Papa John's Q3 2025: Contradictions Emerge on Refranchising, Innovation, and International Growth

Date of Call: November 6, 2025

Financials Results

• Revenue: $508M, essentially flat YOY

Guidance:

• Global system-wide sales expected to increase 1%–2% in 2025.
• North America comparable sales expected down 2%–2.5%; International comps raised to 5%–6%.
• Consolidated adjusted EBITDA outlook $190M–$200M; net interest $40M–$42M.
• CapEx $75M–$85M; adjusted G&A $70M–$75M; effective tax rate 27%–30%.
• Diluted shares ~33M in Q4; North America openings 85–95; International openings 180–200; closures expected toward high end of historical ranges.

Business Commentary:

* North America Sales Pressure and Consumer Behavior: - North America comparable sales decreased 2.7% in the third quarter, with the majority of sales pressure driven by declines in products outside of the core pizza offering, such as wings, bread sides, and desserts. - This trend was caused by consumers focusing on core pizza over added items, reflecting their efforts to control spending due to economic pressures.

• International Business Growth:
• International comparable sales increased 7.1%, with particularly strong growth in key markets in Europe, the Middle East, and Asia Pacific.

• The growth was driven by strategic initiatives like the expansion of the Croissant Pizza offering and operational improvements across priority markets.

• Transformation and Cost Reduction:

• Papa John's is accelerating its refranchising program over the next 2 years to strengthen local markets and increase operational efficiency.

• This decision follows a comprehensive review of the company's expense structure, aimed at reducing noncustomer-facing spend and simplifying operations, which is expected to create $25 million in savings over the next two fiscal years.

• Innovation and Pipeline:

• The company is rebuilding its innovation pipeline, focusing on form, size, and platform innovation to extend its product addressable market and expand margins.
• The introduction of products like Papa Dippa and Grand Papa is part of this strategy to offer new sales layers and enhance consumer engagement.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management disclosed mixed results: "global comparable sales were flat... North America comparable sales decreased 2.7%" while "international business delivered exceptional results, generating comparable sales growth of 7%." Leadership emphasized confidence in transformation: "we are confident that our transformation work will ultimately position Papa John's to generate sustainable, profitable growth."

Q&A:

• Question from Brian Mullan (Piper Sandler & Co., Research Division): Can you talk about how the current difficult operating environment influences the accelerated refranchising process and the framework/priorities for finding buyers and pricing your assets?
  Response: Refranchising will scale up well-capitalized existing franchisees and select outsiders at multiples management is comfortable with, paced to reach mid-single-digit company ownership in North America.

• Question from Brian Mullan (Piper Sandler & Co., Research Division): Clarification on what is embedded in guidance for G&A and whether actions already taken will push G&A lower next year?
  Response: Identified at least $25M of G&A savings across 2026–27 (about half in 2026); none of these savings are embedded in the 2025 guidance.

• Question from Andrew Strelzik (BMO Capital Markets Equity Research): A year into your tenure, assessment of turnaround progress — where are you furthest along and where have results been slower?
  Response: Progress: improved brand perception, rebuilt innovation pipeline and strong international momentum; areas to accelerate include balancing value promotions with premium innovation to drive transactions.

• Question from Andrew Strelzik (BMO Capital Markets Equity Research): On the 50% off carryout offer, how are you balancing franchisee profitability and the ability to sustain such promotions?
  Response: The 50% carryout targets small-ticket customers as a 'basket starter,' and promotions are deployed selectively while partnering with franchisees to protect 4-wall economics.

• Question from Tyler Prause (on behalf of Stephens): Which U.S. restaurants are outperforming — regional, tenure, updated ovens — and what learnings can be applied systemwide vs. macro-driven sentiment?
  Response: Outperformance is driven by operator strength and a transaction-focused mindset (not strictly region); best practices include local carryout offers and promotion of Papa Pairings.

• Question from Tyler Prause (on behalf of Stephens): Any noticeable step change among younger and Hispanic demographics during the quarter?
  Response: Slight pullback among younger consumers and in small-transaction cohorts; center-of-plate pizza demand is stable while sides have declined, reinforcing targeted offers and loyalty focus.

• Question from Alexander Slagle (Jefferies LLC, Research Division): Can you dissect the strong international results — which actions drove improvements and is momentum sustainable into 2026?
  Response: Momentum driven by focus on priority trade zones, franchise transfers, product execution and the Perfect Bake program (U.K., China examples); management expects trends to continue into Q4 and sees runway internationally.

• Question from Alexander Slagle (Jefferies LLC, Research Division): How will you avoid complexity when expanding sides and add-ons?
  Response: Portfolio will be simplified (remove/regionally relocate lower-performing items), innovations will be operationally simple, well-trained, consumer-led and paced to avoid burdening restaurants.

