The world’s third largest pizza delivery company, Papa John’s International, Inc. PZZA is geared to expand further in Chile and Spain. In this regard, the company has recently signed two expansion agreements with Drake QSR AG (Drake).
Drake currently operates 55 restaurants in Chile through PJ Chile SpA and the recently signed agreement will allow the franchisee to add 45 units, bringing the tally to a total of 100 restaurants. Notably, Papa John’s has been experiencing rapid growth in Chile and thus plans to continue grow its presence there.
Meanwhile, the expansion agreement signed by Drake through PJI España Pizzerías S.L. (PJ España) will allow PJ España to expand outside of Madrid to all areas of Spain. Drake thus plans to open 40 restaurants throughout Spain, including Barcelona, by this year end.
Interestingly, Drake has been one of the fastest-growing, most successful franchise business partners for Papa John’s. Continued focus on delivering on quality by the franchisee has resulted in persistent expansion for Papa John’s in both Chile and Spain and the company is thus upbeat about its growth opportunities in both countries.
We note that international expansion has been the backbone of Papa John’s operations for quite some time now. In fact, the first quarter of 2017 marked the 29th consecutive quarter of positive comps in the international segment. Currently, the company has more than 1650 international restaurants in 45 countries, including over 400 restaurants in 16 Latin American countries. It is also looking to expand in Brazil, Honduras, and the Bahamas.
However, owing to its large international presence, Papa John’s is exposed to risks of fluctuations in currency exchange rates, which impacts the company’s top line. Moreover, an increasing wage rate environment and a challenging industry backdrop remain concerns for most restaurant chains like Jack in the Box Inc. JACK and The Cheesecake Factory Incorporated CAKE.
But pizza giants like Domino’s Pizza, Inc. DPZ and Papa John’s are riding on the certitude that demand for pizzas is unlikely to go down in the coming days. In fact, shares of the company have increased 29.8% over the last one year, outpacing the Zacks categorized Retail–Restaurants industry’s gain of 12.9%.
Though Papa John’s has been faring well so far, continued slowdown in the industry at large might hamper its prospects.
Nevertheless, Papa John’s commitment to provide quality food is commendable and should appeal to health conscious customers. Besides product innovation, the company is also focusing on digital innovation to attract new customers and drive growth and efficiency. Its strategic partnerships, increased focus on franchising and particularly, large scale expansion plans should also act as growth drivers.
Papa John currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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June 07, 2017 at 07:48PM
from Zacks Equity Research
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