Papa John’s International, Inc. (PZZA) posted second quarter 2014 results with earnings of 40 cents per share missing the Zacks Consensus Estimate of 41 cents by a penny. However, earnings were up 2.6% year over year, owing to a year-over-year increase in revenues.
Revenues of $380.9 million also missed the consensus mark of $389 million by 2.1%. However, it increased 9.1% year over year driven by year over year improvement in comparable sales (comps). Comps at system-wide North America restaurants were up 6% that compared favorably with the year-ago comps growth of 3.4%. However, it compared unfavorably with first quarter comps growth of 9.6%.
Segment Details
Domestic company-owned and franchised restaurant comps improved year over year. However, the sequential performance was not up to the mark. Nevertheless, we note that international comps experienced year-over-year as well as sequential growth.
Domestic company-owned restaurant sales increased 9.6% year over year due to a year- over- year increase in comps. Comps at domestic company-owned restaurants were up 7.5%, better than year-ago comps growth of 6% but lower than the prior quarter comps growth of 11.4%.
North America franchise royalty revenue was up 3.7% year over year due to an improvement in comps. Comps at North America franchised restaurants increased 5.4%, better than the year-ago quarter comps growth of 2.6% but down from the prior quarter growth of 8.9%.
Domestic commissary sales increased 7.6% driven by increases in prices of certain commodities, primarily cheese.
International revenues were up 21% year over year, thanks to unit expansion and improved comps. Comps at system-wide international restaurants were 8.6%, better than the year-ago quarter comps of 6.8% and also first quarter comps of 6.4%.
Behind the Headline Numbers
Total costs and expenses were $353.9 million, up 9.8% year over year due to a 9.8% increase in total domestic commissary expenses and a 9.5% increase in total domestic company-owned restaurant expenses. Operating income was up 0.2% to $353.9 million due to increase in revenues.
Guidance for 2014
Papa John’s maintained its earnings per share guidance in the range of $1.64 to $1.72, up 7% to 12% year over year. However, it increased its expectation for total revenue, North America comparables sales and International comparable sales.
The company expects total revenue to be up 8% to 10% compared to previous expectation of 5% to 7% growth. It expects North America comps to be up 4% to 6% compared to 2% to 4.5% increase expected previously. Meanwhile, International comparable sales are expected to grow in the range of 6% to 8% compared to the prior expectation of 5% to 7% increase. However, it narrowed its unit growth guidance to a range of 220 to 235 compared with 220 to 250 guided previously.
Our Take
Though revenues and earnings missed the consensus mark, both were up on a year-over-year basis. Moreover, domestic as well as international comps were also strong year over year. Comps growth reflects the impact of unit expansion and sales boosting initiatives like limited time offerings and menu innovation.
Papa John’s presently has a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other stocks worth considering in the industry include BJ's Restaurants, Inc. (BJRI), Chipotle Mexican Grill, Inc. (CMG) and Jamba, Inc. (JMBA). All these stocks sport Zacks Rank #1 (Strong Buy).
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