Papa Johns Announces Back to Better 2.0 Ahead of 26th Annual ICR Conference, and Provides Preliminary 2023 Sales and Unit Development
Long-term strategic initiatives focused on driving comparable sales growth and higher average unit volumes (AUVs) through increased investments in
North Americamarketing; improving North Americarestaurant-level margins; increasing North Americanet new unit development; and, strengthening international operational effectiveness
Preliminary global system-wide sales increase approximately 5%(1) for fiscal year 2023 on 210 net new units, including 57 in
North America, and a preliminary 1% increase in North Americacomparable sales
Papa Johns’ CEO, CFO and VP of Investor Relations plan to discuss these items during an analyst-led fireside chat at the 26th Annual
ICR Conferencetomorrow, January 9, 2024at 8:00 am ET
“It is our ambition to continue our positive momentum and to become the QSR pizza brand of choice for customers and franchisees around the world,” said
North America Strategic Growth Initiatives
Commenting on Papa Johns’
Several strategic growth initiatives the Company is currently undertaking in
Enhance National Marketing Investmentand Effectiveness – To drive system-wide sales growth and brand affinity, Papa Johnswill be activating a new marketing strategy in 2024. Based on a comprehensive review of its creative and media strategy in 2023, the Company has identified significant opportunities to improve audience selection, offer differentiated category solutions, improve marketing return on ad spend (ROAS), sustain loyalty and create cultural buzz. Correspondingly, the Company’s franchisees have voted to increase the contribution rate to the National Marketing Fundby 20%, or 100 basis points of sales. This will increase the productivity of their holistic marketing contributions by leveraging the scale national investments deliver. At the same time, the Company has made local marketing optional for franchisees, resulting in a net decrease in required marketing spend and an opportunity to increase the overall profitability of their restaurants.
Accelerate North America Development– To pursue the significant untapped and underserved markets the Company has identified in North Americaand accelerate development in 2024 and beyond, it has designed a development incentive that will deliver significantly higher restaurant-level EBITDA margins during the first five years of operations through a waiver of National Marketing Fundcontributions. This rich program is made possible by the improved productivity and scale of the marketing investments highlighted above. This new incentive will significantly improve cash-on-cash paybacks for franchisees, add scale in key markets and attract growth-driven franchisees.
U.S.Commissary Business – To drive profitable growth and overall supply chain productivity that provides cost savings and incremental profit for the system, the Company is evolving its commissary business. Beginning in 2024, the Company will increase the fixed operating margin that its U.S.commissaries charge by 100 basis points in each of the next four years, moving from 4% today to 8% in 2027. In total, this change will equate to approximately 100 basis points of cost at the restaurant level. There will be multiple initiatives employed to mitigate this cost. Firstly, the Company is offering new opportunities for its franchisees to earn annual incentive-based rebates as they increase volume and open new restaurants. Franchisees who increase case-volume purchases at the highest volume growth could realize target market rates lower than the current 4% rate in place today. Secondly, the incremental volume driven by increased marketing and additional development will reduce the shared supply chain costs across the system. Lastly, the company will be focused on driving continued productivity throughout the supply chain through improved operations and supplier relationships.
International Transformation Initiatives
Commenting on Papa Johns’ International segment, Lynch added, “Over the past 10 years, we have more than doubled our international footprint and now operate in 50 countries and territories. As we pursue the next phase of international growth, we are taking the necessary steps to evolve our business structure to deliver an enhanced value proposition to our customers and franchisees, ensure targeted investments and efficient resource management, and better position our largest markets, including the
Several transformation initiatives the Company is undertaking to evolve its international business structure are:
Establish International Regional Hubs – To deliver a frictionless, locally-valued offering with a recognizable and consistent customer experience, we are establishing hubs in our key regions – APAC (
Asia Pacific), EMEA ( Europe, Middle Eastand Africa), and Latin America. These regional hubs will be led by experienced General Managers and their teams who will partner with franchisees to create a holistic strategy to boost performance in their markets. These teams will align global best practices in operations, marketing and technology with local preferences and needs to accomplish Papa Johns’ long-term objective of increasing market share in key markets around the world.
Increase Technology Investments – To further its ability to deliver impactful innovations, targeted marketing, and enhanced value in key international markets,
Papa Johnsis increasing its investment in consumer-facing technology, digital infrastructure and enhanced reporting. By investing in expanded ordering capabilities through its website and app and leveraging analytics, the Company expects to improve purchase conversion, increase customer retention and deliver faster consumer insights to franchisees.
UKBusiness Model – In order to set up its largest international market for long-term success, the Company will continue to focus on improving operational efficiency, enhancing the customer experience and driving profitability. As a result, the Company closed multiple low-performing, non-viable, franchised restaurants in the fourth quarter of 2023. In 2024, the Company anticipates additional strategic restaurant closures of low-performing restaurants that will drive improved profitability of the remaining stores and strengthen our franchisee base within this important market.
As a result of these transformation initiatives, the Company is analyzing the potential non-cash lease impairments associated with strategic closures and loan impairments, along with other costs including employee expenses and professional service fees in connection with the International transformation initiatives. The Company expects that a portion of these costs will be incurred in the fourth quarter of 2023 with the remainder to be recognized in fiscal years 2024 and 2025.
Preliminary Full Year and Fourth Quarter 2023 Results
Preliminary sales results for the fourth quarter and full year, as compared with the prior year periods, include the following:
Global system-wide sales were approximately
$1.3 billionfor the fourth quarter ended December 31, 2023, an approximately 12%(1) increase from the prior year fourth quarter ended December 25, 2022. Excluding the 53rd week in 2023, global system-wide sales for the fourth quarter were up approximately 3%(1). For the fiscal year 2023, global system-wide sales were approximately $5.0 billion, an approximately 5%(1) increase from fiscal year 2022. Excluding the 53rd week, global system-wide sales were up approximately 3%(1).
North Americacomparable sales, on a 13-week basis, were up 2% compared with the fourth quarter of 2022 as transaction and ticket growth delivered 2% comparable sales at both Domestic Company-owned restaurants and North Americafranchised restaurants. For the full year 2023, North Americacomparable sales, on a 52-week basis, were up 1% from a year ago, driven by a 3% increase at Domestic Company-owned restaurants.
- International comparable sales, on a 13-week basis, were down approximately 6% for the fourth quarter. For the full year 2023, International comparable sales, on a 52-week basis, were down approximately 4% from the prior year.
210 net unit openings for the full year 2023 with 57 net unit openings in
North Americaand 153 net unit openings in international markets. The lower-than-anticipated net unit openings were primarily the result of additional unanticipated international restaurant closures in the fourth quarter including 10 UK franchised restaurants; 12 international units that were re-classified as closed locations in the fourth quarter through a review of temporary restaurant closures; restaurant openings moved into 2024; and restaurant opening delays due to the ongoing conflict in the Middle East.
The above results are preliminary and remain subject to the completion of normal year-end accounting procedures and adjustments. The Company expects to release final financial and operating results for its fiscal fourth quarter and fiscal year ended
(1) Excludes the impact of foreign currency
ICR Conference Participation
As previously announced,
Certain matters discussed in this press release and other Company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as “expect,” “intend,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “outlook”, “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, the current economic environment, commodity and labor costs,
Our forward-looking statements are based on our assumptions which are based on currently available information. Actual outcomes and results may differ materially from those matters expressed or implied in our forward-looking statements as a result of various factors, including but not limited to risks related to: our ability to successfully implement and realize anticipated benefits of long-term strategic initiatives designed to drive
Vice President, Investor Relations
Sr. PR Manager
Sr. Communications Manager
Source: Papa John’s