PZZA

Strategic Review Outcome

• After an 18-month comprehensive strategic review that explored a potential sale of the company, the board and management confirmed that executing the existing transformation plan is the highest-value actionable opportunity to maximize shareholder value; the board remains open to other actionable alternatives that deliver sufficient value and certainty.
• Multiple leadership changes were announced to accelerate transformation: Chris Linsue was named Global CMO, Chris Falactu became Senior Vice President of International, and John Motter was appointed the new Global Chief Development Officer.

Core Operational & Brand Progress

• Papa Rewards loyalty program surpassed 42 million members; loyalty customers generate 6% higher average tickets and order twice as frequently as non-loyalty customers, and loyalty comparable sales outperformed non-loyalty by 12 percentage points in Q2.
• Multi-pizza orders increased 6% year-over-year, leaving overall average system ticket flat; new sandwich sales almost fully offset the removal of papadillas and opened a new non-pizza food category without disrupting restaurant operations.
• Supply chain optimization delivered $7 million in system-wide savings in Q2, bringing cumulative 2026 H1 savings to $16 million (43 basis points of restaurant margin benefit); the company is on track to deliver at least $25 million in full-year 2026 savings, targeting $60 million in total system-wide supply chain productivity improvements (160 basis points of four-wall EBITDA improvement) by 2028.
• 101 of the planned 300 strategic North American restaurant closures have been completed, focused on underperforming locations that do not meet brand standards, have AUV below $600,000, and generate negative EBITDA; early results show strong sales transfer to neighboring locations.

Key Transformation Initiatives

• Value Proposition: The company will deploy a targeted barbell value strategy (avoiding sustained extreme national discounting) with short disruptive value windows for top fan-favorite products. The first phase of an AI-powered personalized CRM offer engine is rolling out, with full deployment planned for Q4 2026.
• Operational Excellence: There is a 400 basis point comparable sales and margin gap between the highest and lowest quintile of restaurants by operational score; the company is adding dedicated coaching, performance-based financial incentives, and closer regional in-market support to lift performance of underperforming locations. Core product refinements are underway to improve dough consistency, bake quality, toppings, and overall product presentation.
• Marketing & Customer Acquisition: 50% of U.S. restaurants are now supported by local advertising co-ops, and co-op-supported markets outperform non-co-op markets by 200 basis points; the company aims to bring most of the system online with co-ops by end of 2026, and is adding a dedicated field marketing team to align national and local marketing spend. The company is rebalancing its media mix to increase mass market reach and share of voice, and completed a high-performing global Toy Story 5 Pizza Planet pop-up activation that generated 4 billion earned media impressions.
• Technology & Digital: Lou AI, the Google Cloud-powered AI ordering assistant on the Papa John's app, delivers an 18% higher conversion rate and 3-minute faster order completion versus non-AI orders. POS platform modernization is on track, with full deployment across all U.S. locations by end of 2027. Over 85% of sales are currently digital, including aggregator orders.
• Capital Allocation: The quarterly dividend is suspended starting August 2026 to preserve capital for transformation investments; the company will revisit capital return to shareholders once transformation benefits are realized. The company maintains a strong balance sheet with $500 million in total available liquidity as of Q2 end.

• Global system-wide sales are now expected to decline 2% to 4% year-over-year in 2026, revised from prior guidance.
• North America comparable sales are projected to decline 6% to 8% year-over-year in 2026; sequential comp sales improvement is expected in H2 2026, supported by marketing initiatives, the new CRM program, and easier year-over-year comparisons.
• International comparable sales are expected to grow 1% to 3% year-over-year in 2026, adjusted for ongoing regional geopolitical pressures.
• Consolidated adjusted EBITDA guidance is set at $180 million to $190 million for 2026, which includes an incremental $18 million in transformation investments for the back half of the year; total 2026 supplemental marketing and franchisee incentive investment will be $35 million, and elevated investment levels are expected to continue into 2027.
• North America is projected to have 40 to 50 gross new restaurant openings in 2026, with total 2026 North American closures now expected to reach 200 to 250 (faster progress than originally planned on portfolio optimization). International is expected to deliver 180 to 220 gross new openings in 2026, with closures equal to 5% to 6% of the international system.
• Capital expenditures are expected to be between $70 million and $80 million for 2026, the GAAP effective tax rate is projected to be 30% to 34%, and diluted shares outstanding are expected to be approximately 33 million.
• The company expects to complete the re-franchising of 28 Orlando, Florida corporate restaurants in Q3 2026, which will reduce 2026 consolidated revenue by approximately $4 million and increase adjusted EBITDA by approximately $500,000, already factored into guidance. The company remains on track to reduce corporate ownership to mid-single digits of the North America system.

