PZZA - Earnings call transcript Q1 2018 | Papa John's International, Inc.

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Operator

Good day, ladies and gentlemen, welcome to Papa John's First Quarter 2018 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time.

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Investor Strategy. President, Vice Coke, Relations and Steve Sir, begin. you may

Steven R. Coke

Good you, Thank afternoon. Skylar.

our Joe management be a will today on CEO, team Joe as members and will me the are update, appointed our Smith; team. of and other as provide Joining have comments call business Q&A. well after CFO, available newly our senior for Steve management our financial Steve about Ritchie; which the

materially cause will today involving forward-looking these actual results contain differ could discussion Our risk to statements from statements. that

Forward considered cautionary looking risk on discussed conjunction statements of section SEC our in in in Relations call. our the this Investor to filings. of included reconciliation should non-GAAP and earnings website statements financial be the a with release Please refer measures our the earnings factors in our release for

ask we primarily is analyst Finally, a in media be since any listen-only call. this mode and investor an to

Steve comments. Now, over turn the to call to his Ritchie I'd for like Steve?

Steve M. Ritchie

everyone. better confidence. while enthusiasm line We brand confident in Thanks, improvement our Steve, of we continued QX, are the sales we gives we will. in taking that expectations, actions I'm and and do with can reflects North this know lower America. for impact the and afternoon, me The good our

Let days recently me tell completed you more. XXX CEO. as I my first

team. I During members of this traveled have around time, the the other country leadership with

with a to of franchise numerous our meet continued many our of number to We shareholders. and have talked owners, visited restaurants,

continue our our approach we priorities received positive business. have the and helped We very have our and to comprehensive XXXX. for has listened to refine feedback The improve ideas us strategic to stakeholders' been shared has

our I the To differentiation executing messaging. improving reinvigorate performance start XXXX priorities We include, last call. reiterate, are aggressively our on for by with, five to on brand outlined strategic these to working that

story our are ways by re-establish in our customers. brand to quality why is reach We emphasizing working better new our unique to

always say what will been be. Pizza.' messaging Better everyone are is on always are. the tell And 'Better the to we are focus we brand, we We our and have Ingredients. why exactly

value. creating accessible Second,

of will We provide make products to available access everyone. a our point to quality

advancements. digital continued make create our technology be and Fourth, sales improve to Currently, operational restaurant in our those our growth channels to that economics. XX% efficiencies. Third, the can through additional We'll higher. sales results support customer-facing are we of and implementing technological investments digital improving unit significantly believe and over

to profitability. will We our operations people. increase changes fifth, unit And our make important and prioritizing within unit efficiencies

best I'll to On invest We retain continue progress results the these some Joe the accelerate briefly we people, areas to John's then quarter the we report as in important actions and each our like of a are changes for to Papa today's well additional and employees. taking in progress. our ingredient, attract are our as call, most call provide a first to But first, to review detailed the turn more I'd making on discussion.

saw sales QX, were X.X% North similar we in comp America what to QX. For our and late negative

out. later roll to and sales this year new our technology improve marketing expect as We initiatives

represented X.X% of our of sales XXnd comp comp quarter results. sales International Our consecutive positive

part comp business specific perceptions as reflect also relating the to considerations the in for reflect segment XXXX. of the results value we and of difficult quarter Middle International Results hurdling U.K. Our sales International some engagements franchise a the best were in East.

