ATLANTA--(BUSINESS WIRE)--After captivating taste buds across the globe, Papa Johns is giving U.S. pizza lovers a taste of luxury with the highly anticipated debut of the Croissant Pizza. Known for its flaky, buttery crust, the Croissant Pizza will be available for one day only exclusively for Papa Rewards members. "This exclusive drop is our way of celebrating our Papa Rewards members with something truly special,†said Shivram Vaideeswaran, Senior Vice President of Brand at Papa Johns. "As a. ...

Company Overview - Papa John's has shown signs of improvement in its performance, indicating a potential turnaround for the pizza restaurant chain [1] - CEO Todd Penegor is focusing on enhancing the quality of pizzas rather than emphasizing side orders and other menu items [1] Industry Insights - The restaurant industry, particularly pizza chains, is experiencing shifts as companies adapt their strategies to focus on core offerings [1]

Core Insights - Papa John's International, Inc. (PZZA) is focused on converting first-time customers into repeat buyers amid increasing competition, with strong results from its revamped loyalty program in Q2 2025 [1][5] Loyalty Program Performance - Since the enhancement of the loyalty program in November 2024, approximately 2.7 million new loyalty accounts have been added, totaling about 38.8 million accounts, leading to quicker customer returns and increased engagement [2][10] - Customer counts rose across almost every frequency cohort, with loyalty customer counts up 4.5% sequentially and 1% year over year, particularly in the super frequent loyalty segment [3][10] Technology Integration - The company is integrating its loyalty platform with CRM and AI tools to provide hyper-personalized offers, aiming to convert new and lapsed customers into active repeat buyers [4][10] - Enhancements to the app experience have resulted in several hundred basis points of conversion improvement over the past year [4] Market Positioning - With a growing loyalty base and faster repeat ordering patterns, the company is strengthening its foundation for sustained repeat business and positioning itself for a larger market share [5] Industry Trends - Other major chains like Chipotle and Dave & Buster's are also leveraging upgraded loyalty programs to enhance engagement and drive repeat business [6] - Chipotle has about 20 million active loyalty members and is using gamified campaigns to boost participation and spending [7] - Dave & Buster's is focusing on its loyalty program to enhance guest engagement and is testing a fully self-serve, web-enabled guest experience [8] Financial Performance - PZZA's shares have declined by 3% over the past six months, compared to the industry's decline of 7.6% [9] - The company trades at a forward price-to-sales ratio of 0.73X, which is lower than the industry average [12] - The Zacks Consensus Estimate for PZZA's 2025 EPS indicates a year-over-year decline of 23.9%, although EPS estimates have increased in the past 30 days [14]

Core Insights - Papa John's has experienced a continuous decline over the last five years, struggling to compete with rivals like Domino's in the quick-service restaurant (QSR) pizza sector [1]. Company Performance - The company has not been the preferred choice among consumers in the QSR pizza market, indicating a significant competitive disadvantage [1]. Investment Perspective - The analysis emphasizes the importance of identifying companies with a strong competitive advantage or broad moat that can sustain their position over time, particularly in fast-changing industries [1].

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Core Insights - Papa John's reported revenue of $529.17 million for the quarter ended June 2025, marking a year-over-year increase of 4.2% and a surprise of +2.68% over the Zacks Consensus Estimate of $515.36 million [1] - The EPS for the same period was $0.41, down from $0.61 a year ago, with an EPS surprise of +20.59% compared to the consensus estimate of $0.34 [1] Financial Performance Metrics - The number of company-owned restaurants in the U.S. was 541, matching the five-analyst average estimate [4] - Total number of restaurants in North America was 3,517, slightly below the average estimate of 3,518 [4] - Comparable sales growth for system-wide North America restaurants was 2.5%, significantly above the average estimate of 0.2% [4] - Comparable sales growth for North America franchised restaurants was 1%, slightly below the estimated 1.1% [4] - Comparable sales growth for domestic company-owned restaurants was 0.3%, exceeding the average estimate of 0.1% [4] Revenue Breakdown - North America franchise royalties and fees generated $35.36 million, below the average estimate of $47.67 million, but representing a year-over-year increase of +2.8% [4] - Advertising funds revenue was reported at $44.16 million, slightly above the average estimate of $43.8 million [4] - Other revenues were $23.14 million, compared to the estimated $23.08 million, but this reflects a significant year-over-year decline of -62.9% [4] - North America commissary revenues were $214.85 million, below the average estimate of $225.54 million, with a year-over-year increase of +8.4% [4] - Domestic company-owned restaurant sales reached $175.8 million, slightly above the average estimate of $175.45 million, with a year-over-year increase of +1.5% [4] Stock Performance - Papa John's shares have returned -15.5% over the past month, contrasting with the Zacks S&P 