8-K: Papa Johns Reports Mixed Q4 and Full Year 2024 Results, Announces 2025 Outlook

Papa Johns International announced its fourth quarter and full year 2024 financial results, showing a decrease in North America comparable sales but international growth, and provided its 2025 outlook.

Summary

• Papa Johns International reported a 4% decrease in North America comparable sales for both Q4 and the full year 2024.
• Domestic Company-owned restaurants saw a 6% decrease in Q4 and a 5% decrease for the full year in North America.
• North America franchised restaurants experienced a 4% decrease in comparable sales for both Q4 and the full year.
• International comparable sales increased by 2% in Q4 but decreased by 1% for the full year.
• The company opened 122 net new restaurants in Q4 and 124 for the full year, with international expansion driving growth.
• Global system-wide restaurant sales were $1.23 billion in Q4, an 8% decrease, and $4.85 billion for the full year, a 3% decrease, both impacted by the extra week in 2023.
• Excluding the extra week, global system-wide sales were flat for Q4 and down approximately 1% for the full year.
• Total revenues were $531 million in Q4, down 7%, and $2.06 billion for the full year, down 4%, also impacted by the extra week in 2023.
• Diluted earnings per common share were $0.44 in Q4, compared to $0.79 in 2023, and $2.54 for the full year, compared to $2.48 in 2023.
• Adjusted diluted earnings per common share were $0.63 in Q4, compared to $0.91 in 2023, and $2.34 for the full year, compared to $2.71 in 2023.
• The company is guiding for 2% to 5% system-wide sales growth in 2025.
• North America comparable sales are expected to be flat to up 2% in 2025.
• International comparable sales are also projected to be flat to up 2% in 2025.
• The company plans to open 85 to 115 gross new restaurants in North America and 180 to 200 internationally in 2025.
• Adjusted EBITDA is projected to be between $200 million and $220 million in 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While there are positive aspects like international growth and future outlook, the negative comparable sales in North America and decreased earnings temper the overall outlook.

Positives

• International comparable sales showed a 2% increase in the fourth quarter.
• The company achieved 122 net restaurant openings in the fourth quarter and 124 for the full year, driven by international expansion.
• Papa Johns is projecting system-wide sales growth of 2% to 5% in 2025.
• The company anticipates opening 85 to 115 gross new restaurants in North America and 180 to 200 internationally in 2025.

Negatives

• North America comparable sales decreased by 4% in both Q4 and the full year 2024.
• Global system-wide restaurant sales decreased by 8% in Q4 and 3% for the full year, primarily due to the extra week in 2023.
• Diluted earnings per common share decreased to $0.44 in Q4 and $2.54 for the full year.
• Adjusted diluted earnings per common share decreased to $0.63 in Q4 and $2.34 for the full year.

Risks

• Deteriorating economic conditions in U.S. and international markets could impact performance.
• Labor shortages at Company and/or franchised restaurants and quality control centers pose a risk.
• Increases in labor costs, commodity costs, or other operating costs could negatively affect profitability.
• Potential delays in new restaurant openings, both domestically and internationally, could hinder growth.
• Increased risk of phishing, ransomware, and other cyber-attacks could disrupt operations.
• Geopolitical conflicts, including those in Ukraine and the Middle East, could disrupt the global economy and the business.
• A possible economic recession or downturn could reduce consumer spending or demand.

Future Outlook

Papa Johns expects system-wide sales growth of 2% to 5%, North America comparable sales to be flat to up 2%, and International comparable sales to be flat to up 2% in 2025. The company also plans to open 85 to 115 gross new restaurants in North America and 180 to 200 internationally. Adjusted EBITDA is projected to be between $200 million and $220 million.

Management Comments

• 'I am pleased with the early progress we are seeing in our transformation as we work to improve our value perception, simplify our operations, and enhance our digital and loyalty experiences,' said Todd Penegor, president and CEO.
• Penegor continued, 'We have defined our strategic priorities to take market share as we move forward with urgency to execute on initiatives to drive sales momentum in the near-term while meaningfully increasing profitability over time.'

Industry Context

The results reflect a challenging environment for restaurant chains, with Papa Johns facing headwinds in North America but showing some strength internationally. The company's focus on improving value perception and simplifying operations aligns with industry trends aimed at attracting and retaining customers in a competitive market.

Comparison to Industry Standards

• Domino's Pizza (DMP) reported a 3.6% increase in U.S. same-store sales in Q4 2024, outperforming Papa John's North America comparable sales decline of 4%.
• McDonald's (MCD) reported a 3.4% increase in U.S. same-store sales in Q4 2024, also outperforming Papa John's North America comparable sales decline of 4%.
• Yum! Brands (YUM), which includes Pizza Hut, reported a 1% increase in worldwide same-store sales in Q4 2024, outperforming Papa John's global system-wide restaurant sales decline of 8%.

Stakeholder Impact

• Shareholders may be concerned about the decline in North America comparable sales and decreased earnings.
• Employees may be affected by potential cost-cutting measures or operational changes aimed at improving profitability.
• Franchisees may face challenges related to declining sales in North America and increased competition.
• Customers may benefit from the company's efforts to improve value perception and enhance the digital and loyalty experiences.

Next Steps

• The company will focus on executing its strategic priorities to improve value perception, simplify operations, and enhance digital and loyalty experiences.
• Papa Johns will continue to expand its restaurant footprint, particularly in international markets, with plans to open 180 to 200 gross new restaurants in 2025.
• Management will monitor economic conditions and adjust strategies as needed to mitigate risks related to labor shortages, cost increases, and geopolitical conflicts.

Key Dates