Update: Papa John's International Earnings

Aug.17.14 | About: Papa John's (PZZA)

Summary

Papa John’s International missed both EPS and revenue estimates in Q2.

Shares are down about 23% since my March article and I see the weakness as temporary.

The increase in cheese prices and the cost to roll out its new point-of-sale system impacted EPS more than I had expected.

Papa John's International (NASDAQ:PZZA) reported EPS of $0.40 in Q2. This was two cents below what the market was expecting. Revenues came in weaker than expected as well at $380.9 million. This was $990k below expectations, but still 9.1% higher than last year. The good news is that Papa John's continues to show strong same-store sales gains. In Q2, North America same-store sales rose 6% and international locations saw an 8.6% gain. Going forward, Papa John's expects to earn $1.64 to $1.72 in FY14. In my March article, I forecast Papa John's to earn $1.72, so I'm at the high end of guidance. The company raised its sales guidance for FY14 and now expects total revenue growth of 8% to 10%, North American same-store sales growth of 4% to 6%, and international same-store sales growth of 6% to 8%.

Earnings were impacted due to two factors. For one, the price of cheese is higher than it was last year. In Q2, Papa John's paid an average price of $2.13 a pound for cheese versus $1.78 per pound last year. And second, Papa John's is rolling out its new point-of-sale system called FOCUS. I discussed this rollout in my prior article on Papa John's. For the first six months of this year, the implementation of FOCUS has shaved two cents off EPS and will likely cost another six cents in the back half of this year. As I said in March, "this new system incorporates all of Papa John's technological improvements via online and mobile ordering and streamlines the process from order to order fulfillment to delivery. This will improve productivity and boost profitability."

At the end of June, there were 4,487 Papa John's restaurants in all 50 states and 37 international countries and territories. Over the next six years, Papa John's has 1,400 new restaurants in the development pipeline. Of these, 300 will open in North America and 1,100 internationally. This is a good move since same-store sales are growing faster outside of North America.

Disclosure: The author is long PZZA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.