PZZA - Earnings call transcript Q2 2022 | Papa John's International, Inc.

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Operator

Good day, and thank you for standing by. Welcome to the Papa John's Second Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. to conference like speaker to now Mr. today, would hand over the your I Frole. Stacy

begin. may You

Stacy Frole

Thank and our by tab Good release website call. department earnings you. at morning, Relations A contacting can This earnings second release. investor_relations@papajohns.com. the our at morning, our conference be quarter ir.papajohns.com obtained Investor we Investor of under or issued copy XXXX on quarter welcome second the to Relations our releases news

and morning are Ann Rob On CEO; the President and our our call CFO. this Gugino, Lynch,

Before made materially we uncertainties and of statements include these from within I that begin, These need to differ risks meaning during forward-looking that statements. you remind could the the comments laws. involve will federal cause securities this actual call may to statements results

the be in included in Forward-looking considered statements release the with filings. conjunction in risk cautionary and should our factors earnings our statements SEC

reconciliation measures addition, refer the to our earnings call. for release today's financial of required on In non-GAAP please discussed

thank you asking queue Rob? let back only for more Lastly, the getting and in in me question follow-ups. one for advance

Robert Lynch

for Good thanks everyone, and today. us you, Stacy. Thank morning, joining

already a Papa I'm will to by Before May. hard call finance consecutive as work shareholder and our year. positive John's product despite dynamic these John's and of as two development has quarter our XXth our culture. this background of and sales IR momentum. comparable and growth, of and with franchisees. gains significant company and since the strong saying, I our an navigating to their Stacy of we're This engagement focus I'd environment. start want in and are proud coming This over to morning, sales very innovation, continued top to going we have past brand, on or We outreach delivered dedication. met the the our have to up her our part over a building America, my team. excited members team we're opportunity earnings have first North ramp macro She joining you her, delivered line we remarks like we the to of begin, Papa increasingly proves Many Thanks environment winning off welcome so resiliency soon, results digital in years difficult differentiated capabilities the on our our how and

second priced economics, operating margins continued innovations, In across in performance sales not costs and completely before from strong commodities accelerating fact, and price income every grow were of and said, menu our the store unit strategic higher being higher to able premium partially, weekly average our continue markets and but and impacted today labor than were quarter. pandemic our one That increases, are offset these franchisees to they we But per costs. with the the prosper.

As or consumer before, sentiment value point concepts. I'd tremendous continues dining casual reiterate fast casual soften, relative made I've pizza other to QSR, like to a to offers

value historically reason, cycles. invest a already their better can recognize feed meal offered through in consumers economic this has superior we Papa Because segment affordably. and ingredients, been the high-quality the For very Pizza by John's resilient delicious, past family

those compelling maximizing customer value. with for At and the less opportunities self-select sensitive have great capabilities price same at customers base into profitability premium order are bifurcating program more in and our our As are pizza our incentives quality one-on-one sensitive price loyalty who restaurants. targeted high marketing discussed innovations, offer we our our customers the past, time, to to

term expect future. This growth better reverts commodity positions this when results we cycle XXXX. normalize, and navigating for are accretion for dynamic environment a margin short-term eventually even costs balanced long which with investing and while the approach We to optimize us heading our into

are our optimism and franchisees perspective development in reflected Our activities. long also term

to X% stack maintaining the of the and to year strategically In positively pricing and growth delivered validating XX%, term quarter, premium supporting comps stores aggregators continue years. a Comparable us with brand's our allowed positive management potential. technology we positive America actions rose the integrations new driving innovations, last North significant We two in which long revenue three further best-in-class top capabilities, sign third-party second contributing over were of deals sales and development these execute menu while to demand. sales new open growth on

right unique current to brand's the enables pizza loyalty with Rewards menu is customer program through transactions combined In to segment chase promise and Our each better Papa there our strong the environment, to value innovations ingredients, of temptation aggressive price. us at better provide always discounting.

