Restaurants

Peyton Manning is ruining Papa John's first quarter

Papa John's Pizza
Source: Papa John's

Having your spokesman win a Super Bowl and immediately hug your company's founder on national TV does wonders for sales growth, but lapping those numbers can get a bit tricky.

That's the trouble Papa John's faces in its first-quarter.

The company's shares shed 7 percent Wednesday after the company posted weaker-than-expected same-store sales growth for the fourth quarter on Tuesday and forecasted difficult comparisons in the next quarter.

North American same-store sales growth was up 3.8 percent in the fourth-quarter for the pizza chain — the second best among the top 25 U.S. restaurant chains that have reported fourth-quarter earnings so far. However, analysts had expected growth of 5.9 percent, according to FactSet.

At its other divisions, same-store sales also were weaker than Wall Street expectations.

"Similar to other restaurant operators, we believe Papa John's suffered from broad industry weakness in 4Q16 that likely weighed on comp results," Peter Saleh, a BTIG analyst, wrote in a research note Tuesday. "We had expected the October launch of pan pizza to drive more robust same-store sales growth compared to the decelerating trend seen this quarter, though we believe Papa John's still continued to gain market share."

Looking forward, sales buoyed by Peyton Manning's Super Bowl 50 win and the viral hug and kiss with founder John Schnatter are a headwind for Papa John's, the company said during an earnings conference call Wednesday.

"Some of the trends that we saw in the fourth quarter have continued into the first quarter," Steve Ritchie, Papa John's president and COO, said during a conference call Wednesday. "Obviously, the NFL season did continue into the first quarter, we saw the same softness."

Ritchie noted that NFL ratings were down 8 percent in 2016 and the "decline in ratings does play a small factor in some of our performance."

The company noted that it is reevaluating some of its investments in sports, but will continue its sponsorships with the National Football League and Major League Baseball.

"On a partnership front, our NFL and MLB sponsorships continue to keep us front and center with sports fans," Lance F. Tucker, CFO, of Papa John's, said during a conference call. "A key demographic in the pizza business."

Regardless of this decline in sports viewership, Papa John's and rival Domino's have gained market share in the segment.

Saleh told CNBC that the two chains have been doing much better than other restaurants because the restaurants have been able to adapt to the new ways that consumers want to purchase food, namely in the form of digital and mobile ordering. Saleh noted that Domino's and Papa John's sales are between 55 percent and 60 percent digital, the result of millions of dollars in investments in digital infrastructure.

Papa John's projects that its 2017 North America same-store sales growth will be between 2 percent and 4 percent and its international same-store sales will rise between 4 percent and 6 percent.

The company forecasts that EPS growth will be in the range of 8 percent to 12 percent.

After the bell Tuesday, the pizza chain reported it earned $32.6 million, or 88 cents a share, in the fourth quarter.

After adjusting for non-recurring gains, it earned 69 cents per share on $439.6 million in revenue. Wall Street had expected earnings per share of 66 cents on $446.9 million in revenue, according to Thomson Reuters.

Last year, Papa John's earned $24.7 million, or 62 cents a share, on revenue of $416.8 million.