Drivosity Recognized as Cost-Saving Solution by Papa John’s Pizza

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Robert M. Lynch, Papa John’s International, Inc. – President, CEO & Director [3]

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Thank you, Steve, and good morning, everyone. Papa John’s continued its turnaround in the fourth quarter, delivering a second consecutive quarter of positive accelerating sales by executing against our focused priorities. Comp sales rose 3.5% in North America and 2.4% across international last quarter. Higher comp sales and unit growth drove a 5% increase in Q4 revenue and adjusted earnings per share of $0.37 compared to $0.18 a year ago. Long-term drivers of our business, including unit level profitability, also continued to improve meaningfully, as I’ll discuss in a moment.

On the Q3 earnings call, my first at Papa John’s, we set a course to move the company forward and build on our strengths. We renewed our focus on Papa John’s purpose, which I will reiterate here. We love pizza. Pizza brings us all together. The world deserves better pizza, and we deliver it. This purposes our guiding path moving forward. That path will be paved by our company’s values, culture and strategic priorities. We are laser-focused on delivering positive results in the short term, but even more importantly, building sustainable, long-term value for our shareholders, franchisees, team members and the communities that we serve. It’s a credit to the hard work and dedication of our team members and franchisees as well as their energy and commitment around our new priorities that we were able to finish 2019 so strong and begin 2020 with great momentum. As we announced this morning, and we’ll discuss more fully in a moment, our 2020 plan is for positive full year North America comp sales between 2.5% and 5%. The midpoint of this range would represent our best performance in North America since 2015. We expect international comp sales to grow between 1.5% and 4%, as we see strong growth globally, somewhat mitigated by the impacts of coronavirus in China. Strong comp sales will further benefit unit level profitability, both for company-owned and franchisee restaurants.

Combined with the global unit growth forecast of 100 to 140 net new restaurants, Papa John’s 2020 plan will deliver the company’s best top line growth in several years. Our plan also achieved the strongest earnings in 3 years, with full year adjusted earnings per share between $1.35 and $1.55 compared to $1.17 just 1 year ago.

As you can see, we expect 2020 to be a great year for Papa John’s and the beginning of a bright future.

Let me begin our 2020 discussion with what we’re doing to drive long-term sustainable growth in comp sales, the #1 driver for our business. Since arriving at the company, my mandate for Papa John’s product and marketing team has been simple; innovate and build on Papa John’s premium differentiated brand. And they’re delivering, fending off competitive value platforms without us having to deeply discount.

In November, we launched Garlic Parmesan Crust. This was the first time we have innovated on our amazing fresh dough and are incredibly excited about the possibilities here. We fundamentally believe that increasing awareness of our product quality with our dough as the star of the show is the key to our success. Many of our customers and prospective customers still don’t know that our original dough is always fresh, never frozen, made with 6 simple ingredients and then it contains no artificial colors or flavors. People have never cared more about what goes into their food. And with our product, we have a right to win now more than ever. One way to increase the awareness of our brand benefits and points of differentiation is through our advertising. As you know, Shaquille O’Neal and his better day communications have had a very positive impact on our brand. We will continue to highlight him as a board member, store owner and lover of all things, Papa John’s.

In addition, we also launched a new ad campaign in Q4 called Pizza (inaudible) that focuses directly on our food. In it, we celebrate the pure joy of pizza by filming our food in ways that we never have before. We believe that by making our food the hero of our communications, we will distance ourselves from our competition, and it’s working.

Garlic Parmesan Crust has been a success, helping drive solid comp sales last quarter and delivering profitability back to our restaurants and franchisees.

Earlier this month, we introduced Papadias, a toasted handheld alternative to sandwiches, made with our fresh, never-frozen dough and other high-quality ingredients for just $6. Again, we are leveraging advertising that brings Papa John’s food to life and establishes a distinct unexpected voice for the brand. We’ve done extensive testing and Papadias are a compelling new product in and of themselves, but they’re also a strategic choice to drive additional transactions, incremental profits and improve labor efficiencies during the lunchtime daypart without cannibalizing our core products or diluting our premium value proposition at dinner.

I’d add that Papadias mark another innovation milestone for Papa John’s, our first new holistic platform that doesn’t consist of pizza, sides or desserts.

Expect continued innovation to be a key part of our 2020 product and marketing plan, proof that a new culture of innovation is taking hold at Papa John’s. We now encourage and embrace ideas that build on our core differentiated brand proposition and product quality. Papa John’s momentum around product and marketing also reflects changes in our organization. Under the streamlined management structure that we implemented in November, our new Chief Commercial and Marketing Officer, Max Wetzel, now oversees marketing, menu strategy, product innovation and customer experience. The holistic view and integrated execution provided by Max and his team are already facilitating faster, smarter decision- making.

In Max’s first few months with the company, he and his team have been focused on 3 key initiatives. First, we are getting more productivity out of our media spend. As a challenger brand, it is imperative that we maximize the value of our media dollars so that they work harder for us as we are outspent 5:1 by our largest competitor. We’ve already identified multiple opportunities to create efficiencies and optimize our media investment, and we are deriving the benefits of that improved plan.

Second, Max and his team are building out our social media capabilities to maximize the brand’s influence across our social media channels. We are moving to an always-on model and developing engaging creative that is native to each platform. For example, we recently executed a robust Snapchat partnership for Valentine’s Day, which is one of our biggest sales days of the year. And lastly, we are optimizing our key — our e-commerce platform so that we could unlock the full potential of the great assets that we have already built, like our loyalty program, which is an untapped opportunity with over 14 million members.

Next, I’d like to discuss what we’re doing to improve unit economics. As I’ve said, our brand cannot succeed and grow long-term if our franchisees are not profitably growing their businesses. While unit economics have been challenged by lower sales over the past 2 years, we are starting to reverse that trend. Last quarter, median profitability for traditional franchises improved both sequentially and versus a year ago. We also achieved our lowest level of closures among our traditional franchisees since mid-2017. I’m confident that we have even more opportunity. Our We Win Together investment of $80 million in marketing and financial support for domestic franchisees during 2019 and 2020 has helped our system weather the storm of lower sales. As this program tapers down and concludes this year, we expect rising comp sales and productivity initiatives to improve profitability and in turn, support our franchisee’s long-term health and sustained investment in the brand and their businesses.

In addition, and under the leadership of Jim Norberg, Chief Operating Officer of North America, we have accelerated multiple initiatives to improve efficiencies and quality in company and franchise restaurants. For example, we have greenlit a rollout of Papa Call, our centralized order taking system and customer service center across company restaurants. This will be completed by the end of Q2.

Extensive testing indicates this should have a meaningful impact, driving incremental transactions and increasing restaurant efficiencies as well as improving our customers’ ordering experience. Our franchisee rollout is planned for the back half of 2020.

Thirdly, in addition to being an increasingly important channel to reach customers, our partnerships with top third-party aggregators in the U.S. will also support unit economics, driving profitable incremental transactions in markets where our restaurants are driver constrained. We are seeing strong results, and we’ll have the top 3 aggregators integrated into our system-wide point-of-sale platform by the end of Q2.

And lastly, we have identified a number of opportunities to reduce other costs, which are active — which we are actively pursuing this year. These include, but are not limited to, reducing auto and general insurance costs by leveraging our partnership with Drivosity, our driver tracking technology, to reduce auto claims; building an indirect procurement team to drive savings across our non-food and packaging spend; and more efficiently utilizing our labor, which we continued to improve in 2019 despite rising wages and a very tight labor market…

https://finance.yahoo.com/news/edited-transcript-pzza-earnings-conference-214704757.html

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