500 composite's +1.2% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Group 1: Earnings Performance - Papa John's reported quarterly earnings of $0.41 per share, exceeding the Zacks Consensus Estimate of $0.34 per share, but down from $0.61 per share a year ago, representing an earnings surprise of +20.59% [1] - The company posted revenues of $529.17 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 2.68% and up from $507.89 million year-over-year [2] - Over the last four quarters, Papa John's has consistently surpassed consensus EPS estimates [2] Group 2: Stock Performance and Outlook - Papa John's shares have declined approximately 1.3% since the beginning of the year, while the S&P 500 has gained 7.9% [3] - The company's current consensus EPS estimate for the upcoming quarter is $0.42 on revenues of $525.11 million, and for the current fiscal year, it is $1.74 on revenues of $2.11 billion [7] - The Zacks Rank for Papa John's is currently 3 (Hold), indicating expected performance in line with the market in the near future [6] Group 3: Industry Context - The Retail - Restaurants industry, to which Papa John's belongs, is currently ranked in the bottom 31% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor sentiment [5]

Financial Data and Key Metrics Changes - In Q2 2025, global system-wide restaurant sales reached $1.26 billion, reflecting a 4% increase in constant currency [30] - North America comparable sales increased by 1%, with transaction comps also growing by 1% [31] - Total revenues for Q2 were $529 million, up 4%, driven by higher commissary revenues [33] - Consolidated adjusted EBITDA declined modestly to approximately $53 million, impacted by increased loyalty and marketing investments [34] Business Line Data and Key Metrics Changes - North America business returned to positive comparable sales, ending the quarter up 1% [9] - International comparable sales increased by 4%, indicating successful transformation initiatives [33] - The number of pizzas ordered in North America increased by 6%, demonstrating effective product focus and value messaging [11] Market Data and Key Metrics Changes - The company experienced sequential improvement across several key international markets, driving 4% comparable sales growth in Q2 [9] - The carryout business showed strong performance in Q2 but started softer in the third quarter, indicating a cautious consumer environment [55][62] Company Strategy and Development Direction - The company is focused on five strategic priorities: improving core product innovation, amplifying marketing messages, investing in technology infrastructure, differentiating customer experience, and evolving the franchisee base [8][26] - A significant emphasis is placed on enhancing the loyalty program and leveraging consumer insights to drive customer engagement [21][22] - The company plans to optimize its supply chain to achieve over $50 million in total cost savings, with approximately 40% expected to be realized by 2026 [27][79] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's path towards profitable growth, citing improved brand strength and strategic investments [6] - The outlook for North America comparable sales remains flat to up 2% for 2025, with expectations for acceleration in the latter half of the year [37] - Internationally, the company raised its 2025 comparable sales growth outlook to a range of 2% to 4% due to operational strength in priority markets [38] Other Important Information - The company is in the process of selling its ownership stake in a joint venture operating 85 restaurants, expected to close by Q4 2025 [26][39] - The company has added approximately 2.7 million new loyalty accounts since the relaunch of its rewards program [21] Q&A Session Summary Question: Insights on regional marketing efforts and frequency trends - Management indicated that they are testing local marketing strategies to enhance returns and support franchisees in key markets [49] Question: North America comps exceeding expectations - Management attributed the positive results to a combination of transaction growth, product innovation, and effective use of the loyalty program [52][54] Question: Four wall economics and supply chain optimization - Management acknowledged the need for continued improvement in margins and highlighted ongoing supply chain optimization efforts to achieve significant savings [59][63] Question: Refranchising transaction details - The transaction involves selling to an existing franchisee in the Mid Atlantic area, with development commitments attached to future agreements [84][88]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' deficit, and cash flows, with detailed notes on accounting policies and key financial events [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and stockholders' deficit at specific reporting dates **Condensed Consolidated Balance Sheet Highlights (in thousands):** | Metric | June 29, 2025 | December 29, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | $890,442 | $888,952 | | Total Liabilities | $1,306,304 | $1,302,265 | | Total Stockholders' Deficit | $(416,754) | $(414,216) | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, operating income, and net income over specific reporting periods **Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts):** | Metric | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $529,166 | $507,894 | $1,047,475 | $1,021,810 | | Operating Income | $24,490 | $28,226 | $48,455 | $61,944 | | Net