On Nov. 5, Papa John's International (PZZA 0.19%) reported adjusted earnings per share of $0.35 on revenue of $472.9 million in its fiscal third quarter with both figures above consensus estimates of $0.33 on $466.1 million, respectively. Revenue growth remained strong as comparable-store sales growth hit double digits. The restaurant company is benefiting from increased off-premise dining, which has gained popularity for its convenience and reduced contact among consumers concerned about COVID-19.
Here are three important details to know from the pizza delivery chain's latest earnings report.
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Revenue growth remains strong
Revenue growth maintained its momentum in the quarter ended Sept. 27 with sales up 17.1% year over year. Comparable-store sales in North America increased 23.8%, driven by both transaction and ticket growth. Select products helped boost sales and generate customer interest, including the Papadias, a flatbread-style hot sandwich, and the Shaq-a-Roni pizza.
The Shaq-a-Roni sold more than three million pizzas after its launch in the fiscal third quarter. CEO Robert Lynch said on the earnings call, "In partnership with our franchisees, we sold over three million pizzas, raising more than $3 million for communities to support COVID-19 relief, the fight against racial injustice, Boys and Girls Clubs of America, The United Negro College Fund, and general community involvement."
Delivery and third-party partnerships boosted revenue
Papa John's impressive revenue growth in the quarter was boosted by its strong relationships and integration with top delivery aggregators. These aggregators include companies like UberEats (part of Uber) and Grubhub, which offer food ordering and delivery platforms that connect customers with local restaurants.
Aggregators are important to the company's growth. This segment increased to 6% of Papa John's sales from 2% over the last six months. Lynch noted during the call, "Aggregators continue to be a big part of our profitable growth story, and we are excited to be one of the largest quick service brands on their platforms."
Additionally, the company cited its loyalty programs and marketing efforts as contributors to its success. The quick-service chain is also actively working on more personalized offers to entice repeat business. During the earnings call, Lynch commented, "Our loyalty and one-to-one marketing platform is also a growth driver and strategic technology priority for us and our more active segments in particular, they drive outsized revenue compared to non-loyalty customers."
Benefit from off-premise dining trends is slowing
Consumers have favored socially distant and convenient dining this year due to concerns over COVID-19. This has driven up off-premise dining sales, including delivery and drive-through business. Papa John's has benefited from these trends with 70% of its orders being placed through digital channels. Revenue through delivery aggregators increased more than three times year to date, which "contributed to our industry outperformance in Q3," according to Lynch.
But Papa John's sales are seeing a slight slowdown from the height of COVID-19. While still impressive, North American comparable-store sales in the third quarter slowed to 24%, down from 28% in the second quarter.
However, the company did see strong sales in one international market even as society reopened in the wake of COVID-19 restrictions: China. That market has experienced double-digit sales gains. This shows that pizza sales and delivery growth could remain elevated even as the market normalizes. Perhaps consumer preferences for convenient, value-priced meals will stick even after people resume their normal routines.
Papa John's delivered a solid quarter, driven by the continued popularity of off-premise dining and quick-service meals. While the restaurant chain is executing well with new product introductions and investments in technology and marketing, the pace of recent revenue growth may not be sustainable if potential treatments and vaccines for COVID-19 are made widely available.