menu a our customers. evolve the on disciplined integrity. prices instilled promotions our half at pricing bringing and approximately We're wide. a that highest customer menu to we balance favorites. capabilities, new repurchase of approach the without Since to back or of April introduction the strengthening management been of erosion ever our platform year, beginning we with introduced crust right the revenue innovation value of innovation customers X% of fan Pizza of Crust Epic to have innovations excited super risking we percentages which brand our oriented provide have pipeline system the standpoint, average expressing we've the year, Pepperoni-Stuffed seen. for about From some Papa menu the second to a X% John's risen also As huge our hit the the is as stuffed is in It has an with intent driving orders

efforts nationwide us. for aggregators our strong be differentiator past to each the Additionally, strategic a few the delivery years build to continues over partnerships with third-party of

These through XX%. of results provide In declined leverage for ability incremental consumers with lapping at same to our are the facing partnerships discover market, international restrictions, we reflect year government particularly last experiencing seasonality delivered disrupted an to our of inflation, may UK, AR here channel and customers declines with normal a in business, primarily largest a the these We and X% brand us new though U.S. their stimulus, are three capabilities, an peak sales the delivery our which meeting opportunity times. COVID that have comps incremental the still dedicated to the UK. of in to industry seen record our some holiday unique lifting [indiscernible] and the international the some of and challenges have year. high which They is stack

overseeing focused mentioned growing existing our our scaling we share This is markets from first on differentiating we our As UK. brand efficiently quarter leadership have strong competitors, call, in markets. and team international the the and business on new in our

technological In grow service mindset positive other apply long on optimize are generally, in international healthy capabilities Excluding and improve UK remained execution. delivery we international quarter, strong comp lapping evolving years to and This our more double-digit the top see will to specifically have help operations the development enormous revenue model of our significant management innovation the meeting outside innovation which labor, third developed the relationships. To which U.S. fuel efficiencies, customer keeping and in the To growth. our capabilities, is achieve safe opportunities acceleration when product system. in the and growth, were management employees two different we markets our and the markets and years and a we're improve party across customers UK, we of delivery After impetus systems priorities further providing future, our our focus restaurant customer will term to tools level gains the U.S., very our our restaurant environment. and comp including profitability operating to Today, two in and the demand. profitability

third-party Over aggregators last significant equipment the changes. few centralized we innovation. improved partnered and efficiencies through introduced years, We centers, made with operational call

already XX With units units XXXX. we deals our capitalized consistent globe. about plan North highly and profitability we forward. story and our between underway, three we tools around and new as place these open with experienced, extremely year in nearly quarter, and new excited for with are development the have in XXX top America versus internationally. agreements with market currently and the XXXX opportunities improvements franchisees expectations franchisees new second actively working of net optimization in well to opened unit development American more labor increase to XX there full We're significant are new In North only our the XXX all net new pursuing restaurant expansion moving build are growth We to in

the new long up and a making a long new new activity or confidence investment annually We which our further continue franchisees global over momentum development solid strong Papa in past development to When indicator restaurant deals XXXX, we open multi-year potential. seen QX's year. goal fiscal of acceleration sign development profitable growth the for are net a term reinforces a X% brand's term they're to grow decision. deal, and our through to continuing new sign deals, by have X% XXXX units our John's

Now, greater detail. Ann to in over call to Ann? our turn results I'd like the to financial discuss

Ann Gugino

good Thanks, morning, Rob, and everyone.

you our As this morning, significant earnings deliver we of top the growth top read past line on over to years. in gains continue two release

billion, growth, to For the in in constant net systemwide Accelerating in positive American in $X.X our quarter sales the second North particularly sales to sustained were contributed up sales. X.X% global second addition markets quarter, unit currency. international systemwide comp growth

largely X.X% tied America. difference East were great the invest brand As our other solid similar company quarter localized Rob up Partially Rob in commissary UK restaurants, in Comp sales the owned in the performance restaurants higher largely markets, in saw reflects our In performance Consolidated restaurants. growth including in to the the million just to with to the example across and the Like in from comps mentioned, second driven mentioned continued franchise revenue the the $XXX.X by down it. we our reflecting franchisees markets differences a of America quarter. excitement in and were were X.X% revenues X% offsetting both quarter, international the increased and North quarter, is comps economy. second International this the of and strength commodity first Middle softness company X.X% in owned franchised earlier. down costs. Latin UK,

the million operating consolidated in with prior sales. and revenues joint EPS of this total $X recorded The year. JV Excluding revenue and were strategic Its refranchising year-over-year was most strategic versus our company sales impact of first our the and neutral less the impact was as restaurant consistent instead longer X.X% in refranchising previous venture royalties the increased the in adjusted no revenues from than XX quarter, impact on of revenue a income announcement. restaurant pronounced in commissary

