Papa John's reports soft 2004, but sees stronger '05

March 16, 2005

LOUISVILLE, Ky. — Papa John's International announced it finished 2004 in positive territory, but company officials see plenty of room to grow top-line sales and unit counts for 2005.

For the full year ended Dec. 26, 2004, revenues were $942.4 million, an increase of 2.7 percent over 2003's $917.4 million. Net income was $23.2 million, down from $33.6 million in the prior year.

According to a regulatory filing, Papa John's lost $14.7 million on the consolidation of its franchisee-owned cheese purchasing arm, BIBP.

Full-year, system-wide domestic comparable-store sales were up 0.1 percent (composed of a 0.5 percent increase at company-owned units and flat results at franchise units). International comps rose 5 percent.

For the fourth quarter ended Dec. 26, revenues were $247.7 million, an increase of 3.6 percent over 2003's $239 million, and net income was $9.4 million compared to $8.2 million in 2003.

In a March 2 analyst conference call, the chain's officers pointed to sales improvements in January and February of 2005 (positive 2 percent comps ... see below) as a sign it's back on the growth track.

"We knew it would take time and money to recover from our past sins and right the ship," said founder and board chairman John Schnatter. "In the past 36 months, that's what we've done. ... We know there are no silver bullets, but we stuck to our guns and did it the hard way, but the right way."

Schnatter said the company has learned some tough but valuable lessons about pricing, i.e. knowing which customers will pay full price for its products, and which want bargains. Its own studies revealed that about 35 percent of pizza customers are low-price shoppers, he said. To address the value-conscious group, chief operations officer Bill Van Epps said the chain added a 12-inch medium pizza last year (which some Papa John's locations are selling for $5.99 with one topping.)

Nigel Travis, Papa John's incoming chief executive and president, predicted international growth will be a mainstay of his tenure, which officially begins in April. According to Van Epps, Papa John's has more than 700 units in the international development pipeline, including 435 in China, a market thus far dominated by Pizza Hut.

In 2005 the company's marketing efforts will focus more on local-store efforts than national exposure, officials said. Van Epps said the company isn't cutting back on its marketing investment, rather expenditures will be shifted to areas "where we're better able to compete with our national competitors."

Schnatter said Papa John's also is considering a one-number phone system.

2005 numbers

For the four weeks ended Feb. 20, comparable-store sales rose 2.1 percent (composed of a 1.1 percent increase at company-owned units and a 2.5 percent increase at franchised units). International sales for the period soared 11.5 percent on a constant U.S. dollar basis.

Papa John's has 2,829 units (569 company-owned and 2,260 franchised) operating in 49 states and 20 international markets. The company also franchises 118 Perfect Pizza restaurants in the UK.

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Topics: Papa John's

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