PZZA - Earnings call transcript Q4 2018 | Papa John's International, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to Papa John’s Fourth Quarter 2018 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Steve Coke, Vice President of Investor Relations and Strategy.

begin. may You

Steven Coke

Good Victor. Thank afternoon. you,

Officer. Joining me prepared for business CEO, our and are will remarks, Growth and provide available a After Joe, call Ritchie; the Chief comments our the our and Nettles, Steve, today be Steve Mike CFO, President and and Q&A. Joe will update. on Joe about and Steve financial Operating have Smith; Mike

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

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

any members the of be media mode. listen-only in we Finally, ask a to

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

Steve Ritchie

afternoon, Thank and Steve, good you, everyone.

the disappointing and year. sentiment quarter International X.X% all the down the results brand has with and The our comps saw, X.X% you X.X% North fourth to America the challenges U.S. reported continue were us are comps North full-year results the results fourth and of to for reflect full-year. America the for consumer this down decreased Overall, earlier quarter for fourth preliminary As X.X% announced for the are month. and consistent were were down quarter today we the in experienced

impacted ineffective were conversions sales new and promotions. addition, In program the by the of company’s loyalty

confident long-term of not consumers we environment. resonated these in the with a Our potential remain competitive creative Despite and offerings heightened difficulties, Papa John’s. have value in

by supported three Our confidence factors. is

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of As brand work, a unique market. specialty offer differentiation pizzas we are will that this in the part

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creating focus has us. for a value been know, accessible also you As area

you program. fourth pressure Let me to area. on surge our update average relaunched the unexpected Rewards program, this offer, loyalty ticket Late our new the but in combined we migration introductory the temporary in per Papa The order. with free on work steak the in cheese quarter,

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value to executed also Super exclusive offerings Bowl perks our the brand that developing that quarter, customer tailored fourth select believe we and began successful Rewards to week. rewards-only we will brand to time, we be during Papa offerings loyalty. positive a we For new others example, Also, everyday $XX promotion additional our program differentiation. pizza contributor These are that now and the members, Over offered spent targeted free build performance a in are we testing during the markets.

For that the to example, quarter, examining we’re those out expansions the the customers. testing the We’ll certain tests from or making of heavily the segments that now further carry speak we offerings as we determine value best in business coming results reach know offerings these consumer. and adjustments and are our be

technology, to strategic fourth Turning our pillar.

experience Nettles we’ve, and elevated the his consumer and platforms have can Papa our John’s. mobile can As – digital expanded customers have and ways across order Mike the team

our around represent Apple we’ve sales. of targeted and more of Google a messaging which enabled advance and quarters our made program. experience have and intelligent our design user website, three loyalty integrated apps, seen engage digital mobile-first Pay growth, On mobile improvement number channels mobile better On the Play, customers. significant Our and technology we’ve to enhancements now simplify deployed our to

months. In These by and with available channels which to X,XXX addition, coming now enabled DoorDash, and further launch on efficiency. cost ordering is Apple Amazon partnerships through TV, are than currently allow more speed the future unprecedented in and increase us that APIs will Alexa serves restaurants

our social ways delivery customers. innovative related to we this improvements in economics. our technology, experience fully want capabilities the our new brings drivers reflect for digital now and potential our and and further together unit examining partnerships people app to the to to our enhance additional and We’re for Pizza capabilities, mission. And work including

We work revenue food a have drive our and efficiencies experts continued both third-party aggregators and our to level efficiency restaurant operations. with in

our labor food better restaurant we to align system Specifically, improve management identified characteristics. cost procedures and enhancements made have controls labor we have to individual goals that with

the In of health our long-term to commitment financial maintain addition, our franchisees. supporting we

evaluating of solutions improve We provide support are restaurants higher-cost quarter to our first XXXX. with on that to U.S. will XXXX. both restaurants to opportunities in unit additional for review royalty the are of of and relief the of domestic coasts continuing coupled believe high franchisees are we we all currently the level for efforts, these for our We Furthermore, extending markets technology provide economics traditional

significant operations are and identify have to amount store Over the our I team time improvements a past several address with spent needed. company operational weeks, of that

the Our operations the improving for and set system. America sales the challenge of team pace accepted North has to

market to company value. to that continue will are our performance store long-term We maximizing evaluate we by ensure

call an to international. I’d like Before update over turning on Joe, to provide the

at Our grow during quarter. as increased counts pace, business a XX% restaurant unit the International double-digit sales to continues both and

XXX the record-breaking which performance restaurants, our the was we brand. international For opened year, for

we since as Pakistan continues expansion have first and XXXX. countries our new XX just entered robust Our restaurant now opened in

restaurant in territories around opening and the We we’re getting globe X,XXX. are XX and now to close countries very international number

organizational that are We performance. made pleased during improved our fostering XXXX are changes

While we we UK to Middle were be the comp them for East. still the marked quarter, not sales where and see in improvement wanted the did

comp detail. a the summary, we growth see announced in announced. of businesses. see the signs in January to a in deliver sales we hard of to evidenced guidance previously business as In as business whole lots the shortly by still flat Joe the in turnaround you continue both which we and International work review positive We that have sustainable And today,

opportunities. making and the and resources the new with Starboard position realize vote of better we our and the our strong are in gained additional opportunities expertise progress confidence us investment agreement to financial a The these represents However, recent company agreement ahead. through

deeper with capital allocating and discipline. operating are We

our the We’re and on franchisees opportunities are ahead. people focused enthusiastic in pizza, about members team and

turn detail. let quarter me Now for Joe – me financial in to now Joe? over to more the discuss the results our call

