Papa John's shares fall on 3Q profit drop, outlook

NEW YORK - Shares of pizza delivery company Papa John's International Inc. dropped Wednesday after the company reported a drop in third quarter adjusted profit and warned it may report disappointing profit for the full year.

Shares dropped $4, or 17.5 percent, to $18.85 in midday trading.

After the market closed Tuesday, Papa John's said its third-quarter profit excluding one-time charges fell 18 percent and missed Wall Street analyst estimates by 8 cents per share.

Same-store sales, or sales at restaurants open at least a year, rose 1.7 percent.

The company, though, said its sales began to slow down in September due to "declining consumer sentiment." Most restaurants have faced a cutback in consumer spending as the economy has gone downhill. Consumers have been eating at home more or have been choosing to eat out at less expensive fast food chains.

The company also said its full year profit may come in at the low end of its previous range of $1.68 per share to $1.76 per share.

Papa John's also said it was considering offering its franchisees some financial assistance due to the tight credit markets, which have made it more difficult for franchisees to get loans from lenders. Those loans fund expansion projects, remodels and, in some cases, operating expenses.

KeyBanc Capital Markets analyst Brad Ludington said in a note to investors that the company may also change its marketing message to bring in new diners.

"We believe that Papa John's will begin to aggressively market deals that will provide a stronger value for consumers who are more price conscious, pressed for time and attending larger group functions during the holiday season," he said.

Ludington added that even if the chain takes a hit to its profit by helping franchisees and increasing its marketing expenses, the actions are worth any price it may pay.

"We feel that the long-term benefits of these actions will outweigh any short-term earnings impact as we expect these strategies to result in an increased market share and a stronger brand when the consumer and operating environments improve," the analyst said.

Ludington has a "Buy" rating on the shares with a $30 price target.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.