Papa John's International Q2 Earnings Call Highlights

Key Points

• Weak North American performance prompted a lower outlook: Second-quarter North American comparable sales fell 8.3%, while global system-wide sales declined 5% in constant currency. Papa John’s now expects 2026 global sales to decrease 2%–4%, North American comparable sales to fall 6%–8%, and adjusted EBITDA to reach $180 million–$190 million.
• The company is increasing investment while suspending its dividend: Papa John’s plans to spend approximately $35 million on supplemental marketing and franchisee subsidies, including an additional $18 million in the second half. The quarterly dividend will be suspended beginning in August to preserve flexibility for its transformation and cost-saving initiatives.
• Turnaround efforts include digital personalization and portfolio changes: Loyalty members and AI-assisted ordering are showing stronger engagement, while Papa John’s has closed 101 of 300 targeted North American restaurants and expects 200–250 closures in 2026. International comparable sales remained positive, rising 1.5% in the quarter.

Papa John's International NASDAQ: PZZA said its second-quarter results reflected continued pressure in North America, prompting the company to lower its 2026 outlook, add transformation investments and suspend its quarterly dividend beginning in August.

President and Chief Executive Officer Todd Penegor said the company had reviewed strategic alternatives over the past 18 months, including a potential sale, amid media speculation. He said the review concluded that the most actionable opportunity for shareholder value creation is executing Papa John's transformation plan, though the board remains open to alternatives that provide certainty and serve shareholders' interests.

“It’s clear that our transformation is taking longer than expected,” Penegor said. “We know that we must execute better and move faster.”

Second-Quarter Performance

Global system-wide restaurant sales totaled $1.2 billion in the second quarter, down 5% in constant currency from a year earlier. Consolidated revenue fell 9% to $482 million, as lower North American company-owned restaurant, commissary, franchising, advertising fund and digital-fee revenue outweighed a $1 million increase in international revenue.

North American comparable sales declined 8.3%, driven primarily by lower order volume and pressure on customer acquisition. Penegor said the company’s average ticket was flat year over year as a 6% increase in pies per order was offset by a shift toward smaller, non-specialty pizzas. Overall pizza sales declined by the mid-single digits, while lower sides and dessert sales also pressured results.

International comparable sales increased 1.5%, extending the segment’s streak to seven consecutive quarters of positive comparable sales. The United Kingdom posted 10% comparable-sales growth, while Korea rose 9%. Comparable sales in the Middle East were effectively flat as regional conflict weighed on performance.

Consolidated adjusted EBITDA was $53 million, up slightly from the prior year despite lower sales. Interim Chief Financial Officer Chris Collins said cost management, lower supplemental advertising spending, supply-chain improvements and stronger international performance helped offset lower North American sales flow-through and softer commissary volumes.

• North America commissary adjusted EBITDA margin improved about 140 basis points to 8.7%.
• Domestic company-owned restaurant EBITDA was $15.6 million, with an 11.2% margin, down 130 basis points due to lower transactions and higher food costs.
• Total available liquidity was approximately $500 million at quarter-end, while the covenant leverage ratio was 3.3 times.
• First-half free cash flow was $9 million, compared with $37 million a year earlier.

Updated 2026 Outlook and Investment Plans

Papa John’s lowered its full-year outlook, citing year-to-date results and a challenging consumer and promotional environment expected to continue through the remainder of 2026. The company now expects global system-wide sales to decline 2% to 4% for the year and consolidated adjusted EBITDA of $180 million to $190 million.

North American comparable sales are now expected to decline 6% to 8%, while international comparable sales are projected to increase 1% to 3%. Collins said July North American comparable sales tracked in line with the second quarter on a year-over-year basis, though they decelerated on a three-year stacked basis. The company expects sequential improvement in North American comparable sales during the second half, supported by local marketing co-ops, aggregator marketing, customer relationship management initiatives and easier year-ago comparisons.

The EBITDA guidance includes approximately $35 million in supplemental marketing and franchisee subsidies, including an incremental $18 million for the second half. The company expects elevated investment to continue into 2027. Papa John’s also expects $13 million in general and administrative savings during 2026, excluding marketing, and said it has visibility to at least $30 million in cumulative cost savings by the end of 2027.

To provide more flexibility for these investments, the board intends to suspend the quarterly dividend beginning in August. Penegor said the company plans to revisit the most effective ways to return capital to shareholders, including dividends and buybacks, as transformation benefits are realized.

North American Turnaround Priorities

Penegor said the company is focusing on targeted value offers rather than sustained national discounting. He said aggressive discounting across quick-service restaurants, particularly pizza competitors, contributed to North American pressure. Papa John’s plans to use short, targeted value promotions alongside premium menu items and personalized offers.

The company has begun the first phase of an AI-powered personalization engine within its CRM platform, with a broader multichannel rollout planned for the fourth quarter. Papa John’s also cited early results from Lou AI, its Google Cloud-supported pizza assistant available in its app. According to the company, customers using Lou AI converted at an 18% higher rate and completed orders about three minutes faster than customers placing non-AI-assisted orders.

Papa Rewards surpassed 42 million members during the quarter. Loyalty customers outperformed non-loyalty customers by 12 percentage points in comparable sales, generated tickets 6% higher per order and ordered about twice as often, according to Penegor.

The company is also expanding local advertising co-ops. About 50% of the U.S. system is currently supported by local co-ops, and markets with co-ops and meaningful supplemental local spending are outperforming other markets by 200 basis points, Penegor said. Papa John’s aims to reinstate co-ops for a majority of the system by year-end.

Supply Chain, Restaurant Closures and Leadership Changes

Papa John’s captured approximately $7 million in system-wide supply-chain benefits during the second quarter and $16 million through the first half. The company remains on track to achieve at least $25 million in supply-chain savings this year and targets at least $60 million in North American system-wide supply-chain productivity opportunities by 2028.

The company has closed 101 of 300 North American restaurants identified under its strategic closure program. Those locations generally did not meet brand standards, lacked a clear path to sustained improvement, had annual unit volumes below $600,000 and predominantly generated negative EBITDA. Papa John’s now expects 200 to 250 North American closures in 2026, as the portfolio optimization effort has progressed faster than expected.

Meanwhile, the company expects 40 to 50 gross North American openings this year, after opening 17 through the second quarter. International gross openings are still expected to range from 180 to 220, with closures representing 5% to 6% of the international system.

Papa John’s also announced leadership changes. Chris Lyn-Sue, formerly senior vice president and general manager of international, was named global chief marketing officer, succeeding Jenna Bromberg, who is departing. Chris Phylactou was named senior vice president of international, and John Matter was appointed to the newly created role of global chief development officer. Collins is serving as interim CFO while the company conducts a search for its next finance chief.

About Papa John's International (NASDAQ:PZZA)

Papa John's International, Inc is a leading American pizza restaurant chain known for its focus on high-quality ingredients and consistent product offerings. Founded in 1984 by John Schnatter in Jeffersonville, Indiana, the company has grown to operate thousands of restaurants across the United States and in more than 40 international markets. Papa John's restaurants are primarily franchised, supported by a network of corporate-owned outlets that together drive brand standards, operational guidance and marketing efforts.

The core menu at Papa John's centers on a variety of hand-tossed and pan pizzas made with a signature stone-baked crust and topped with real cheese, vine-ripened tomato sauce and premium meats and vegetables.

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