Joseph Smith

Thank Steve. you,

diluted The the decline our loss $X.XX on will attributable was basis, diluted quarter, described we compared share per For of in per special quarter the XXXX. be of reported a below. to earnings fourth charges, fourth GAAP a per of share our primarily which share to in earnings $X.XX

and the In sales impact prior comparable were from week Jobs comparable of including an addition, liability, results in year the items our other the deferred resulting impacted and Tax quarter, and America operations remeasurement of special Act. of Cuts North extra by lower XXXX tax the

our these costs contribution charges National of quarter, $XX.X royalty $XX.X to America included Fund. incurred restaurants franchisees the North fourth of through and for special we a the million. During to short-term Marketing million support reductions Approximately

write-offs. incurred recent costs Board of associated were advisory the of Directors, culminating Special with activities we Value. the including the of and charges the million special The strategic primarily other of costs of asset and with associated addition, $X.X investment Starboard by In Committee reimaging in costs legal remainder

million. For $XX.X the full-year, our special charges were

of of $X.XX these charges release, in basis, fourth XXXX. other in as our and the special earnings on compared items, diluted we quarter earnings detailed special per to reported adjusted $X.XX press Excluding share non-GAAP a

GAAP million. net quarter fourth $XX.X loss on was a Our basis

was $X.X million income corresponding Excluding XXXX. compared for our to $XX.X fourth in quarter special million, items, net quarter the

press our was EPS outlined XXXX earnings release, $X.XX in for XXXX. as As $X.XX, compared GAAP to

or as sales. for royalties compared sales commissary Excluding years, XXXX, which resulted in excluding XXXX $XX.X lower the in comparable million, in lower North Consolidated XX.X%, restaurant driven lower fourth special decreased primarily $X.XX EPS in America, decreased revenues, items our by both adjusted XXrd-week quarter company-owned North in to XXXX. $X.XX was and revenues, America

as $XX compared In addition, million our International year-to-date a to $XX respectfully, of year. and the refranchising the XX comparable of this North operation company-owned also approximately earlier periods. year the restaurants million, to due China refranchising earlier in total reduced revenues in in America by quarter year basis company-owned the and on prior decreased revenues

the percentage $X.X company-owned that due the Now Domestic program. adoption revenues, X.X% of the units turning operating or of accounting quarter. method new the loyalty fourth business decreased the standards million, comparable related primarily lower for impact of to restaurants customer margin the the to of sales revise as a for revenue recognition and

XXrd-week America of our approximately $X.X quarter due $X.X negative to million and comparable North royalty America million the the short-term XXXX of as the to decrease. XX.X%, and or due of the royalties addition, granted In reduced to sales. contributed to $X.X further operations franchise fees in primarily fourth decreased million, compared of XXXX, franchisees North reductions

and a margin $X America due million, as revenue the operating decreased North million In of operations related previously required under the our North standards, addition, commissary incentives of million the sales G&A XXrd-week $X.X due in was approximately franchise XXXX reporting contributed X.X% in America which of to restaurant percentage or recognition revenues to decrease. the the of restaurant decline in included expenses. equipment $X.X new in

XXrd-week million the XXXX addition, the quarter. of decrease of for contributed the approximately In operations $X.X in

international opening recognition Control new Quality margin the new decreased incentives equipment operating reporting to due restaurant Kingdom the revenue Center required million $X.X restaurant to under due the from and revenues lower Our lower standards. franchise of United fees

In addition, XXrd-week the operations of decrease. of approximately contributed in XXXX the $XXX,XXX

operating China margin the due X.X%, of international operations. primarily to our As a of percentage divestiture the revenues, increased

reduce remainder to an $X.X quarter, cost fourth G&A These due restaurant previously million, were increased the Papa charges. $XX.X is to the primarily million quarter primarily disciplined to review the of priorities mentioned we offset revolving the by increased and approach debt, the of XXXX, end to the and our credit, line of we in incentives. increases year-end, rates. capital Starboard initiative fourth the investment including outstanding proceeds the in year, The outstanding due used to franchise five opportunities the million of average contribution made our was mentioned through interest million. to due Steve special previously strategic expense the Net equipment in execute technology to repurchases of further as while interest the our increase well For higher higher cost formed discussed. share foundation. increase the have balance $XXX to newly required partially John’s the impact as debt Subsequent our invest allocation previously At reporting $X.X

which China in recapture For The divestiture the XX.X%, rate our impact of full-year, is our required associated pre-tax the rate due XXXX. earnings XX.X% losses and higher than effective primarily rate is the XXXX for to tax of the of the tax the in operation. with effective lower operating was increase

$X.XXX million, XXXX. Board paid quarter common total fourth in per for Our cash in primarily define due income quarter to declared paid fourth $XX.X to The first share. expenditures million our lower XXXX. is $X.XX less per flow share. free the we to dividend per of a on or the $X.XXX This dividend of of XXXX. which cash full-year, non-GAAP capital a as company’s XX, common was measure $XX the We from operations during flow, $X.X dividends Subsequent net a was full-year of a million dividend that the in $XX.X of million for quarter, January Directors XXXX, is approximately compared share cash was

$XXX cost the company did purchase an approximately early shares not aggregate X.X after stock shares The XXXX, During million of of approximately repurchased August. million any company for

with full-year, which assistance for XXXX, between $X.XX our our the of of $XX the Directors. we of Committee EPS America charges to and Board expect GAAP be $XX be special anticipated system largely outlook to to associated franchise million Special for will $X.XX and million, including now Turning North the to the costs

sales XX North growth are are We anticipate negative expect between units. X%. per positive between comparable American X%, expected and global be be adjusted earnings net X% while of to comparable international diluted special and charges. excluding We $X.XX, flat be to to to share XXX expected negative sales to $X

