Papa John's (PZZA) Q2 Revenue Up 4%

Papa John's International (PZZA 9.62%), the global pizza delivery and carryout chain, reported its Q2 FY2025 financial results on August 7, 2025. The quarter delivered better-than-expected revenue and adjusted (non-GAAP) earnings, driven by positive sales in North America and strong performance internationally. Revenue (GAAP) reached $529.2 million, beating the predicted $515.7 million, while non-GAAP EPS came in at $0.41, ahead of the $0.34 consensus. Still, Profitability fell from a year ago as cost pressures intensified, especially related to marketing, loyalty programs, and higher expenses at company-owned stores, as reflected in both GAAP and non-GAAP results. The overall quarter showed signs of growth but highlighted ongoing challenges in margins, particularly for company-operated restaurants.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Key Focus Areas

Papa John's operates nearly 6,000 restaurants in 50 countries and territories, making it one of the largest pizza delivery and takeout brands worldwide. The bulk of its stores are franchised, with a growing focus on digital ordering through its website and mobile app. The company's business model relies on selling both pizza and related products to consumers and providing ingredients to its franchisees through company-run supply chain centers.

Recently, Papa John's concentrated on expanding its franchise network, growing its presence in international markets, and strengthening its core pizza offerings. It has prioritized technological investments, such as modernizing its loyalty program and enhancing its digital platforms. Success factors in this sector include efficient operations, brand differentiation through marketing, and keeping costs manageable for franchisees and company-owned locations.

Quarter Highlights and Detailed Performance Review

Papa John's reported global system-wide restaurant sales of $1.26 billion, an increase of 4% from the prior year. The main drivers were improved comparable sales in both North America and international markets (non-GAAP). North America comparable sales climbed 1%, a turnaround from negative results last year. International comparable sales improved 3.7%, strengthening from flat performance in Q2 FY2024. Total company same-store sales rose 1.6%.

System-wide restaurant openings reached 45 units, offset by 75 closures, for a modest overall net decline. Growth was led by 19 new North American locations and 26 new units internationally, with international net closures continuing to reflect market rationalizations in certain regions.

Earnings figures reflected a mixed picture. Non-GAAP EPS was $0.41, down from $0.61 in the same period last year, even though it surpassed expectations by 20.8% (Non-GAAP). This decline was attributed to increased spending on marketing and loyalty programs, higher incentive compensation, and elevated costs at company-operated restaurants, including labor and food. Adjusted EBITDA, a key cash flow metric that removes certain one-time and non-cash items, fell to $52.6 million from $58.9 million in Q2 FY2024. Net income (GAAP) decreased to $9.7 million from $12.5 million in Q2 2024.

The international business remained a highlight, and the company cited improved performance in the United Kingdom following refranchising efforts, with UK comparable sales up 1% in Q1 2025. Management upgraded full-year guidance for international comparable sales to a range of 2% to 4%, up from the previous target of flat to 2%.

Multiple cost and one-time items affected the results. General and administrative expenses rose, driven by investments in marketing campaigns, the loyalty program overhaul (including a lower reward redemption threshold), and a reset of the management incentive plan. Margins at company-owned stores suffered due to lower average ticket, higher food and labor costs, and increased marketing spend. Material one-time expenses included restructuring charges and costs related to strategic initiatives and natural disaster recovery.

The company paid a cash dividend of $0.46 per share, totaling $15.3 million. The dividend rate remained steady, with another $0.46 per share dividend scheduled for August 29, 2025.

From a product perspective, the company continued with its "barbell" menu strategy, offering premium items like Epic Stuffed Crust Pizza alongside value deals such as $6.99 Papa Pairings. The company also invested in upgrades to its digital ordering platform, launching new artificial intelligence (AI)-driven personalization features and piloting drone delivery through a partnership with DoorDash, all aimed at making the customer experience more convenient and differentiated.

The company overhauled its loyalty program, which now has over 37 million members as of Q1 FY2025, more than doubling the rate at which customers redeem rewards compared to prior thresholds following the November 2024 reduction in the Papa Rewards redemption threshold. About 50% of loyalty customers now redeem awards, a substantial gain according to management. These changes have increased repeat purchase rates among loyalty customers. The company also completed major equipment upgrades, including recalibrating store ovens to improve product innovation and quality consistency.

Marketing spending remained a focus, with incremental investments of about $7 million per quarter in Q1 and Q2 to drive traffic and build brand awareness. The "Meet the Makers" campaign, highlighting ingredient quality and pizza craftsmanship, underpinned these efforts. The company reported meaningful gains in brand consideration and value perception, as measured by internal tracking tools. Supply chain management was another priority, with higher revenues from its company-run commissaries (which supply ingredients to restaurants) and early-stage cost-saving initiatives aimed at benefiting franchisees and company-owned stores. The company expects these supply chain improvements to deliver financial benefits starting in 2026.

Outlook and What Comes Next

Management reaffirmed most of its existing financial guidance for FY2025 but increased its forecast for international comparable sales. Expected system-wide sales growth now stands at 2% to 5%. North America comparable sales are projected to be flat to up 2%, while international comparable sales are now expected to rise 2% to 4%. Adjusted EBITDA (non-GAAP) is projected to be in the $200 million to $220 million range, lower than the $227 million reported in FY2024. Restaurant development goals remain at 85 to 115 new units for North America and 180 to 200 internationally. Capital expenditures are set at $75 million to $85 million, with an effective tax rate between 28% and 32%.

Investors should watch for continued progress in franchise expansion, especially internationally. Other key areas to watch include the impact of digital innovations, loyalty program engagement, and evaluation of supply chain cost savings. Management cited no material changes to North America guidance, indicating that domestic growth remains slower and more competitive. The dividend remains unchanged at $0.46 per share per quarter.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.