Income Attributable to the Company | $9,531 | $12,243 | $18,753 | $26,879 | | Diluted Earnings Per Common Share | $0.28 | $0.37 | $0.56 | $0.82 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents net income and other comprehensive income components, reflecting total changes in equity from non-owner sources - Foreign currency translation adjustments contributed a gain of **$3.6 million** for the six months ended June 29, 2025, compared to a loss of **$(0.4) million** in the prior year period[15](index=15&type=chunk) - Interest rate swaps resulted in a loss of **$(0.5) million** for the six months ended June 29, 2025, compared to a gain of **$1.0 million** in the prior year period[15](index=15&type=chunk) **Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands):** | Metric | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $9,671 | $12,536 | $19,014 | $27,450 | | Other comprehensive income (loss), before tax | $1,975 | $253 | $3,165 | $575 | | Comprehensive income attributable to the Company | $11,104 | $12,439 | $21,242 | $27,324 | [Condensed Consolidated Statements of Stockholders' Deficit](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) This section outlines changes in stockholders' deficit, including net income, other comprehensive income, dividends, and stock-based compensation **Key Changes in Stockholders' Deficit (in thousands, six months ended June 29, 2025):** | Item | Amount | | :-------------------------------- | :------- | | Balance at December 29, 2024 | $(414,216) | | Net income | $18,753 | | Other comprehensive income, net of tax | $2,489 | | Dividends on common stock | $(30,602) | | Stock-based compensation expense | $7,493 | | Balance at June 29, 2025 | $(416,754) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports cash flows from operating, investing, and financing activities, showing changes in cash and cash equivalents **Condensed Consolidated Statements of Cash Flows Highlights (in thousands, six months ended):** | Activity | June 29, 2025 | June 30, 2024 | | :------------------------------------------ | :------------ | :------------ | | Net cash provided by operating activities | $66,843 | $41,957 | | Net cash used in investing activities | $(19,389) | $(23,841) | | Net cash used in financing activities | $(52,751) | $(34,428) | | Cash and cash equivalents at end of period | $33,299 | $24,305 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Basis of Presentation](index=9&type=section&id=1.%20Basis%20of%20Presentation) This note describes the preparation of unaudited interim financial statements in accordance with GAAP - The accompanying unaudited Condensed Consolidated Financial Statements are prepared in accordance with **GAAP** for interim financial information[24](index=24&type=chunk) - Operating results for the three and six months ended June 29, 2025, are not necessarily indicative of the results expected for the full fiscal year ending December 28, 2025[24](index=24&type=chunk) [2. Significant Accounting Policies](index=9&type=section&id=2.%20Significant%20Accounting%20Policies) This note details the key accounting policies, including recent changes and their retrospective application - The Company implemented financial statement changes in its 2024 Annual Report on Form 10-K, adopting **ASU 2023-07**, with presentation changes to the Condensed Consolidated Statements of Operations and Cash Flows applied retrospectively[27](index=27&type=chunk) - An updated internal cost allocation methodology was implemented prospectively beginning December 29, 2024, resulting in a higher allocation of corporate expenses to North America franchising and International segments, with prior-period comparative information recast[28](index=28&type=chunk) - During the first quarter of 2025, a tornado caused **$0.9 million** in pre-tax expenses, primarily operating lease right-of-use asset impairment charges, at the Grand Prairie, Texas QC Center[44](index=44&type=chunk) - During the second quarter of 2025, a tornado caused **$2.7 million** in asset impairment charges and **$1.5 million** in additional operating expenses at the Louisville, Kentucky restaurant support center and QC Center, with anticipated insurance recovery[45](index=45&type=chunk) - The Company received **$3.5 million** in insurance proceeds during the three months ended June 29, 2025, related to the two tornado incidents[46](index=46&type=chunk) [Recent Accounting Pronouncements](index=13&type=section&id=Recent%20Accounting%20Pronouncements) This note discusses the impact and effective dates of recently issued accounting standards updates - **ASU 2023-09**, 'Improvements to Income Tax Disclosures,' is effective for fiscal years beginning after December 15, 2024, and is not expected to have a material impact on financial position or results of operations[48](index=48&type=chunk) - **ASU No. 2024-03**, 'Disaggregation of Income Statement Expenses,' is effective for fiscal years beginning after December 15, 2026, and the Company is assessing its impact[49](index=49&type=chunk) [3. Leases](index=13&type=section&id=3.%20Leases) This note provides information on the company's lease arrangements, including subleases and contingent liabilities - The Company subleases approximately **340 Papa Johns restaurants** to franchisees in the UK, recognizing **$2.8 million** and **$5.4 million** in sublease income for the three and six months ended June 29, 2025, respectively[50](index=50&type=chunk) - As of June 29, 2025, the Company is contingently liable for approximately **70 Domestic leases** with an estimated maximum undiscounted payment of **$9.1 million** in case of nonpayment by primary lessees[51](index=51&type=chunk) [4. Papa John's Marketing Fund, Inc.](index=14&type=section&id=4.