We planning and between million capital invest are in on projects also $XX million $XX XXXX. to

tax XX%. rate and between be in XX% preliminary Our to expected XXXX is

Finally, I’ll to turn to are low Ritchie in cheese for his to $X.XX back the block prices projected Steve we mid the range. be call remarks before Steve? over now Q&A. final take

Steve Ritchie

Thank the success, Say, our Joe. quality customer is you, we confident John’s I’m showcase improve long-term Papa work to experience. positioned better for and as

resources directed financial return to product, customer engagement strategies expertise We initiatives menu, PIZZA new forward strategic pillars. and Papa unveiling to through gained position Starboard, BETTER investments across we’ll the targeted additional the the John’s highest look advertising company. making With our INGREDIENTS. be partnership at as BETTER and fortify additional five with

turn As the I’ll call now your over continued always, appreciate Q&A. And for operator support. to we the

Operator

[Operator Instructions] from line Jefferies. Our of first the question comes from Alex Slagle

begin. may You

Alexander Slagle

guys, you gives and Hi, trends you I any if guidance, in wonder for February the thanks sentiment there’s in the or maybe could confidence provide the the in some the like what – that? commentary you comp sales outlined range same-store the metrics specifically brand maybe measurable if U.S., range following, you’re something around question.

Steve Ritchie

Steve. it’s Alex, Sure,

So thanks for question. the

bit, challenging a start a January. So XXXX difficult in just stepping into very and back certainly

very program. called because of XXXX, think and So more a non-recurring out, did kind long-term on pressure of of there’s loyalty the extensive couple business coupled increase I’ll factors But and layered when extensive check that wanted the for the then potential outlook short-term which excited we on we’re gain – I at program in new promotion the of some of and value awareness about in cheese John’s Papa to call our and We out – we provide January to with the two it with the visibility we promotion full-year medium the with the couple each. we enrollment the obviously a pretty attention the $X that on steak that piece. garner which of

XXXX, January a from late I February – So to moving think and we’re December your about necessarily improvement backs but we forward the to in the negative is in we proud talking from on be we first-half quality, number from and to an going been things to complete of back steak far back incorporated product – five. getting interesting solid XXXX pizza. That’s that the of by But seeing in of February, to ingredients more pressure of question marketing the certainly of talking the team in full-year with pleased provided interesting Philly have the our and about a than and January. creative those supported know we’re challenging we’re cheese here. very progress which But February one very our outlook, here new negative that back-half thus do getting campaign into not

outlook. So excited about the

Alexander Slagle

development the in on then closings that front, gross if guidance? that’s an versus the could you idea expected And openings Thanks. XXXX provide into around baked

Steve Ritchie

Sure. you [Multiple about a Speakers]? the want Joe, bit to little talk

Joseph Smith

not are on we look of mean, to year this and at we’re good where I that, specific guidepost. that’ll kind the Yes. obviously, going a give you give numbers and hope pretty

Steve Ritchie

continue we’re experienced on expectations But were to rates that those you our probably at But I Alex, was you to that venue. add going pressure would chunk nontraditional look on a experience won’t the the breakdown we on side, – know We outlined call of XXX of I that. similar, give the in to some that attract gross good that, the are details closures comments, overall XXXX opening we side. it’s experienced domestically. that in as performance closures my I I the the out international can international units just in a Steve. yes, think, because,

a more is of event. that So non-recurring

on of just in sales hitting the the the So the units our step domestically because range we net XXXX more of can there. quicker at closures that we overall potential optimal do obviously, have expect the in event. higher-end And down turn around, will the

Alexander Slagle

that. Okay. Thanks for

Operator

from And Peter next Thank Saleh comes our BTIG. you. from line the question of

may You begin.

Peter Saleh

Great. just ask marketing Thanks. about I budget. to the want

marketing XXXX to XXXX? a What I you month, and What marketing Is budget? heavier cadence budget you spend guys it? mentioned dollar investing spend about should is to launch it second how think, versus in the the the going into new more do marketing XXXX? Steve, quarters, third for this campaign. How be going spend in is XXXX looking versus will you or are the had year? we to your And dollars expected next be how you plan think

Steve Ritchie

it’s Sure. Sure, Steve. Peter,

So I’ll touch on it a bit.

just to and Fund off, rate January X.XX%. National stepping X.X%, our So of day Obviously, in was is overall the that rate step I contribution contribution mean, that did first that overall XXXX, up sales of units. on first back driven off same-store Marketing

because really an a out job of the thinking thought how some from quarter, is overall of you coming cadence of plan that we to media investments. would inflation a think into of specific of Marketing have out pressure within of we’ve that there revenues rate, we team investments the in on the side well standpoint don’t the get will access the quarters, those levels nice do National the I it. to close contribution be of but But expect allocation on So each on the want the and contribution the got cadences it about has to the side. increase We’ll done pressure the rate in drives parity overall additional as But dollars. Fund

as headwind, partnerships get will be, have $XXX influencers as We Papa John’s million are that investment potential but that money make help International, quarter, expect, with those $XX evaluation be digital into things that into into process an like evaluating National in we Marketing Last fourth have looking and will of right be do half myself marketing right to front. the the levels about to the the shortfalls in that make to television, primarily, of of in unit part into XXXX, investments back sure certainly we and we we we We’ll need to the million our we’re of get year, Nettles that brand. to team is spending spending the making the support as invested looking will franchisees Mike that the and the still too. did Those may of up in so would how back money rest the And where them and investments the we Fund, economics sales be social. take you talked holes get that that support business. also investment look some PJI, making to areas a obviously, a and evaluate, into the to we expand at

So I lot bit around And to of I’d if just you color a a say give that. any the team Mike, add where don’t from want commentary at know to growth little perspective? we’re

Michael Nettles

Steve. Thank, Hi, Peter. Sure.