U.K. resource address results additional East. throughout team to these begun marketing in and allocation with and already has team leadership the the to improve drive accountability leadership challenges Middle changes International Our

and many transaction growth sales Europe Latin We throughout see regions, continue America. including and strong to

opening X,XXX global in international XX The new volumes ninth market recent restaurants. pipeline contains our continue average Our represents to in unit markets ahead perform International Kyrgyzstan our new months. our overall over of and

quality, of to opportunities expand growth our significant technology, and robust economics. have continue we as brand unit for strong We differentiation the through

the remains outlook Our for very optimistic. business International

turning Before as quarterly call him welcome results Joe, his first officially to I'd conference to CFO. to like the call

work and and but the new for of his many XX you integral and years is CFO is I'll we perspectives have underway. of has auditing initiatives over not to in Papa person years for Joe, the job, will with John's role seen, know the turn of this and Joe right it during believe Joe here be only his has have As growth in I time the XX with company. to experience job have and the right an the of working person. I finance, Joe development, during additive pleasure experience that the his our had over you. the

Joseph H. Smith

I'm Steve. investors our to new on coming the of personally meeting delighted and to this and many forward role take Thanks, in weeks. analysts look

primarily the exchange driven sales sales North of America North sales approximately revenues Now, quarter sales favorable turning quarter quarter. Consolidated resulting by lower commissary and of XXXX. lower X.X% to America equivalent in units rates and million, from America. the the increases or amount, The share the impact Diluted decline on an $X.XX $X.XX of from per were X.X% North $X.X compared in to in due a International the decline earnings first in per as decreased first lower North comp comp first was in side the increase the of quarter million. America in foreign was to primarily share volumes. due Offsetting lower prior-year $XX.X to earnings

of restaurant marketing from automobile to X.X% cost. of The percentage as related or lower prior-year America first required comp million, negative other X.X% to $X.X primarily royalty labor costs, revenues, to increased and amount, million, America revenues recognition and of franchise a quarter the fees and revenues to an non-owned in due revenues, commissary revenue lower $X.X increased $X.X or royalties sales insurance in impact franchise sales, due of decreased or included under comp related North the waivers. $X.X reporting decreased of Domestic due increase the primarily newly-adopted contributions XX.X% XXXX, also the primarily as approximately million due volumes. increase from decreased fund an company-owned margins standard. margins sales million, North

end legal effective million, fees. our Interest higher million both to increase quarter expense million in from costs, increased debt the rate. due the increase debt to exchange primarily favorable units is increased to due the which and $X.X margin International Our bad of balance At share was G&A was repurchases, due up one, times quarter in impact or balance, for various technology $X.X foreign million expense, to a debt outstanding X.X royalties initiative due EBITDA. higher $X.X rates. equivalent the higher $XXX an of interest and increased expenses operating and primarily

due XX.X% tax was which decrease from XXXX. of X.X% rate January one which compensation was effect decrease for were XXXX was by approximate on in effective increase stock deductions, the the to unfavorable in U.S. awards. the corporate partially quarter offset is Our lapsed price attributable an in quarter, share-based first equity The the tax took tax rate restrictions reduction tax primarily the company of down the which The XXXX. lower X.X% rate to in as

quarter, we first a May million stock per or of of We repurchased the the share. of quarter, purchases of accelerated of share million, of for X, dividend executed total million. directors during XX% $XX $XXX.X agreement our declared share quarter quarter. The common $XXX stock $X.X $X.XXX During shares which included to repurchase second million board the first the early the or in we March. common XXXX, Subsequent per $X.XXX million cash dividend a on paid first X

approximately XXXX expenditures, for domestic flow in call quarter free was construction which our Georgia. back offset as operations Ritchie I'll one progress lower guidance related the is define driving cash this our progress XXXX flow, and this which the cash was to measure of how report to as the of on to from outlook. less provide amount, by non-GAAP in Our over Steve? now quarter in net is the commissary prior strategic $XX the for capital reaffirmation new expenditures year our capital a one income our Steve year the XXXX, that turn we million largely higher approximated priorities

Steve M. Ritchie

said with last to growth the on here's transparent it's for our you an long-term the a to so on Joe. update All Papa significant is right, strategic not brand. investments This sustained call, business priorities. profitable be thank progress as John's. for year with of usual promise as I each the change you, And at drive I of

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Operator

with Alt Longbow Stump from comes question Research. first Our

Your is open. now line

is un-mute your please mute, it. on If phone

Alton K. Stump

Good about that, Sorry guys. afternoon.

