Papa John’s(PZZA) - 2025 Q2 - Quarterly Results

Overview of Q2 2025 Performance Papa Johns reported solid second-quarter results, exceeding expectations with comparable sales growth in North America and internationally, though net income and adjusted EBITDA declined due to increased investments Second Quarter 2025 Highlights Papa Johns reported a solid second quarter, exceeding expectations with a return to comparable sales growth in North America (+1%) and strong international growth (+4%), while total revenues increased by 4% to $529 million, net income and adjusted EBITDA declined to $10 million and $53 million respectively, primarily due to increased marketing investments and higher operating costs - CEO Todd Penegor stated that Q2 results exceeded expectations, with the company's strategy driving transaction gains and winning more customer visits[3] - The company opened 45 new restaurants system-wide in Q2, consisting of 19 in North America and 26 internationally[4] Q2 2025 Key Performance Indicators | Metric | Q2 2025 | Change vs. Q2 2024 | | :--- | :--- | :--- | | North America Comparable Sales | +1% | N/A | | International Comparable Sales | +4% | N/A | | Global System-wide Restaurant Sales | $1.26 billion | +4% | | Total Revenues | $529 million | +4% | | Net Income | $10 million | -23% | | Adjusted EBITDA | $53 million | -11% | | Diluted EPS | $0.28 | ($0.09) | | Adjusted Diluted EPS | $0.41 | ($0.20) | Financial Performance Analysis The company's financial performance in Q2 2025 showed revenue growth but profitability compression, with total revenues rising 4.2% to $529.2 million, mainly from commissary revenues, while net income fell to $9.7 million and adjusted EBITDA decreased to $52.6 million due to higher G&A, marketing, and operating costs Revenue and Sales Total revenues grew by $21.3 million (4.2%) year-over-year, primarily fueled by a $20.3 million increase in Commissary revenues and positive contributions from franchise royalties and advertising funds, partially offset by a $5.7 million decrease in Company-owned restaurant revenues due to UK refranchising and closures, with global system-wide sales increasing 4% to $1.26 billion - The primary driver of the 4.2% revenue increase was a $20.3 million rise in Commissary revenues[6] - Company-owned restaurant revenues decreased by $5.7 million, mainly due to the refranchising or closure of 105 UK locations, which caused an $8.2 million revenue drop from International Company-owned restaurants[7] System-Wide Sales Growth (Q2 2025 vs Q2 2024) | Region | System-Wide Sales | Growth (YoY) | | :--- | :--- | :--- | | North America | $928 million | +3% | | International | $328 million | +7% | | Global Total | $1.26 billion | +4% | Profitability and Earnings Profitability declined in Q2 2025, with net income falling to $9.7 million from $12.5 million and adjusted EBITDA decreasing to $52.6 million from $58.9 million, driven by higher G&A expenses for marketing and loyalty program investments, a $3.7 million increase in incentive compensation, and rising food and labor costs, resulting in lower diluted and adjusted diluted EPS - Net income decreased by $2.9 million, as higher revenues were more than offset by increased G&A expenses (marketing, loyalty program), higher incentive compensation, and rising food and labor costs[8] - Adjusted EBITDA decreased by $6.3 million, primarily due to the same factors impacting net income, including incremental investments in marketing and higher operating costs[10] Earnings Per Share (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Diluted EPS | $0.28 | $0.37 | | Adjusted Diluted EPS | $0.41 | $0.61 | Global Restaurant Development As of June 29, 2025, Papa Johns operated 5,989 restaurants across 50 countries, with 45 new openings and 75 closures in the second quarter, resulting in a net decline of 30 restaurants, heavily concentrated in international franchised locations, though the company achieved a net growth of 106 restaurants over the trailing four quarters - The total number of restaurants stood at 5,989 at the end of Q2 2025, down from 6,019 at the beginning of the quarter[16] - Over the trailing four quarters, the company achieved a net restaurant growth of 106 units, with North America adding 70 and International adding 36[16] Q2 2025 Restaurant Activity | Region | Opened | Closed | Net Change | | :--- | :--- | :--- | :--- | | North America | 19 | 18 | +1 | | International | 26 | 57 | (31) | | System-wide Total | 45 | 75 | (30) | Cash Flow and Shareholder Returns For the first six months of 2025, free cash flow significantly increased to $36.5 million, compared to $12.8 million in the same period last year, driven by improved working capital and timing of marketing fund payments, while the company continued its commitment to shareholder returns, paying a cash dividend of $0.46 per share in the second quarter and declaring an identical dividend for the third quarter - The Board of Directors declared a third-quarter dividend of $0.46 per common share, payable on August 29, 2025[20] Free Cash Flow (Six Months Ended) | (in thousands) | 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 | Fiscal 2025 Outlook The company reiterated most of its 2025 annual guidance while raising the forecast for International comparable sales to up 2% to 4%, with system-wide sales growth remaining at 2% to 5% and adjusted EBITDA projected between $200 million and $220 million - The company raised its guidance range for International comparable sales from 'flat to up 2%' to 'up 2% to 4%'[12][13] Updated Fiscal 2025 Guidance | Metric | Guidance