PAPA JOHNS INTERNATIONAL INC Q2 FY2025 earnings call

Core Product and Premium Innovation - Introduced Cheddar Crust in North American restaurants, along with Shaq-a-Roni pizza as a long-term menu item and $6.99 Papa Pairings. - Launched Croissant pizza in Dubai restaurants, with plans to expand to other international markets. - Ongoing oven calibration work to improve product consistency and enable new innovations. - Rebuilding innovation pipeline with on-trend shareable pizza format and new dipping sauces. ### Amplifying Marketing Message - Launched the second chapter of Meet the Makers marketing campaign, emphasizing 6 simple ingredients. - Invested approximately $9 million in incremental marketing in the second quarter, with focus on test-and-learn and optimizing marketing spend across channels. - Grown share of voice on social channels and launched resonating activations with Gen Z. ### Investing in Technology Infrastructure - Partnered with Google Cloud to transform customer experience and drive operational efficiency. - In beta testing phase for new omnichannel experiences, including an all-new customer-facing app with AI enhancements. - Seeing engagement gains in CRM platform, higher app conversion, and improving repeat purchase rates. ### Differentiating Customer Experience - Enhanced loyalty program with lower redemption threshold, adding ~2.7 million new loyalty accounts since November relaunch. - Improving delivery experience with system-wide delivery tracking service, ~60% of North American restaurants offering it, expected to complete rollout by Q1 2026. - Working on operations to improve customer satisfaction scores through restaurant visits, evaluations, coaching, and tools. ### Partnering with and Evolving Franchisee Base - Signed agreement to sell ownership stake in a joint venture operating 85 restaurants, expected to close by Q4, with proceeds for strategic initiatives and debt reduction. - Evaluating refranchising opportunities across North American Company-owned restaurants. - Completed review of North American supply chain to achieve over $50 million in total cost savings, ~40% expected in 2026, aiming for at least 1 percentage point margin improvement in North American restaurants by 2028.

Global system-wide restaurant sales in the second quarter were $1.26 billion, up 4% in constant currency. North America comparable sales increased 1%, with second quarter transaction comps in North America growing 1% and improving 220 basis points sequentially. International comparable sales grew 4%. Total revenues for the second quarter were $529 million, an increase of 4%, primarily driven by higher commissary revenues. Consolidated adjusted EBITDA declined modestly to approximately $53 million. Domestic Company-owned restaurant segment EBITDA margins declined approximately 220 basis points, while North America commissary segment adjusted EBITDA margins were 7.3% in the second quarter, an improvement of 130 basis points.

• Raised the range for international comparable sales guidance. - Still expect system-wide sales to increase between 2% and 5% in 2025. - Consolidated adjusted EBITDA is expected to be between $200 million and $220 million in 2025. - Q3 and Q4 adjusted G&A dollars to be in line with Q1 2025 levels. - Anticipate $5 million to $7 million of incremental marketing spend in Q3 compared to the same period last year. - Capital expenditures between $75 million and $85 million, inclusive of an estimated $8 million to $13 million of spend to rebuild facilities following tornado damage. - Transaction to sell ownership stake in the joint venture is expected to reduce fourth quarter consolidated revenue by approximately $15 million, annualized reduction of ~$60 million.

• Intense competition in the pizza market could impact sales and margins. - Changes in consumer preferences for pizza styles or ingredients could affect product demand. - Challenges in executing supply chain optimization and refranchising initiatives as planned could hinder financial performance.

Q: Given the recent decision to resume some regional marketing efforts, could you share any insights into frequency trends that you've observed, particularly in the context of the sequentially accelerating comps in North America?

A: As we start to spend our incremental marketing dollars, it's still the early innings with lots of learnings. We're using some of the incremental dollars for heavy up testing in key strategic markets, with more to come on local focus and partnering with franchisees to compete stronger at the co-op level.

Q: North America comps were a little ahead of what it seems like you had expected. Where do you think you're getting more traction than you anticipated across those initiatives? And then just kind of as a follow-up. I know it's only 1 month, so I don't want to make too much of that, but what gives you confidence in the reacceleration over the balance of the year based on what's in your pipeline?

A: It's a combination of core product innovation like Cheddar Crust, Shaq-a-Roni, and new products launching, loyalty program driving customer counts and repeat purchases, CRM and technology investments improving engagement. We have new innovations like Garlic 5-Cheese, on-trend shareable pizza format, and the Grand Papa in test, along with sequential improvement planned for the back half to deliver on our commitment of flat to plus 2% in North America.

Q: The incremental investment in marketing represents a pretty meaningful increase in annual spend. How are you thinking about lapping that investment next year? And then can you elaborate on the changes you expect to make to the supply chain to reduce cost?

A: We're using the learnings from this year's marketing investments to be more effective and efficient in 2026, figuring out how to allocate national marketing fund dollars better. On the supply chain, we're aiming for over $50 million in total cost savings, with ~40% expected in 2026. We'll optimize fixed cost utilization, work on transportation logistics, and procurement savings from contract renewals without sacrificing product quality.

Q: Just wanted to circle back to international. Wondering if you could update us on trends in the U.K., whether those comps were out or underperforming the international trend?

A: The U.K. was a low single-digit comp in 2Q but accelerated meaningfully in July and is outperforming the total international business. Consumer satisfaction scores are way up, total time to deliver times are way down, and there's strong growth with opportunity for further comp upside in the medium term.