Markets

Papa John's Digital Efforts Drive Growth, Costs a Concern

We issued an updated research report on Papa John's International Inc.PZZA on Sep 29, 2015.

Papa John's has been posting positive comps on the domestic as well as international front since the beginning of 2014. The company remains well positioned for growth on the back of menu innovation, promotional offers and operational efficiency. Besides providing limited time offers, the company continues to test new menu items domestically as well as internationally. The company has several new offerings in the pipeline for the rest of 2015, which can boost traffic.

Meanwhile, Papa John's is also investing heavily in technology-driven initiatives like digital ordering to boost sales. The company's online and digital marketing activities have increased significantly over the past several years in response to increasing use of online and mobile web technology.

Also, the company began rolling out its next-generation point-of-sale system known as FOCUS in 2014, which is a part of the technology overhaul in the majority of its company-owned and franchised restaurants. This system speeds up the process of taking orders and ensures accuracy and allows the restaurant manager to better monitor and control food and labor costs.

Currently, the company has rolled out FOCUS at a majority of its domestic restaurants. Going forward, the company expects the system to drive multiple store level efficiencies and boost sales.

It also added Google Wallet as an online payment method in 2014. It intends to release more upgrades to apps and upgrade its current website. The company has also launched a new iOS app and a responsive web design is in the process of being implemented. The company continues to set the pace in the digital arena and ended 2014 with more than 50% of domestic system-wide sales from this channel, up from 45% in 2013.

Papa John's is aggressively expanding internationally. Many of its restaurants are located in international markets like United Kingdom, Mexico and China. The second quarter marked the 22nd consecutive quarter of positive comps in international markets. Over the next six years, the company intends to open 1,250 restaurants, of which approximately 80% are likely to be in international markets.

However, rising food costs especially of beef and chicken are expected to continue to keep profits under pressure. While beef prices are rising due to a severe drought in most parts of California, the outbreak of avian flu in some parts of the U.S is expected to hamper the supply of chicken, thereby resulting in a further increase in chicken costs. Meanwhile, costs related to advertising and technical upgrades and pre-opening expenses for unit growth would further put pressure on margins.

Papa John's presently has a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same sector include Bob Evans Farms, Inc. BOBE , Carrols Restaurant Group, Inc. TAST and Dave & Buster's Entertainment, Inc. PLAY . All these stocks sport a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

PAPA JOHNS INTL (PZZA): Free Stock Analysis Report

BOB EVANS FARMS (BOBE): Free Stock Analysis Report

CARROLS RESTRNT (TAST): Free Stock Analysis Report

DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report

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


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

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