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Papa John's Stock Declines 38% YTD: Buy at the Dip or Stay Away?
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Papa John's International, Inc. (PZZA - Free Report) stock has disappointed investors this year, underperforming the industry and the S&P 500. The company’s dismal performance was due to the challenging macroeconomic environment and decline in organic delivery.
So far this year, PZZA stock has declined 38.4% compared with the industry’s decrease of 2% and against the S&P 500 composite’s growth of 13.3%. As of Friday, the stock closed at $46.93, significantly below its 52-week high of $78.74 but above the low of $39.90. The company also underperformed compared with other industry players like The Cheesecake Factory Incorporated (CAKE - Free Report) , up 7%, Texas Roadhouse, Inc. (TXRH - Free Report) , up 32.4%, and Darden Restaurants, Inc. (DRI - Free Report) , down 4.2%, so far this year.
Image Source: Zacks Investment Research
What’s Hurting PZZA?
The company's performance has been impacted by disappointing comparable sales. Sales trends in certain regions, like the Middle East and China, remain challenging. In the second quarter, total comparable sales dropped 2.7% year over year, which was worse than a 1.3% decline in the prior-year quarter. Sales at domestic company-owned restaurants fell 4.2% against a 2.2% increase in the prior year. Similarly, comparable sales at locations in North America decreased 3.6% year over year. The decline was due to fewer transactions caused by a reduction in organic delivery orders and a less favorable shift in channel mix compared to the previous year.
The company's outlook for the rest of the year indicates a cautious approach, with North America's comparable sales experiencing a slight decline in the first four weeks of the third quarter. This trend may continue due to ongoing economic challenges and weakening consumer confidence. Consequently, the company has adjusted its full-year guidance to reflect this cautious outlook, anticipating North America's comparable sales to range from flat to a slight decrease for the entirety of 2024.
In the second quarter of 2024, comps at international restaurants were down 0.1% year over year compared with 0.7% in the prior-year quarter. The comps were negatively impacted by the ongoing conflict in the Middle East and other ongoing macroeconomic uncertainties. The company is vigilant about international comparable sales due to the unpredictable international environment.
Increased Additional investments in marketing and promotions are expected to place pressure on company-owned restaurant margins in the near term. The company has seen a significant number of store closures, particularly internationally, which affects net unit growth. The challenging macroeconomic environment continues to impact consumer spending, particularly in value-oriented purchases.
Can PZZA Stock Bounce Back?
Shares of PZZA have seen slight gains in the past month, rising 2%. The company is likely to benefit from Back to BETTER 2.0, aiming to drive best-in-class pizza QSR unit economics through increased sales, higher restaurant-level margins and improved return on investment on new domestic restaurant openings in its largest and most profitable market.
Under the Back to BETTER 2.0 strategy, the company is making thorough progress in product innovation and marketing strategy. In the second quarter of 2024, the company announced the implementation of the approved contribution rate increase to its Papa John’s Marketing Fund while keeping the local marketing spending optional. This strategic move was intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver. Also, in the early months of 2024, the company launched an all-new brand platform, “Better Get You Some,” which is part of PZZA’s deepened commitment and investment in its new marketing strategy.
Papa John’s is dedicated to building and sustaining a robust franchise network. The company is actively working to remove obstacles to growth in existing international markets while also seeking new expansion opportunities. In the second quarter of 2024, Papa John’s opened 56 new restaurants internationally. Looking ahead, the company aims to significantly increase its international locations, with a substantial focus on franchised units.
The company is investing in consumer-facing technology, digital infrastructure and enhanced financial and operational reporting to support its international teams and franchisees. The goal is to improve conversion rates, boost customer retention and provide franchisees with faster consumer insights by expanding ordering capabilities through its website and app and utilizing advanced analytics.
The company’s loyalty program is driving an increase in digital transactions, with features such as early access to new products, targeted offers and promotions, and higher transaction frequency and ticket sizes contributing to its success. Moving forward, the company plans to increase investments in this channel to enhance customer frequency and personalization and attract new members.
Buy, Sell, or Hold - PZZA
Although the stock has declined sharply in the year-to-date period, it has shown some resilience in the past month. This Zacks Rank #3 (Hold) company is likely to benefit from the Back to BETTER 2.0 strategy, expansion efforts and loyalty program. For new investors, it may be wise to wait for more stability in certain regions, like the Middle East and China.
