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Papa John's (PZZA) Q1 Earnings Top, Sales and Comps Soft

Papa John’s International, Inc. PZZA beat the Zacks Consensus Estimate for earnings while missing the same for revenues in the first quarter of 2016. The pizza delivery chain’s comps were soft in the quarter that led to sluggish global restaurant sales growth. This dampened investors’ confidence and shares dropped almost 3% in after-hours trading.

Meanwhile, the company reaffirmed its earnings expectations for 2016.

Adjusted earnings of 69 cents per share beat the Zacks Consensus Estimate of 63 cents by 9.52%. Meanwhile, earnings increased nearly 25.5% year over year as soft revenues were offset by lower costs.

Revenues of $428.6 million missed the consensus mark of $434 million by 1.24%. Also, it declined 0.9% year over year The downside reflects lower international sales and soft comps.

Behind the Headline Numbers

Global restaurant sales growth in the first quarter was 2.3% that compared unfavorably with the year-ago growth of 7.4% and 3.4% in the prior quarter.

Excluding foreign currency impact, global restaurant sales growth was 4.2% that also compared unfavorably with the year-ago comps growth of 9.6% and prior quarter comps growth of 5.7%.

Domestic company-owned restaurant sales were up 4.3% primarily due to an increase in equivalent units and a 1% rise in comparable sales. Domestic franchise royalties and fees were up 3.3% because of reduced levels of royalty incentives in the first quarter of 2016. Domestic commissary and other sales were down 8.1%.  The decline was due to the inclusion of about $8.5 million of FOCUS equipment sales to franchisees in the year-ago quarter.

Comps at system-wide North American restaurants were up 0.1%, lower than the year-ago comps growth of 6.5% and 1.9% in the last quarter.

International revenues were $27.5 million, up 8% year over year, as higher royalties and commissary sales were offset by lower company-owned restaurant sales in China. Comps at system-wide international restaurants increased 5.7%, weaker than comps growth of 7.7% a year ago but stronger than 5.3% in the fourth quarter.

Total costs and expenses were $385.6 million, down 2.28% year over year owing to a 7.9% decrease in total domestic commissary expenses.

Income before income taxes was up 13.6% due to increases in domestic company-owned restaurants, North America franchising and International income.

Guidance for 2016

The company reaffirmed previously given guidance.

Papa John’s expects earnings in 2016 to be at the lower end of the range of $2.30 to $2.40 per share. Total consolidated sales are expected to rise in a range of 4% to 6% in 2016.

North America system-wide comps are projected to rise 2% to 4%. International comps are expected to be up in a range of 5% to 7%, on a constant currency basis, in 2016.

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

Stocks to Consider

Some better-ranked stocks in the restaurant industry that can be considered are Darden Restaurants, Inc. DRI, Dave & Buster's Entertainment, Inc. PLAY and Carrols Restaurant Group, Inc. TAST. All these stocks sport a Zacks Rank #1 (Strong Buy).

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DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
PAPA JOHNS INTL (PZZA): Free Stock Analysis Report
 
CARROLS RESTRNT (TAST): Free Stock Analysis Report
 
DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report
 
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