Papa John’s(US:PZZA)2022-11-03 16:26Financial Data and Key Metrics Changes - Global system-wide sales in constant currency increased by 0.5% year-over-year to $1.2 billion, following an 11% growth in the previous year [15][35] - Consolidated revenues for Q3 were $511 million, down less than 1% from Q3 2021, but increased by 3% when excluding the impact of strategic refranchising [38] - Adjusted consolidated operating income for Q3 was $34 million, compared to $42 million in Q3 2021, with adjusted operating margins at 6.6%, down from 7.9% last year [39][40] Business Line Data and Key Metrics Changes - North American comparable sales for Q3 were down less than 1%, impacted by high inflation and changing consumer demand [19] - International comparable sales decreased by 10%, with the UK market facing significant challenges due to inflation and energy costs [21][43] - Commissary revenues rose by 14% in Q3, driven by rising costs, although lower volumes slightly reduced margins [42] Market Data and Key Metrics Changes - System-wide comparable sales in North America increased by 30% on a three-year stack, outperforming peers [11] - The UK market, representing over 20% of international sales, faced headwinds that negatively impacted overall international results [21] - The company anticipates mid-single-digit declines in international comparable sales for the full year due to ongoing challenges in the UK [21] Company Strategy and Development Direction - The company remains committed to its five strategic priorities, including improving unit-level profitability and expanding its footprint domestically and internationally [8] - Development activity is increasing, with nearly all top 25 North American franchisees having development agreements in place, and plans for approximately 3,000 new units globally [13][14] - The company is focused on menu and technology innovations to drive long-term growth opportunities [12][51] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by high food and labor costs, particularly in the UK, and emphasized a balanced approach to navigating the current environment [18][21] - The company expects continued pressure on operating margins due to inflation and lower contributions from the UK market [50] - Despite short-term challenges, management expressed confidence in the long-term growth potential and the ability to achieve positive comparable sales in Q4 [29][46] Other Important Information - The company has repurchased 19.5 million shares during the quarter and declared a fourth-quarter dividend of $0.42 per share, bringing the annual dividend rate to $1.68 [48][49] - The company is investing in technology innovation and new restaurant development, with CapEx expected to be between $75 million and $85 million for the year [53] Q&A Session Summary Question: Delivery business vulnerability to consumer shifts - Management noted a slight shift towards carryout but emphasized that the delivery business remains strong and productive [60][62] Question: Confidence in multi-year development outlook - Management highlighted ongoing restaurant openings, particularly internationally, and the signing of new development agreements as key factors supporting their confidence [66][70] Question: National promotion strategy and pricing - Management clarified that the Papa Pairings promotion was strategically designed to maintain transaction values while addressing consumer price sensitivity [73][75] Question: Innovation pipeline and product development - Management confirmed a balanced approach to innovation, with new product launches planned for 2023, including both core pizza and complementary items [79] Question: UK market headwinds and franchisee support - Management is evaluating support strategies for franchisees in the UK to ensure long-term profitability and sustainability [95] Question: Labor pipeline and store operations - Management reported improvements in staffing and productivity, leveraging partnerships with aggregators to manage labor challenges effectively [100][101] Question: Market share relative to peers - Management indicated that while there has been a small negative comp this quarter, they have gained market share over the past three years [104][106]