Papa John's: Super Bowl Tie-In, Messaging Drove 1Q Growth

NRN.com|May 2, 2012 5:09 pm EST

Papa John's domestic marketing has helped drive positive results in the first quarter, as a Super Bowl tie-in not only drove traffic during the big game but also advertised its Papa Rewards online loyalty program and increased enrollment, executives said during an earnings call with investors and analysts.

Chief marketing officer Andrew Varga said online sales now account for more than 35 percent of Papa John's orders.

Additionally, as they have done in previous calls, Papa John's executives credited the long-term effort to own its "better ingredients, better pizza" positioning for allowing the chain to stay at the $11 price point without hurting traffic while its largest competitors compete largely against one another for deals between the $5 and $10 price points.

"Everybody wants to own our position or a Chick-fil-A position of high quality," Papa John's founder and chief executive John Schnatter said. "But the problem with owning quality is it takes time and costs money, and most companies aren't willing to do that. At Papa John's we have taken the time, we have spent the money, and our brand perception is very good."

Schnatter added that the company's recent acquisition of 50 restaurants in Minneapolis and Denver from a bankrupt franchisee holds vast potential for Papa John's, due to the strength of the brand's corporate operators.

Steve Ritchie, senior vice president of North American operations, said the two new corporate markets, as well as the domestic franchise and international systems, would benefit from best practices in operations and local-store marketing that have been driving higher same-store sales at corporate restaurants for several of the past few quarters.

"Our corporate operation is leading the charge for our brand, and our team excels at almost every key metric," said Tony Thompson, the chain's executive vice president of global operations. "We see that as a really big opportunity for us still domestically for us within our franchise organization."

For the March 25-ended first quarter, Papa John's net income rose 1.9 percent to $16.7 million, or 69 cents per share, compared with $16.4 million, or 64 cents per share, a year earlier. Revenue rose 6 percent to $331.3 million, from $312.5 million in the first quarter of 2011.

Same-store sales rose 1.1 percent in North America, reflecting gains of 3 percent at company-owned restaurants and 0.5 percent at franchised locations. International same-store sales rose 8.4 percent.

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Bullish on international sales

Papa John's two-year same-store sales increase for its international franchised system of 838 restaurants was 14 percent in the first quarter, and officials expect that sales strength to continue. The company updated its full-year guidance for international same-store sales to rise between 2.5 percent and 4.5 percent, compared with a previous range of 1.5 percent to 3.5 percent.

Papa John's robust sales in foreign markets occurred even as many European economies struggle with high unemployment, austerity measures and low consumer confidence.

As with the domestic franchised system, the international restaurants' opportunities for driving more sales lie in adopting many of the operating practices behind the domestic corporate restaurants' success, Thompson said.

"We've been focused on consistent steady growth," he said. "We're also focused on the Papa John's way and how we operate, and that's back to our corporate domestic team leading the charge, domestically and globally."

He added, "We're focused on making sure the model is the way want it for the future, and there's been a lot of emphasis on that specifically in China. So we're bullish on international, specifically the emerging markets."

Schnatter agreed that there is "no doubt we have to be successful in the Asia-Pacific region, with China and India."

"With that being said," he added, "we don't want to put all our eggs in one basket that could bust. China does look like a bubble."

As such, Schnatter said he was comfortable with an international growth plan that is diversified and steady, meaning the company is likely to hit its new estimate for same-store sales in that division.

"The last thing you want to do is miss your number," he said. "We probably tend to err on the side of conservative, but we're not overly conservative by any means."

Papa John's operates or franchises 3,933 restaurants worldwide, and has agreements to open 300 more domestic units and another 1,200 international locations over the next six years.

Editor's Note: A previous version of this article incorrectly reported that Papa Rewards has been key to increasing the company's online sales.

Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN