What happened

Shares of pizza restaurant Papa John's International (PZZA -1.72%) fell roughly 12% in early trading on Thursday. The big news was the company's earnings, which at first blush look pretty good. But if the market's dour reaction is any indication, they just weren't good enough.

So what

Papa John's top line was higher by 12.5% year over year in the fourth quarter of 2020. Comparable-store sales in the United States rose 13.5%, with international comps up an even more impressive 21.4%. On the bottom line, the restaurant's adjusted earnings were $0.40 per share versus a loss of $0.25 per share in the same stanza of 2019. So far, that seems like a pretty good outcome.  

A man in a uniform delivering pizza to a woman.

Image source: Getty Images.

The problem is that analysts had been expecting earnings to hit $0.46 per share. Investors don't like it when companies fall short of Wall Street estimates. In addition, the revenue growth was down about 5 percentage points sequentially from the third quarter of 2020, with domestic comps off by around 10 percentage points. Missing the analyst call and signs that the boost from increasing takeout orders during the pandemic are compounding the negatives here. It's not shocking that Wall Street's first reaction was pretty negative.  

Now what

Papa John's revenue numbers and domestic comps figures suggest that 2020 may have been a windfall year. With the stock up 64% since its lows in April last year, including today's drop, long-term investors might want to wait and see before jumping aboard. If the slowing sales trends hold, there could be more downside risk.