%20Papa%20John's%20Marketing%20Fund,%20Inc.) This note describes the consolidated variable interest entity, PJMF, and its role in advertising and promotion - Papa John's Marketing Fund, Inc. (PJMF) is a consolidated **variable interest entity (VIE)** that operates at break-even, collecting contributions from Domestic restaurants for advertising and promotional programs[53](index=53&type=chunk) **PJMF Assets and Liabilities (in thousands, June 29, 2025):** | Category | Amount | | :-------------------------- | :------- | | Total Assets | $38,189 | | Total Liabilities | $48,235 | [5. Revenue Recognition](index=15&type=section&id=5.%20Revenue%20Recognition) This note details the company's revenue recognition policies and contract liabilities - The Company recognized **$7.9 million** and **$17.7 million** related to deferred revenue during the three and six months ended June 29, 2025, respectively[56](index=56&type=chunk) **Contract Liabilities (in thousands):** | Category | June 29, 2025 | December 29, 2024 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Unearned franchise fees and royalties | $20,652 | $21,860 | $(1,208) | | Unredeemed gift card liabilities | $6,680 | $7,694 | $(1,014) | | Customer loyalty program obligations | $5,707 | $7,252 | $(1,545) | | **Total contract liabilities** | **$33,039** | **$36,806** | **$(3,767)** | [6. Common Stock](index=15&type=section&id=6.%20Common%20Stock) This note provides information on outstanding common stock, share repurchase programs, and dividends - The Company had **32.8 million outstanding shares** of common stock as of June 29, 2025[61](index=61&type=chunk) - Approximately **$90.2 million** remained available under the Company's share repurchase program as of June 29, 2025, with no activity during the three and six months ended June 29, 2025, or June 30, 2024[63](index=63&type=chunk) - Aggregate cash dividends of approximately **$30.5 million** (**$0.92 per share**) were paid for the six months ended June 29, 2025[65](index=65&type=chunk) - A third-quarter dividend of **$0.46 per common share** (approximately **$15.4 million**) was declared on August 1, 2025, payable on August 29, 2025[65](index=65&type=chunk) [7. Earnings per Share](index=16&type=section&id=7.%20Earnings%20per%20Share) This note presents the basic and diluted earnings per common share calculations for various periods **Earnings Per Common Share (EPS):** | Metric | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.28 | $0.37 | $0.56 | $0.82 | | Diluted EPS | $0.28 | $0.37 | $0.56 | $0.82 | [8. Debt](index=17&type=section&id=8.%20Debt) This note details the company's long-term debt, credit facilities, and interest rate management strategies - The Company amended its credit agreement on March 26, 2025, establishing a **$200.0 million Term Loan** and a **$600.0 million senior secured revolving credit facility (PJI Revolving Facility)**, maturing on March 26, 2030[71](index=71&type=chunk) - Approximately **$466.2 million** remained available under the PJI Revolving Facility as of June 29, 2025[73](index=73&type=chunk) - During the three months ended June 29, 2025, the Company executed **two new interest rate swaps**, each with notional values of **$50.0 million**, to replace maturing swaps and mitigate interest rate exposure[76](index=76&type=chunk) **Long-term Debt, Net (in thousands, June 29, 2025):** | Category | Amount | | :-------------------------- | :------- | | Senior Notes | $400,000 | | Term Loan | $200,000 | | Revolving Facilities | $133,804 | | **Outstanding debt** | **$733,804** | | Unamortized debt issuance costs | $(7,523) | | **Total long-term debt, net** | **$726,281** | [9. Restructuring](index=20&type=section&id=9.%20Restructuring) This note outlines the International Transformation Plan, including restaurant closures, refranchising, and associated costs - The International Transformation Plan involved strategic restaurant closures and divestitures in the UK, resulting in the closure of **43 Company-owned** and **32 franchised** underperforming UK restaurants during 2024 and 2025[82](index=82&type=chunk) - The Company completed the refranchising of **60 formerly Company-owned restaurants** in 2024[83](index=83&type=chunk) - Total estimated pre-tax costs for the International Transformation Plan are approximately **$35 million**, with **$34.1 million** incurred through the second quarter of 2025, and the remainder expected in 2025[84](index=84&type=chunk) **International Transformation Costs (in thousands):** | Cost Category | Three Months Ended June 29, 2025 | Six Months Ended June 29, 2025 | | :------------------------------------ | :------------------------------- | :----------------------------- | | Professional services and other related costs | $780 | $2,214 | | Loss on franchisee notes receivable | $1,050 | $2,161 | | Long-lived asset impairment charges | $801 | $801 | | **Total international transformation costs** | **$2,451** | **$4,631** | [10. Litigation, Commitments and Contingencies](index=21&type=section&id=10.