Papa John’s unconcerned as stocks drop after revenues miss the mark
Sometimes, increase in revenues simply is not enough to inspire investor confidence. Papa John’s Pizza is the latest company to prove the truth of this, as the company’s stocks plummeted 8% yesterday after the release of its disappointing 4Q earnings report.
While revenues were up 5.5% to $439.6 million, which was shy of the estimated $447 million, and the chain’s same-store sales in North America were only up 3.8%, as opposed to the anticipated rise of 5.9%.
Company founder and CEO “Papa” John Schnatter seemed unconcerned, and many analysts don’t blame him. The drop in stock price yesterday to $78.38 represents a hike of 44% from the price of $54.44 one year ago. Furthermore, Papa John’s recently re-launched its pan pizza, which Schnatter called the company’s “biggest product launch” to date, and that it has been "very well received by customers."
Some analysts attribute the weaker-than-expected fourth quarter on the fact that the National Football League saw its viewership drop 8% for during the 2016 season. Papa John’s is the official pizza sponsor of the NFL. The 16.5 million viewers this year marked the worst slump in the NFL has had in 10 years.
With that in mind, Papa John’s 5.5% revenue growth, while disappointing, could be regarded as a resounding success. Yum Brands, which owns Pizza Hut - Papa John’s primary competitor in the pizza business - reported a 2% drop in same-store sales for the same quarter. The other two chains owned by Yum Brands, Kentucky Fried Chicken and Taco Bell - saw a rise in store sales for the quarter, but only 3%, which is still less than that of Papa John.
The other indicator that the lower NFL viewership can be blamed for the quarter is Buffalo Wild Wings, which specializes in treats for football games. The restaurant and bar chain saw fourth quarter same-store sales fall by approximately 4%. While part of that can be attributed to the rising price of chicken wings - the chain’s specialty - the weak NFL viewership almost certainly played a role as well.
So, it is very possible that Papa John’s optimism is well-placed. Despite missing revenue expectations, the company outperformed most of its competitors, had a very strong showing for the year, and is riding saw its digital sales increase to over 55% of its overall sales.
In short, investors would do very well to keep an eye on Papa John’s in the coming months, and to not be discouraged by the 4Q report, or even this week’s drop in share prices.