Papa John’s (PZZA) shares gain 44% year-to-date: more potential? – December 1, 2021


Papa John’s International, Inc. (PZZA Free Report) is poised to benefit from digital efforts, robust composition growth, expansion initiatives and menu innovation. In addition, the focus on the loyalty program and third-party delivery aggregators have boosted sales in recent quarters.

So far this year, Papa John’s shares have gained 43.7% from the industry’s 7.3% growth. Price performance was supported by a strong history of earnings surprises. Papa John’s earnings have beaten Zacks’ consensus estimate in three of the past four quarters. Profit estimates for 2021 and 2022 have increased 6.7% and 4.3%, respectively, over the past 60 days. This positive trend signifies bullish sentiment from analysts and justifies the company’s Zacks Rank # 2 (Buy), indicating strong fundamentals and the expectation of short-term outperformance. You can see The full list of today’s Zacks # 1 Rank (Strong Buy) stocks here.

Main growth drivers

Digitization efforts: Papa John’s is investing heavily in technology-driven initiatives like digital control to drive sales. The company’s online and digital marketing activities have grown significantly in recent years in response to increased use of online and mobile web technology. In fact, Papa John’s is committed to providing a better customer experience with improvements to the digital ordering process. The company’s loyalty program continues to see an increase in digital transactions in the third quarter of fiscal 2021. Higher transaction sizes and better targeting of offers and promotions have benefited the company.

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Solid growth of comps: Papa John’s continues to impress investors with strong same-store sales growth. The company recorded positive same-store sales growth in the third quarter of fiscal 2021, which marks the eighth consecutive quarter of compounding growth. It benefited from initiatives related to menu innovation, operational efficiency and cost reduction efforts. Additionally, strong contributions were reported by third-party delivery aggregators.

In the third fiscal quarter, total comparable sales increased 7.3% year-over-year, compared to 23% growth recorded in the previous year quarter. At franchised restaurants in North America, comps rose 6.8% compared to a 25.6% growth in the quarter a year earlier. Comps at restaurants in North America rose 6.9% compared to a 23.8% growth in the quarter a year earlier. Comps in the region have benefited from strong customer acquisition with the successful launch of Epic Stuffed Crust, Shaq-a-Roni and Parmesan-Crusted Papadias. Comps at international restaurants were up 8.3% year-over-year compared to 20.7% growth in the previous year quarter.

Focus on expansion: Papa John’s is committed to developing and maintaining a strong franchise system. The company strives to remove barriers to expansion into existing international markets and identify new market opportunities. In August 2021, the company expanded its partnership with Drake Food Service International to open more than 220 Papa John’s restaurants by 2025. This includes more than 170 stores in Latin America, Spain and Portugal. Drake Food Service plans to open 50 new restaurants in the UK over the next four years. The company has already purchased 60 Papa John’s restaurants in London, making it the brand’s largest franchisee in the country. Under this expanded partnership, Drake Food Service will operate more than 560 Papa John’s restaurants by 2025. Apart from that, the company signed a new agreement with Sun Holdings (in September 2021) to open 100 new locations in Texas and in the south. by 2029.

Focus on menu innovation: In addition, the company continues to focus on the introduction of products to stimulate growth. Notably, menu innovations such as the Epic Stuffed Crust and Grilled Hand Papadias continue to enjoy solid popularity with customers, increasing revenue. Supported by better brand positioning, the new products have resulted in increased tickets and traffic across time slots without cannibalizing core high-end products or complicating operations in other stores. During the fiscal third quarter, the company launched a new BaconMania promotion that includes portions of bacon on three different product platforms – Pizza, Papadias and Jalapeno Popper Rolls. With primary results in the positive trajectory, the company anticipates the initiative to generate traffic and new customers in each menu platform, thus improving long-term revenue.

Other Key Restaurant Choices

Dave & Buster’s Entertainment, Inc. (TO PLAY Free Report), which has benefited from reopening initiatives, increased vaccinations and excellent operational execution, has a Zacks Rank # 1. The company plans to maintain momentum in the days to come, supported by its strategic initiatives which include a new menu, optimized marketing and technology investments.

Dave & Buster’s reported better-than-expected earnings in each of the past four quarters with the average surprise being 201.8%. The company’s profits for fiscal 2022 are expected to grow 147.7%. PLAY stock has gained 25.5% over the past year.

Darden Restaurants, Inc. (DRI Free Report) currently carries a Zacks Rank # 2. The company has a surprise earnings for the last four quarters of 15.3% on average. The company’s shares have gained 25.8% in the past year.

Zacks’ consensus estimate for Darden Restaurants sales and earnings per share (EPS) for the current year suggests an improvement of 32.5% and 76.8%, respectively, from levels in the last year.

Kura Sushi USA, Inc. (KRUS Free Report) carries a Zacks Rank # 2. The company has a surprise earnings for the last four quarters of 15.6%, on average. The company’s shares have climbed 267.4% in the past year.

Zacks’ consensus estimate for Kura Sushi’s sales and EPS for the current fiscal year suggests growth of 108% and 85.7%, respectively, from the previous year’s levels.


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