%20Litigation,%20Commitments%20and%20Contingencies) This note discloses ongoing legal proceedings, commitments, and contingent liabilities affecting the company - The Company reached a **$5.0 million settlement** in principle for the 'In re Papa John's Employee & Franchise Employee Antitrust Litigation' class action, recorded in Q1 2022 and accrued as of June 29, 2025[87](index=87&type=chunk) [11. Segment Information](index=21&type=section&id=11.%20Segment%20Information) This note provides financial data for the company's reportable segments, evaluated by adjusted EBITDA - The Company has four reportable segments: Domestic Company-owned restaurants, North America franchising, North America commissaries, and International operations[88](index=88&type=chunk) - The Chief Executive Officer, as the chief operating decision maker (CODM), evaluates segment performance and allocates resources based on **adjusted EBITDA**[90](index=90&type=chunk) **Segment Adjusted EBITDA (in thousands, three months ended June 29, 2025):** | Segment | Adjusted EBITDA | | :-------------------------------- | :-------------- | | Domestic Company-owned restaurants | $9,864 | | North America franchising | $26,843 | | North America commissaries | $19,652 | | International | $5,637 | | **Total Segment adjusted EBITDA** | **$61,996** | **Segment Adjusted EBITDA (in thousands, six months ended June 29, 2025):** | Segment | Adjusted EBITDA | | :-------------------------------- | :-------------- | | Domestic Company-owned restaurants | $14,896 | | North America franchising | $54,091 | | North America commissaries | $39,004 | | International | $11,019 | | **Total Segment adjusted EBITDA** | **$119,010** | [12. Subsequent Events](index=26&type=section&id=12.%20Subsequent%20Events) This note reports significant events occurring after the balance sheet date, including new legislation and asset sales - On July 4, 2025, the **'One Big Beautiful Bill Act'** was signed into U.S. law, which is expected to have a material impact on current and deferred tax assets/liabilities and a favorable impact on cash taxes paid in 2025[101](index=101&type=chunk) - On July 18, 2025, the Company entered an agreement to sell its **70% interest** in a consolidated joint venture (**85 Domestic Company-owned restaurants**) for approximately **$25 million**, expecting an estimated pre-tax gain of **$15 million to $20 million**[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, strategic priorities, recent developments, liquidity, capital resources, and market trends [Overview](index=27&type=section&id=Overview) This section provides a high-level summary of the company's global restaurant operations and revenue streams - As of June 29, 2025, Papa John's operates **5,989 restaurants globally**, comprising **554 Company-owned** and **5,435 franchised locations** across 50 countries[104](index=104&type=chunk) - Revenues are derived from Company-owned restaurant sales, franchise royalties and fees, sales of food and paper products to franchisees, marketing fund contributions, and technology service fees[104](index=104&type=chunk) [Recent Developments and Trends](index=27&type=section&id=Recent%20Developments%20and%20Trends) This section highlights key strategic investments, marketing initiatives, and restaurant development efforts - The Company is investing up to an additional **$25 million in marketing** throughout 2025 to enhance its 'BETTER INGREDIENTS. BETTER PIZZA' platform and value perception[106](index=106&type=chunk) - Strategic investments in technology infrastructure include a partnership with **Google Cloud** and the development of new omnichannel experiences, including a new app for iOS and Android[106](index=106&type=chunk) - A **three-year waiver of PJMF contributions** is offered for new restaurants opened in 2025 to accelerate domestic development[107](index=107&type=chunk) - In Q2 2025, **45 new restaurants** were opened systemwide (**19 North America, 26 International**)[107](index=107&type=chunk) [International Transformation Plan](index=28&type=section&id=International%20Transformation%20Plan) This section provides an update on the final stages of the International Transformation Plan and its associated costs - The International Transformation Plan is in its final stages, expected to be completed during 2025, with total estimated pre-tax costs of approximately **$35 million** (**$34.1 million** incurred through Q2 2025)[108](index=108&type=chunk) [Global Restaurant Sales and Unit Information](index=28&type=section&id=Global%20Restaurant%20Sales%20and%20Unit%20Information) This section presents comparable sales growth, system-wide restaurant sales growth, and unit count information - Total restaurants at the end of Q2 2025 were **5,989**, with a trailing four quarters net restaurant growth of **106 units**[112](index=112&type=chunk) **Comparable Sales Growth (Decline) (excluding foreign currency):** | Segment | Three Months Ended June 29, 2025 | Six Months Ended June 29, 2025 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Domestic Company-owned restaurants | 0.3% | (2.1)% | | North America franchised restaurants | 1.0% | (0.7)% | | North America restaurants | 0.9% | (1.0)% | | International restaurants | 3.7% | 3.5% | | **Total comparable sales growth (decline)** | **1.6%** | **0.1%** | **System-wide Restaurant Sales Growth (Decline) (excluding foreign currency):** | Segment | Three Months Ended June 29, 2025 | Six Months Ended June 29, 2025 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Domestic Company-owned restaurants | 1.5% | (0.8)% | | North America franchised restaurants | 2.7% | 1.1% | | North America restaurants | 2.5% | 0.7% | | International restaurants | 6.6% | 