What: Shares of pizza chain Papa John's International (PZZA 1.87%) were down roughly 14.5% as of 2 p.m. Wednesday after its quarterly results and outlook disappointed Wall Street.
So what: Papa John's shares have soared in 2015 on surging earnings, but uninspiring Q3 results -- adjusted EPS of $0.45 only met expectations while revenue declined 0.3% -- coupled with downbeat full-year guidance are forcing investors to quickly recalibrate their growth estimates. In fact, global restaurant sales increased just 3.9% in the quarter compared to growth of 10.2% in the year-ago period, suggesting that the currency and competitive headwinds facing Papa John's are much stronger than Mr. Market had anticipated.
Now what: Management now expects full-year 2015 EPS to be at the lower end of its previously expected range of $2.04-$2.10, versus the average analyst estimate of about $2.08. "Our unwavering focus on quality, combined with our strong digital channels, continues to drive the Papa John's brand forward," said founder, Chairman and CEO John Schnatter. When you couple Papa John's stiffening competitive environment with its still-lofty 30-plus P/E, however, I'd hold out for an even wider margin of safety before buying into that bullishness.
