Papa John’s cuts guidance as U.S. consumers trade down to smaller pizzas

U.S. pizza chain Papa John’s has reported weaker quarterly sales and sharply downgraded its full-year outlook as customers trimmed spending on sides and toppings while competitors stepped up promotions.

Revenue from Papa John’s restaurants in North America operating for more than a year fell 2.7% in the third quarter, according to the company’s financials. Analysts had expected a 1.7% increase, Bloomberg reported.

CEO Todd Penegor attributed the decline to weakening consumer sentiment and an increasingly promotional fast-food market. The downturn affected both company-owned and franchised restaurants, he said.

Following the release, Papa John’s shares plunged as much as 13% in premarket trading yesterday, November 6, before recovering later in the day to close 3.8% higher at $42.80 per share.

Customers have begun cutting back on extras such as wings and breadsticks, Penegor said during the company’s earnings call. With household budgets under pressure, consumers are focusing on main dishes and skipping add-ons.

The bulk of the decline came from smaller-ticket online orders, typically placed by lower-income consumers, he noted. Although the company sold 3% more pizzas by volume in the third quarter than a year earlier, revenue did not rise as buyers opted for medium pizzas with fewer toppings.

Papa John’s now expects year-over-year comparable sales in North America to decline 2.0-2.5%, worse than a previous forecast ranging from flat to a 2% drop. Before the updated guidance, Wall Street had projected growth of about 0.5%, MarketWatch points out.

Papa John’s is developing more affordable sides and desserts to complement main dishes. To capture more small-ticket customers, the company recently introduced a 50% off carryout promotion, which has already showed early signs of improved demand, Penegor said.

The chain has also identified $25 million in potential general and administrative cost reductions and plans to accelerate its re-franchising program over the next two years to improve efficiency.

Earlier this week, Papa John’s shares fell 10% after Reuters reported that Apollo Global Management had withdrawn its offer to acquire the company.

Year to date, Papa John’s stock has gained 4.2%, while Domino’s Pizza has declined 3.9% and McDonald’s has added 5.5% amid weakening consumer demand.

Of the 18 analysts covering the stock, 11 recommend “hold” and seven rate it a “buy” or “overweight.” The average target price of $51.10 per share implies upside of nearly 22%.

The AI translation of this story was reviewed by a human editor.