In order to shore up its U.S. franchisee business,
Papa John's International Inc.
) banked on a slew of initiatives. The latest one is the
announcement of the '2013 Development Incentive Program' that
offers a package of incentives to its existing and potential
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The initiative is a part of the company's 'Domestic Franchise
Development Incentives' scheme that was introduced in 2009 to
increase unit openings. According to management, the program that
has so far garnered huge acceptance has boosted its unit openings
considerably since 2009.
The latest program exempts franchisees from franchisee fees
(standard fee is $25,000) as well as equipment cost of $50,000 for
new units opened through 2013. A royalty waiver for up to 18 months
is also included in the program.
The list does not end here. A food credit worth $3,000 with PJ Food
Service, which operates Papa John's fresh dough and food
distribution quality control centers, will also be offered for each
restaurant that opens at least 30 days prior to the scheduled
opening date. Franchisees signing new U.S. unit development
agreements through November 30, 2013, for new restaurant openings
on or before December 29, 2013, will be eligible to access this
We believe, following the continued traction in the North American
franchised business, as evident from the 5.1% growth in domestic
franchise comparable sales growth in second-quarter 2012,
management resorted to this initiative to further spur the segment.
Papa John's also implemented a royalty rebate for the franchisees
that can be availed upon meeting certain conditions.
A 'Franchise Support Initiative' is also in place that includes
food cost relief by lowering the commissary margin on certain
commodities sold to franchisees, targeted royalty relief, local
marketing support and more.
Papa John's believes that these support programs help gain market
share as well as reduce potential unit closures amid a tough
economic condition. This Louisville, Kentucky-based company also
uses several other options such as Franchisee Loans, Franchise
Insurance Program, Franchise Training and Support.
Presently, most of the companies are transforming to a more
franchise-centric model to reduce the volatility in earnings and
increase cash flow generation. As of June 24, 2012, Papa John's had
3,973 restaurants across 33 countries, among which 3,297 were
franchised. Of the total franchised units, North America had as
many as 2,475 units.
We remain encouraged by the company's long and successful track
record, continued uptrend in earnings, upbeat guidance, viable
business strategy and strong balance sheet. In fact, this latest
strategy of freebies-to-franchisee will help strengthen its
franchisee network and perform better going forward.
Papa John's which competes with the likes of
Domino's Pizza Inc.
), currently carries a Zacks #1 Rank, implying a short-term strong
Buy rating. We also reiterate our long-term Outperform
recommendation on the stock.