By Ben Coley
Papa Johns won’t be getting new owners anytime soon.
After an 18-month strategic review that included evaluating a potential sale, the pizza chain said its board concluded the strongest path to creating shareholder value is executing the transformation already underway. To help fund that effort, Papa Johns is suspending its quarterly dividend beginning this month, freeing capital for marketing, franchisee support, technology, and restaurant operations. The company also lowered its full-year outlook after North American same-store sales fell 8.3 percent in the second quarter.
CEO Todd Penegor acknowledged the turnaround isn’t moving as quickly as planned, but said the company has identified where it needs to improve.
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“This work has made clear that for Papa Johns, the value creation opportunity that is actionable is the execution of our transformation plan,” Penegor said during the company’s second-quarter earnings call. “We believe it is in the best interest of the company and all of our shareholders to focus 100 percent of our attention on Papa John’s transformation and the initiatives we are discussing today.”
The company now expects global systemwide sales to decline between 2 percent and 4 percent this year and adjusted EBITDA to range from $180 million to $190 million. Guidance includes an additional $18 million of investment in the second half, bringing total supplemental marketing and franchisee support to roughly $35 million.
Penegor said the decision follows encouraging progress in several areas, including restaurant economics, supply chain productivity, digital capabilities, and customer loyalty. Those gains, however, weren’t enough to offset a difficult consumer environment and aggressive discounting across quick-service pizza.
“While our financial performance isn’t where we’d like it to be, we have a clear understanding of how to improve our results and gain market share,” Penegor said. “Our transformation is taking longer than expected. We know that we must execute better and move faster.”
One of the company’s clearest strengths continues to be Papa Rewards.
Membership surpassed 42 million during the quarter, and loyalty customers significantly outperformed the rest of the customer base. According to the company, loyalty guests spend 6 percent more per transaction, order nearly twice as often as nonmembers, and outperformed non-loyalty comparable sales by 12 percentage points.
The company also saw encouraging behavior inside its core pizza business. Orders containing multiple pizzas continued to climb, lifting pies per order by 6 percent and helping keep average ticket flat despite customers shifting toward smaller pizzas.
Outside pizza, new oven-toasted sandwiches nearly replaced the sales lost after Papa Johns removed Papadias from the menu.
Penegor said innovation continues to matter, even if it hasn’t delivered the level of customer acquisition the company expected.
“We rebuilt our innovation pipeline. We brought some news to the table. We’re not bringing in as many new consumers with the innovation as we had expected. But I do feel good that we’ve done a nice job on those fronts,” he said.
Instead of responding to industrywide discounting with permanent low prices, Papa Johns plans to lean into targeted offers supported by new technology.
Penegor said the company intends to keep promoting premium menu items at accessible price points, supplemented with limited-time value promotions aimed at specific customers and occasions instead of broad national discounting.
“We know we have to meet the consumer where they’re at,” Penegor said. “But we’re going to be smart about the discounting. We’re going to pulse it appropriately, and we’re going to leverage the tools at our disposal, especially CRM with some of the optimized AI engine work that we’ve done to really target those investments.”
That personalization strategy is already taking shape.
Papa Johns has begun rolling out a new AI-powered CRM engine capable of tailoring promotions across multiple channels using customer behavior and purchasing history. A wider rollout is planned for the fourth quarter.
Technology investments also include Lou AI, the company’s Google Cloud-powered ordering assistant. Customers using the platform have converted at rates 18 percent higher than traditional digital users and completed orders roughly three minutes faster, according to the company. Papa Johns is also deploying a new AI-native point-of-sale system across its U.S. restaurants through 2027.
Technology alone, however, won’t solve the chain’s challenges.
Penegor said restaurant execution continues to vary widely across the system, creating meaningful performance gaps between operators.
The company reported a 400-basis-point difference in comparable sales, order growth, and restaurant margins between restaurants in the highest operational quintile and those in the lowest. Papa Johns is responding with additional coaching, standardized scorecards, business reviews, and financial incentives tied to operational performance.
“We’ve raised the bar on operational excellence, even though we know we’ve got some inconsistencies and opportunities to continue to do that,” Penegor said. “What we need to really get aligned on is where do we find the right balance between driving transactions and protecting margin.”
The company also believes stronger local marketing and a more disciplined restaurant base can help reverse sales trends that have trailed much of the pizza category.
Earlier this year, Papa Johns restarted advertising co-ops across the U.S. after years without a coordinated local structure. Roughly half the domestic system now participates, and Penegor said the early returns have been encouraging.
Markets supported by co-ops and supplemental local advertising outperformed the rest of the system by roughly 200 basis points during the quarter. The company is now building a field marketing team to work directly with franchisees and expects most markets to participate in co-ops by the end of the year.
“I think where we’ve been probably the most challenged is we haven’t been able to get the full force of the local co-ops reestablished across the entire system,” Penegor said. “We’re making progress on that front, but we’ve now hired out our field marketing team to better support those co-ops and make sure we’ve got a really balanced and thoughtful national messaging as well as local messaging to really compete and win.”
The company also intends to place more attention on third-party delivery, which Penegor believes offers an opportunity to introduce the brand to new customers.
During the second quarter, carryout sales declined in the mid-single digits, third-party delivery slipped by the low-single digits, and first-party delivery fell by double digits. Papa Johns plans to adjust promotions, improve visibility on aggregator platforms, and pair innovation with marketing tailored to those channels.
“We do think it’s a great channel to provide some visibility and opportunity into our innovation to get the consumer to trial us,” Penegor said.
The company also continues to overhaul its North American restaurant base.
Papa Johns has closed 101 restaurants identified under its portfolio optimization plan and now expects 200 to 250 closures this year, up from previous expectations. The program targets restaurants with annual unit volumes below $600,000, negative EBITDA, or locations lacking a path to sustainable improvement.
Penegor said the company is already seeing encouraging sales transfer from those restaurants into neighboring stores.
“We are seeing good recapture on many of those restaurants,” he said. “We think we are pulling some of those closures into this year. I think we’re still there, thereabouts on 300 between this year and next year.”
Supply chain improvements are expected to strengthen franchise economics as well.
Papa Johns captured another $7 million in supply chain savings during the second quarter and remains on pace for at least $25 million this year. Longer term, the company expects at least $60 million in systemwide supply chain productivity gains, translating into roughly 160 basis points of four-wall EBITDA improvement by 2028.
Penegor said additional restaurant traffic represents the biggest opportunity for franchise profitability because labor costs are already tightly controlled.
“I think the biggest opportunity we have right now is we’ve done a really nice job managing labor in the restaurants. We’ve got the 4-wall wired pretty tight. So each incremental transaction that we can actually bring through a restaurant, the variable profit margin is quite high.”
International markets continue to provide evidence that the company’s transformation can produce stronger results.
International comparable sales increased 1.5 percent during the quarter, marking the seventh consecutive period of positive comparable sales growth. The U.K. posted 10 percent comparable sales growth, and Korea rose 9 percent, offsetting softness tied to conflict in the Middle East.
Penegor said the international playbook gives him confidence North America can follow a similar trajectory.
“We’re making all of the foundational moves through technology, raising the bar on operational excellence, continue to tell our story on why we’re unique, better, different through the marketing messaging that we’ve had,” Penegor said. “Those are things that are foundational to build this brand for the long run.”
Ben Coley is editor of PMQ Pizza sister publication QSR. This article originally appeared here on the QSR site.
