Papa John's Shares Decline 5% In 1 Year: Will It Rebound?

Papa John’s International, Inc.’s (NASDAQ:PZZA) focus on expansion, franchising, technology-driven initiatives and commitment toward strong brand building through good quality offerings are likely to boost its performance. However, challenging sales environment and dismal comps performance are the major concerns. Further, shares of Papa John’s have lost 5.4% in a year against the industry’s growth of 23.4%.

Efforts to Revive Brand & Other Growth Catalyst

Papa John’s has been reeling under negative publicity for quite a long time, owing to the denouncement of its ex-CEO on grounds of a racial slur. In order to revive its brand image and reinvigorate growth, the company has been taking numerous initiatives, which started to revive the falling consumer sentiment.

Papa John’s is making significant changes in its board. The company recently extended its board to appoint Jeffrey C. Smith, CEO of Starboard, and Anthony M. Sanfilippo, former chairman and CEO of Pinnacle Entertainment, as new directors. Additionally, Papa John’s president and CEO, Steve Ritchie was appointed to the board.

The company’s partnership with Starboard significantly helped it in the first quarter of 2019. In fact, with the proceeds from this partnership, Papa John’s is confident to strengthen its balance sheet and make investments and retain its brand image. The company also announced a partnership with Shaquille O'Neal, the NBA Hall of Famer, Entrepreneur and restaurateur. All in all, Papa John’s added six new directors in 2019.

Meanwhile, in addition to board enhancement, Papa John’s announced an assistance program for its U.S. and Canada franchisees. The program is expected to offer advice on the sales and operating challenges that the company’s franchisees are facing, with full support from its Franchise Advisory Council (“FAC”) and Papa John’s Franchise Association (“PJFA”). Under the assistance program, it plans to reduce royalties, food-service pricing and online fees throughout the current year. The company is also arranging funds for its franchises to implement marketing and reimaging initiatives.

Concerns

Consistent declines in comps and the bottom line have been hurting Papa John’s of late. In the first quarter, global restaurant sales decreased 5.5%, comparing unfavorably with the year-ago quarter’s fall of 1.3%. Excluding foreign currency impact, global restaurant sales declined 3.7% compared with the previous quarter’s decrease of 11.7%. In the year-ago quarter, the metric declined 1%.

Meanwhile, the company’s bottom line missed the consensus mark in the trailing four of the six quarters. In first-quarter 2019, adjusted earnings of 31 cents per share fell 40.4% from the year-ago quarter figure due to weak operating results. Moreover, earnings estimates for 2019 have remained unchanged over the past 30 days, reflecting the stock’s limited upside potential.

Notably, Papa John’s has a considerable international presence, which exposes it to risks of fluctuations in currency exchange rates. As the U.S. dollar continues to show strength against various other currencies, the negative currency impact is likely to continue hurting revenues.

Zacks Rank & Stocks to Consider

Papa John’s currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the Retail-Restaurants industry are Chipotle (NYSE:CMG) , Yum China (NYSE:YUMC) and Denny’s (NASDAQ:DENN) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chipotle and Yum China’s earnings for 2019 are expected to increase 43.4% and 9.8%, respectively. Denny’s earnings for 2020 are expected to grow 8.2%.

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