Steve thing really sentiment the what So equation. back little only had challenges if our different the the Clearly, PR side just of last is, to probably year. spend it than will quite be and side look was the I a would you year at said probably XXXX, equation of this we the add few a on

the into had that the maybe the put commercial advertising very continues. on a retail more we going quite reputation bit We’ve see year, done marketing. side So to brand commercial probably actually a a lot but than of more it equation, and to lot for brand you’re different. effort This

big in and past, one-to-one of of the we rewards, Papa that shared a Peter, the introduction With you of others the is actually launch marketing. with part as

through very marketing. messaging, the the traditional in channels had XXXX. individual of But the see having nonetheless, a level on of proprietary own in marketing one-to-one, XXXX a which And marketing commercial lot go more so goes of funnel will different kind out us to you really gives we than heightened top opposed our as of us a mix through maybe to lot that now

Peter Saleh

know then is guys received accounted just, million already for. from And you I million $XXX $XXX Starboard, Great.

those some The sheet, use the Could other for to the to do using you time? fund, of that expect balance of $XXX some guys over this guys anticipate of or some do marketing million, into anticipate these you how that go or does on funds sit investments?

Joseph Smith

we is you this of We’ll down off, that as Peter, the Joe. is, thing paying the can Yes, revolving start back. credit, said, obviously, access nice but line

down, can We’ll investments stroll a the So accordingly. good revolver, that that prove go and the and that then under just test the once initially and have those make necessary back will we debt that return. but access use investments those we

Steve Ritchie

spend just to that the to we’re the money. of on add just Peter, And on to part question where going latter

five in, we money. still are that three are about we’re want weeks So, best make we working – we’ve we all places to to to of our the the unit our technology, broad, those. team side, the product people, to initiatives priorities that are so only number in brand, the layer value Those being: strategic a this are assess then, course, of there’s and investing within talked economics. support very with of and growth up But sure what be stakeholders

initiatives. invest of is those that need know of of each of areas where indicator But to being experience and we improve member that team valuating experience phase – obviously to customer the one in improve the we lagging are the assessment So and we sales.

by get the the making experience to going economics. into to sure and leaning sales experience. to team things really improve, that we improve able be So we’ll know do customer We are turnaround again, we’re unit member that need to

So we communicating do yet, to that as out be we because get as here, don’t make our decisions, on I things certainly, from in a point, the very national scaling standpoint we small will before there markets thoughtful. and anything perspective. from And test timeline to prove those want we out have be a things a a Street. through be of to phase assessment we’ll individual lot Joe’s

Peter Saleh

Steve, either more from perspective front. what mentioned on us you specifics be delivery on the a more news menu question. innovation think, bit then of I value value carryout my a you in some the just or terms side? may you and be about you Great. testing? What more And last give potentially thinking Can may little

Steve Ritchie

lot Sure. And of start got product and here around of operator. It’s I’ll the on spent Mike to as evaluating a Steve. I – time he’s excitement as the his lately because a we’ve ask well, that there’s got jump things the lot side. energy we’re in in

in long looking create As with what going consumer. model, not that operations always are our things of sure to business know, the my you to the looking we our lens is complexity in record make operations through through track connecting simplicity, with of but trying also lens

expensive piece pizzas. history but might in is, lot, of the in had this it going most that of the of brand to So launch is terms a the we’ve number not like sound first the product

my is the national the this one to six media specialty new include Those in very next specialty of of I ingredients. week. proposition, premium soft will value a they highlight So out launching And the I offering first supported also at six that uniqueness would handcrafted be week $XX. called a are handcraft think we launch pizzas them we’re that because remarks, number pizzas prepared good

pizzas, two six is in specialty specialties steak that of our but all all We’re new the not improving, pizza here only just cheese and specialty pizzas. I And period in to we’re the February performance but as February. promotion, Philly the talked extending about that with same

want So to continue that. from nice we performance along that, so

that it to proposition. areas markets we big out think, as – that across how we’re in talk value work. to thinking been have we’re aware play the ask to additional standpoint at this product bit from learn and of everyone and other the sandwiches testing team’s continuing far Mike, test how some noticed about we’re in As read side, be a we’ll value part about within and value looking general. I growth country, and targeting I of is the just strategically little a a understand that Mike various is how I in product well our And may

Michael Nettles

Sure.

stood for our big always BETTER BETTER heritage. brand part INGREDIENTS we’ve that’s Peter, a PIZZA, So and of

in – consumers we spoken past, the to maybe a in not to. we’ve resonated think way years directly that’s we I that with need as

quite we’re really better believe BETTER PIZZA. experience. overall make so that And an heavily And a PIZZA back BETTER in pizza We our do INGREDIENTS into leaning frankly, that. deserve a customers elevated BETTER for

customers that we’ve you really on media, the kind now Pizza. big a specialties has all pizza with next with fun our product. follow that see right Waffles item. the The starts engaging coming help really So social some Chicken said up. craveable of of Honey ideas, part Steve been But you of the been just choose new with Hot winner us contest if that can us and our

some hit our see to point menu that expect can at hitting you soon. So

Philly these as past be pizza It may as but signature specialty like period. our just menu there. in a now items of new back introduced are new the on one the this of that was Some out LPOs, creations fan favorite came cheese and remains steak

bold some us you trying the to lean creative them help actually going really and pizza at we’re tell up to with that that John’s, types into you So but get better go Papa come some with heavy story. that can that really along can to ingredients enjoy

last seeing If you’ve at the $X for, very following least, messages two also intentional. brand been the clear two and kind that’s periods, of us, you’re from and very $XX,

