Papa John's Earnings Drop 50%, Growth Goes On

Though revenues for the pizza chain increased 6.1% to $256.3 million from the second quarter 2006, the company also saw a domestic system-wide comparable sales decrease of 1.1% for the recent quarter. "It's been an interesting three months," said Nigel Travis, president and CEO, during the call. "Consumer confidence and spending have been under attack on several fronts. Commodities have increased in nearly every category. It all sounds like a perfect storm, but we've had a very strong quarter, and we're not satisfied with the negative comparable sales results."

Even though sales were soft, the company still opened a net 46 stores worldwide for the quarter, bringing the company's number of stores to 3,090 restaurants in the US and 27 countries. "We're trending in the right direction, we're comfortable we can sustain this growth over time," Travis said. "In the future, the new unit openings will tend to be weighted more toward international." He said the company is looking to open new stores in the United Kingdom, El Salvador, Eastern Europe, Mexico City and China, with a total international development pipeline of 800 restaurants by 2016.

The company also did some buying in the second quarter, completing the acquisition of 13 franchises in Georgia for $7.4 million, and on July 2 buying 31 franchises in Missouri and Kansas for $10.2 million. Then on July 30, the company bought 11 franchises in the Washington D.C. area in a joint venture with Colonel's Limited LLC for $6.1 million. A few things set Papa John's apart from the other major chains, Travis said. For one thing, the company uses fresh dough for their pizzas, as opposed to frozen. Also, company has grown its online ordering system exponentially since they were the first to use the technology in 2001. "Since then, we expect to pass one billion online orders in 2008," Travis said. Finally, the company has opened 23 non-traditional facilities at Live Nation concert venues, a concept that mirrors the firm's venture with Six Flags amusement parks.

Travis said the company is excited about the future. "We feel these programs can help us overcome the cost pressures in the industry," he said.