6.1% | | **Total global system-wide restaurant sales growth (decline)** | **3.5%** | **2.1%** | [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, costs, expenses, and segment results [Financial Statement Updates](index=30&type=section&id=Financial%20Statement%20Updates) This section details retrospective presentation changes and updates to internal cost allocation methodologies - Presentation changes to the Condensed Consolidated Statements of Operations and Cash Flows were applied retrospectively due to the adoption of **ASU 2023-07**[113](index=113&type=chunk) - The internal cost allocation methodology was updated, resulting in a higher allocation of corporate expenses to North America franchising and International segments, with prior-period comparative information recast[114](index=114&type=chunk) [Revenues](index=30&type=section&id=Revenues) This section provides a detailed breakdown and analysis of the company's revenue streams and their changes - Company-owned restaurant sales decreased primarily due to declines in UK Company-owned restaurant revenues from closures and refranchising, partially offset by a **$2.6 million increase** in Domestic Company-owned restaurant revenue for the three months ended June 29, 2025[118](index=118&type=chunk) - Franchise royalties and fees increased due to growth in North America franchised equivalent units and International comparable sales[120](index=120&type=chunk) - Commissary revenues increased due to higher prices and transaction volumes[123](index=123&type=chunk) - Other revenues increased due to higher revenues generated from technology services, resulting from an increase in the technology fee charged to franchisees[124](index=124&type=chunk) **Revenue Components (in thousands):** | Revenue Type | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | % Change QTD | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | % Change YTD | | :-------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Company-owned restaurant sales | $178,989 | $184,640 | (3.1)% | $352,870 | $375,891 | (6.1)% | | Franchise royalties and fees | $48,302 | $46,552 | 3.8% | $96,358 | $93,705 | 2.8% | | Commissary revenues | $234,576 | $214,322 | 9.5% | $463,517 | $431,834 | 7.3% | | Other revenues | $23,136 | $20,410 | 13.4% | $46,893 | $41,345 | 13.4% | | Advertising funds revenue | $44,163 | $41,970 | 5.2% | $87,837 | $79,035 | 11.1% | | **Total revenues** | **$529,166** | **$507,894** | **4.2%** | **$1,047,475** | **$1,021,810** | **2.5%** | [Costs and Expenses](index=32&type=section&id=Costs%20and%20Expenses) This section analyzes the various cost and expense categories, highlighting key drivers of changes - Cost of sales increased due to higher volumes for Domestic QC Centers, higher food costs for Domestic Company-owned restaurants, and higher local advertising costs, partially offset by lower costs from UK Company-owned restaurants due to restructuring[127](index=127&type=chunk) - General and administrative expenses increased by **$17.9 million** for the three months ended June 29, 2025, primarily due to **$8.6 million** in incremental marketing investments and a **$3.7 million increase** from higher incentive compensation[130](index=130&type=chunk) - Depreciation and amortization expenses increased due to higher depreciation related to investments in technology platforms[131](index=131&type=chunk) **Costs and Expenses (in thousands):** | Expense Type | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | % Change QTD | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | % Change YTD | | :-------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Cost of sales | $371,716 | $363,038 | 2.4% | $738,212 | $730,704 | 1.0% | | General and administrative expenses | $70,118 | $57,046 | 22.9% | $135,285 | $114,923 | 17.7% | | Depreciation and amortization | $18,819 | $17,594 | 7.0% | $37,162 | $35,268 | 5.4% | | Advertising funds expense | $44,023 | $41,990 | 4.8% | $88,361 | $78,971 | 11.9% | | **Total costs and expenses** | **$504,676** | **$479,668** | **5.2%** | **$999,020** | **$959,866** | **4.1%** | [Segment Financial Performance](index=34&type=section&id=Segment%20Financial%20Performance) This section evaluates the adjusted EBITDA performance of each reportable segment - Domestic Company-owned restaurants' adjusted EBITDA decreased due to higher food and labor costs and a **2.1% decline** in comparable sales for the six months ended June 29, 2025[135](index=135&type=chunk) - North America commissaries' adjusted EBITDA increased due to higher prices, partially offset by higher food costs, salaries, benefits, and rent[137](index=137&type=chunk) - International adjusted EBITDA increased due to reduced operating losses from UK Company-owned restaurants in the prior year, when more restaurants were owned and operated[138](index=138&type=chunk) **Segment Adjusted EBITDA (in thousands):** | Segment | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Change QTD | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | Change YTD | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Domestic Company-owned restaurants | $9,864 | $13,474 | $(3,610) | $14,896 | $28,413 | $(13,517) | | North America franchising | $26,843 | $27,207 | $(364) | $54,091 | $55,714 | $(1,623) | | North America commissaries | $19,652 | $15,042 | $4,610 | $39,004 | $32,217 | $6,787 | | International | $5,637 | $3,713 | $1,924 | $11,019 | $7,906 | $3,113 | [Items Below Operating Income](index=35&type=section&id=Items%20Below%20Operating%20Income) This