income million from for X.X% to down Turning operating in X.X% last operating million quarter Adjusted XXXX. $XX and for sequentially year from margins second quarter of Adjusted down was quarter. $XX.X were first consolidated X.X% the margins. second with the the compared

to our remained food, plus the impact administrative in XXX nearly operating call, costs. our basis margins margins inflation company resulting inflation owned our due elevated the operating margins franchisees point Remember, quarter. but acceleration by to experienced XX.X% by expected accelerating acceleration we with anticipated. QX. on reduced by offset general margins. XX% initially also cost in operating margin of a year-over-year. operating quarter, basis costs. in year-over-year. continued and since basket points the Labor the segment inflation last were million level cost dilutive discussed through corporate the adjusted and were of we in XXX margins corporate these decline in basis sequentially record than the rose consolidated headwinds slightly American to drag driven greater in we adjusted factors Food also seeing in experienced commissary accretive Commissary North corporate factors these line rising restaurant commissary cheese somewhat revenues This of represented headwind even basis, passes on on in restaurants. a expenses. arrangement costs decline up costs an As Together, actions fuel a was are with reduction we restaurants costs we to impacted the restaurant income, decline pricing fixed for were quarter of Strategic this in labor $X.X costs approximate the point quarter, The second XXX Altogether, were in

costs the pricing term beginning offset and near and in the of remain and year. commodity increased moderate strategic to in of term, initiatives. to fully productivity expect will end impact Longer costs elevated the we through food particular we forward, labor actions Going wheat cheese towards before expect the

strategic saw and we these executed impact pressures pricing as in significantly as However, be carefully not immediate must QX, to are cost demand.

near the surgical term, on years. making for and approach, a focus we positive strong the built We in to will the position base take differentiated retaining term. the continue the mindful we've market share while our our over results optimizing and It's to long of momentum are strategy understand past being growing leaning important that customer securing decisions three into

margin we in the to an headwinds Continuing for confident term that position earnings. long even will normalize, when better We current are accretion. and growth be

basis, items to the respectively. For last XXXX the per loss the $X.XX of year, Series quarter, one-time on was $X.XX and diluted versus share including in a special B repurchase GAAP of a of were the Recall related items earnings special preferred $X.XX conversion $X.XX stock. included a in and $X.XX cost

items, a the our currency exchange foreign penny special earnings share down primarily of corporate the performance, these lower from $X.XX, rates. from in and Excluding quarter a reflecting approximately and a year per restaurants was which second year-over-year $X.XX international adjusted diluted headwind included margin ago, half compression

turning to flow and Now cash balance sheet. the

was million. of net provided months for and from million liquidity in increase development more of the investments million the X.X our leverage capital deducting down months six borrowing business than we expenditures. of After and by working generated facility quarter first impact new expenditures activities revolving $XX.X gross overall in reflecting have performance, innovation, capital cash our $XX.X in of with operating the conservative free flow year, domestic the ended in a $XXX six million. of For capital $XXX.X XXXX a second of and million the technology was restaurants and under This ample cash million changes available $XX.X cash first ratio times. $X We credit from the

shares after beginning Last significant of to return XX an quarter, XX our July repurchased quarter in additional to (ph). we repurchased than we million repurchased have the $XX.X shareholders. cash XXX,XXX (ph) with continue year. as since shares total, the also In of million the We more

We quarter. also $XX.X in out dividends during paid million the common

XXXX balance XX% our quarter our $X.XX based a dividend positive increase third has annualized. or declared In on outlook, our our sheet addition, strong per and share to Board in $X.XX

with shareholders through continue a managing growth us to provides maximize structure substantial balanced the disciplined share and We'll dividends. operating flexibility. to our capital repurchases cash flows approach cash Our and for to take our organic value opportunities,

our favorite, our the of offerings with to return innovations, menu new for most and pricing targeted conscious outlook. actions strategic Now value fan customers.

