Thank you for standing by, and welcome to Papa John's Q4 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star zero. I would now like to hand the call over to Chris Collins, VP of Treasury and Tax.
Thank you, operator. Good morning. Joining me on the call today are President and CEO, Rob Lynch, and CFO, Ann Gugino. Rob and Ann will comment on our business and provide a financial update. After the prepared remarks, both will be available for Q&A. Our discussion today will contain forward-looking statements involving risks that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our SEC filings. Please refer to our earnings release in the investor relations section of our website for a reconciliation of non-GAAP financial measures discussed on this call. Finally, we ask members of the media to be in a listen-only mode. Now I'd like to turn the call over to Rob Lynch for his comments. Rob?
Thank you, Chris, and welcome everyone to our 2021 year-end earnings call. I'm so excited to be here this morning and share our results for the Q4 and for 2021. The Papa John's team and franchisees delivered another fantastic year. We sustained our double-digit growth and share gains for a second consecutive year. Papa John's system-wide sales reached $4.9 billion, up 15.4% in constant currency. Comparable sales increased by 11.8% in North America and 13% internationally on top of 2020's double-digit gains. On a two-year basis, comps rose a remarkable 29.4% in North America and 25.6% internationally. AUVs in North America grew 12% year-over-year and now exceed $1.1 million. I'm proud to say that our restaurants are highly profitable and that our franchisees are well-positioned to invest in growth.
Our favorable unit economics drove a resurgence in new store openings last year and led to multiple historic development deals for the brand that will significantly expand our presence across the U.S., Europe, Latin America, and China. We also achieved impressive bottom-line results last year. Operating income rose over 85% versus 2020, and adjusted EPS reached an all-time high of $3.51 per diluted share, a 150% increase year over year. These results demonstrate Papa John's ability to sustainably grow and deliver great value for our customers, franchisees, and shareholders year after year, even during the most uncertain and difficult business environment that any of us have ever experienced. Papa John's is well positioned for another great year in 2022. This morning I'd like to dive into the foundations underlying Papa John's sustained comp growth and development momentum.
They are a differentiated strategy, the innovation and hard work of our team members, and the commitment of our franchisees. I also want to address the current macro environment, both the high consumer demand that we are experiencing, as well as the impact of labor shortages, which Omicron has exacerbated in Q1. I'll finish with some comments on our outlook for 2022 and for the long term, and we'll then provide additional color on our financial results and outlook. I'll begin with our innovation across menu, technology, customer experience, and delivery channels, which is driving Papa John's sustainable comp sales growth. For Q4, North America comp sales rose 11.1%, building on 13.5% comps a year ago. International comp sales were also positive at 2.4%, lapping 21.4% comp growth a year ago.
We achieved these results despite a very challenging staffing environment for our restaurants and supply chain throughout Q4 and into 2022. I want to emphasize, however, that we continue to see very robust demand in Q4, which has also continued into Q1, as I'll address in a moment. Papa John's is successfully meeting the strong demand and driving system-wide comp sales growth and improving unit economics by focusing on new product platforms, ticket add-ons, and premium limited time offers. In late December 2020, we launched our biggest new product platform in the company's history, Epic Stuffed Crust, which maintained a strong order mix throughout 2021 and continued to drive ticket and customer traffic in Q4. At the onset of 2022, we launched New York Style Pizza .
New York Style Pizza is a new way for pizza lovers to experience Papa John's fresh, never-frozen, six-ingredient original dough, featuring eight oversized slices on a thin, foldable crust. New York Style crust has proven to be popular with customers and highly incremental. The combination of Epic Stuffed Crust and New York Style Pizza is a key element of our positive outlook for Q1 as we lap last year's record Q1 sales, our highest in the history of the company. Turning to our digital innovation, in 2021, digital sales through our app, website, and aggregator partners represented over 75% of our domestic sales, up more than 300 basis points from 2020 and 1,000 basis points from 2019.
The success of Papa Rewards, our loyalty program, has helped drive this expansion. Papa Rewards allows us to directly engage our customers with targeted personalized offers that drive higher frequency, higher ticket, and higher satisfaction. As I've said before, Papa Rewards members are our most valuable customers. Continued investment in one-to-one marketing capabilities is a big part of our plan for 2022 and beyond. We now have nearly 23 million Papa Rewards loyalty members as of the end of 2021, up from 17 million at the end of 2020 and 12 million in 2019. Third-party delivery aggregators have been another focus of our digital innovation and strategy, contributing materially to our strong comp sales and industry outperformance in the Q4 and throughout 2021.
Our partnerships with aggregators bring additional customers to the brand, driving incremental and profitable transactions, benefiting us, our customers, and our aggregator partners. Aggregators also have helped us manage the intensified labor shortage that the restaurant industry has experienced, exacerbated in January by Omicron, by providing us supplemental delivery drivers, especially during peak times. Now turning to Papa John's accelerating development program. In 2020, we talked to you a lot about the steps we were taking, including improving unit economics and rebuilding our development team and capabilities so that we would be prepared to fully implement our strategy in 2021 and take advantage of the tremendous white space available to Papa John's. As I've said in previous calls, Papa John's development opportunity is very robust given our under-penetration relative to other global brands.
