Papa John's earnings smash expectations as pizza demand remains strong post-pandemic
- Papa John's reported better-than-expected earnings for the first quarter.
- Menu innovations like Epic Stuffed Crust helped to boost sales and bring in new customers.
- CEO Rob Lynch said there is "sustained demand" for delivery and pizza post-pandemic.
Papa John's first-quarter earnings topped expectations as the pizza chain held on to the momentum it saw during the coronavirus pandemic, even as the country reopens for business.
The stock was down 2.7% in Thursday's premarket after the earnings announcement.
Pizza was a tried-and-true bet for many consumers who were seeking familiar and convenient foods for delivery in the early days of the health crisis. But thanks in part to menu innovations like Epic Stuffed Crust pizza, the company's sales are still growing. Papa John's also been working to improve its operations and has hired more than 30,000 workers over the last year.
Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Adjusted Earnings per share: 90 cents vs. 56 cents estimated
- Revenue: $511.7 million vs. $471 million estimated
For the quarter ended March 28, net income rose to $33.9 million, or 82 cents per share, from $8.4 million, or 15 cents per share, a year earlier.
Excluding items, Papa John's earned 90 cents per share, far exceeding earnings of 56 cents per share expected by analysts.
Revenue rose nearly 25% to $511.7 million from $409.9 million a year earlier, outpacing estimates of $471 million.
In North America, same-store sales rose 26.2%, beating the gain of 14.6% estimated by analysts. Its international business was also strong, with same-store sales rising 23.2% in the quarter, above the 17.4% increase projected.
CEO Rob Lynch said the sustained strength in its business is thanks to a strategy put in place in 2019 to focus on innovation, development, improving operations and building an inclusive company culture.
"We've accelerated those strategies throughout the pandemic," Lynch told CNBC. "Q1 has been the culmination of all of those things, amplified by the launch of Epic Stuffed Crust. It has been a huge success for our system, bringing in a whole new wave of customers, exceeding our expectations and increasing our ticket average, because it's a premium pizza."
The item is the latest launched during Lynch's tenure as CEO. Other examples include the Papadias sandwiches and Shaq-a-Roni pizza, a nod to board member and franchisee Shaquille O'Neill.
According to Lynch, Papa John's has been promoting its new items for longer periods than expected due to positive consumer responses. There's a pipeline of innovative products to come, he said, as tests continue.
While inflation talk runs rampant, commodity costs are not as big of a factor for the brand, Lynch said. Supply availability and labor shortages are bigger issues.
"Raw material supply has been a bit challenging, and it's driven, at least from what our suppliers are telling us, primarily by the lack of labor to be able to process the materials," he said, citing chicken wings as one example.
Papa John's has hired tens of thousands of workers as its sales have grown. To retain workers, it has offered special front-line bonuses and incremental health-care benefits.
Papa John's is not yet offering a full-year forecast due to uncertainty around the pandemic.
Sales were strong in April, Lynch said, adding that the company is confident it will deliver same-store sales growth in the second quarter that is flat to slightly positive in North America compared with last year. The increase is notable given that it is lapping growth of nearly 30% in the year-ago period.
Stores in domestic markets that are reopening are still seeing demand that is at or above markets that have been restricted, Lynch said. The company is seeing similar patterns in its overseas markets, with the U.K., China, Korea, the Middle East and Chile performing well.
"We are really bullish on the kind of transformation that we have built over the last 18 months and its sustainability beyond the pandemic, given that data. There's a sustained demand for delivery and pizza," he said. "We are not a pandemic pizza company — we've transformed this business through a lot of hard work and great thinking from people across the system, and we believe we are going to continue to outperform the industry long after the pandemic recedes."
Papa John's shares closed Tuesday at $94. Since the start of the year, the company's stock is up nearly 11%, bringing its market value to about $3.1 billion.
Programming note: Papa John's CEO Rob Lynch will join CNBC's "Mad Money" at 6 p.m. ET on Thursday to discuss the quarter.