Papa John's International, Inc. (PZZA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects mixed signals: while international revenue and free cash flow increased, domestic revenues decreased due to refranchising and lower sales. The Q&A highlighted efforts in innovation and digital improvements but also noted challenges like market share retention and declining first-party delivery. The strategic refranchising and closures may stabilize long-term performance, but short-term impacts remain uncertain. Given the company's market cap and these factors, a neutral stock price movement (-2% to 2%) over the next two weeks is predicted.
Key Financial Performance
Global system-wide restaurant sales $1.23 billion, down 1% in constant currency year-over-year. Reasons: Higher international comparable sales and 1% global net restaurant growth were offset by lower comparable sales in North America.
North American comparable sales Decreased 5% year-over-year. Reasons: A 5.5% decrease in transaction comps across restaurants, with carryout growing 1% but offset by declines in total delivery.
International comparable sales Improved 6% year-over-year. Reasons: Momentum across key markets driven by new menu offerings, aggregator expansion, and improved brand and marketing performance.
Total consolidated revenue $498 million, down 6% year-over-year. Reasons: Lower revenue at domestic company-owned restaurants, North America commissary, and all other business units, partially offset by higher international revenues.
Domestic company-owned restaurant revenues Decreased $24 million year-over-year. Reasons: Refranchising of 85 corporate restaurants, lower comparable sales, and prior year deferred revenue impact related to loyalty enhancements.
North America commissary revenues Decreased $7 million year-over-year. Reasons: Lower pricing slightly offset by higher volumes.
All other business unit revenues Decreased $7 million year-over-year. Reasons: Lower advertising fund revenue as a function of lower sales.
International revenue Increased $4 million year-over-year. Reasons: Improved performance across priority regions.
Consolidated adjusted EBITDA $51 million, decreased year-over-year. Reasons: Marketing investments and subsidies of approximately $8 million, $2 million of higher management incentive compensation, partially offset by lower cost of sales related to refranchising and commodity deflation.
Domestic company-owned restaurant segment adjusted EBITDA margin 6.3%, improved by approximately 10 basis points year-over-year. Reasons: Flow-through from higher average ticket offset lower transaction volumes and labor inflation.
Domestic company-owned restaurant 4-wall EBITDA $19.2 million, 4-wall margin of 12.7%, improved by 60 basis points year-over-year. Reasons: Lower cost of sales.
North America commissary segment adjusted EBITDA margins 7.7%, increased by 150 basis points year-over-year. Reasons: Higher volumes.
Net cash provided by operating activities $126 million for 2025. Reasons: Favorable changes in working capital and timing of cash payments for the National Marketing Fund and cash taxes.
Free cash flow $61 million for 2025, increased by $27 million year-over-year. Reasons: Favorable changes in working capital and timing of cash payments for the National Marketing Fund and cash taxes.
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Operating Highlights
Pan Pizza Platform: Launched in January 2025, featuring premium ingredients and a differentiated experience. Early performance exceeded expectations. Plans to expand internationally.
Oven Toasted Sandwiches: Testing in North America and soon in international markets. Made with Ciabatta bread and high-quality meats. Early results show increased sales of non-pizza items.
Protein Crust Pizza: Tested with positive feedback. Features protein-infused dough delivering up to 55 grams of protein per serving.
Crispy Coated Chicken Tenders: Introduced in the U.K. with positive early results. Plans to expand chicken innovation to the U.S.
International Sales Growth: Achieved 6% comparable sales growth internationally, with strong performance in the Middle East, Asia Pacific, and Europe. U.K. saw 7% growth.
Refranchising Program: Refranchised 85 restaurants in 2025 and negotiating 29 more in the Southeast. Plans to reduce company-owned restaurants to mid-single-digit percentage of the North American system.
Cost Savings Initiatives: Identified $60 million in North American supply chain cost savings and $25 million in non-customer-facing corporate cost savings by 2027.
Technology Enhancements: Launched new omnichannel apps with faster response times and improved conversion rates. Partnering with PAR Technology for a modernized POS system and Google Cloud for AI-powered ordering.
