Piper Sandler analyst Brian Mullan has reiterated a Neutral rating on Papa John’s International, Inc. (PZZA) with a price target of $67. This comes as the company makes changes to its marketing strategy, which could benefit franchisees’ profit and loss statements (P&Ls).
Historically, PZZA franchisees in North America have been required to contribute 8% of sales towards marketing, with 5% allocated towards national marketing and the remaining 3% towards local marketing. However, as part of the Back to Better 2.0 initiative, franchisees will now only have to contribute 6% to the National marketing fund and will no longer be obligated to participate in local marketing efforts.
According to management, these changes should provide a 200 basis point (bps) benefit to franchisees’ P&Ls. The company believes that much of the local marketing currently taking place is not effective, and reallocating the additional 1% of sales to national marketing will more than offset any loss from the reduction in local marketing.
In the U.K., the company has already seen some consolidations among franchisees, which has resulted in improved sales trends with stores in the hands of better operators. Papa John’s International is now conducting a broader review of its international portfolio of stores and strategically closing some locations to set the system up for sustainable net unit growth in 2025 and beyond.
Mullan expects the company to achieve earnings per share (EPS) of $2.68 for fiscal year 2024, with revenues of $2.211 billion.
Papa John’s International shares closed slightly lower at $71.89 on Friday. The company’s stock has been relatively stable, and with these changes to its marketing strategy, it will be interesting to see if the franchisees benefit from the increased focus on national marketing efforts.
In conclusion, Papa John’s International is making strategic changes to its marketing strategy, reallocating resources from local to national marketing. This move is expected to benefit franchisees’ P&Ls and improve the overall effectiveness of the company’s marketing efforts. With a neutral rating from Piper Sandler, investors will be closely watching for any further developments in the company’s performance.