comp America the positive year. sales their continue for We three expect North to the half second year of trend

executed. the XXXX UK than strategic as continue then into As comp UK to the sales XX% of we for stack. international into Since international, expect year, year being second headwinds the the up but currently more a sales, two half our of improve softness high-single in to XXXX digits and down will represents initiatives full international for are these result in on

margins, wage from while expect inflation costs Regarding and UK near to continues. continue operating and pressure commodity adjusted contributions term lower remain elevated we

executed to compared XXX costs normalize. the and consolidated full expect margins see XXX For are XXXX now we as do in heading a year, to initiatives operational between to decline margins points improve operating basis basis when anticipate productivity XXXX. points into We with begin

and target million invest to innovation year $XX to in new between of and we CapEx of million is Full the be as expense interest expected continue fiscal company million. $XX $XX XXXX stores. development approximately net technology We

for expect over the adapt members to and to and over saying for for value term to every our to an XX% ability comp drive sustainable and XX%. I franchisees, for John's, We significant our steady that robust back development am significant We continue that I'm will sales XX% their a and evolve of opportunities past I'll ability and has market be to in team deliver with quarters expansion our how Rob? year I to years. strong of and attractive team investors. pipeline, turn that, operate I'm the full remaining and their our development global for With rate and white our earnings by space. offers scenario excited want future been to call final thrown our growth way to long comments. to some the Papa Rob few range AUVs confident and the the tax proud between the close between XX% possible

Robert Lynch

Ann. Thanks,

from pressures to are the growth our sensitive facing. we being heard today, to on environment current and in while customers you've us by agile additional our strategy executing continue As drive the

a initiatives be underlying and flows can with customers loyal value are brand, solid in cash the We company enhancing used support proven that a to future.

for system Our and I'm about and Q&A. than remains healthy ever the the that, strong, the to more future. operator With excited turn over call I'll

Operator

of Certainly. come Chris [Operator from will O'Cull Instructions] And question our first Stifel.

is line open. Your

Chris O'Cull

you. I morning, for then of you give did a to the Thank Good positive comps on or more the America did guys. And say you question. expect clarification on that? remain year a you and outlook North that specificity balance had the

Ann Gugino

that year. Yeah, comp we that expect of sales back in North was was the the positive half to the American guide be

Chris O'Cull

appears discount, how slows, does the And value to starting determine Okay. discounts point willing And Papa I accept avoid for but price to spending the is Thank you how to level lead then, strategy company's point company price then that you. limited type larger as the you are the not evolve? transaction Rob, that of and with chains it to know promote declines consumer strategy? going can times. elaborate said discount could marketing John's value And and it's

Robert Lynch

Chris. Hi,

to We promote positive delivering player pretty much have that national consistent the And I the we're been we've that past that's not pizza said deep in we're comps. going only pretty think discounts.

in different and go points. the discount better and a being the we Francisco San positive said, transactions able and absolutely value. to a price So having at for think comp without discount Ohio. deliver value deliver Atlanta lowest I We to than being to and locally. something That bottom that there's sales too A than deliver race

that they way contribute that the to price the depending they have region. customers manage use markets, in our them co-ops their need of upon all funds that can So to manage into their sensitivity they

we So just across promote value national country. value. level it's don't We not the don't and do that platforms actually and accurate to have at kind of the butter peanut say it

we I way, able motivate people surgically that on values incentives really drive in we're focused transaction. our program. loyalty ways at delivering mean, to have other to members loyalty deliver different we're and point The million through this XX

very national just everyone So out we going it's point the have same value else as strategy, price television. robust not and putting a lowest the on

Chris O'Cull

you. Thank Excellent.

Operator

will Gonzalez. question next Eric from our And come

open. is line Your

Eric Gonzalez

the Good might Thanks. it pass U.K. at in want Hey. seems like because deteriorating U.S. a be rate about morning. consumer ask the I to the

So market? strategic that how is doing I'm really economy domestic rapidly? from Should laying or in wondering what those the U.S? for what mentioned more in plan something differ that might think I you XXXX, groundwork do deteriorate for you might XXXX plan the the but

Robert Lynch

big Thanks for their is The other implications, it reflected They've the pricing taxes had I U.K. comps. and States. mean the impact it a Their very VAT in some here quite Eric. prices in the do tax the out than structure the the and of their on how unique. I question, different streams way was we their -- revenue the think tax called calls.

