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Papa John’s Earnings: International Strength Offsets Margin Pressure in Q2

  • Writer: Hardik Shah
    Hardik Shah
  • Aug 7
  • 3 min read
Digital illustration of a pepperoni pizza with cheddar crust, surrounded by icons for mobile, storefront, lightbulb, gear, and an upward-trending bar chart on a world map background.

TLDR


• Revenue Strength:+4% YoY revenue growth to $529M, led by higher commissary sales and strong international comps.

• Margin Trends:Adjusted EBITDA down 11% to $52.6M due to increased marketing, loyalty investments, and input costs.

• Forward Outlook:FY25 guidance reiterated; international comps raised to 2–4% on stronger global execution.


Business Overview


Papa John’s International, Inc. (Nasdaq: PZZA) is the world’s third-largest pizza delivery company, with ~6,000 restaurants across 50 countries and territories. The brand emphasizes high-quality ingredients, a differentiated crust, and a digital-forward customer experience. Papa John’s operates a hybrid model of Company-owned and franchised restaurants, with a growing international footprint and strong aggregator platform partnerships.


Papa John's Earnings Q2'25


Revenue:Q2 revenue rose 4% year-over-year to $529.2 million, driven by:

  • 📦 +$20M in Commissary revenues (higher volumes and pricing)

  • 💻 +$2.7M in Other revenues (digital fees)

  • 🌍 +$2.2M in Advertising revenues (higher international contributions)

  • 📈 +$1.8M in Franchise royalties and fees

Offset by:

  • 🚫 -$5.7M in Company-owned restaurant sales, largely from refranchising in the U.K.


System-wide Sales:

  • 🌎 Global: $1.26B (+4% YoY)

  • 🇺🇸 North America: $928M (+3%)

  • 🌐 International: $328M (+7%)


Profitability:

  • Net income: $9.7M (↓$2.9M YoY)

  • Adjusted EBITDA: $52.6M (↓$6.3M YoY, or -11%)

  • Diluted EPS: $0.28 (↓$0.09 YoY)

  • Adjusted EPS: $0.41 (↓$0.20 YoY)


Key Drivers:

  • Higher G&A from loyalty/marketing investments (+$9M)

  • Increased incentive compensation (+$3.7M)

  • Higher labor and food costs in Company-owned stores

  • Decline partially offset by better digital performance and average ticket growth


Forward Guidance


  • 📊 System-wide sales growth: 2–5%

  • 🇺🇸 North America comps: flat to +2%

  • 🌍 International comps: raised from flat–2% ➝ 2–4%

  • 🏗️ Development:

    • NA: 85–115 gross openings

    • International: 180–200 gross openings

  • 💰 Adj. EBITDA: $200M–$220M

  • 🛠️ CapEx: $75M–$85M

  • 💸 Interest expense: $40M–$45M

  • 📉 Tax rate: 28%–32%


Risks & Opportunities:

  • Inflation easing in H2 expected to help margins

  • Refranchising and international optimization (e.g., UK, China) reduce costs

  • Competitive pressures remain in value-focused segments


Operational Performance

  • 45 net new global restaurant openings (offset by 75 closures, largely international)

  • 220bps margin decline at domestic Company-owned stores driven by:

    • 210bps: labor, aggregator fees, and ad spend

    • 140bps: food cost inflation

    • +190bps offset from average ticket growth

  • Enhanced oven calibration rolled out to improve product consistency

  • 70% of sales via digital channels, supported by CRM, AI, and Google Cloud


Market Insights


  • Premium innovation (Cheddar Crust, Croissant Pizza in Dubai) fueling differentiation

  • Shift to barbell pricing strategy balancing value and margin-rich items

  • Value messaging (e.g., $6.99 Papa Pairings) resonating with price-sensitive consumers

  • Aggregator sales up high-teens YoY; Papa John's remains a leader in QSR aggregator performance


Consumer Behavior & Sentiment


  • Loyalty program grew by 2.7M new accounts since Nov relaunch

  • Increased redemption driving order frequency despite a 100bps ticket decline

  • Softer start to Q3 carryout business reflects cautious lower-income consumers

  • Promotions (e.g., Shaq-a-Roni, new dipping sauces) boosted average pies/order +6%

“Customers want high-quality pizza with real ingredients and we will lean into our differentiation to win consumers and deliver profitable growth.”— Todd Penegor, CEO

Strategic Initiatives


  • Product pipeline expanded: Garlic 5-Cheese Pizza, Grand Papa test

  • Marketing: “Meet the Makers” campaign strengthened brand perception

  • AI & tech: Beta-testing new omnichannel app, personalized CRM, and voice-AI

  • Supply chain optimization aims to unlock $50M+ in savings by 2028, with 40% realized by 2026

“We’ve identified an opportunity to achieve more than $50 million in total cost savings... while maintaining the same high quality, better ingredients in our restaurants.”— Todd Penegor, CEO

Capital Allocation


  • Q2 dividend: $0.46 per share ($15.3M total); Q3 dividend declared at same rate

  • Refranchising: Agreement to divest 85 Company-owned stores to fund strategic initiatives and reduce leverage

  • Buybacks: None disclosed this quarter

  • Liquidity: $500M available (cash + undrawn credit facilities); net leverage at 3.4x

“This transaction is expected to have a negligible impact on net income... and unlocks future growth opportunities.”— Ravi Thanawala, CFO


The Bottom Line


Papa John’s is stabilizing under new leadership with early wins in core pizza growth, innovation, and digital engagement. However, Q2 margin pressure signals the investment-heavy path ahead. Investors should watch:

  1. Execution of margin improvement through supply chain and tech efficiencies

  2. Loyalty-driven frequency and digital conversion in a soft consumer environment

  3. International comps momentum, especially post-China and UK restructuring



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