the – there or to of either you the from far value Sorry that high for but that that mistake much there of with course, are some how standpoint, done, as quality the far started you and of just to as so that don't new the you've some test I (XX:XX) doing? competitive my good bad the is has give you're want part. everyday wanted food, going obviously programs all far of that learning on anything ask, too and in to a of testing so I'm sure up far touting, so new is

Steve M. Ritchie

that I Steve. It's Alton. the Sure, I'll one. appreciate take question.

done I lot mean, as understand we've one So, value challenges I to those. perception our of think a yes, and research analysis one I've of outlined, being of

more and Meal Deal. A that the April. offer feel of to to value work look the overall performed So, talk being go branding perception, launch to the have showing Early the will play did some Papa's is performance meant developed is our Better improve improvements in and Ingredients. more commitment equity about creative of that looking perception. to at 'Better the creative a here and we're new of has offering, are The Pizza.' alongside our a this do in early new expectation quality. addition to long-term we brand the new so overall to what indications that value in on side

So, at expectations this to performing point. I think

don't into meeting the the side, expectations. I to financial overall, get on want quarter, results value course, Of in but our current

Alton K. Stump

course, here just That's numbers, got in that you've has one with two better helpful. follow-up, as for And come particular, first Thanks, the a out then competitors Steve. of quarter.

smaller how ahead, course, much of As you versus, players? gaining pressure be from your efforts kind peers big of over share fend of to your will continue look two off share

Steve M. Ritchie

strategy, to answer And you look and have to players. overall the overall way the focus – regional smaller we and on I doing. what if We Alton, challenges owners mirror what to that, think industry, players see been at in priorities have our be The strategic five think obviously, brand going outlined to clearly I'd I shared continue national terms we're to ourselves looking that in provide and continue. we that our in likely But solutions and are, those to have the our problems. is address of that our knowing

we of more think this year. I vast world, as are things minority part the continue upon latter in those things things of to and those come into execute the the

as that's of higher obviously So, out tough we through guided the XXXX why a coming guided, that quarter, progress we with way expectations the have gates have we here. have we

Alton K. Stump

you. back queue. in Okay, the I'll thank Appreciate hop it.

Steve M. Ritchie

right. All Alton. Thanks,

Operator

with question next Slagle Alex comes from Our Jefferies.

Your line open. is now

Alexander Russell Slagle

guys. Thanks. Hey,

you think well? near-term as half On that the the are remedy to should softer sales, same-store the International linger this we you back into in issues these can expect or

Steve M. Ritchie

it's for mean, of the of domestic question. business, Hey, similar the overall U.K. think the outlined Thanks we've similar terms lion's Steve. big I Alex, internationally, restaurants perception. think business, in in the international the remarks, that of overall my in our being some prepared I challenges I got to of the challenges base a just share I

is frankly, of more this on execution of those were below things. Some executional-driven, expectations our side the

the into With and new the to some leadership of take getting some of SVP, the role, things promotion our time. for some these going International are obviously with marketing new current realignment think President I

are the U.K. happening is there. challenges expectations Cup some and with in overall overall our we've really year. of business the industry corner year this associated the take back right the Obviously, it's high some expectations forward in I research But but the category with and we've strong. we in Cup half done do World got the the the and to analysis around know World the the U.K. to understand move right we some turning some and remedies, think the So, activations of going know have the time, that the we

be the matter will motion right so. confident I'm a and just the tactical leadership it's getting of to execution here So, able do new place in in

Alexander Russell Slagle

China, should event? still Got a we refranchising as near-term it. potential the expect the And

Steve M. Ritchie

of think you near have time, it We know not the this going year, will quarter, this anticipated here. been than at done line It's think the guys we but taken are found well there's it I'm we months make of what to goal and on will happen here this in waiting end we're we years mind. have on land couple to no take, here. my going to that by it than that commitment this be It ever for partner longer but more we're the to away. able I a with doubt get I a