capabilities or So to the tax are base implications of kind to necessarily the the to haven't the transferred the we the pointed VAT same think haven't type in we unavoidable. in of in capabilities regards the And built yet built UK. we've UK I frankly But U.S. that. business, everyone's

restaurants very done that flows I and through our understand the operation. yet. who's management leveraging our understand both make revenue buying every but UK, any purchase franchise mean, haven't and because we up of the transaction that here to from that that also data and our loyalty that how closely And restaurants, our all when. U.S. in get specifically, out point against leverage expertise managing I'll at we that So we're our we function what, company In programs, of we the we elasticities the sure we're almost

into I we're but markets. of we be that use that capability our only the across geographies. being important different one that U.S. UK biggest easily that our So in market, of The overlay as can international example and going most here transferred a to have all

on We're on we work of how media lot doing we a a we're how of to restaurants utilize better. So doing lot run and operations and buy work advertise. our

provides comps So transferred And that possibility have the the and things yet all not those -- I those is our and potential of developing markets. markets. into U.S. on been PSAs that going feel upside, a lot that we're in like other of here the in

So about we opportunity lot that growth. space a more here representing more We're we comp a sales these can also of drive the other international once that U.S. talk in significant amount white for over and a getting PSA huge to confident and development. tools transferred markets the have

Eric Gonzalez

you. Thank

Robert Lynch

Thanks Eric.

Operator

And our from next Bittner of question comes Brian Oppenheimer.

Your line is open.

Brian Bittner

represented that And positive an three Rob morning, and you three that was you America actually year comps second half North anticipate Ann the continue you The Ann. year. morning. acceleration the did very fact quarter, the I basis. Good impressive of also the keep Thanks. it to it's think second in actually in on a impressive said trend year

I think correctly. I heard you

that So this mixed lot of a this happening recently. talking to messages enter decisive your at a slower weakness what spending Are lot in people A any noteworthy outlook result is behaving do the we end. despite much is consumer seeing brand Rob, has within lower are the on own you more if how environment? levers the more do business? getting about pull we're of And behavior you believe and changes

Robert Lynch

drive travel. question, mean, impact pretty Great to is I as to throughs. out behavior One folks lot change having the that think vacation point I of are -- I going traditional on highways because is consumer those cars and pulling Brian. people -- our return on a will driving in change their an through that's business the absolutely neutral QSR,

And haven't international been people in while gone enjoyed planned years the two our as as months it go travel. as The on on vacation haven't that's impacts two always a readily We've in last seasonality go summer people particularly our dinner vacation, had people are business. vacation. years on when The We purchase. muted. people business, last

year, saw in tracking We it. higher even absolutely else's. June. We coming were into are on then our June, exceed haven't ability and we This sales ours And both on seen were bullish really expectations comp We to where to of by like that our seasonality. attribute seeing where there's business very everyone up lot which that is a behaviors of And travel that we a a looking bit travel Florida, at significantly. returning. the we are going evidence slowdown, to we people markets

I the some tougher a there seasonality we're an in acceleration the return and we've that's back think business. on the in in once we really to So of half see bullish is that the why seen past get we these months, comps through summer our this,

the almost value. in said, We offer we can like a do carryout So for terms market an of value in piece, mean, large $X do already value. pizza. I we every special I

So it We points. way. in it's we of do have our just business different price is like don't e-commerce. low a XX% not

available, So to the readily our offers price our those apps, available are going points on are going the digital our on customers going and everyone web looking on localized channels. at and

customer. that just and as have way. for result. doing we think been far And it so that able in compete So differentiated absolutely been a can different we've value We're I a to outperform in

Brian Bittner

you. Thank Great.

Robert Lynch

Thanks Brian.

Operator

question Slagle Jefferies. of And come Alexander from our next will

is open. line Your

Alexander Slagle

is sense for how comment and you question helping can people if to further of a and stores talk had relative wage take that's guess, keeping employees care difficult purpose environment on Thanks. at and around a the your know, you and and get improved very a permeating all just initiatives levels and through retention values the that. still and there, on I trying perhaps basis. to to Good of people kind and activity could hiring people the culture if efforts morning. and franchise wondering and I a it's and and the out system I stores company on just known hiring

Robert Lynch

is question, the for in has challenge throughout one I reasons. this Yes, It has the pandemic been been challenge for -- mean obvious staffing industry. number our always a Alex. Thanks

in store as years So get they focused our hours on many doing as could the restaurants to for two possible. everything were

