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Papa John's Eyes Bigger Slice Of Global Pizza Market


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A dmit it: Your favorite pizza joint might be the family-owned place that's been around for decades, but when you want a pie delivered quickly and cheaply, you dial up one of the big chains such as Papa John's International.

Papa John's ( PZZA ) operates more than 4,600 namesake restaurants worldwide. It has operations in all 50 states as well as in 36 countries and territories. The vast majority of its restaurants -- more than 80% -- are franchised.

With $1.6 billion in annual revenue, a market value of roughly $2.7 billion and a stock price that touched a record high of 68.49 on Tuesday, Papa John's is one of the biggest pizza delivery chains in the world.

Along withDomino's Pizza ( DPZ ),Yum Brands ' ( YUM ) Pizza Hut, and Little Caesars, Papa John's is one of a small number of chains that dominate a highly fragmented market.

In terms of the number of stores worldwide, Pizza Hut leads the way with more than 13,600. Domino's is next with about 11,700, followed by Papa John's. Privately held Little Caesars has just less than 4,000 units, according to the Pizza Today industry news website.

Pizza Players Aplenty

You can expect those store count numbers to keep rising in coming years as the large chains carve out a bigger share of the market in the U.S. and elsewhere, analysts say.

"It's a very fragmented industry with lots of small players, and there's a lot of consolidation going on," Feltl & Co. analyst Mark Smith told IBD. "More mom and pops are going out of business, so you're seeing more market share gains by the big chains, especially Domino's and Papa John's."

Papa John's officials were not available to comment for this article. On a first-quarter conference call with analysts, the company said that it plans to open 220 to 250 new stores this year.

One of the advantages large chains have over smaller operations is that the big boys have more money to invest in technology -- an increasingly important part of the pizza segment as more customers order either online or through mobile apps.

"Online ordering is moving to 50%-plus of overall sales," Smith said. "This gives Papa John's a better opportunity to upsell. Mom and pops have a hard time competing with papajohns.com."

Customers can order online from the Papa John's website using their computers or through apps available for theApple ( AAPL ) iPhone as well asGoogle ( GOOGL ) Android devices. Customers can also sign up to have coupons and other deals sent via e-mail or text.

Last month, Papa John's expanded its digital offerings even further with the introduction of PayShare, a digital service that lets customers split their pizza bills immediately.

Apps Sort Out Orders

PayShare, powered by money transmitter Venmo, is designed to give customers a secure way to split the check on mobile or online orders.

"PayShare will change the mindset of our customers as they begin to think less of a $20 order and see it more as a $5 meal," Bob Kraut, Papa John's chief marketing officer, said in a statement.

Meanwhile, the company has "substantially completed" the rollout of its Focus point-of-sale system, Papa John's Chief Operating Officer Steve Ritchie said on the Q1 conference call.

"Over time we expect the new system to have a very positive impact on systemwide store-level operations and to drive multiple store-level efficiencies," Ritchie said. "We have only had the system in place for a short time, but many stores have already experienced improvement in order speed, accuracy, delivery service and team member training."

Advances in technology have helped Papa John's maintain steady if unspectacular financial growth in recent years. Another business boost has come from expansion internationally, where almost all of the company's units are franchised.

During Q1, Papa John's international revenue came in at $25.4 million, up 7.6% year over year. The company opened a net total of 35 new international restaurants during the quarter.

Same-store sales at international restaurants climbed 7.7% in Q1 from a year earlier, as opposed to 6.5% comp growth for North American units.

"While domestic same-store sales was the big surprise in 1Q, we continue to get more excited about PZZA's international business, where it is rapidly growing its franchise base of stores, seeing strong same-store sales and improving margins as it repositions its co-owned China business," Jefferies analyst Alexander Slagle noted in a recent research report.

All The Pies In China

China is seen as a particularly inviting market for Papa John's as well as Domino's and Pizza Hut. Papa John's has a mix of company-owned and franchised stores in China. On the Q1 conference call, the company said that its business in China showed "modest improvement" during the quarter.

Overall Q1 revenue grew 7.7% from a year earlier to $432.3 million. Earnings gained 22.2% to 55 cents a share. Both results topped consensus estimates. Analysts polled by Thomson Reuters expect full-year earnings to climb 18% in 2015 and 16% in 2016.

Papa John's has an IBD Composite Rating of 94. It belongs to IBD's Retail-Restaurants group, which ranks No. 55 out of 197 industries tracked.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Investing Ideas
Referenced Symbols: PZZA , DPZ , YUM , AAPL , GOOGL



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