Pizza Restaurant Chain Papa John's Scales Back 2023 Expansion Strategy Mirroring Geopolitical Trends: Here's Details

Papa John's International, Inc PZZA reported a third-quarter FY23 revenue increase of 2.4% Y/Y to $522.8 million, missing the consensus of $530.50 million.

Excluding the impact of purchasing 118 International restaurants in Q2 and Q3, total revenues increased $4.7 million, or 0.9%, compared with the prior period.

Adjusted EPS was $0.53, down from $0.54 in 3Q22, missing the consensus of $0.57.

North America comparable sales were up 3%, while International comparable sales were down 1%.

Papa John's opened 45 net units in the quarter, driven by International growth. As of September 24, 2023, there were 5,825 Papa John's restaurants operating in 48 countries and territories.

Operating income of $32 million increased 64% Y/Y. Adjusted operating income for the quarter increased slightly to $33.64 million from $33.59 million in the prior year.

"Despite this strong sales growth in North America, our adjusted operating income was just in line with the third quarter last year due to the dilutive impact of our recently acquired restaurants in the UK," commented Rob Lynch, president and CEO.

"Importantly, our North America company-owned restaurant margins improved approximately 130 basis points and revenues from our North America franchise segment grew 4%," continued Lynch.

"As we evolve our commissary business model, we will be increasing our fixed operating margin by 100 basis points in each of the next four years, from 4% in 2023 to 8% in 2027."

PZZA's net cash provided by operating activities for the nine months ended September 30, 2023, totaled $126.94 million, compared to $76.55 million a year ago. The company held $37.49 million in cash and equivalents as of the quarter end.

Outlook: PZZA stated that North America outlook remains solid but lowering 2023 development expectations to 245-260 net new units (prior view 270-310) due to the dynamic geopolitical environment.

Price Action: PZZA shares are trading lower by 4.17% at $62.55 on the last check Thursday.