• Question from Dennis Geiger (UBS Investment Bank, Research Division): Are value scores improving and where are the primary value gaps (promotion, price points, marketing recognition)?
  Response: Value perception has improved over 12 months and loyalty/CRM help, but management will ensure future innovations and promotions have appropriate price points and will fund value via supply-chain and G&A savings.

• Question from James Sanderson (Northcoast Research Partners, LLC): What is the plan for incremental marketing in Q4 and how should we view potential marketing investment into 2026?
  Response: Up to $25M incremental marketing for the year ($17M spent through Q3) including testing/non-working media and franchise support; 2026 investment optionality exists but not guided yet.

• Question from James Sanderson (Northcoast Research Partners, LLC): Can you provide context on exposure to lower-income, low-ticket web-based consumers?
  Response: Over 50% of sales come from households above $100k; aggregators constitute ~20% of business and loyalty ~50% of sales, which indicates less exposure than some peers to lower-income, small-ticket cohorts.

Contradiction Point 1

Refranchising Strategy and Pace

It involves the company's approach to refranchising, which is crucial for operational efficiency and financial performance.

How are you addressing the challenging operating environment and refranchising strategy, including buyer prioritization and pricing? - Brian Mullan(Piper Sandler & Co.)

2025Q3: We are accelerating refranchising to strengthen local markets and increase operational efficiency. We will reduce company ownership to mid-single-digit levels. - Todd Penegor(CEO)

Could you provide background on the refranchising transaction, where the restaurants are located, and whether it's with an existing partner or a third party? - Brian Hugh Mullan(Piper Sandler & Co.)

2025Q2: We announced the signing of a definitive agreement to refranchise 85 company-owned restaurants in the Mid-Atlantic Area to a well-capitalized existing franchisee. - Todd Penegor(CEO)

Contradiction Point 2

Innovation and Side Dishes Strategy

It relates to the company's strategic focus on innovation and side dishes, which could impact menu offerings and consumer appeal.

How do you ensure innovation and focus don't add complexity? - Alexander Slagle(Jefferies LLC)

2025Q3: We are focusing on stabilizing the core and simplifying the menu. - Todd Penegor(CEO)

What is your outlook for the innovation pipeline, and when can we expect the Croissant Pizza in the U.S.? - Eric Andrew Gonzalez(KeyBanc Capital Markets Inc.)

2025Q2: We continue to innovate around core products beginning with our Cheddar Crust Pizza. - Todd Penegor(CEO)

Contradiction Point 3

International Growth and Strategy

It affects the company's international growth strategy and performance expectations, which are critical for overall business growth.

What actions drove the strongest international results, and what external factors are influencing performance? - Alexander Slagle(Jefferies LLC)

2025Q3: Transformations in the U.K. and China have driven results. - Ravi Thanawala(CFO)

What are the current trends in the U.K., and how should we assess new unit growth opportunities there? - James Jon Sanderson(Northcoast Research Partners, LLC)

2025Q2: We have a strong presence in the U.K., driven by over 300 company-owned restaurants and 200 franchise-owned. With a highly engaged consumer base in the U.K. - Ravi Thanawala(CFO)

Contradiction Point 4

Refranchising Strategy and Market Focus

It involves differing strategies and market priorities for the company's refranchising efforts, which are crucial for operational efficiency and growth.

How are you addressing current operating environment challenges through your refranchising strategy, including buyer prioritization and pricing? - Brian Mullan (Piper Sandler & Co., Research Division)

2025Q3: We are accelerating refranchising to strengthen local markets and increase operational efficiency. We will reduce company ownership to mid-single-digit levels. - Todd Penegor(CEO)

What is the plan for refranchising company-owned restaurants? - Eric Gonzalez (KeyBanc)

2025Q1: Refranchising is expected to be accretive to earnings. The focus is on core market regions like Indianapolis to Nashville, with plans to take a hard look at other markets. - Todd Penegor(CEO)

Contradiction Point 5

Value Perception and Marketing Strategy

It involves differing perspectives on the company's value perception and marketing strategy, which are critical for consumer engagement and market positioning.

How is Papa John's addressing value perception and identifying key value gaps? - Dennis Geiger (UBS Investment Bank, Research Division)

2025Q3: Value perception has improved, but we continue to emphasize quality and value. Some innovations, like Papa Dippa, face challenges due to consumer and competitive shifts. We'll balance promotional pricing with innovation moving forward. - Todd Penegor(CEO)

Where have you seen the most progress in your initiatives? - Andrew Strelzik (BMO Capital Markets)

2025Q1: We're seeing strong consumer engagement in the Papa Dough loyalty program, which has been great in bringing more people into the brand. The Meet the Makers campaign is showing great consumer engagement. And we're seeing that, as we've talked about, we are, we are focusing more on our quality messaging and we are starting to recruit new customers back into the brand. - Todd Penegor(CEO)