And the other wasn't make was a improved of improve, so has about the that a really and it people just levels pizzas or making concern these or of actually last around us months. lot of in over there any gives a time We've over seen had sure productivity which our pizzas. lot KPIs, we really of and retention Staffing deliver excitement. recruiting lot to restaurants few

of in labor hour the do our inflation, Ann normalize we hour, of function gone certain to function of However, also a behavior extent two just we restaurant. as costs to have a moving every every wage of put which as over up both some years but expect last mentioned, the a as forward, our can

sure working on So our operations just and And the sure transfer to developing, lot of to a have make are benefit making garnering the talent recruit we're going people then develop to to we that run in our P&L, and that we're insights and the we've restaurants, that it and on company able and not it's be restaurants the but our have we're we we corporate processes going that should that and which forward, all methods of in team, domestic not help some managers staff focused and franchisees continue way. make leadership group productive going great the them us development. do and and the margins, they're their to new should which our productivity our to labor moving most got to optimized can better U.S. we spur of improve only

Alexander Slagle

Got it. Thank you.

Robert Lynch

Alex. Thanks,

Operator

And will you. Silberman our Lauren come from Suisse. of Credit next Thank question

Lauren. open, is line Your

Lauren Silberman

environment. challenging spoke much. Rob, consumer so to Thank the you you

comps including half, pretty over the tough lapping You're XXXX. in back especially when some

in you. from journey just through the promotions, you highlighted embedding respect quarter, So the can to and loyalty. talk then to with an like Thank the more oriented to about value personalization consumers? value acceleration your your most you ability Where that? confirm offer sounds And the specific meaningful so guys And you drivers opportunity just are comps? it you're of want related,

Robert Lynch

Thanks, Lauren. Yeah.

the in confident innovation the of we've seen huge new in back complement then coming got got the year. in couple are through ideas platform. new calendar. the launched coming can more on we've One lifting back and half think we that are success some for created And here really stuffed-crust the But sales early I items last We weeks. that that Epic a of going couple of mean, the that reasons. a we saw layered side. are margin the looking we've very primary and we that incremental we've AUVs to back left. Great our half feel I ism of whole stuffed-crust we some Pepperoni, and half We're at confident new new launched And balance the hasn't the both next in our layer innovation on of here revenue side kind that. and then when year we obviously the complement got

our excited we're also of and we're we're to about piece why So But I'll the second excited the loyalty comps really piece. -- about tie innovation.

to better in that in and we're continue two much all become better last and both have we're have so more come to we're strategy going our directly target through media channels. paid now that to And even better been data we're digital media. we and our back mean, this player both highest our the targeting given becoming channels, organic have and I better years just are reach organic users, light lapsed that get We business we're to data and this we're get. we accelerated data the paid to It's here customers at targeting through and mean, And our propensity mindset determined over the users paid mining across a with our brand with products. through great but to of teams ways enriching the also value industry. confident given it. to leveraging how the data out have buy and channels our And we that using e-commerce the data. nature really I we transactional on

but -- our of revenue of we business margin too. and we side So the is feel, comps the really of on enhancements the also business the driven confidence we're by a lot making side that the

layering just in we're discounted and profitable So it large part out way peanut going national positive it's comps, about a reason why delivering those doing of just and not buttering about not and the that's price points. it's

Lauren Silberman

very much. you Thank

Robert Lynch

Thanks, Lauren.

Operator

from question Brian of Bank. And will next Mullen come our Deutsche

open. is line Your

Brian Mullan

you. Thank Hey.

a a on range guidance but the you over Just X% as of I to think here, X% next early of the development. couple question it's know bit about years.

ramp? the just that. come how cause lower just of start what that you're you towards or outside higher can you XXXX, equipment cautiously in multiyear that like about hiccups, the we about factors create to end the all anything of understand delays, on think which optimistically or either might permitting really As end any color feeling monitoring are there you're to Is

Robert Lynch

both conflict sign So the answer feel we around excitement that really you To only right as our markets new The tell the as of and that in, that would seeing we're on agreements in we're conflicts. is thing the some this the great brand region. in I underpenetrated question, about your continues well is continue markets. and unforeseen now globally currently but franchisee impacts to Ukraine that that

that and sure make our global watch capabilities to the and development despite so And that. environment support franchisees of continuing our we any can we're

Brian Mullan

Thank you.

