Papa John’s(PZZA) Seeking Alpha·2024-08-08 17:01Core Viewpoint - Papa John's reported mixed Q2 results with weak sales but improved profitability, leading to a slight positive market reaction despite the overall performance being below expectations [1][10] Financial Performance - Q2 revenues were $507.9 million, a decrease of 1.3% year-on-year, missing Wall Street estimates by $12.9 million [2] - Adjusted EPS was $0.61, beating the prior year's $0.59 and Wall Street estimates by $0.08, indicating effective cost management [2][5] - Adjusted operating income increased by $1.5 million to $38.4 million, despite the sales weakness [5] Comparable Sales - North American comparable store sales declined by 3.6%, with company-owned restaurants experiencing a 4.2% drop [4] - International comparable sales saw a slight decline of 0.1% [4] - The overall QSR industry showed mixed results, with competitors like Domino's and Yum! Brands reporting varying performance, highlighting the challenging market conditions [4] Operational Changes - The company closed 31 net units, primarily due to 43 planned closures in the UK as part of operational streamlining [3] - At the end of the quarter, Papa John's had 5,883 system-wide restaurants, supported by growth in international franchised locations [3] Future Outlook - The company is focusing on enhancing marketing efforts through the Back To Better 2.0 plan, which is expected to improve traffic and sales in the midterm [4][10] - A discounted cash flow model estimates the fair value of the stock at $62.75, indicating a potential upside of 42% from the current stock price [7] Valuation Metrics - The weighted average cost of capital (WACC) is estimated at 7.90%, down from 8.82%, reflecting improved cash flow estimates [8] - The EBIT margin is projected to remain at 8.8% post-implementation of the Back To Better 2.0 plan, with earlier margin improvements anticipated [6]