Alexander Russell Slagle

should you the behind Okay. for just how potential the could think for And royalty in increase the if future future. touch in about dynamics then on waivers finally domestic a more that the of on waivers, and – these we

Steve M. Ritchie

the sales last Sure. obviously, somewhat negative with not Well unprecedented, XX over our performance years we've sales being clearly, comps. at experienced least

got know quarters overall our directly tied So, couple got the of and we've franchisees. success when brand sustainability of really to of you've our going the of our success be to healthy. franchisees declines, keep to We a sales is

increased some So, we have of waivers. those

those so, are the underpenetrated these of markets where relief in waivers are some getting pressures the of wage vast more that in areas. other got to were Obviously, we've assist some allocated There Some in underpenetrated exist. challenges overall directly higher help this tied those. will the markets, of those business of moving domestically that majority

that the full overall changes into our overall performance, for support amount of at we right another now built support If take to is our is the you the franchise level guidance have look that of provide. overall would provide. to obviously something intend we that see our we'd with expectations So, year

Alexander Russell Slagle

very much. you Thank it. Got

Steve M. Ritchie

Alex. you, Thank

Operator

question next BTIG. comes from Our Peter Saleh with

Your open. line now is

Peter Saleh

I hope more mentioned to and details I all going you somebody guys quest you around bit where ask real I provide you decision be he just right. seat? Could had Rhoten find may can me that to a Brandon little Thanks. wanted quick about, to think and Great. that hear departing. fill the is

Steve M. Ritchie

color. much Sure. give want to to change too happy you I I'm Peter, a on give color a here, don't personnel little but,

I – us remarks – assisted Brandon has strategic the remark what in highlighted the first around opening I as did think highlight I with.

we and how and the us really on greatly helped So, strategic he in the plan challenges identify assisted really had, helped forward. move brand he to building the

all our a We we confident for strategic we're with very that here. going certain along we a sales with experiencing is opportunities the in quickly find He So, upon as be the the brand, enter to new a brand required iterating individual, and and I'm confidence we where built. that but he a category. plan pace can plan even Brandon able be have he some knew change tactics, is the this strategic would be is a But with. the into new he we're greatly. had of search some know part don't will we the challenges that good place given assist that I will will land, to that environment as pizza as need someone and that's a competitive in agility and move the that retail of level exploring

point So, to course, we start of will to us healthy. get got the as I before, sales that brought positive to our franchisees importantly a be and to next with to, a leadership and in transactions able moving way stated point get the Brandon to, most to

certain we'll strategy that the I'm we So, be built. able individual have find execute to upon to

Peter Saleh

Can give other have that been the some Great. expand new that you're an are market And in you that to of products in to test you sandwiches. realize Cincinnati guys in close that by? seeing market what you us testing if and markets terms I expect then on update

Steve M. Ritchie

in been think market. a from the said for Sure. sandwiches that you – for only country. note clarify because test market has heritage did Cincinnati has that Cincinnati I'll up on you market years. was pick had It was Sure, And I a a the Peter. they

the on. product that test, been going look going at testing I the is tests about but we're actual doing some again, There's that year. the many, product initial some looking as be the product some to the But have call, to that off on be heard that that for markets years. on probably not new had we're at products, we'll many small Cincinnati you product, and to a to is kick talked market in additional So, store we've

look to now. We within the competitive this pizza many than to variety things, category overall and and in the much broader is our other at have in addition diversification to space be menu,

John's. we about to pizza think industry, best aggregators want the broadening a this that consumers. make learn – have developed we tests you the that appropriate in a be here national. delivery, the we'll accessibility we'll we of against product have test vote believe and As potentially goes could And the got We that few and the tremendous beyond do and don't offerings sure we've that have quality and we to we Papa see do know veto for have we but something our not store if

Peter Saleh

Great. And decision just are the of value double-digit then or $X.XX competitors perceived going going be go range talk I forward? in are you your to point? the out to on proposition value a and price price being about $X.XX. could you how the some are there $XX.XX How know with about thinking this perceptions your point

Steve M. Ritchie

Sure. to Peter, I'll try add (XX:XX).