We some hear they these probably of been in receive. the see try maybe the that sometimes high overall yet value to the experience customers constructs. Papa perception as to a relative test that past moving priced from in that too has our forward You’ll periods John’s we come, to

So as experience experience. PIZZAS, customer in in and we on operating lean really on the we lean BETTER the

$XX constructs in saying, led the medium such tops in medium new those which acceptance. period heavily targeted for us going can way may into cheese three, driving for a customer well. Customers very it check price period any, where high pizza, you us customers a the top can big period actually be us got there. that it out that a our we’re specialty we’re very for is to be are $XX actually great one the in pizza two brand value the in customer hey, acceptance else, leads $X, Philly also special, us. The accessible for equation, for nice finding accessible, $X always but and specialties in part a And that’s resonate there and out a drives that out only well. also for to two but a get one with as $XX construct imagine, handcrafted of point something of on seems that value side new with became support for high period And an $XX specifically, see carry two, working being lean one $X. you that now it’s each. testing The come to as up overwhelming in very is We’re not as well steak We that may we’ve not that’s

that it’s of BETTER PIZZA, just make going happy experience. continue to both sure BETTER point, a starting on those that with it’s really PIZZA to things but not an overall we’re So we’re as innovating a

Peter Saleh

you very All right. much. Thank

Steve Ritchie

Peter. Thank Peter. you,

Operator

line Thank you. Stump Alton from next our Longbow Research. comes And from the of question

begin. may You

Alton Stump

Yes, thank good afternoon. you and

Steve Ritchie

Hey, Alton.

Alton Stump

But think, the and what I Steve, to to just as given I said quarter. comments. you franchisees, exactly if the in that wanted first at least I end the I the mentioned, going through you they’re as far ask apologize concessions, run of missed

of first as for are kind So longer there and you at a the of of it a months as you’re commitment rest next the three XQ, see then quarter? those far start just where over commitment or is

Steve Ritchie

it’s first-half the pressure year, call also push initiatives direction. continued did right in call Sure, franchisees domestic we of concessions to sales have But expect have I of I in we the formal the to all the do the economic Alton, for made go in Steve. of as we the prepared in royalty our relief unit did get commitments quarter remarks, first that the in continue out business. marketing Yes, of my through some to out

more our of to the focusing that provided we with franchisees XXXX, within but to outlook to be headroom of find challenging the So guidance, right provide believe of to ourselves in level for first-half. throughout the part rest through year our the the will out on support what be we able

Alton Stump

make back Okay, in it hop one us Steve. sense, and more makes And the queue.

In promotions, course kind year? as of do there like the you there promotions. products image Just both going with out aggressive over do more you XX you to first the to six more about, your words, new current can of fixing balance think that brand do other feel need the efforts versus sort and is that? of or same How you obviously, time think brand at you

Steve Ritchie

got the let and have over on product versus an sentiment It’s is let to this, last that because Alton. I’m Sure, trying Mike things we’ve to strike on this help – comment Steve, we and going side. and something, balance find year to but interesting can here balance that do challenge to I’ll obviously of and the we right the

do to have We both.

the grant results. I out call but seen what financial But in, from think, I making we – would we’ve our again, February, you’ve foundation did things college. So represented but we of specific some us done with official Papa the the John’s the $XXX,XXX to John’s that we first of the officially foundation, made a grant not yet, have start-up Papa announced publicly

that marks very, around and cadence the that call doing communities of be So well very thing, make significant improvement be helped we I out, received it’s can’t It in It to brand. things the things. sentiment good has because one serve. multiple for it a was

the internal and I translate good year, overall to a that a that you but over think doing So work. doing the Chief the tell that Victoria inclusion, work months. Equity because the efforts for Russell, out be an the more to the to continuing have – been internal had I work both, the to us there, calendar and exciting from innovative of full consumer a on to on of call the your Boakye, Officer several new quality work audit. can have out of that But we’ve you question figure of in work leading about work our things do to for At more the will culture do At it lot believe extensive over on culture, happen influencers equity of and doing sentiment have leaning And gave on challenges have but just Diversity, partnerships relations better our internal. that year lot the conclusion as internally, we’ve audit will do the been Marvin we found output standpoint, Inclusion, fundamentally products our you some to the same the last XXXX I time, will People on the recommendations into be and the and the of we product, value through public lineup we’ve concluded opportunity brand. the last culture diversity, of got plans proposition, out story. that same on have to the we because time how Chief

there, was multiple XXXX calendar to know, we’ve built the anything forward. but So a of with you’d the I a things move roadmap out just that on that there Mike, I level like the that add to don’t year, to brand complement. lot if we for said think appropriate to

