, in executing, you know, those type of promotions and those are learnings we can take into building our plans for next year. Um, we use some dollars uh, on the non-working side to really support, uh, some work to accelerate our CRM and and those would be foundational elements that keep building our business into the future. Um, we've leaned in on, on driving some social and search demand, um, which again are some good foundational elements to give us some learnings as we get into next year. So it's been a combination of working non-working. Um I'm sure it's supporting the business where we need to, we did some heavy up.

And some local markets to help inform what our local strategy should be moving forward. But we learned a lot and uh, I know we'll be more effective and with all the dollars and we can really decide as we go into 26. How much of that needs to come out of incremental dollars from the company side? Versus what can we just leverage with all of these learnings to be more effective and efficient with, uh, with the nmf funds that we have? So more to come on that?

Realized by 26, we're not going to sacrifice any of the quality of our our product. Um but we do see optimization opportunities to drive better fixed cost utilization across the network. And we're going to make some moves to uh to bring that to life. We do think there are some opportunities that we can capture in our transportation Logistics. Um, so how do we deliver our White Glove service to the back of the restaurants and we're working through that. Uh, and we know there's some procurement savings with, uh, some some, some significant contracts that are up for Renewal, as we did some should cost modeling. Um, and uh, we're working through that to make sure we can realize all those savings. So a lot going on, um, across almost every element of the functions within the organization, but we got a great team, that's really focused on on executing against this initiative to really bring a strong restaurant economic model to life for the system.

Great, thanks.

Thank you. 1 moment for our next question.

Our next question comes from the line of Brian. Mullen from Piper Sandler.

Thank you. I just want to ask on the referencing transaction. Maybe. Just give a little background. How that came together. Remind us where those restaurants are

And that is the buyer are. You just selling that to your existing partner in the joint venture? Or is there you know, a third party coming in and then just related to all that? Are you still thinking about additional transactions? And would you think any deals would have a development agreement attached? Is that important factor for you all as you go through this process?

Yeah, let me start with the broader strategy. Um, you know, we've said this before we do think, uh, reranch is is core to our strategy over time. Um, you know, we operate um you know, before this transaction that we're talking about about 500440 uh company restaurants. Um we do think there's some opportunities outside of um, kind of our our core markets and I really think about core from uh Indianapolis down to Atlanta. And that whole Corridor where we know we've got a lot of opportunities for growth but we're going to have to look at uh at the other markets to see if there are other good partners that you know, should be scaled up um as great brand Partners to drive the brand, is it an opportunity to bring some fresh blood in? And as we do any of these transactions, we will have development, um, commitments, uh, attached to them, um, and that'll be a big part of of the growth and we'll ALS, make sure that we do appropriate re-imaging, um, as we bring, um, you know, those new agreements to life with some of the referencing. So it'll be part of our transformation Journey. As we move forward, you know, we did sell 15 restaurants last year.

In in Wisconsin. Um, and you know, the 85 restaurants we're talking about today in the JV, you know, expect that transaction, as we said in the prepared, remarks to close by the fourth quarter, but I'll turn it over to Robbie to talk some specifics on that transaction. Yeah. Um, so the, the transactions happening in the Middle Atlantic area. It's a market that we have meaningful market share in today, and we think that there's more to Gad what we're transacting with an existing franchisee within the system. It's, it's not our current JD partner but it's it's a franchisee partner. Who is well capitalized that's focused on the long term who's investing in the business and has a a great transaction driving mindset, which actually very similar to to to, to the deal. We did in Wisconsin a, a year ago. And so to this point we we we saw this as a great opportunity to continue to grow a, a great strategic franchisee and probably most importantly uh continue to drive Market.

Share gains in an important market for us.

Thank you. 1 moment for our next question.

Our next question comes from the line of Peter Salle from btig.

Great. Uh, thanks for taking the question, and congrats on the, uh, progress, you guys are making, um, I did want to ask about, um, you know, Todd. I think you mentioned, you're seeing a meaningful increase in app conversions. Um, could you just comment a little bit on on really? Uh, maybe give us a little bit more detail on really what you're seeing there. Uh, and in the same vein, if you can comment on, I I know you saw a pretty nice increase in uh rewards memberships 2.7 million since uh, the change in November can just talk about the behavior of those rewards members. Are those rewards members also coming in more frequently or they do? They continue to spend more uh, anything you can share on that. Uh, front would be helpful. Thank you.

Faster, repeat purchases, uh, and customer counts are up across almost every frequency cohort, um, year-over-year, um, since the change was made. So really feeling good about how we're driving customer counts and in the Loyalty program, um, seeing the, the growth on customer counts increase, um, over the last 3 months, um, uh, up almost 4 and a half percent, um, up 1% versus the prior 12 months. Um, so it's, uh, it has really been working the way. We would expect it to work. We're seeing more folks. Uh, redeem um cash, we're acquiring more customers, um and those customers are ordering more frequently. It's, uh, everything you would want, um, from a of a loyalty program and we know there's great lifetime value, uh, for that customer, um, you know, as you look at, where are we really winning? We're seeing more light and medium customers order in the last 3 months, uh, as well as a small increase in in loyalty frequency which is important and we'll continue to enhance it to drive that. Um and then our super frequent

Loyalty customers, which is our highest value segment. Um, that plays with an order over the last 12 months that turned positive for the first time during Q2 in a long time. So it's really hitting on all cylinders and, and the opportunities we said earlier, is, how do we go dry some Innovation? How do we Recruit new customers into the brand? How do we bring those laps back and then quickly move them over into the Loyalty program. Um, so we can connect with them and and really drive a, a more personalized experience with great value and a great experience for them.