Range | | :--- | :--- | | System-wide sales | Up 2% to 5% | | North America comparable sales | Flat to up 2% | | International comparable sales | Up 2% to 4% (Raised) | | North America gross openings | 85 to 115 | | International gross openings | 180 to 200 | | Adjusted EBITDA | $200 million to $220 million | | Capital expenditures | $75 million to $85 million | Consolidated Financial Statements This section presents the company's condensed consolidated statements of operations, balance sheets, and cash flows, providing a detailed overview of its financial position and performance Condensed Consolidated Statements of Operations For the second quarter of 2025, total revenues increased to $529.2 million from $507.9 million in the prior year, but due to higher costs and expenses, which rose to $504.7 million, operating income declined to $24.5 million from $28.2 million, and net income for the quarter was $9.7 million, a decrease from $12.5 million in Q2 2024 Q2 2025 Statement of Operations Highlights (in thousands) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total revenues | $529,166 | $507,894 | | Total costs and expenses | $504,676 | $479,668 | | Operating income | $24,490 | $28,226 | | Net income | $9,671 | $12,536 | Condensed Consolidated Balance Sheets As of June 29, 2025, the company's balance sheet showed total assets of $890.4 million, a slight increase from $889.0 million at year-end 2024, with total liabilities also seeing a small increase to $1.306 billion and a stockholders' deficit of $416.8 million, while cash and cash equivalents stood at $33.3 million, down from $38.0 million at the end of 2024 Balance Sheet Summary (in thousands) | Account | June 29, 2025 | Dec 29, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $33,299 | $37,955 | | Total current assets | $238,787 | $230,605 | | Total assets | $890,442 | $888,952 | | Long-term debt, net | $726,281 | $741,650 | | Total liabilities | $1,306,304 | $1,302,265 | | Total Stockholders' deficit | ($416,754) | ($414,216) | Condensed Consolidated Statements of Cash Flows For the six months ended June 29, 2025, net cash provided by operating activities was $66.8 million, a significant improvement from $42.0 million in the prior year period, while net cash used in investing activities was $19.4 million and net cash used in financing activities was $52.8 million, primarily due to dividend payments and net repayments of credit facilities, resulting in a net decrease in cash of $4.7 million for the period Cash Flow Summary - Six Months Ended (in thousands) | 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) | | Change in cash and cash equivalents | ($4,656) | ($16,282) | Segment Information The company's performance is evaluated across four reportable segments based on adjusted EBITDA, with North America franchising being the most profitable segment in Q2 2025 at $26.8 million, followed by North America commissaries at $19.7 million, while Domestic Company-owned restaurants saw a decline in profitability to $9.9 million and the International segment's adjusted EBITDA improved to $5.6 million - The North America commissaries segment showed the largest year-over-year growth in adjusted EBITDA, increasing by over $4.6 million[45] - The Domestic Company-owned restaurants segment experienced the largest decline in adjusted EBITDA, falling by approximately $3.6 million compared to the prior year[45] Segment Adjusted EBITDA (Q2 2025 vs Q2 2024, in thousands) | Segment | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Domestic Company-owned restaurants | $9,864 | $13,474 | | North America franchising | $26,843 | $27,207 | | North America commissaries | $19,652 | $15,042 | | International | $5,637 | $3,713 | Supplemental Information This section provides additional financial details, including reconciliations of non-GAAP financial measures and definitions of key performance metrics used throughout the report Non-GAAP Financial Measures Reconciliation The company provides non-GAAP measures like adjusted EBITDA and adjusted diluted EPS to help investors assess operating performance, with Net Income of $9.7 million for Q2 2025 reconciled to Adjusted EBITDA of $52.6 million by adding back items such as interest, taxes, D&A, stock-based compensation ($3.8M), international restructuring costs ($2.5M), and other costs ($3.0M) - Adjustments for 'Other costs' in Q2 2025 included losses on equipment disposal from a terminated COVID-era program, costs for strategic initiatives, and costs related to tornado damage[36] Reconciliation of Net Income to Adjusted EBITDA (Q2 2025, in thousands) | Line Item | Amount | | :--- | :--- | | Net income | $9,671 | | Income tax expense | $4,235 | | Net interest expense | $10,584 | | Depreciation and amortization | $18,819 | | Stock-based compensation expense | $3,824 | | International restructuring costs | $2,451 | | Other costs | $3,031 | | Adjusted EBITDA | $52,615 | Definitions This section defines key performance metrics used in the report, such as "Comparable sales" and "Global system-wide restaurant sales," which are reported on a constant dollar basis for international locations and are considered useful for analyzing results and evaluating brand strength - Comparable sales and Global system-wide restaurant sales for international locations are reported on a constant dollar basis to exclude the impact of foreign currency translation[30] - The company believes these metrics are useful for analyzing results, comparing to industry trends, and evaluating brand strength, as franchisee payments are based on a percentage of their sales[30]