Michael Nettles

– really late I Steve, thing our business, of of would and only one as XXXX a kind job The good add, of we’re I because think, in did the if outlining leading focusing on in things certainly of beyond it of ingredients, interaction it and real of just human into the our better the not is and XXXX in in of and tell kind tell but terms terms kind story, quality the basis. happiness

it those in making better placement communities sure people source needs commercial said, customers of why So in that support to the good want have engage we a but the voices just accordingly. we product lot they out and success because the talked John’s, campaign, and of good Steve in that because the have our the with quarter Papa everything servicing corporate there happy is, people we the to buy we not those we’re the from that tell that for the inside inside citizens, of the and a with XXXX we’re to voices organization of last continue story as doing, that work people the about back we had

big talked long-term effort. strategic on. just we But of it So a keep but very making messaging BETTER up say push to kind the this we see period to social back and again you’ll something about, messaging just underlayments to. part an channels, some INGREDIENTS, integrated the That’s the of set set and is mean with got what’s a the team advance serving and have of on that with each messages to we’re calendaring it’s This media, it actually Steve television going when again pulsing that forward. that it whether who’s really don’t to know moving actually level is we all many of pizza, who out function top we’ve we’re and master full-year or these of with a pizza go trying in to goes that our at the broadcast

Alton Stump

Great. Thank you, Steve and Mike.

Steve Ritchie

Thanks, Alton.

Operator

our line And from Citi. Badishkanian the question from next of Gregory comes

You may begin.

Frederick Wightman

commentary improved. The quarter? February it’s that Easter as any It’s guys, rest Hey, like hear should we from things of for But they’ve the Greg. was move shift on Fred the we nice really actually sound the through Wightman expecting to helpful. be impact

Joseph Smith

Joe Smith. Yes, is Fred, this

Looking going change impact and for us New actually in it’s too X% probably that sales. to also not just be significant our than Eve, the Year’s at on less comparable

Frederick Wightman

What then And understanding from you you’re then still for shift. seeing pricing assuming year? the loyalty helpful. for And some that – are the that’s guys headwinds Okay. ticket

Steve Ritchie

getting be will Fred, a on category. traffic in going tell that very going very within large it’s direction. have on a fragmented you and category a about check $XX basis. Steve. We don’t low billion break out still typically to I the annual share But relatively an We traffic focused we’re right

be balancing on do know moving we’ll is through layer, back act very cadence of the a the plan our all to appropriately of going right loyalty focused to going direction. we’re out We in the your year. the getting do point, promotions program the how and of So that’s traffic, what to

but know, we’re out multiple the time. was and one had check called of to check same in growing, stability we in that we instability have get all do going period because traffic we what So at I things want our in to our

to that basis. appropriate wouldn’t averages to go-forward of on on a expect drag So what be check would deem we kind a I be

Frederick Wightman

come Okay. down we did the How bit should and And going then forward? quarter. franchise that a little about between this company-owned gap think

Steve Ritchie

So, Fred, it’s Steve again.

as record track very would know. you – our performance, a of solid had So, we long

per through the CAGR was a think I five-year our about X% on for excluding basis XXXX year restaurants. corporate XXXX,

So a on results an by – run year. X% had tremendous year they per average surpassed to a X% they’ve franchise on our and

we and of the of more do what see franchise pressure a the comps. we’ve closed are some folks have that factors some, gap markets caused you’re call within we have work number spread on experienced there a as short-term them quarters, that to over don’t I of going would our bit, to be that sales, the the the to last do had So in couple overall I but not have margins. individual remarks, overall But in energy but kind planning, pressure, out in our drive in significant prepared only corporate restaurants. an There corporate and They’ve operations conversations, my those the a the called is from multiple that the get basics I the years. for leadership level back getting that get confidence performance the the believe team full-year through corporate we’ll fundamentals back to the drove to of the levels. energy and

progress close the gaps throughout expect as fully I year. the we to So

Frederick Wightman

Steve. Really Thanks, helpful.

Steve Ritchie

Fred. Thanks,

Operator

from next Slabaugh our come And Will from Stephens. line of the will question

begin. may You

Will Slabaugh

had you’ve on in a past the the a given of talked I the that couple just guys. thanks, periods. movement check about the Yes, question and traffic,

growth traffic right that sort down? was that feel was about your I ticket along and the you I wanted talk how see fairly So it maybe that from And multiple seeing about? expectations you kind question get in recovery would’ve that it we just like as is, of with behaved more similar layered ticket we traffic it you’ve mainly versus to guess, the quantified it results recently? February another. recovery behind driving sounds period? and on expected, was how mentioned that you behaved anyway Do And to guess, seen relative to the one I that discounts the now, of impact traffic that during you’re

Steve Ritchie

would as the both by wasn’t side. declines transaction traffic per a called to in as for Sure, I more that that level it’s and say we maybe that lift significant January, overall looking week of mean, in I levels in January. the the be Steve. on and there traffic page turn slight just February, December look of would in experienced overall we February saw the on and December improvement you perspective. in would With a for Will, what I check we we’ve check disappointment that a out, January, comp to, the the back stable that store, uptick kind and got on basis But we seeing said, from being at on check expect side

of things of So in you’ve things in time. to December are period exclude think month-and-a-half I so many some of moving got happen that there that because are the kind January, and that

like in moving about we’ve If what forward, we you’re February. thinking seen

of cadence rest we based as think we’re can that share time. a focused we back direction, in to that right going with on this to the getting certainly of moving again, very the of about because get and of the over balance year. have, we promotions XXXX on traffic a And think period I want we back we out donated the be in share that lot