So, in I think right now it's test-and-learn phase.

offers to our be to did what's a and testing multiple what exactly accessible consumers research better going So, best overall offering the to one, the understand lot reason why we value. everyday on we of that developed provide wanted,

terms larger differentiated that and But of have perception, to competitors As we our deemed that if would we have postmortem do necessary, the clearly, wanted analysis is our our the we in into we for was brand you is, with It's to it do to offerings, clearly the that. can consumers. see insert value from accessible other have goal our value everyday world. something but offer, overall expectation that what performing offering and is

industry. our work add So, the anything layer-on John's the versus look of the is year. we'll Later, in else on branding here, more quality messaging progress side Papa in the quarter to you that the equity differentiate the we as product get of which more the to see can throughout the of around

Peter Saleh

Thank right. All you much. very

Steve M. Ritchie

Thank you, Peter.

Operator

comes from Our with Will next question Stephens. Slabaugh

open. Your line now is

Will Slabaugh

maybe mentioned think end year, value the used on you in of Is (XX:XX) how fair of with Yeah, sales frequently a either that meal, the in that brand that to them your last think your of terms that improve in back what disruption But the well. bring enough we curious to that to? past frequency as that to see way trends I'm message. hasn't about improving. you. place second, sales in the should message they know found it? customer Is putting in until strong say saw the score we more timeline value are you've seen about the that or thank toward off I after $XX.XX a as family it message And maybe we message

Steve M. Ritchie

Will. Sure,

piece. I mentioned in I doubt – there's the think of consumer remarks is other that sentiment prepared mean, the – some no thing the

some So, expected as first fourth the of to quarter. we we talked things those about continue in quarter, sales the the declines

in to to have value the we're brand related temporary work addition So, issue that sentiment. reputational we challenges, perception a consumer to side on continuing

parallel the So reputational the and we'll the John's work, and who we doing Papa the good come brand back a as on good communities. get consumers brand, in things, things right to the do working we that know representing the and brand. to paths, are And doing we

improved gives can of have significantly we kind track of on the today latter the we that that a on into our year. indication the built domestically to side, We we things We that X% year outlook doing tougher feel the the the and full On on outlook expect performance, we're are for that value work there, every take level. (XX:XX) part based year full the time, guided that negative those in flat. we're guidance year, some towards have our but that to like that of us perform we

Will Slabaugh

Got it it. on potentially $XX.XX? of points value on pushing the everyday earlier. you or should today, on just comment having to that about I you multiple that versus price versus just something that think we $X.XX your we value Should different multiple items Could made it, how or up platform menu? And the platform like $XX.XX be? or $X.XX the that being may guess something whatever about at think with broad we and are see your rest follow

Steve M. Ritchie

expansion, the want too do to and don't postmortem every to the carry I first to we very the right channels provide and we so Mike we robust at that competitive digital we're one in a working offerings the that that that to I offerings determine expand right to serving leveraging time. continue the is additional because value, that to diversification and offer our have and sure national think analysis. about as another we sure take that time. that opportunity this through thing the be offer or the want go iterate day doing, we and to far to some menu, does say marketing to right having talked that Sure. us to or team broaden platform if (XX:XX) offer accessible we're whether got making But we through is upon television We've will Once is fair the propensity it's this need the the will to fact one make offer, towards customers from standpoint. the up is that going work right offer his that scores forward Nettles through cede

our being broad-brush more marketing very historically. in have opposed sophisticated to the really So done we marketing

are capabilities data half types those year. and back So, infrastructure to and the of the opportunities in again the more this of efforts leverage

Will Slabaugh

you. Thank it. Got

Steve M. Ritchie

you, Thank sir.

