Papa John's To See Sustainable International Net Unit Growth In 2025, Analyst Highlights 'Strategic Closures'

Piper Sandler analyst Brian Mullan reiterated a Neutral rating on Papa John’s International, Inc. PZZA, with a price target of $67.

The analyst notes that PZZA franchisees in North America have historically had to contribute 8% of sales toward marketing, of which 5% was allocated towards national marketing, and the remaining 3% went towards local marketing.

However, as a part of Back to Better 2.0, franchisees will now be required to contribute 6% to the National marketing fund, but at the same time, there will no longer be an obligation to participate in local marketing. 

Net-net management noted that franchisee P&Ls should receive a 200 bps benefit from these changes.

Management’s view is that much of the local marketing that currently takes place across the system is being done in non-effective ways, and that the additional 1% of sales that will be shifted over to national will more than offset any loss from the reduction of local, the analyst writes.

Also Read: Papa John’s International Has Got All The Drivers In Place For A Solid ’24, Says Analyst

On the franchisee side in the U.K., there have already been some consolidations that have taken place, and management mentioned seeing sales trends change with stores in the hands of better operators, the analyst notes.

Per the analyst, the company is doing a broader look across the international portfolio of stores and is taking the opportunity to execute upon strategic closures to better set the system up for sustainable international net unit growth in 2025e and beyond.

The analyst expects FY24E EPS of $2.68, with revenues of $2.211 billion.

Price Action: PZZA shares closed lower by 0.44% to $71.89 on Friday.

Photo by Don Sniegowski via Flickr