Will Slabaugh

if Got more could. then question, one I it. And

capitalizing you on Your you’re first brand menu innovation it of here you’ve as talking about, sort your like sounds as here maybe equities around quality. of – kind reemerge

how is room specialty that sounds more I’m of as is like if there you to $XX point there some pizzas, a these $XX you there, and sort that price room if while? is, mentioned, And $X. plan it you something to treat like you It Does curious value So if kind the plan to of feel for road? specialty of be then premium? with hang or play is feel make value you sense could more how regionalized that ends localized might more go brand that go market, down the message. did what $X you like And for if more being national up, or your mean for and every is value up go you if that

Michael Nettles

Mike. for perspective, in we’re seem segments. it’s basically, that They’re than targeted well can Will, maybe very still in. be But us our here of and Hey, different working from I’ll to so very colleagues individually. customer $X $XX more mode. take my and together some test at chime

had for technology segments tweaking not well, messaging newly types working numbers to far. has those. we’re so sure it’s room we It will been go with really and it’s very a our and formula various final still promotional the developed those on using We’re pulse that those be of that really after offers marketing – And forever. known that great really

from. that’s franchisee having to allow ingredients, the that, for systems, or which little large of However, take up-sells, up-sold would be quite for of Papa that to over in would also too you different extra opportunity extra you’re some pricing bit and local us an there feature They flavor pizza. you digital on just will what said is opportunities a the up-sell being or they opposed in like be always that it have a control large the important to really have franchisees a pizza as markets actually it more a that have us that to size what to

actually tier So out performs to and for of and the premium, plenty is ticket that large a a drop pulsing pushing the Clearly, and not with we’ve have opportunity could there’ll it’s there’ll be now of the continue around of to there the one in for extra there pizzas, a even great side that keep be rolled our equation. actually that little be that for But of higher some opportunities some well. us few industry other as above $XX we us.

but to that really drive for continue to working, looking at So is for the check, also opportunities of say more it’s future. look to Steve’s clearly customers looking We’ll transactions, that I put as and want. they drive we in want point, to while don’t just absolute opportunities that front not our out it to

Steve Ritchie

Steve. And Will, it’s

and calling program, said important very the complete Just the but before, is things, I’m is just out value a introduction loyalty of this one that Mike more I is platform. think new

richer our the more and anything the flexibility them now. program. being to gives menu So provides on able of it is to order a value also It consumer

of that as our perspective. we as time, wage some a out same high we want know individual called that we’re to for the going real markets, there, markets. highlight our driver value So certainly brand on the do balance have out, you of from and loyalty the part rigor a to overall and frequency At

building of within So leveraging be of to loyalty one-to-one we’ll be tech some more specific the targeted out, program segmenting our capabilities. the new some out

value need we’re value, is So a from where not that brushing consumer broad not perspective. a state

mean So might and items some when $X, we be may new at we we we’re have it of not target requirement one excited pizzas. be that. about $X, excited about it say at multiple tech And the purchased of a not this we – might that item we’re how $X, might and

– just value provides know to there we out have So that for access. a to gets that consumers need the get layer we opportunity

point, So the seen about least seen we’ve piece. specialty – final the learnings that how exactly Mike’s we’ve like made unlike there through we on that have far. intend thus can what continue to $X March not we to we with decisions excited But will at period in have and $XX three we obviously layer

Michael Nettles

on that. Will, Yes, one just final comment

Papa new executed have through common the the this fairly Bowl. program You if in Papa seen actually we John’s bounce promotions, for system. this, industry. back would reward the We’ve first during time, were But back done customer Super a that’s bounce you the

to so no And literally enroll. need it was

very have high customer also deliver but some really opportunities business a pizza level, to usage this us were of the because wallet, it the remember the a playing communicate of a consumer a a their directed And into a have going all what have, the to they promo period. a on good Super some were they and automatically bought enrolled and through dropped code, around system, to but the really also to ability surprise was delight didn’t from really we You a rewards you right really was they that side, customer, new and gave in we’re pizza at for us to and the why following back technology and there the example drive bounce for maximize us capabilities with check incremental price during continue free period of profitability Bowl, points, on side. automated it on

Will Slabaugh

that, all for Thanks it. Got guys.

Steve Ritchie

Will. you, Thank

Operator

Thank Stifel. you. Chris comes O’Cull from next of the from question our And line

You may begin.

Chris O’Cull

did some than of between responses. the I if steak is afternoon, working you fall? I’ve apologize guys. promotion why cheese did why Good last Thanks. I do – But and Philly your in you it – back missed bouncing better think February why calls. forth been Steve,

Steve Ritchie

our than that did – well We we steak specific well, cheese the actually the past, the it last actually in didn’t but LPO Philly fall, past run we run performed time last that in promotion. products quite

nice traffic And it seen best some of but from against to our customer at with mix period past those the did have way And I though one promotions. performed to coming LPOs new the very in the incremental trying expectations, check, job free cheese value, is also I steak with loyalty, coupled it’s the drove on marketing teams the i.e., pizza, specialty that, pizzas in pressure piece. the impact we’ve think not the on overall have Philly coupled what steak compare think and we the creative did parity really just cheese extensive with But about sales nice execution. negatively the promotion, a

of the highlight really it our does So quality ingredients.

sure targeting the the year a making of some on consumer. agency we that We that allocating that’s that brought investments, buying we’re right have last work media new right

for So recipe improvement the a it’s success it’s one it’s drove performance in overall February, to about seen a that’s product really time we’ve offer. and opposed limited not and all as

– done our complete overall introduced took underperforming refresh specialty here So also a of we’ve pizzas pizzas as and our off we lineup specialty and some new well. of

