PAPA JOHNS INTERNATIONAL INC Q3 FY2024 earnings call

• New leadership hires: Kevin Vasconi joined as Chief Digital and Technology Officer, Jenna Bromberg as Chief Marketing Officer; Ravi Thanawala now responsible for International Business, Joe Sieve for global development and operations. - North America strategy: Accelerate profitable growth through focusing on core product, amplifying marketing, modernizing tech stack, differentiating customer experience, and partnering with franchisees. - International strategy: Narrow and deep focus on impactful territories, aligning global practices with local needs; progress in China, Korea, Spain, Latin America, and U.K. - Initiatives: Work on core menu optimization, Better Get You Some campaign refinement, loyalty program improvements, and reducing restaurant build costs.

North America: Third quarter North America comparable sales were down approximately 6% from a year ago. Domestic company-owned restaurant revenues were down due to lower transaction volumes and to a lesser extent ticket. North America commissary revenues increased by $5.5 million due to higher commodity prices but offset by lower volumes. International: Third quarter global system-wide restaurant sales were approximately $1.2 billion, down approximately 3% in constant currency. International comparable sales were down 3%, excluding the Middle East, down less than 1%. Total revenues for the third quarter were $507 million, down 3% from last year, with decreases in international and domestic company-owned restaurant revenues partially offset by increased commissary revenues.

• North America comparable sales guidance narrowed to down 3.5% to 4.5% for 2024, with fourth quarter expected to be low-single-digits down. - International sales comps expected to be down low-single-digits in 2024, improving year-over-year. - 2024 adjusted operating income anticipated between $135 million to $150 million. - North America development: Expect to open 50-60 net new restaurants in 2024; international gross openings expected between 170-190 new restaurants. - G&A expense expected $70-75 million, net interest expense $40-45 million, capital expenditures at lower end of $75-85 million range, tax rate 23%-26%.

• Consumer spending trends: Consumers being more deliberate in managing ticket, preferring value brands. - Commodity costs: Headwinds on margins from commodity prices. - Competitive landscape: Dynamic QSR space with aggressive competition, particularly in third-party delivery channels.

Q: Could you talk more about learnings from margin investment testing and margins in Q4 and beyond?

A: Todd mentioned testing various value propositions, with learnings applied to improve transaction trends, and Ravi noted Q4 food costs up mid-single-digits, focusing on transaction gains and margin initiatives as improvements seen.

Q: What's the biggest driver of underperformance vs peers and how to protect franchise profitability?

A: Todd cited value perception as a big driver, emphasizing focusing on core quality, innovation, and loyalty program revamps, with Ravi noting four wall EBITDA flat to 2023 and incremental transactions impactful.

Q: Sequencing of initiatives and short-term impact?

A: Todd highlighted tech stack modernization and loyalty program improvements as near-term priorities, with long-term focus on core pizza quality and innovation.

Q: Advertising contributions and commissary price increase?

A: Todd mentioned $3.5 million incremental advertising investments, with discussions on co-investing with franchisees and commissary productivity improvements.

Q: Transaction trends and 1P vs 3P?

A: Ravi noted positive carryout trends, Halloween sales performance, and loyalty test results showing more 1P transactions, with focus on balancing 1P and 3P.

Q: Development incentives and 2025 plans?

A: Ravi discussed build cost improvements and strong development incentives, with Todd noting continued evaluation of incentives and confidence in franchise community.

Q: International footprint and competitor intrusion?

A: Ravi talked about narrow and deep strategy, pruning fleet, and competitive watch with focus on key markets, while Todd emphasized playing the defined game with digital and data-driven approaches.

Q: Third party awareness and share?

A: Todd and Ravi discussed awareness opportunities in third party, sequential growth in 3P, and focus on balance between 1P and 3P for share and frequency.