Image: Shutterstock
Papa John's Stock Declines 38% YTD: Buy at the Dip or Stay Away?
Papa John's International, Inc. (PZZA - Free Report) stock has disappointed investors this year, underperforming the industry and the S&P 500. The company’s dismal performance was due to the challenging macroeconomic environment and decline in organic delivery.
So far this year, PZZA stock has declined 38.4% compared with the industry’s decrease of 2% and against the S&P 500 composite’s growth of 13.3%. As of Friday, the stock closed at $46.93, significantly below its 52-week high of $78.74 but above the low of $39.90. The company also underperformed compared with other industry players like The Cheesecake Factory Incorporated (CAKE - Free Report) , up 7%, Texas Roadhouse, Inc. (TXRH - Free Report) , up 32.4%, and Darden Restaurants, Inc. (DRI - Free Report) , down 4.2%, so far this year.
Image Source: Zacks Investment Research
What’s Hurting PZZA?
The company's performance has been impacted by disappointing comparable sales. Sales trends in certain regions, like the Middle East and China, remain challenging. In the second quarter, total comparable sales dropped 2.7% year over year, which was worse than a 1.3% decline in the prior-year quarter. Sales at domestic company-owned restaurants fell 4.2% against a 2.2% increase in the prior year. Similarly, comparable sales at locations in North America decreased 3.6% year over year. The decline was due to fewer transactions caused by a reduction in organic delivery orders and a less favorable shift in channel mix compared to the previous year.
The company's outlook for the rest of the year indicates a cautious approach, with North America's comparable sales experiencing a slight decline in the first four weeks of the third quarter. This trend may continue due to ongoing economic challenges and weakening consumer confidence. Consequently, the company has adjusted its full-year guidance to reflect this cautious outlook, anticipating North America's comparable sales to range from flat to a slight decrease for the entirety of 2024.
In the second quarter of 2024, comps at international restaurants were down 0.1% year over year compared with 0.7% in the prior-year quarter. The comps were negatively impacted by the ongoing conflict in the Middle East and other ongoing macroeconomic uncertainties. The company is vigilant about international comparable sales due to the unpredictable international environment.
Increased Additional investments in marketing and promotions are expected to place pressure on company-owned restaurant margins in the near term. The company has seen a significant number of store closures, particularly internationally, which affects net unit growth. The challenging macroeconomic environment continues to impact consumer spending, particularly in value-oriented purchases.
Can PZZA Stock Bounce Back?
Shares of PZZA have seen slight gains in the past month, rising 2%. The company is likely to benefit from Back to BETTER 2.0, aiming to drive best-in-class pizza QSR unit economics through increased sales, higher restaurant-level margins and improved return on investment on new domestic restaurant openings in its largest and most profitable market.
Under the Back to BETTER 2.0 strategy, the company is making thorough progress in product innovation and marketing strategy. In the second quarter of 2024, the company announced the implementation of the approved contribution rate increase to its Papa John’s Marketing Fund while keeping the local marketing spending optional. This strategic move was intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver. Also, in the early months of 2024, the company launched an all-new brand platform, “Better Get You Some,” which is part of PZZA’s deepened commitment and investment in its new marketing strategy.
Papa John’s is dedicated to building and sustaining a robust franchise network. The company is actively working to remove obstacles to growth in existing international markets while also seeking new expansion opportunities. In the second quarter of 2024, Papa John’s opened 56 new restaurants internationally. Looking ahead, the company aims to significantly increase its international locations, with a substantial focus on franchised units.
The company is investing in consumer-facing technology, digital infrastructure and enhanced financial and operational reporting to support its international teams and franchisees. The goal is to improve conversion rates, boost customer retention and provide franchisees with faster consumer insights by expanding ordering capabilities through its website and app and utilizing advanced analytics.
The company’s loyalty program is driving an increase in digital transactions, with features such as early access to new products, targeted offers and promotions, and higher transaction frequency and ticket sizes contributing to its success. Moving forward, the company plans to increase investments in this channel to enhance customer frequency and personalization and attract new members.
Buy, Sell, or Hold - PZZA
Although the stock has declined sharply in the year-to-date period, it has shown some resilience in the past month. This Zacks Rank #3 (Hold) company is likely to benefit from the Back to BETTER 2.0 strategy, expansion efforts and loyalty program. For new investors, it may be wise to wait for more stability in certain regions, like the Middle East and China.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.