Operator

And Peter question our will of next Saleh BTIG. from come

Your is line open.

Peter Saleh

from to come impact way. ‘XX? to you're year you just UK can company you. international. growth different about then Does unit a goal any seeing of the X% any the any it getting development, maybe And seeing Are unit and or that have on want I secondly, Thank Thanks. ask on X% annual franchisees softness to a that pullback you to just expect you internationally? basis? and go I starting whatsoever guess, the on what in back talk development Great. given in this forward pushback

Robert Lynch

Pete. Thanks

actually outside of very year for international a business. UK solid our we the having So are

get Europe, challenging the Continental to East up us for bright has been market foothold year. this and Middle have even is like which and a incredibly really Spain spots a significantly We in,

And UK. so the of we're positive almost every market outside in

a So relatively percentage there's of our In small around there's and the UK, to globe lot being represents a big developed of contributor international development. current opportunity. our not the although, largest concern not results development -- on market our a

watching the around We've evaluate development, So that. now, we're environment question, confident been Company that going of strategy I XX the up. restaurants kind looking on global we're months. -- we've longer everything. think we're able ever That's we last Obviously, of a as volatile this the continue over them that performance right excitement internationally. penetrated being in built that. brand markets I said, at we're a And and being of to proxy in we're carve using and these this for last XX the strategy. but Obviously, as into mentioned as as to term

tell watching we QX lot staff restaurants. in up I'll perform. to how them restaurants, these -- and it hard you, where the in new also how just we a last went restaurants QX of we're was and into those year in environment opened those these opened so And

we're approach make in the -- a restaurants be have long these evaluate and we term. in and really set to the we them which trying their markets term as and contribution put up possible long So to as sure more successful try them that to over to take

on but it's we the not over in success. the upon best in restaurants, to whether need that them way able of give up opening to open chance the they them be feel or So we're year, to next be planning we're going but still open company to the going dependent be double-digits, to

Peter Saleh

you. Thank

Robert Lynch

you. Thank

Operator

BMO. And will Andrew our come Strelzik from next question of

open. is line Your

Andrew Strelzik

for Hey, good this you the morning. that actually profit year. really not wanted ask the mentioned come through inflation I but that on commissary question. that, And to Thanks we're the impact one on dollars. taking seeing has

the for Thanks. operating on can timing that's having commissary you outlook of going frame year dollars walk just that the profit -- of the outlook? you margin has changed dynamic? Is there? what's impact a and kind can just So And for terms change on through your in maybe profit this

Ann Gugino

Sure.

from margin on operating margin. those mix the basis. the talked seeing just of on as is sales you're speaking, fixed perspective I impact a relatively because the that lower Generally really we fixed about, increase and margin because a large So more costs through pass got such a commodities you've inflation

commissary timing to come high-single accretion see a in just the still up QX here the think increased in in so translate full will We have basis into didn't acceleration We but a given half. and We of QX, digits. on caught And definitely that year definitely going believe the do bit more we back year-over-year in operating to to recapture. costs the we income be dollars that's year-over-year. the

digit still So that deliver yeah, increase high-single we're will income operating confident we the the QCC line.

Operator

from of Moving next Setyan question forward, our Wedbush. come Nick will

Your line open. is

Nick Setyan

you. Thank

I incremental When will accelerating half, pricing do X% in part of too us -- will we at and think terms second think pricing of comment there to total second comp get about was X% equation menu the in look we the get where pricing a year-over-year half? that the is year-over-year. the

Robert Lynch

Nick. question, Great

of pandemic. it's near it some will planning believe the we of took the basis is no be this little the we some comps -- to bit going said, starting That here and believe frankly, back to that didn't there that we points. in what We normalization to future, a very pricing being will need mitigate hundred We almost we take are And think that continue in half. is to drive pricing structure. during of We're not pricing. couple see not cost -- preliminarily that take the our

our check we're up cost. pricing. We're driven consumers with by our just not trying trade to to that the allowed of innovation growth was trying and sales to drive mitigate All

year-to-date. still for with believe going X% we what structure be to significantly this very that's is our That sure little And you're and right to more business back the than normalization So that the by I of margin commodities us cost. more on necessarily getting that's think X% margins that that commensurate to a to of back take need to and the driven take health we important number. we necessary to have taken as delivering is focus a getting will get pricing while we're to making need is we

Nick Setyan

Thank you.