Menu Simplification: Eliminating Papadias and Papa Bites in North America to reduce complexity and improve operations.
Localized Marketing: Reestablished co-ops across 50 U.S. markets for effective localized targeting and brand support.
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Risk or Challenges
New Customer Acquisition: New customer acquisition was lower than last year, which pressured comparable sales.
Order Mix Shift: Shift towards smaller nonspecialty pizzas led to a decline in total pizza sales.
Delivery Order Declines: Year-over-year order declines in total delivery offset growth in other areas.
Underperforming Restaurants: Approximately 300 underperforming restaurants in North America were identified for closure, impacting franchisee resources and system-wide sales.
Menu Complexity: Menu complexity led to operational inefficiencies, prompting the removal of certain items like Papadias and Papa Bites.
North America Comparable Sales: North American comparable sales decreased by 5% in Q4, driven by a 5.5% decrease in transaction comps.
Franchisee Profitability: Franchisee profitability has been pressured by food costs, labor inflation, and fixed cost leverage.
Restructuring Costs: Restructuring charges of $16 million to $23 million are expected in 2026 and 2027 due to workforce reductions and restaurant closures.
Marketing Investments: Incremental marketing investments of $22 million in 2026 are expected to pressure short-term profitability.
Consumer Environment: A cautious consumer environment is expected to persist throughout 2026, impacting sales trends.
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Guidance & Outlook
Revenue Expectations: For 2026, global system-wide sales are expected to range between flat and low single-digits decline. North America comparable sales are projected to decrease by 2% to 4%, while international comparable sales are expected to increase by 2% to 4%.
EBITDA Projections: Consolidated adjusted EBITDA for 2026 is expected to be between $200 million and $210 million. This includes $13 million of cost savings outside of marketing.
Capital Expenditures: Capital expenditures for 2026 are projected to range between $70 million and $80 million. After 2026, capital expenditures are expected to decrease to approximately $60 million to $70 million per year on average.
Restaurant Development: In 2026, the company plans to open 40 to 50 gross new restaurants in North America and 180 to 220 gross new restaurants internationally. International closures are expected to represent 5% to 6% of the international system.
Cost Savings: The company expects to achieve $25 million in cost savings outside of marketing by the end of 2027, with $13 million expected to be realized in 2026. Additionally, $60 million in North American system-wide cost savings is anticipated, with $20 million to $25 million realized by the end of 2026.
Restructuring and Closures: Approximately 200 North America restaurants are expected to close in 2026, with an additional 100 closures in 2027. These closures are projected to increase AUVs by at least 3% and improve franchisee health.
Innovation and Product Development: The company plans to expand its innovation pipeline with new products such as pan pizza, oven-toasted sandwiches, and protein crust pizza. These initiatives aim to drive incremental sales and attract a broader customer base.
Marketing Investments: In 2026, $22 million will be invested in supplemental marketing and franchisee subsidies to support menu strategy and enhance franchisee profitability. This investment is not expected to continue after 2026.
Technology Enhancements: The company plans to launch advanced voice and group ordering features and frictionless reordering for loyalty members in the second quarter of 2026. Additionally, a new POS system will be implemented over the next two years to improve operational efficiency.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is holding Papa John's back from holding or taking market share in 2026 despite the QSR pizza industry's stability?
A:Todd Penegor explained that the company is focusing on innovation to recruit new customers, such as introducing pan pizza, sandwiches, affordable sides, and single-serve pizzas. They are also working on improving local competition through co-ops and simplifying their menu by removing Papadias and Papa Bites. Despite these efforts, challenges like mix trade-downs and cautious consumer behavior are factored into their guidance.
Q:How does Papa John's plan to compete on value against larger competitors?
A:Todd Penegor stated that the company is meeting consumers where they are with offers like the 50% carryout deal and $9.99 create-your-own pizzas. They are also focusing on innovation with products like $11.99 pan pizzas and affordable sides. Additionally, they aim to recruit new customers into their rewards program to drive higher frequency and value through loyalty incentives.
