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PJ

PAPA JOHNS INTERNATIONAL INC (PZZA)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $518.3M, up 0.9% YoY, with adjusted diluted EPS of $0.36 and adjusted EBITDA of $49.6M; results were in line with management’s plan, with sequential comp improvement and transaction share gains in North America .
  • Versus Wall Street: revenue beat consensus ($518.3M vs $514.0M*), and adjusted EPS was slightly above normalized EPS consensus ($0.36 vs $0.346*); EBITDA was modestly below S&P’s EBITDA consensus ($45.4M* actual vs $50.2M*), reflecting stepped-up marketing and loyalty investments (estimate definitions differ from company’s adjusted EBITDA) .
  • Guidance reiterated: FY25 system-wide sales +2% to +5%, North America comps flat to +2%, adjusted EBITDA $200M–$220M, capex $75M–$85M, tax rate 28%–32% .
  • Call catalysts: elevated marketing spend ($7M in Q1, $5–$7M more in Q2) to reinforce value proposition; Google Cloud AI partnership to upgrade personalization, routing, and digital experience; and balance-sheet flexibility after refinancing and new $200M term loan, leverage-neutral and extending maturities .

What Went Well and What Went Wrong

  • What Went Well

    • Sequential sales and transaction improvement in North America, with transaction share gains; management emphasized the “barbell” strategy (Epic Stuffed Crust with $6.99 Papa Pairings) improving value perception and driving orders (“the number of pizzas ordered increased 4% versus last year”) .
    • International comps +3% and global system-wide sales +0.6% (constant currency), supported by net unit growth and focused market initiatives .
    • Brand and loyalty momentum: “Meet the Makers” campaign improved value perception; loyalty changes added ~1M members in Q1 to >37M total and increased repeat orders .

  • What Went Wrong

    • North America comps -2.7% and tickets -2% YoY, pressured by lower redemption thresholds and higher mix of medium pizzas despite improved transactions .
    • Domestic company-owned EBITDA margins declined ~550 bps YoY in Q1, driven by ticket, incremental brand-building marketing, food cost (cheese/proteins), and labor inflation; adjusted EBITDA declined to $49.6M from $60.6M in Q1’24 .
    • Company-owned restaurant revenue fell $17.4M YoY, largely from UK refranchising/closures and lower domestic comps; consolidated net income fell to $9.3M vs $14.9M in Q1’24 due to higher G&A for marketing/loyalty and the franchisee conference .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$506.8 $530.8 $518.3
Diluted EPS (GAAP) ($)$1.27 $0.44 $0.27
Adjusted Diluted EPS ($)$0.43 $0.63 $0.36
Operating Income ($USD Millions)$65.2 $29.5 $24.0
Consensus Revenue ($USD Millions)$498.6*$519.7*$514.0*
Consensus Primary EPS ($)$0.432*$0.496*$0.346*

Values with an asterisk (*) retrieved from S&P Global.

Segment breakdown (Q1 2025 vs Q1 2024):

SegmentRevenue Q1 2024 ($M)Revenue Q1 2025 ($M)Adjusted EBITDA Q1 2024 ($M)Adjusted EBITDA Q1 2025 ($M)
Domestic Company-Owned Restaurants$176.2 $170.8 $14.9 $5.0
North America Franchising$36.7 $36.8 $28.5 $27.2
North America Commissaries$252.6 $264.4 $17.2 $19.4
International$46.7 $39.1 $4.2 $5.4

KPIs and comps trajectory:

KPIQ3 2024Q4 2024Q1 2025
North America Comparable Sales (%)-5.6% -4.4% -2.7%
International Comparable Sales (%)-2.8% +2.1% +3.2%
Total Comparable Sales (%)-4.9% -2.8% -1.3%
Global System-wide Sales Growth (constant FX, %)-3.0% -7.9% (flat ex 53rd week) +0.6%
Net Restaurants Added (System-wide)+25 +122 -11
Free Cash Flow ($M)—$34.1 (FY 2024) $19.1 (Q1)

Notes:

  • NA commissary adjusted EBITDA margin was 7.3% in Q1 (+~50 bps YoY); domestic company-owned EBITDA margins declined ~550 bps YoY with specific cost pressures (ticket, food, labor, marketing) .