And that's probably a good lead out to how the app works and and and the conversion and the work that's been underway. Yeah. Um so la last summer we did some work on on the app experience and we really haven't stopped on improving that experience as a whole. We saw over the trailing 4 quarters, a couple hundred basis points of conversion upside in the app and that was really about us starting to to connect all the pieces of our strategy together. We moved loyalty front center in terms of the homepage experience, we updated imagery and and and how you you scroll.

Experience. And we saw some really meaningful gains. And as we talked about, in our prepared, remarks were beta testing, somebody who Omni Channel experiences as well. So we don't feel like we're anywhere near done in terms of driving.

For my deeper segmentation of offers at a priority market level. It means speed of analytics and speed at which we are checking them and adjusting the business and we see a lot of attention to lean further and to AI in the coming months and years and we see really clear on.

Opportunities from an Omnichannel experience standpoint, thinking about how we can make voice a bigger component of what we do.

Continued to lead deeper into getting the right messaging and from the the right consumers faster. So we're excited in terms of what's in front of us from a technology and most importantly, a consumer experience standpoint.

Thank you one moment for our next question.

Our next question comes from the line of Eric Gonzalez from Keybanc.

Hi, Thanks. Good morning, just wanted to ask about innovation do you think you have the right innovation pipeline that you want in place.

Or do you have to do a bit more testing and when do you see the brand having a regular cadence of innovation. If that's the goal and then just selfishly I'm wondering when we might see the croissant pizza in the U S.

Well on the croissant piece in the U S. We've got a lot of opportunity to continue to roll that out across international and we've done a lot of testing and learning and are in the U S and we'll have to make sure. That's the right offering for the U S consumer, but I would never say never on on croissants. So we'll leave it at that.

On the innovation pipeline it was relatively there too to be honest when I got here and we really focused on being the best States pizza makers in the business and really driving our core pizza business over the last year and we've seen the results of that with nice sequential improvement on pizza sales plus 4% in Q1, plus 6% in Q2.

We do know we have some of our rhythm late breakers that.

Have become less of a P mix and our business around pop ideas and.

And Papa bites, but we're starting to return to a good cadence of of some news.

The $11 99, garlic, five cheese that ours is a nice proposition.

The <unk> pizza that will be coming later this year I think as it fits really well with our brand and the occasion the consumer is looking for.

And the Grandpapa that's in test right now our largest pizza ever I think really continues to drive our business and we will start to see that accelerate as we go into 2026, we recently partnered with a lot of our suppliers and really looked at some of the adjacent pizza category business. I mean, we still got a lot of opportunity to innovate.

On cross forms and non core, but there are some opportunities to continue to expand.

Expand our reach in the work we've done.

To optimize our oven calibration to take our baked temps down to slow their ovens down a little bit really opens up some of these other adjacent categories. So we'll make sure. We've got a good mix of core and and Adjacencies as we move into 'twenty six but that's when you'll really see a start to hit our stride on innovation to complement all of the other.

Good work that we're doing along the way and with every step of the way we're going to continue to stay focused on our our message around pizza craftsmanship and six simple ingredients and fresh never frozen original dough and it is a powerful message. When you think about those six simple ingredients, while were water sugar oil salt E status so on trend.

With where the consumer is going we can innovate around some of that simplicity and really continue to deliver better quality product for the consumer.

Because as we said in the prepared remarks, the world deserves better pizza and we're committed to deliver on that.

But it sounds like you spent some time in the kitchen Todd.

Right.

I got a double my workout regimen that's for sure.

And if I could ask a question about maybe a follow up on on the first five weeks and quarter again, I don't want to make too much about it but it does seem like your your largest competitor was on there with some pretty heavy discounting. So I'm wondering if that was a big factor in whether there are also any changes in the advertising pressure that you had on during July versus what you did in the latter two months of the first quarter.

Yes, I think the beautiful thing about our business as we can check and adjust relatively quickly now when we got a lot of tools right.

Making sure we got.

Garlic five cheese on air at the appropriate time based on the consumer and competitive landscape was important the tools around loyalty and CRM to to leverage that as a as an important tool.

It is intense there is a lot of competitive activity out there you got to win the hearts and minds from a consumer both from a value and a quality perspective.

So I'd reader I wouldn't read too much into the start to the quarter because I do think we've got a lot of tools at our disposal to finish the quarter strong and continue that momentum into the fourth quarter.

But we're digging into the analytics, we're continuing to look into what's working well, what we need to check and adjust and really take a retail mindset to the data to make sure. We're best connecting to the consumer no matter, what the competitive landscape looks like in a super competitive in Q2, and we broke through and we brought in more customers and we drove sales growth in <unk>.