Operator

Our Chris with comes O'Cull question next Stifel. from

Your line is open. now

Chris O'Cull

value's them important but good the not research America. I weak consumer maybe remain important, that guys. left there struggling regardless? any that and segments sales to the why brand still been so with appreciate I'm going shows understand Have Thanks, to work North just have the Steve, value comp consumer in is afternoon,

Steve M. Ritchie

often it's mean, don't – I Chris. negative fair question, mean I from a you it's Sure, quarters here. in Papa John's comp see very

to and very business. got sentiment just there that So, need Will, reacting we into challenges We to need very of last consumer to things digital as appealing robust approach from for moving the don't we that specific to know a to I consumers segments, start make the of so we have the mean, clearly also some we occurrence – make important earnings which overall the clearly forward, analysis. to to And target will that and from is appealing if the will data focus advertising, on I take we I the Millennials we what social forward. get of call. We want we've relations us. brand to that and there the audience some doing that a new make that know and reputation repair are certain a set but look younger some overall audiences. are right stated come know is things have the our back, and new the we future and right Gen public move to at efforts business we our a in that you the certain, these audiences certain have creative Z be know we to standpoint,

is very introduction we've brand think on we're the brand pieces. technology going move got to perception multi-phased a how and for differentiations the process And forward all and the comp moving this forward. work messaging reputational of the to new very, sales I value critical overall the we're solving in overall So, while

Chris O'Cull

expect we significant reputation changes some the to of address couple quarters messages issues? over Can other the next some or

Steve M. Ritchie

strategic tactical made U.S., relations franchisees you've move John's the got can. things certainly business Olson things I work does you've implement. and move initiatives came in got and February, Bigger But progress have agency. about year those the how on. very we of the XXX,XXX Engage, optimistic worldwide. number right. intend will we've to a throughout do new that over the to sharing do the many to We've that in forward. a just Papa of members U.S. communities the XXX,XXX We out got hired plan And the and and will in be up in started in restaurants team and we're that's things think X,XXX overall public a you we and as got we've They already that we

very is those will category. customer got I'm that still and a to very, time. and brand confident strong the stories competitors So, a things, this the our share in we've young right back, we very come to do at business have compared one very

is lot the runway. future is clearly story has and of that international the a got bright So, one domestically

Chris O'Cull

for are without comparisons. what the partly communicating year, But is which because of guiding to this messages national company's partnership? year risks season challenges NFL later the during I or the the assume improve The to this comp going to the be

Steve M. Ritchie

I there's great NFL. have change marks. mean, a still – is and it Well, going we be don't the partnership the only I was of we're involved with the usage mean to the clearly

we've still team got some to has a other new can on So, NFL intend with those we that that against NFL creative been that things be at we and we the very consumers, activate NFL, focused so solely working in and way the involved the engage diverse approach in audiences. be media or the the need new to in can't diverse same creative strategy. and overall We have our our be on time attract to knowing sports we in very

back have So, should we those able so that low say this to half for planned expect outperform to we overall we are the it's about drive and without I'm compares that compares, year. Yes, to easier, the can't in things excited the easy the the compares strategy changes business. media creative just but the be of

the built latter up strategic XXXX, very of we the the that we there's again, to work why as is because reason part of the this optimistic, say this in implementation are latter So, this in so continue of to part year. lined year be phases much

Chris O'Cull

Great. Thanks, guys.

Steve M. Ritchie

Chris. Thanks,

Operator

back further questions. over showing remarks. turn like Steve CEO, closing to to call the I'm this no for Ritchie, Mr. I'd At time,

Steve M. Ritchie

thank All next call, for joining talking to right. great forward I'd everybody to you Have like today's day. we'll a to Well, quarter. and look

Operator

conclude gentlemen, you conference. and for Ladies today's the program. thank does This your participation in

Everyone disconnect. You have may day. now great a

Papa John's International (PZZA) 8 May 182018 Q1 Earnings call transcript