Operator

question next of our And Northcoast come Jim Sanderson from will Research.

is open. line Your

James Sanderson

for year? XXX range operating basis just follow-up increasing, on basis Thanks back that menu of half into decline margin also -- the wanted a is takes of question. Hi. of the half on I operating What the points maybe price Thank guidance the Is puts pricing. baked the to and are issue also the that that year-over-year does to XXX second that to you. to getting the your to higher for points. your basis margin

Ann Gugino

pricing that would the basis The point XXX point XXX basis on decline Yeah. baked to be guide year-over-year. into

a commodities we the and inflationary add color a little in to lot continue the restaurant. to that talked there. in bit expect Just corporate about pressure We've of both wage

be pressure The year-over-year there. prices. be more that would of pronounced segment, continued bit the easing little point to a upside outperform by So to when commodity we you it expect would look at margin Rob's to a

about a we're out Rob making pointed been which productivity, talked also as investments focus a We not of huge that for and number in wage has us.

meeting we really demand, the in During on where more pandemic and people surge keeping were demand, focused that safe. the

of year-over-year down outside be continue not talked take offsetting just the approach to that we So as continue as growth, second those comp the we've also the see positive a is out initiatives but in as UK. hold sales pointed to cost internationally start a as provide to to lot upside. North take a as And to result about management. But We'll some G&A America, Rob in U.K. expect half of then that we the could pressure internationally disciplined

high of the be level I would kind those So would provide. insights

James Sanderson

Thank Okay. you.

Operator

come Todd question Company. next Benchmark Brooks our will and And of from

Your line is open.

line Todd Your And is the open. from remove Brook queue. I now will

Todd Brooks

I didn't that here. I I'm announced. was hear

Sorry about that.

Operator

No problem.

Your open. line is

Todd Brooks

Great.

UK? seeing drag and what any positive Just second the I positive international, growth and talked quarter you the two UK sales is way from can know UK. follow-ups, Was international in maybe the One, if quick on just second in excluding the same there you're expecting may. size store the half in about the I you excluding

Ann Gugino

So QX. yes, markets positive were the other UK the international in excluding

In in was sales that system international what of think terms XX%. of terms that of percent UK I I would size, offer is the about

there. definitely the were of in guidance down So that be double-digits And we would UK. kind the

Todd Brooks

staffing in you specifically quick great. better And staffing success drive specific other we of follow-up. talked you parse with function? that that one last few If Rob, seen then in Okay, the months. the have to or type staffing, improvement about there

Robert Lynch

and but to we where our nowhere third-party near, retention were moving that we ease throughout driver to long strain organic when way surely. in have want be the improvement and with are pandemic of staffing. definitely relative definitely where with but on imply the January direction fully but We where December our to impacting has aggregators we don't it's bit We're and the partnerships I of right in staffed. really our coupled go, the a to still Slowly, especially we a were recruiting some restaurants. was leveraging in Omicron mean the helped

Todd Brooks

both. great. Okay, Thanks

Robert Lynch

Todd. you, Thank Sure.

Operator

remarks. I like to to would back now turn closing Rob for the call Lynch

Robert Lynch

Well, everybody thoughtful your joining morning. again for us and for thanks this

have very guided challenging values, into last navigate and nimbly true what to months, customers unique. It's over what from moved of makes team our proud years incredibly an volatile achieved of this and leaning by we our few our As we're franchisees quarter for and been past tell Papa our stayed John's years. can innovate environment. incredibly couple We've the and today, the continuing a members to three company. to comments you this And over remarkable

future you're we will that as are. an Papa potential. Going to John's opportunities excited We long forward, eye about carefully we of continue challenges manage short-term hope the term as with our toward and

like shareholders in I'd on call our their and interest support. everyone thank their always, company As Thanks and continued day. for great have this for to our a

Operator

for This concludes today's conference participating. call. Thank you

disconnect. now may You

Papa John's International (PZZA) 4 Aug 222022 Q2 Earnings call transcript