Papa John's trims outlook as traffic slips, leans on promos and training

Outlook gets tougher, results miss expectations

Papa John's International Inc., based in Louisville, Kentucky, expects a steeper full-year slowdown than it previously thought. It now guides North America same-store sales to be down about 8%, which lines up with the lower end of its earlier 6% to 8% range. Globally, it sees system-wide sales slipping around 5%, a wider drop than the 2% to 4% decline it had signaled before.

The latest quarter underlined the pressure. Revenue landed at $454.8 million, shy of the $459.8 million consensus, with the shortfall tied to weaker comps and the effect of roughly 110 restaurants that the company shifted to franchise ownership over the past year or so.

What management is changing

Chief Executive Todd Penegor said the third quarter showed continued strain from a crowded field, but that the company and its franchisees are aligned on a growth plan. He noted that heavy discounting across the pizza category siphoned away some sales. "We chose to protect margin over deep discounting, and transactions declined as a result," he told analysts.

To turn the tide, Papa John's is launching new marketing support for franchisees and operational tweaks aimed at restoring momentum. The plan includes initiatives to lift franchisee profitability and upgrades to technology used for restaurant operations and running deals. Next week, it will debut an offer where customers can snap a picture of their pizza to receive a free one, a move Penegor said will help collect feedback to improve underperforming stores.

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Closures, competition and the investor read

Cost-conscious diners are pulling back, rivals are aggressive, and some consumers are gravitating to other quick-service options like chicken and burgers. Domino's, for example, has pushed to grow order counts to keep habits intact until budgets loosen. Against that backdrop, Papa John's expects a higher-than-usual pace of North America closures and had signed off on shutting nine more locations as of Sept. 27. Training will zero in on weaker shops: "The first area of focus for training is really going out and supporting those restaurants that are in the bottom quintile, so we can elevate that floor, create better experiences and start to close down the inconsistency gap that we have across the system," Penegor said.

The stock dropped as much as 9.2% during premarket trading Thursday and was already down 48% for the year through Wednesday's close. Why it matters: guidance tightened to the low end on comps and widened lower globally, competitive discounting is biting, and closures are ticking up - a mix that keeps execution risk front and center for your portfolio's restaurant exposure.

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