North America: Comparable sales declined 8.3% year-over-year, driven by reduced order volume and weaker customer acquisition. Domestic company-owned restaurant revenues decreased by $37 million, impacted by 2025 Q4 re-franchising of 85 corporate locations and lower comparable sales. North America commissary segment revenues decreased $12 million (lower volumes partially offset by higher pricing), with adjusted EBITDA margins of 8.7% (up 140 basis points from supply chain cost savings and higher pricing). North America franchising segment revenues decreased $3 million due to lower franchised comparable sales. Domestic company-owned restaurants delivered four-wall EBITDA of $15.6 million and four-wall margins of 11.2% (down 130 basis points from lower transactions and higher food costs, partially offset by transformation initiatives).

International: Comparable sales grew 1.5% year-over-year, marking the seventh consecutive quarter of positive comparable sales growth. Total international revenue increased by $1 million year-over-year. Performance varied by market: the UK delivered 10% comparable sales growth, Korea delivered 9% comparable sales growth, while Middle East comparable sales were flat pressured by regional conflict. International delivered improved performance that helped offset broader North American weakness.

• Persistently softer consumer demand and a highly promotional, competitive QSR pizza landscape have pressured North American sales performance, with the company noting it did not meet consumer price expectations as aggressively as competitors in Q2 2026.
• Geopolitical conflict in the Middle East is negatively impacting comparable sales performance in the region, creating uncertainty for international results.
• The company's transformation has progressed slower than originally anticipated, with innovation failing to drive the level of new customer trial management initially expected, and full national co-op rollout taking longer than planned.
• Operational inconsistency across the restaurant portfolio creates a material performance gap between top and bottom quintile locations, weighing on overall brand perception and system results.
• Increased competition from non-traditional pizza providers (convenience stores, gas stations) has expanded the competitive landscape beyond traditional QSR pizza players, pressuring market share.
• Full deployment of key transformation initiatives (including POS platform modernization) extends into 2027, delaying expected performance benefits.

Q: Where has the turnaround strategy had the most intended impact, and where is performance most lagging expectations?

A: Management noted that foundational work rebuilding the technology platform, reducing ordering friction, building AI and CRM capabilities, and re-establishing the innovation pipeline has been successfully completed, with progress on raising overall operational standards. The biggest gap has been slow progress on full re-establishment of local advertising co-ops across the entire system. Management also acknowledged the company previously prioritized margin protection over meeting consumer price expectations in the highly promotional environment, and has adjusted its strategy to add targeted, pulsed discounting leveraged through AI-powered CRM personalization.

Q: Given the lack of expected improvement from new initiatives, are there material category-wide headwinds impacting performance, and what was the category trend in Q2 versus Papa John's 8% comp decline?

A: Management confirmed that aggressive industry-wide discounting across QSR, and particularly across pizza QSR, has created strong category headwinds. The overall QSR pizza category was down slightly in Q2, but competition has expanded significantly to include non-traditional pizza providers like convenience stores that now compete for pizza customers. Management acknowledged the company protected margin more than it should have in Q2 and failed to match competitor discounting, which contributed to its underperformance versus the category, and has adjusted investment and pricing strategy to address this in H2.

Q: How does the current level of franchisee profitability look, and do the new incentive and investment actions signal limited room for franchisee profit improvement over the next few years?

A: Management explained that restaurant labor costs are already well managed, so incremental transactions flow through to very high variable profit, meaning the biggest opportunity for profitability improvement is driving top-line transaction growth. The new incentives are designed to lift operational performance at underperforming locations, re-establish coordinated local and national marketing through co-ops, and eliminate operational inconsistency that hurts brand perception, all of which will support long-term profitability improvement. Management noted the company is co-investing to drive these improvements, with franchisees also partnering to invest at the local level.

Q: How have recent product innovations performed relative to plan, given they have not moved the needle on overall sales results?

A: Management acknowledged that in the current cautious consumer environment, customers prioritize established favorite products over new innovations, making it harder for new products to break through and drive new customer trial. Launches like pan pizza resonated with existing customers but did not bring in as many new consumers as expected, and the new Toy Story activation drove strong brand engagement but also primarily appealed to existing customers. New sandwiches are viewed as a long-term total addressable market expansion play rather than an immediate growth driver. Management is adjusting plans to promote innovation more heavily through third-party aggregator channels to drive new trial, balancing innovation investment with more promotion of core fan-favorite products.