Papa John's stock sinks to 4-year low as lower deliveries led to a sales miss

MW Papa John's stock sinks to 4-year low as lower deliveries led to a sales miss

By Tomi Kilgore

Revenue at pizza chain missed expectations for a 5th straight quarter, and by the widest margin in more than 5 years

Shares of Papa John's International Inc. sank toward a four-year low Thursday, after the pizza chain reported the biggest quarterly revenue miss in more than five years, amid a decline in the number of transactions and deliveries.

Interim Chief Executive Ravi Thanawala said on the post-earnings call with analysts, that while the initial customer response and review to new offerings have been positive, "the highly competitive promotional environment has been a headwind to transactions."

"In the current environment, we're also seeing customers become more deliberate in managing their overall order costs," Thanawala said, according to an AlphaSense transcript. "So while our core offering pizza remained higher year over year sides and beverages were lower."

The stock $(PZZA)$ saw a brief initial bump up in the premarket after results were reported, but was down 6.3% in morning trading, to put it on track for the lowest close since April 3, 2020. It was also headed for the worst one-day, post-earnings performance since it shed 11.6% after fourth-quarter 2020 results were reported on Feb. 25, 2021.

For the quarter to March 31, net income fell to $14.6 million, or 44 cents a share, from $22.4 million, or 65 cents a share, in the same period a year ago.

Excluding nonrecurring items, such as restructuring costs, adjusted earnings per share of 67 cents beat the FactSet consensus of 57 cents, as restaurant margins improved by 2.2 percentage points to exceed the company's estimates.

Meanwhile, revenue slipped 2.5% to $513.9 million, well below the FactSet consensus of $544.5 million. The margin of the miss - 5.6% - was the biggest in more than five years, according to available data from FactSet.

And comparable sales, or sales or restaurants open at least a year, fell 2.0% to miss expectations of a 0.6% decline, with North American sales down 1.8% and international down 2.6%.

The decline in comparable sales was primarily due to lower transactions. While sales via third-party delivery companies continued to increases, that was more than offset by a drop in organic delivery. The carryout business was about the same as last year.

And Thanawala said he believes North America sales will remain under pressure in the near term, "as the challenging macroeconomic environment continues and consumer confidence softens."

Thanawala was named interim CEO on March 20 to replace Rob Lynch, who left after about five years in the role, to become CEO at Shake Shack Inc. (SHAK)

Chairman Christopher Coleman said the company continues to conduct a "thorough search" for its next CEO. But in the meantime, "the board of directors has great confidence in the work that is taking place under Ravi and the Papa John's leadership team."

Papa John's stock has shed 26.1% over the past three months, while Shake Shack shares have run up 30% and the S&P 500 has advanced 9%.

-Tomi Kilgore

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May 09, 2024 10:40 ET (14:40 GMT)

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