Q:What is the growth outlook for Papa John's first-party (1P) and third-party (3P) platforms?
A:Ravi Thanawala mentioned that there is growth potential in both 1P and 3P platforms. The company sees runway in the carryout segment of the 1P business and continues to expand in 3P. They aim to remain agile and leverage their innovation calendar to attract customers across both channels.
Q:How did Papa John's system performance and unit-level EBITDA change in 2025 compared to 2024?
A:Ravi Thanawala noted that domestic company-owned restaurant 4-wall margins decreased from $150,000 in 2024 to $135,000 in 2025. However, the company has a plan to recapture 200 basis points of margin rate upside and expects 4-wall profitability to slightly increase in 2026.
Q:What impact will the closure of 300 restaurants have on Papa John's system economics?
A:Ravi Thanawala stated that the closures will increase average unit volumes (AUVs) by about 3% and improve system health. The closures were strategically planned to address underperforming locations and strengthen the overall system.
Q:How did third-party delivery perform relative to first-party delivery, and what are the plans to improve the delivery channel?
A:Ravi Thanawala reported that third-party delivery grew in low single digits, while first-party delivery declined. The company plans to improve consumer satisfaction scores by enhancing the digital experience, improving food taste, and leveraging CRM to engage loyal customers.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the system-wide decline in unit-level EBITDA for 2025 compared to 2024, citing variability among franchisees and different management strategies. Additionally, they did not provide a clear breakdown of recapture rates for restaurant closures, only stating that they were 'healthy.'
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
PAR
POS
Papa
advertising co
apps
center
chicken
co ops
cost saving
cost structure
crispy
crust pizza
customer acquisition
digit order
field resource
franchise restaurant
garlic
gram
inventory
legacy
moment
noncustomer
offer
omnichannel
optimize
order mix
pan pizza
partnership
pizza launch
pizza menu
priority market
protein crust
quarter sale
restaurant fleet
sandwich
sauce result
side item
signature
strength loyalty
structure action
PZZA Transcript
Papa John's International, Inc. (PZZA) Q4 2025 Earnings Call Transcript
Unknown2-26
The earnings call reflects mixed signals: while international revenue and free cash flow increased, domestic revenues decreased due to refranchising and lower sales. The Q&A highlighted efforts in innovation and digital improvements but also noted challenges like market share retention and declining first-party delivery. The strategic refranchising and closures may stabilize long-term performance, but short-term impacts remain uncertain. Given the company's market cap and these factors, a neutral stock price movement (-2% to 2%) over the next two weeks is predicted.
Papa John's International, Inc. (PZZA) Q3 2025 Earnings Call Transcript
Positive11-6
The earnings call summary highlights strong international growth, strategic refranchising, and cost-saving initiatives, which are positively received. The Q&A section provides additional insights, showing confidence in refranchising and international momentum. While some concerns exist regarding promotional strategies, the overall sentiment is positive due to strong international results, strategic initiatives, and operational improvements. Given the small market cap, the stock is likely to react positively, falling in the 2% to 8% range.
Papa John's International, Inc. (PZZA) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call summary shows solid financial performance, innovation in product offerings, and strategic marketing investments. The Q&A section indicates positive sentiment from analysts, with management providing optimistic guidance and highlighting growth drivers such as new product launches and loyalty programs. The partnership with Google Cloud and refranchising efforts further support a positive outlook. Despite some vague responses, the overall sentiment is positive, expecting a stock price increase in the short term.
Papa John’s International, Inc. (NASDAQ:PZZA) Q1 2025 Earnings Call Transcript
Unknown5-9
The earnings call revealed mixed signals: strong international growth, improved consumer perception, and positive marketing results contrast with declining North American sales, lower EBITDA, and margin pressures. The absence of a share repurchase program and vague management responses also weigh on sentiment. Despite some positive trends and strategic initiatives, the overall financial health and uncertain guidance lead to a neutral outlook for the stock price over the next two weeks, especially given the company's market cap.
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