section covers financial items reported below operating income, including interest expense and income taxes [Net Interest Expense](index=35&type=section&id=Net%20Interest%20Expense) This section details changes in net interest expense, primarily influenced by average interest rates - Net interest expense decreased by **$0.3 million** and **$1.3 million** for the three and six months ended June 29, 2025, respectively, primarily due to lower average interest rates[140](index=140&type=chunk) [Income Tax Expense](index=35&type=section&id=Income%20Tax%20Expense) This section analyzes the effective tax rate and its drivers for the reporting periods - The higher effective tax rate for the three months ended June 29, 2025, was primarily due to lower pretax book income and tax shortfall from vesting of restricted shares[141](index=141&type=chunk) **Effective Tax Rate:** | Period | June 29, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Three Months Ended | 30.5% | 27.7% | | Six Months Ended | 31.6% | 31.3% | [Net Income Attributable to Noncontrolling Interests](index=35&type=section&id=Net%20Income%20Attributable%20to%20Noncontrolling%20Interests) This section reports the portion of net income allocated to noncontrolling interests - Net income attributable to noncontrolling interests was **$0.1 million** and **$0.3 million** for the three and six months ended June 29, 2025, respectively[143](index=143&type=chunk) [Diluted Earnings Per Common Share](index=35&type=section&id=Diluted%20Earnings%20Per%20Common%20Share) This section presents both GAAP and non-GAAP diluted earnings per common share **Diluted Earnings Per Common Share:** | Metric | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Diluted EPS | $0.28 | $0.37 | $0.56 | $0.82 | | Adjusted Diluted EPS (non-GAAP) | $0.41 | $0.61 | $0.77 | $1.28 | [Non-GAAP Measures](index=37&type=section&id=Non-GAAP%20Measures) This section defines and reconciles non-GAAP financial measures used for performance assessment and incentive plans - The Company uses non-GAAP measures (**adjusted EBITDA, adjusted net income, adjusted diluted EPS**) to assess operating performance, allocate resources, and administer incentive plans[146](index=146&type=chunk) **Adjusted Non-GAAP Financial Measures (in thousands, except per share amounts):** | Metric | Three Months Ended June 29, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 29, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Adjusted EBITDA | $52,615 | $58,920 | $102,239 | $119,485 | | Adjusted net income attributable to common shareholders | $13,523 | $20,083 | $25,335 | $42,090 | | Adjusted diluted earnings per common share | $0.41 | $0.61 | $0.77 | $1.28 | [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flows, capital priorities, debt covenants, and future capital expenditures - Primary liquidity sources are cash flows from operations and borrowings under the **Second Amended and Restated Credit Agreement**[150](index=150&type=chunk) - Capital priorities include investing for growth, maintaining a strong balance sheet, and returning capital to shareholders[151](index=151&type=chunk) - Net cash provided by operating activities increased by **$24.9 million** to **$66.8 million** for the six months ended June 29, 2025, primarily due to favorable timing of collections and marketing spend[153](index=153&type=chunk) - Estimated capital expenditures for 2025 are **$75 million to $85 million**, including **$8 million to $13 million** for tornado damage rebuilding, with anticipated insurance recovery[155](index=155&type=chunk) - Approximately **$90.2 million** remained available under the share repurchase program as of June 29, 2025, with no activity in Q2/H1 2025 or 2024[164](index=164&type=chunk) - The **'One Big Beautiful Bill Act'** is anticipated to result in an estimated **$10 million to $15 million reduction** in cash taxes paid during the second half of 2025[167](index=167&type=chunk) **Financial Covenants as of June 29, 2025:** | Covenant | Permitted Ratio | Actual Ratio | | :-------------------- | :-------------- | :----------- | | Leverage ratio | Not to exceed 5.25 to 1.0 | 3.4 to 1.0 | | Interest coverage ratio | Not less than 2.00 to 1.0 | 3.0 to 1.0 | **Free Cash Flow (in thousands, six months ended):** | Metric | June 29, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Net cash provided by operating activities | $66,843 | $41,957 | | Purchases of property and equipment | $(30,305) | $(29,155) | | **Free cash flow** | **$36,538** | **$12,802** | [Impact of Inflation and Macroeconomic Trends](index=42&type=section&id=Impact%20of%20Inflation%20and%20Macroeconomic%20Trends) This section addresses the effects of inflation, rising costs, and macroeconomic trends on the company's operations - The Company has experienced price increases in food items, labor, benefits, fuel, and other energy costs, impacting profitability directly and indirectly[172](index=172&type=chunk) - Strategies to mitigate inflationary pressures include compensating menu price increases (subject to competitive pressure) and expense control measures[172](index=172&type=chunk) - Proposed tariffs are not currently expected to significantly impact the domestic business, as a substantial proportion of ingredients are sourced domestically[172](index=172&type=chunk) [Forward-Looking Statements](index=42&type=section&id=Forward-Looking%20Statements) This section cautions readers about the inherent risks and uncertainties associated with