“NEW YORK (MarketWatch) — Papa John’s International Inc., is seeing sales slip at home, as its rivals–Pizza Hut and Domino’s–use their larger scale to shell out deep discounts and lure cost-conscious consumers. The pizza delivery chain saw its fourth-quarter sales rise 1.7% in North America, at restaurants open at least a year. While that’s still a positive trend, it’s less than half the same-store sales growth analysts were expecting, according to Consensus Metrix.”
“Papa John’s, which has an aversion to the deep discounts indulged by its rivals, argues that even in a struggling economy, consumers are willing to pay a higher price for higher-quality pizza. But lately, that doesn’t seem to be the case. Yum Brands Inc.’s (YUM) Pizza Hut saw its fourth-quarter same-store sales rise 6% in the U.S., with deals like $10 any-size, any-toppings pizzas likely drawing customers from competitors. Domino’s Pizza Inc. (DPZ), which reports its latest earnings next week, also attracted more of the nation last year through heavy promotions of new menu items, like “artisan” pizzas and stuffed cheesey bread.”
‘”Our competitors are so big and they spend so much money [on discounts] that from time to time they do things that make the category not as consistent as we’d like,’ said Founder and Chief Executive John Schnatter on a conference call with analysts. The rivals’ mouth-watering deals off-and-on last year caused Papa John’s sales to be more ‘sporadic,’ as stronger quarters were interspersed with weaker ones. ‘Because we like continuity, it’s just kind of the competitive nature of the beast,’ Schnatter said.
Papa John’s shares fell 9.1% to $36.63 Wednesday afternoon, knocking the stock to a decline of about 2.5% so far this year. ‘The pricing environment is probably the toughest thing that’s out there,’ even more than higher food costs, said Papa John’s North American President Tony Thompson on the call. ‘We know we’ve got the quality brand and we’re able to get a premium [price] for it. But given our history and what we would like to be able to achieve, that’s probably the single biggest thing that [our franchisees] are facing.”‘
In the fourth quarter, Papa John’s profit, which was boosted by a lower tax rate, rose 14% to $16 million, or 65 cents a share. Revenue increased 6.8% to $306.2 million. Executives on the conference call reiterated their determination in sticking to their ‘premium’ pricing and driving guest traffic through the quality of the food. Schnatter said Papa John’s long-term profitability potential isn’t so much tied to growing sales at existing restaurants. ‘We’re growing our business,’ he said. ‘We’re going to make more money because we’re going to have a bigger company.”‘