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2024)Current Guidance (Q1 2025)Change
System-wide Sales GrowthFY 2025+2% to +5% +2% to +5% Maintained
North America Comparable SalesFY 2025Flat to +2% Flat to +2% Maintained
International Comparable SalesFY 2025Flat to +2% Flat to +2% Maintained
Restaurant Openings (Gross) – NAFY 202585 to 115 85 to 115 Maintained
Restaurant Openings (Gross) – InternationalFY 2025180 to 200 180 to 200 Maintained
Adjusted EBITDA ($M)FY 2025$200–$220 $200–$220 Maintained
Depreciation & Amortization ($M)FY 2025$70–$75 $70–$75 Maintained
Interest Expense ($M)FY 2025$40–$45 $40–$45 Maintained
Tax Rate (%)FY 202528%–32% 28%–32% Maintained
Capital Expenditures ($M)FY 2025$75–$85 $75–$85 Maintained
Dividend per ShareQ2 2025$0.46 (declared) $0.46 (declared May 1) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Value “barbell” strategyReinvested savings to improve value perception; domestic margins pressured by value investments Epic Stuffed Crust + $6.99 Pairings drove orders; ticket down ~2% due to loyalty threshold cut; transactions improving Improving transactions; ticket pressure manageable
Loyalty programOngoing enhancements; reset thresholds later in 2024 +~1M members to >37M; faster repeat orders after threshold cut Strengthening
AI/TechnologyTech leadership aspiration; digital experience enhancements Google Cloud multi-year AI partnership (personalization, routing, AI chatbot, POS modernization) Accelerating
Supply chain & cost modelQC center sales; cost-plus fixed margin changes benefiting commissary NA commissary margin 7.3% (+~50 bps); actions to optimize vertically integrated supply chain Improving
International transformationUK refranchising/closures; restructuring costs Intl comps +3%; continued strategic closures; openings 29, closures 42; cautious outlook Stabilizing with focus
Refranchising/company marketsEvaluating refranchising select company-owned units; growth-minded franchisees interested Active vetting; clearer core markets to retain; timing to pair with growth-oriented franchisees Developing
Carryout focus & reimageEarly plans; Orlando market pilot; carryout order growth Carryout up low single digits in Q1, mid-single digits Q2-to-date; reimage plans to scale in 2026–2027 Positive trajectory
Delivery experienceIdentified opportunity vs peers Google partnership to improve dispatch, routing, ETA accuracy, tracking; oven calibration program Improvement underway
Commodities/laborCheese/protein and labor inflation press margins ~130 bps food cost pressure; ~90 bps labor pressure at company-owned segment Headwinds moderating

Management Commentary

  • “Our strategic investments in marketing and technology are driving early momentum… sequential improvement in comparable sales and transactions” — Todd Penegor, President & CEO .
  • “We invested approximately $7M in incremental marketing… anticipate investing up to an additional $25M in marketing this year, above our spend in 2024” — Todd Penegor .
  • “North America transaction comps were down less than 1%… improved 120 bps sequentially… ticket comps were down 2% versus prior year” — Ravi Thanawala, CFO & EVP, International .
  • “NA commissary adjusted EBITDA margins were 7.3%, +~50 bps YoY… domestic company-owned EBITDA margins declined ~550 bps YoY” — Ravi Thanawala .
  • “Partnership with Google Cloud will… take personalization to the next level… optimizing delivery routes” — Todd Penegor .

Q&A Highlights

  • Franchisee economics and refranchising: strong franchisee interest; company clarifying core markets to retain and pairing non-core markets with growth-oriented operators; margin pressure viewed as transitory with improving food costs and transactions .
  • Challenger brand pricing vs quality: media mix shifting to social/digital to highlight quality differentiators (six-ingredient fresh dough, real mozzarella, vine-ripened sauce) while maintaining competitive value .
  • Remodel/reimage strategy: Orlando pilot underway; broader reimage likely in 2026–2027; carryout is a key growth layer with medium pizza value ties; focus on infill and market share growth .
  • Delivery experience: secret shopper study (5,000 stores) identified opportunities; Google partnership to improve dispatch/routing and ETA accuracy; oven calibration to enhance product consistency .
  • Q2-to-date trends: first five weeks NA comps down <1%, transactions up >1%; expect flat monthly comps by midyear and accelerating into year-end .

Estimates Context

Metric (Q1 2025)ConsensusActualSurprise
Revenue ($USD Millions)514.0*518.3 +$4.3
Primary EPS (Normalized) ($)0.346*0.36 +$0.014
EBITDA ($USD Millions)50.2*45.4*-$4.8

Values with an asterisk (*) retrieved from S&P Global.

Commentary: Revenue and normalized EPS exceeded consensus modestly, aided by higher commissary revenue (commodity prices, cost-plus fixed margin) and elevated advertising fund revenue (contribution rate +100 bps), while EBITDA underpaced S&P consensus given ~$7M incremental marketing, loyalty investments, and conference G&A timing .

Key Takeaways for Investors

  • Execution is improving: sequential comp and transaction gains in NA with the barbell strategy; watch for continued acceleration in 2H on new pizza formats and crust/topping innovation .
  • Near-term margin pressure is investment-driven: marketing and loyalty spend are deliberate to rebuild value perception; commissary margin uplift partly offsets; margin mix should improve as transactions rise .
  • Digital/AI is a differentiator: Google Cloud partnership should enhance personalization, routing, and customer support — potential to drive frequency, order value, and reduce service cost .
  • Balance sheet flexibility: leverage-neutral refinancing adds a $200M term loan and extends revolver to 2030 — supports strategic investments and potential refranchising initiatives .
  • International stabilization: comps positive with targeted closures; development continues with 180–200 gross openings planned; cautious outlook given global dynamics .
  • Guidance intact: FY25 ranges maintained; near-term comps expected to reach flat by midyear with positive trajectory exiting 2025 — monitor Q2 incremental marketing and adjusted G&A ramp .
  • Trading lens: modest top-line beat and reiterated guide, coupled with AI narrative and improving transactions, are constructive; watch labor/commodity inflation, ticket mix, and delivery experience improvements as key sentiment drivers .