We expect to do that in the back half of this year and the foundational work that we've done over the last 12 months have really set ourselves up to compete better not just into this year to finish at strong but to really set us up for a strong 2026.

Maybe I'll provide some other like more specifics in terms of building blocks for the second half of the year that kind of underpins our thinking about the business.

But as Todd talked about like we have an accelerated path of product innovations coming with <unk>.

New Shareable pizza format with dipping sauce, we think that really.

Resonates with <unk>.

<unk> Z Gen Alpha.

Second we launched the garlic five cheese. This week, we think that is right down the fairway in terms of innovation for us and it's something that feels unique to Papa John's given given our positioning it's.

As Todd talked about we're testing the largest pizza, we've ever made and in the market. We think that is.

Right for the consumer mindset right now so we have a steady cadence of innovation that we think are specific to Papa John's, but also helps us break through with kind of where the consumer psyche is today second.

And calibration work, we're seeing consumer satisfaction scores continue to improve and we think that matters a lot right now when we pair together.

Our simple ingredients and our approach to making beat so with even better consumer satisfaction scores, we think that's going to yield benefits.

Third is we're continuing to lean into the loyalty and using loyalty as a way to drive more and more personalization. So we're going to continue to build on that momentum and as I talked about consumer accounts were up into Q and we're going to really stay focused on that and then lastly, like we're going to continue to think of.

All of our channels of our business from Aggregators delivery Carryout and we're digging into the analytics every day and making sure. We're staying nimble. There. So there were a couple of things out there that I get is that.

They get us focused in on how are we going to unlock growth.

In the second half of the year and all of these elements I just talked about where you see as like foundational that is going to allow us to continue to grow transaction share over over the next couple of years and just a quick comment to all of that I mean, we've seen nice increases in our overall satisfaction at a restaurant level, we've seen improvements in taste with the <unk>.

We've been doing on an oven calibration.

And with the meet the makers campaign, we've seen strong gains in our brand health measurements for consideration quality and AD recall, so all of those things help support everything that Ravi just said to make sure that we're in the consideration set to continue to drive our business in the back half and beyond.

Maybe one last thing.

The marketing team has done an amazing job on that sort of analysis of where we have a right to play.

One of the things that's clearly coming through in the data is that like Papa John's as a brand can continue to expand its tam, it's and so some of the adjacent categories around pizza, we're not necessarily rushing to go there tomorrow, but that is a lot of the work we're doing in the kitchen in terms of like how are we going.

To continue the great gain transaction share in our business and do it in a way that only Papa John's cat.

That's great. Thank you.

Thank you.

Our last question comes from the line of Jim Sanderson from Northcoast Research.

Hey, Thanks for the question I just wanted to circle back to international one wondering if you could update us on trends in the U K, whether those comps were out or underperforming the international trend and more broadly how should we look at the opportunity to see new unit growth in the UK going forward. Thank you.

Yes, we've been on a multiyear journey and in the U K and we're really pleased in terms of the performance of the U K was a low single digit comp in Q2, but it's accelerated meaningfully in July.

Outperforming the the total international business, even in July, but when we back further up our consumer satisfaction scores are way up.

Our total time delivers.

Times are way down and we're driving really strong growth in what we were really unlocked is.

Focus on the most important markets.

And trade zones are really focused in on having a robust innovation calendar and then paying it off with great execution. So we still see a lot of comp upside in that business over the medium term. So we think that there there was meaningful system wide sales growth opportunity for us to go capture.

Sure we will turn on the.

Development engine again in the U K in due course, but fundamentally I think theres a lot of comp upside for us still to go capture and we're really encouraged about our approach in the U. K is we think we can unlock opportunity in many of our priority markets with this really clear.

Focus around innovation execution and priority market. It's been some great work in the U K on that whole transformation and you know what's really exciting is the growth across international is really broad based and.

Credit to to Ravi and his leadership team on the international front I know, we're going to continue to build momentum there and it's exciting.

Alright, Thank you very much.

Thank you at this time I would now like to turn the conference back over to Todd panic or for closing remarks.

Well thanks, everybody for for your time. This morning appreciate it hard to believe that it's a year into my journey with an unbelievable team here at Papa John's we've touched everything whether it's operational excellence marketing revamp tech.

Tech innovation being again, the journey on Refranchising supply chain optimization, and ultimately put a capital structure in place to really support all of these strategic initiatives.

Our future is bright we're energized who got a spring in our step we know it's going to be a battle and we will continue to take you guys along for the journey, but pizza Super relevant it's a great value for the money and.

And we're going to be out there Ravi and I and Heather over the upcoming months Theyre really continue to tell that story and talk about our business with all of you. So look forward to seeing you out.

At at some point at a at a conference or on our road show and I just want to thank all of our team members and the franchise community for the partnership and the work to really set the foundation for long term sustainable growth in this business. So I have a great day, everyone. Thanks for all the questions talk to you soon.

This concludes today's conference call. Thank you for participating you may now disconnect.

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