Last week was a rough one for Papa Murphy's (NASDAQ:FRSH) investors. Shares of the country's leading "take 'n' bake" pizza chain surrendered more than a quarter of their value after the chain posted its latest financials.
It wasn't a bad report for the fast-growing company that has now opened more than 1,500 largely franchised stores that offer prebaked gourmet pizzas that customers heat up at home. Revenue climbed 33% since the prior year's second quarter, fueled by dramatically increasing the number of company-owned pizzerias from 68 to 118 and a 4.5% uptick in comps.
Rising comparable-restaurant sales isn't new. Papa Murphy's has now rattled off 18 consecutive quarters of positive comps. There are longer eatery streaks out there, but four and a half years of consistent store-level sales growth is impressive in the volatile pizza market.
A series of one-time charges resulted in a small reported deficit, but set that aside and adjusted earnings clocked in at $1.6 million or $0.09 a share, up from $1.1 million a year earlier. That was in line with Wall Street expectations, but revenue did check in slightly ahead of what analysts were targeting.
Time to make the dough nuts
Most of Papa Murphy's growth since it went public at $11 last year has come from setting up company-owned locations. Franchised stores have only gone from 1,367 to 1,368 over the past year, but that's because most of the growth in the count of company-owned stores is because Papa Murphy's has bought up franchisee units. That balance should change this year. Papa Murphy's sees 110 to 115 new stateside openings taking place this year, and the lion's share of the debutantes will be franchisee-operated pizzerias.
It does plan to open about five more company-owned locations than it had forecasted three months ago, and that will leave a mark on the bottom line by boosting capital expenditures. That may have helped contribute to the sell-off after an otherwise solid report, but the more problematic nugget is that Papa Murphy's is still sticking to its full-year comps guidance of "at least" 3% for all of 2015. Even if 3% is merely the floor that the chain is setting, one would expect its outlook to move higher after seeing systemwide comps in this country climb 5.6% during the first quarter and 4.5% during the second. It suggests a soft second half of the year.
A potential catalyst for growth is online ordering. Just half of Papa Murphy's stores presently accept Internet-based orders, and it expects to have all domestic units online by next summer. It's an option that should get even more popular when it introduces its mobile app later this year. This could be a game changer. Papa Murphy's has been slow in joining traditional full-bake pizzerias in mobile and online ordering, but the chain points out that folks placing their orders online are spending 25% to 30% more than customers that either call in or place their orders in store. Web-based ordering and a new point-of-sale system that should be implemented systemwide by next summer could move the needle, but for now the real challenge is to keep that comps streak alive without sacrificing margins.