Papa John's Earnings: Investment Years Loom as Brand Turnaround Begins; Shares Remain Cheap

Narrow-moat Papa John's reported OK earnings, with $0.62 in adjusted EPS comfortably topping our $0.49 estimate (albeit driven largely by international restructuring costs) while $531 million in revenue fell pretty comfortably short of our $562 million expectation. Overall, we appreciate the firm's attention to improving its franchisee return on investment for new stores, commitment to investing in its digital platforms, and the strides that it has taken toward affirming its value position in the eyes of consumers. This underpins our decision to maintain our long-term forecasts for roughly 10% operating margin (from 7.6% in 2024). That said, investors should expect two years of hefty investment, with the firm now planning to funnel an incremental $25 million toward improving its digital platform, and will need to continue to invest behind efforts to shore up its value positioning in the eyes of customers. While this is accretive to brand health over the longer term, it will likely weigh heavily on profitability in 2025 and 2026. We plan to lower our $67 fair value estimate by a low-single-digit percentage after digesting results, leaving shares looking attractive at current prices.