forward-looking statements - Forward-looking statements are subject to various risks, uncertainties, and assumptions, including macroeconomic conditions, labor costs, supply chain disruptions, cyber-attacks, geopolitical conflicts, and changes in consumer behavior[173](index=173&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to interest rate, foreign currency, and commodity price risks, along with management strategies [Interest Rate Risk](index=43&type=section&id=Interest%20Rate%20Risk) This section discusses the company's exposure to interest rate fluctuations and its use of interest rate swaps - The Company is exposed to interest rate changes on its **PJI Revolving Facility** and **PJMF Revolving Facility**[175](index=175&type=chunk) - Interest rate risk is minimized through the utilization of **interest rate swaps**, which are derivative financial instruments[175](index=175&type=chunk) [Foreign Currency Exchange Rate Risk](index=44&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) This section details the company's exposure to foreign currency fluctuations, primarily from international operations - The Company is exposed to foreign currency exchange rate fluctuations from its International operations, primarily in the UK, which accounted for approximately **8.3%** and **8.0% of revenues** for the three and six months ended June 29, 2025, respectively[177](index=177&type=chunk) - Foreign currency exchange rate fluctuations had a favorable impact of approximately **$2.0 million** on International revenues and **$0.1 million** on operating income for the six months ended June 29, 2025[178](index=178&type=chunk) - The Company has not historically hedged its exposure to foreign currency fluctuations[178](index=178&type=chunk) [Commodity Price Risk](index=44&type=section&id=Commodity%20Price%20Risk) This section addresses the company's exposure to commodity price volatility, especially for food and paper products - The Company is exposed to commodity price fluctuations for food and paper products, with **cheese** being the largest ingredient cost[179](index=179&type=chunk) - Pricing agreements with vendors, including forward pricing for a portion of cheese purchases, are used to manage commodity price risk[179](index=179&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and reports on changes in internal control over financial reporting [Disclosure Controls and Procedures](index=44&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - The Company's disclosure controls and procedures were evaluated and deemed **effective** as of June 29, 2025[180](index=180&type=chunk) [Changes in Internal Control Over Financial Reporting](index=44&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports no material changes in internal control over financial reporting during the fiscal quarter - There were **no material changes** in the Company's internal control over financial reporting during the fiscal quarter ended June 29, 2025[181](index=181&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates legal proceedings details from the financial statement notes, confirming involvement in lawsuits and accruals - The Company is involved in various lawsuits, claims, investigations, and proceedings arising in the ordinary course of business, with appropriate accruals reflected in the financial statements[182](index=182&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - There have been **no material changes** to the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2024[183](index=183&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section updates on the share repurchase program and details stock repurchases for tax withholding obligations [Share Repurchase Program](index=45&type=section&id=Share%20Repurchase%20Program) This section provides an update on the company's share repurchase program and remaining authorization - Approximately **$90.2 million** remained available under the Company's **$425.0 million share repurchase program** as of June 29, 2025, with no activity during the three months ended June 29, 2025[184](index=184&type=chunk) [Repurchases of Stock for Tax Withholdings](index=45&type=section&id=Repurchases%20of%20Stock%20for%20Tax%20Withholdings) This section details common stock acquisitions from employees to satisfy tax withholding obligations - The Company acquired approximately **2,000 shares** of its common stock from employees during the fiscal quarter ended June 29, 2025, to satisfy minimum tax withholding obligations upon vesting of restricted stock[186](index=186&type=chunk) [Item 5. Other Information](index=45&type=section&id=Item%205.%20Other%20Information) This section discloses Rule 10b5-1 trading plans adopted by directors and executive officers [Rule 10b5-1 Trading Plans of Directors and Executive Officers](index=45&type=section&id=Rule%2010b5-1%20Trading%20Plans%20of%20Directors%20and%20Executive%20Officers) This section details the adoption of Rule 10b5-1 trading plans by company executives - **Ravi Thanawala**, Chief Financial Officer & EVP, International, adopted a **Rule 10b5-1(c) trading plan** on May 29, 2025, for the sale of up to **15,400 shares** of common stock[187](index=187&type=chunk) [Item 6. Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications, plan amendments, and iXBRL financial statements - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, an amendment to the **2018 Omnibus Incentive Plan**, and financial statements formatted in **iXBRL**[189](index=189&type=chunk)