CEO says Papa John's pressured by economic factors
Papa John's International, Inc. (Nasdaq: PZZA) CEO Nigel Travis said lower consumer spending and higher commodity costs will continue to pressure the pizza delivery franchiser’s profits. Travis made the comments during a morning conference call.
“I couldn’t be more pleased with our fourth-quarter results, given the very challenging environment,” Travis said.
The chief executive said soaring wheat, cheese and dairy prices have pinched profits. Demand for ethanol has increased dairy costs while concerns about supply have boosted wheat costs.
After Tuesday’s closing, Papa John’s reported fourth-quarter net income of $7.7 million, or $0.27 per share, down from $19 million, or $0.59 per share, a year earlier.
Quarterly revenue increased 2% to $283.9 million, from $277.9 million during the prior-year period.
Excluding losses from the consolidation of a franchisee-owned cheese purchasing firm, Papa John’s earned $0.52 per share during the fourth quarter. The fourth quarter during 2006 benefited from an extra week of operations, making year-over-year comparisons difficult.
The Louisville, Ky.-based firm reaffirmed its 2008 profit outlook for earnings in the range of $1.68 to $1.76 per share, excluding one-time items and charges.
“Although it is still early in the year, I am pleased to report that our sales results thus far allow us to reaffirm this guidance,” Travis said. “However, there is no doubt that the category continues to be highly competitive. As we have predicted before, the tough times are forcing the smaller chains and independents to cut corners, reducing the quality of their product. The result of this should be some consolidation of the 65,000 pizza units in the U.S.A.”
Travis said the company will plan to shift more customers online to boost sales. He said the firm will provide franchisees with incentives to increase online revenue.
During 2008, Travis said Papa John’s plans to open its one-hundredth location in China and its five-hundredth unit internationally. The CEO said this growth is remarkable since the first international store opened in 1998.
“The international business is expected to reach breakeven or better by 2010,” Nigel said. “The environment globally is very tough for consumers. We are tackling these issues aggressively but our main focus has always been our quality positioning. However, to meet our goals, stringent control of all costs is a critical need.”
In midday trading, PZZA shares are up 11.32%, or $2.80, at $27.53. Over the last 52 weeks, shares have ranged from $20.57 to $34.86.
