Why Is Papa John's (PZZA) Down 10.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Papa John's (PZZA). Shares have lost about 10.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Papa John's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Papa John's (PZZA) Q4 Earnings & Revenues Beat Estimates

Papa John’s International, Inc. reported strong fourth-quarter 2019 results, with earnings and revenues beating the Zacks Consensus Estimate.

Adjusted earnings of 37 cents per share beat the Zacks Consensus Estimate of 32 cents by 15.6%. The bottom line also surged 105.6% from the year-ago reported figure.

Revenues totaled $417.5 million, which outpaced the Zacks Consensus Estimate of $406.5 million. The top line also increased 5% on a year-over-year basis. The upside can be attributed to positive comparable sales achieved by the company in North America, higher commissary revenues related to increased commodity cost and rise in marketing fund revenues, primarily due to an increase in the PJMF contribution rate and greater online revenues.

During the fourth quarter, Papa John’s opened 19 restaurants in North America and exited 27, with the global restaurant count being 5,395. Currently, the company is operating in 49 countries and territories worldwide.

Global Restaurant Sales & Comps

In the fourth quarter, global restaurant sales were up 4.4% against the year-ago quarter’s fall of 13%. Excluding foreign currency impact, global restaurant sales rose 4.7% against the year-ago quarter’s decline of 11.7%.

Domestic company-owned restaurant comps were up 4.1% in the reported quarter versus a 10.2% decline in the year-ago quarter.

At North America franchised restaurants, comps rose 3.3% against a decline of 7.4% in fourth-quarter 2018. Also, comps at system-wide North America restaurants were up 3.5% against 8.1% decline recorded in the year-ago quarter. The company reported its second straight quarter of same-store sales growth in North America.

Comps at system-wide international restaurants were up 2.4% against a decline of 2.6% in the prior-year quarter.

Operating Highlights

Total operating loss was $0.13 million in the fourth quarter compared with loss of $7.3 million in the year-ago quarter. Total costs and expenses amounted to $420.5 million, up 3.4% from fourth-quarter 2018 levels.

Balance Sheet

As of Dec 29, 2019, cash and cash equivalents totaled $27.9 million compared with $33.3 million in the corresponding period of 2018. Long-term debt was $347.3 million at the end of fourth-quarter 2019 compared with $601.1 million at 2018-end.

Inventories at the end of the reported quarter increased to $27.5 million from $27.2 million on Dec 30, 2018. Free cash flow at the end of fourth-quarter 2019 summed $14 million compared with $50.4 million at 2018-end.

The company paid out cash dividends worth $10.6 million in fourth-quarter 2019 and declared first-quarter 2020 cash dividend of approximately $10.7 million.

2019 Highlights

In 2019, total revenues amounted to $1,619.2 million compared with $1,662.9 million in 2018.
Adjusted earnings per share for the year ended Dec 29, 2019 were $1.17 compared with $1.37 on Dec 30, 2018.

In 2019, system-wide North America comparable sales declined 2.2% compared with 7.3% fall a year ago.

2020 Outlook

Papa John's expects adjusted EPS in the range of $1.35-$1.55. North America comps are now expected in the range of 2.5-5%. International comps are anticipated between 1.5% and 4%. Capital expenditures for 2020 are still expected in the range of $40-$50 million. Additionally, net global unit growth is anticipated in the band of 100-140 units.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -7.79% due to these changes.

VGM Scores

Currently, Papa John's has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Papa John's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.