Financing

Papa John’s sales accelerate even as more normalcy returns

The pizza chain's sales improved in September as consumers order more stuffed crust pizzas and Papadias while watching sports and entertainment.
Papa John's third quarter sales
Photograph: Shutterstock

The football season and more entertainment options were good for Papa John’s last quarter, helping the chain overcome a more competitive environment as more restaurants open for customers.

Same-store sales in the third quarter ended Sept. 26 rose 6.9% in North America. On a two-year basis, the key metric is up about 32%. The company credited its menu innovation, notably its Epic Stuffed Crust pizzas and its Papadias sandwiches.

Those sales accelerated in September, even as customers returned to more traditional restaurants. CEO Rob Lynch told analysts on Thursday that people watched more sports and entertainment in the month. That was a “positive indication of our ability to retain customers as business slowly returns to prepandemic norms,” he said.

Those sales appear to be accelerating further. The company said that its same-store sales are expected to be in the “high single digits to low double digits” in the last three months of 2021.

Much of these sales are coming from new customers and not frequency. Lynch said it’s a “myth” that people are eating pizzas four times a week.

“A lot of our transaction growth has come from new customers over the last two years,” Lynch said. “It hasn’t come from frequency.”

That helped improve profits. Net income was $29.3 million in the quarter or 79 cents per share, nearly double from the same period last year, when net income was $15.7 million or 35 cents.

Papa John’s sales strength came even though the company generally avoided the price increases many other chains have relied on in recent months.

Lynch said the company’s focus on more expensive premium items, along with add-on items like the Papadias sandwiches, have allowed the company to increase average check without raising menu prices.

The company also said that restaurant margins have improved year-over-year even as the chain invested more in labor and faced some “cost pressures” in the period. Lynch said productivity measures and more operating leverage have helped with margins.

One thing helping Papa John’s with its labor issue: Third-party delivery. The company has been using aggregators despite its own delivery fleet for more than two years. Lynch said Thursday that decision has been beneficial, driving more profitable sales in the period.

“Aggregators also helped us navigate labor challenges, providing supplemental delivery drivers especially during peak times,” he said. “We continue to believe in making products available wherever customers want to access them.”

Papa John’s opened 94 new units globally in the quarter but closed 48—part of a decision to close some locations that were temporarily closed due to the pandemic. The chain now operates more than 3,300 locations in North America and nearly 5,600 globally.

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