PZZA Q1 Earnings Call: Papa John's Focuses on Product Innovation and Margin Recovery

Fast-food pizza chain Papa John’s (NASDAQ:PZZA) beat Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $518.3 million. Its non-GAAP EPS of $0.36 per share was 4.1% above analysts’ consensus estimates.

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StockStory’s Take

Papa John’s latest quarter reflected the company’s ongoing efforts to strengthen its value proposition and customer experience amid a competitive quick-service pizza landscape. CEO Todd Penegor pointed to sequential improvements in both sales and transaction share, crediting the company’s barbell menu strategy and targeted marketing for a 4% increase in pizza orders. Management emphasized the impact of simplifying the menu, removing underperforming items, and investing in oven calibration to improve product consistency. While Penegor acknowledged ongoing challenges from macroeconomic pressures and competitive promotions, he highlighted early signs of progress in guest engagement, noting, “We continue to drive more traffic into our restaurants, as you’ve seen with the sequential improvements in same-restaurant sales comps.”

Looking ahead, Papa John’s is prioritizing technology partnerships, product innovation, and operational efficiencies to drive growth in the remainder of the year. Management expects benefits from its new Google Cloud partnership, which aims to enhance the digital ordering experience and delivery logistics with artificial intelligence. Penegor stated, “We look forward to introducing exciting new offerings across the barbell beginning with the second quarter, including new uses for our popular dipping sauces and even a new pizza format.” CFO Ravi Thanawala reiterated plans to invest further in marketing and loyalty programs, while also targeting lower supply chain costs to improve franchisee profitability. The company’s outlook remains cautious, with management describing 2025 and 2026 as investment periods focused on long-term margin recovery and system-wide sales growth.

Key Insights from Management’s Remarks

Papa John’s management identified several operational initiatives and business trends impacting Q1 performance and future strategy.

• Barbell menu strategy impact: Management attributed improved transaction share to the combination of premium offerings like Epic Stuffed Crust and value items such as $6.99 Papa Pairings. This approach helped drive a 4% increase in pizza orders compared to last year.
• Menu simplification and innovation: The company continued to streamline its menu by removing underperforming items, while introducing new formats like the star-shaped pizza in international markets. Penegor highlighted ongoing oven calibration efforts as foundational for future product development.
• Loyalty program changes: Lowering the redemption threshold for Papa Rewards led to a significant increase in membership and faster repeat orders. The loyalty program added approximately 1 million members in Q1, with 50% of loyalty customers redeeming rewards.
• Technology and digital investment: Papa John’s announced a long-term partnership with Google Cloud to improve the digital ordering journey and delivery experience. Management mentioned AI-powered personalization and route optimization as key benefits expected from this collaboration.
• Operational cost pressures: CFO Ravi Thanawala noted that higher food costs, labor inflation, and increased marketing spend weighed on margins for company-owned restaurants. Management is pursuing supply chain optimization to offset these pressures and improve franchisee economics.

Drivers of Future Performance

Papa John’s forward outlook is shaped by continued investment in marketing, technology, and product innovation, with an emphasis on navigating cost headwinds and competitive dynamics.

• Accelerated product pipeline: Management plans to launch new pizza formats, crust flavors, and dipping options in the second half of the year, aiming to attract new customers and increase transaction frequency. Penegor indicated that consumer-led, insight-driven innovation will be central to upcoming campaigns.
• Supply chain and cost optimization: The company is actively evaluating ways to reduce supply chain expenses without sacrificing ingredient quality. Thanawala stated that meaningful savings could be realized by 2026, with a goal to enhance the profitability of both company-owned and franchised locations.
• Expanded digital and loyalty engagement: Papa John’s aims to further leverage its digital platforms, with over 70% of sales already through owned channels. The Google Cloud partnership is expected to drive higher app conversion rates and repeat purchases, while ongoing loyalty enhancements seek to deepen customer retention.

Catalysts in Upcoming Quarters

Over the next few quarters, the StockStory team will be closely monitoring (1) the rollout and reception of new pizza formats and menu innovations, (2) tangible improvements in digital ordering and delivery experiences tied to the Google Cloud partnership, and (3) progress on supply chain cost reduction initiatives. Additional focus will be placed on whether loyalty program enhancements continue to drive higher repeat transactions and if international markets sustain their current momentum.

Papa John's currently trades at a forward P/E ratio of 24.6×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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