Michael Nettles

cheese Chris, it. time, same that way It Papa universe. steak did marketed well. have to John’s to same to everybody Philly run To the in point, it would just the Last add was it’s perform we on Mike, and

did went marketing more really marketing had database along let it did one-to-one that to really it. after of bought had marketing, and with creative that amount This we BETTER XXXX new that ingredients story telling really before. the like found would that some thought still through just we with that and PIZZA that try brand time, itself. people good speak story. we did of around kind for new and messaging So we in we a that that a made go always compelling marketing by after targeted lot massive with a the into it by the We like great technology people of bought it like reception was to leveraging again, we it went people investments technology, that customers But before we and using there all drive to look marketing the broadcast

the really team is reason us the technology for that’s technology why the pizzas well was the So side, on marketing growth working both a big marketing the together. pizzas merge built to and

that got just how efficacy working messaging. have lot that’s to We’ve with, of room our pleased play with frankly, And higher starting. quite we we’re So far. that in but is technology overall much a so really

Chris O’Cull

franchisees a in percentage domestic what of helpful. Joe, that’s XXXX? loss do know year then, you And Okay, last had

Joseph Smith

pressures. Yes, we to more of specific Chris, have on our some franchisees into some that. Obviously, I seen mean, not get going information we’re face

use we metrics we and We might that have some use that have help. go now some the metrics of some help in to of the is additional to need that that and specific franchisees

Steve Ritchie

a Chris, – pretty there things and add to with think of challenges I perspective do we bridge that it’s we unit Steve. And mean, that successfully some I just this intended economic last what multiple that think I it support from I’d year. the is didn’t the to

much it point. things, those have do would been that didn’t have of percentage break-even we been that would in if stores below higher So

drive support bridged stores to their last – unit Marketing million. solutions are constantly we’re a and percentage National it, have of to be point top how looked investments the trying below the as execution did $XX Fund, of at year economics. we’re the line, the that we We we But improve to overall in can improving we the addition overall provide sales break-even levels to making like that in

a that increasing year. feel of But balancing of the on by gives the amount a last it’s So the for year, last occurring was depicted pressure act. closures business number you clearly, model

Chris O’Cull

have targeted for And the X% expectation It’s then, Joe, you past, an in margin year? this helpful. I know margin. the company commissary Do commissary has a the

Joseph Smith

made our margins. to – mean, I margin our as some going percentage to specific into again, we’ve not assist consistent. going But Yes. lower again, year It we’re that franchisees. last we’re we Chris, always relatively we – is reduced again, keep

to that, to consistent always I we think we’ve to something that evaluate see it, not again, but you we’re to going that fair and us continue think increase maintain significantly. So is obviously franchisees we and tried our

Steve Ritchie

it’s – Yes. I Chris, a mean, fair think I mean, question. I

side margins our saw business prices of last provide the we piece appropriate when in counts. those experienced. and As on on we feel of relief the we driven foodservice fourth the transactions by a point, to Joe’s level that to we at year it franchisees. level the side didn’t The foodservice we based the did clearly quarter transaction have for is did And raise declines,

of was level we of that the that support provided one-off. So was part that a

very verbal want other we to franchisees many prior our a may top that franchisees consistent point, maintain We had years. to where agreement continue margin consistent continue investments to agreement line. make have and the many, use verbal our XXXX We and to the with to pieces Joe’s piece, again, fix to for support a to honor and help assessing the

is think about to I would your margin levels. expect, percentage modeling, pre we XXXX more So if you look similar at looking

Chris O’Cull

then how if think the this charges And exclude year? should we Okay. about G&A you expense for special

Joseph Smith

Yes.

both Chris. to you’re place, very going out if the special you charges consistent, of be again, to we’re years, and think, take going fairly I a I in think be consistent

Chris O’Cull

In terms of dollars?

Joseph Smith

dollars of dollars. it’s percentage, the yes, terms on and the In more but

Chris O’Cull

impact royalty should then And the of we to fourth year saw be in Okay. to we the first-half the similar in the expect relief what quarter?

Steve Ritchie

So Chris, Steve. it’s

the So look have going – the quarter. planned we to fourth quarter is first similar to very very out what for

so of the of still heard the moving what support. challenging, to much the the of intend year investments these year the the right be are we have sales evaluate more we how year and question quarter, into might evaluating franchisees believe and the royalty do or apply abatement more throughout again, first-half that occur get as some to earlier, will is leveraging of on we that direction. more in back-half assess the year. And But we tests the We to the beyond more likely where support as might first-half the first predominantly in support to

have franchisees. within what we not that to was on our support what guidance ourselves you will made gave to tell the outlook So – be will headroom But we numbers. incorporate necessary enough decision be to able necessary final exact a I

Chris O’Cull

Okay, great. Thanks, guys.

Steve Ritchie

Thanks, Chris.

Operator

I’ll for further Thank you. questions no to remarks. closing And showing back I’m Steve turn in the the Ritchie queue. call

Steve Ritchie

lot aboard. your the to of assessment, initiatives take just you to take you but you. the lot of do have a today. and this fact want forward. got the the for a financial But joining that We’ve continued a want We’ve time. lose will to excitement to the and positivity sight sometime, We’ve of lot a again, don’t But I plans. the we the initiatives. guys of things got resources to strengthen quarter. those talking have flexibility. around of of look We of once appreciate call will got John’s work next of to way lot thank brand lot support got evaluation Thank to Papa a strengthen and I We’ve and do. forward

Operator

program, a Ladies great our Everyone, and you gentlemen, have this does may all conclude and disconnect. day.

Papa John's International (PZZA) 26 Feb 192018 Q4 Earnings call transcript