In 2021, we had one of our best years ever in terms of the number of net new stores we opened. All of this great work by our development team resulted in 250 net new restaurants in 2021, which represents 4.5% unit growth. We opened nearly 400 restaurants in total last year. Our team also delivered a record year in terms of the long-term development deals that we signed with highly experienced, well-capitalized franchisees. We are growing with both our existing franchisees, who are enjoying more attractive returns than ever before, as well as new franchisees. In August, we signed a new deal with Drake Food Service International, already our largest international franchisee, to open 220 restaurants by 2025 across Latin America, Spain, Portugal, and the U.K.
In September, we signed our largest domestic development deal ever, welcoming Sun Holdings, a highly experienced multi-brand franchisee to the Papa John's brand. Sun Holdings will open 100 new stores across Texas and the South by 2029. We're very excited about the long-term potential of this partnership. Last month, we announced an agreement with FountainVest Partners to open over 1,350 new stores across South China by 2040. We believe this is the largest development deal ever announced in the pizza industry. This partnership alone stands to grow Papa John's global unit count by 25%. FountainVest is a great partner, a long-term oriented private equity firm with strong operational focus. I should also point out that this deal only covers Southern China, which underscores our excitement about Papa John's vast remaining development white space in other areas of China.
Now turning to the current market environment. As I've said on past calls, the restaurant industry has faced and managed staffing challenges since long before the pandemic. These intensified with the increased demand for employees in the service industry as the economy recovered last year. In early 2022, Omicron further exacerbated the situation, given the spike in infection rates and number of people out sick or quarantined at home. Throughout Q1, our restaurants have been at their lowest staffing levels since the beginning of the pandemic. This has impacted customer service and, in limited cases, our ability to deliver or take orders. We continue to proactively communicate to our loyal customers, providing updates and conveying our gratitude for their patience. I couldn't be more proud of our franchisees, our operators, and our team members.
They have all been working harder than ever to continue to safely serve their customers and communities. Every day, we benefit from their dedication to manage through staffing constraints. The good news is that Omicron infections seem to have peaked in early January and are rapidly declining. Throughout these challenging times, we have seen consumer demand for Papa John's pizza as strong as ever. As we look beyond Omicron, we anticipate the labor market will improve but will continue to be tight as it has been for the past two years. We will continue to strive to be employer of choice in our industry and have taken many actions to create a strong culture and support our people. We've invested in wages and continue to offer our team members hiring and referral bonuses, as well as expanded health, wellness, paid time off, and access to college education.
More and more employees are taking advantage of Dough & Degrees, our college tuition program, which provides access to an online degree free of charge to corporate team members. We are also creating an environment where everyone belongs, which is one of Papa John's core values. Last year, we received multiple workplace recognitions. For example, we were included in Forbes list of the world's best employers and America's best employers for diversity. Last month, we were honored again to receive a top score from the Human Rights Campaign on its 2022 Corporate Equality Index, which recognizes the top companies for LGBTQ+ workplace inclusion. These are a few of many examples of how we continue to build a culture of leaders at Papa John's who believe in diversity, inclusivity, and winning. Now to address commodities.
Supply chain challenges and inflation continue to impact businesses across the globe, affecting the cost and availability of ingredients, supplies, and equipment. As we've done throughout the pandemic, in Q4, we were able to protect margins and offset those costs, thanks in part to our world-class supply chain and procurement teams, as well as the operating leverage created from our comp sales growth. As I said earlier, Papa John's ticket growth over the past couple of years has predominantly come through new premium products and add-ons that have allowed customers to self-select into our higher-priced innovation. This gives us more room today to manage and offset external cost pressures through pricing actions while continuing to deliver quality and value to our customers. Also, since our value proposition is focused on delivering premium value, not around specific low price points, we have more flexibility around our pricing.
I'd like to conclude with a few comments on Papa John's outlook for 2022 and the long term. As I just discussed, the global pandemic continues to present near-term uncertainty for our industry and for Papa John's. However, we continue to expect Q1's comp sales to be slightly positive in North America based on performance so far this quarter and despite staffing challenges related to Omicron, which were not contemplated in the outlook we provided on our Q3 2021 call. That said, given the consistent strength of our strategy, our team, and our results over the past two years, our outlook for the balance of 2022 is for sustained, positive comparable sales growth as we lap our biggest Q1 and FY in the company's history.
In addition, our goal continues to be to take share in the pizza category while leveraging our differentiated strategy and premium position to protect margins in the face of commodity and labor headwinds. We're excited about our plan to accelerate development from the 250 net units we added in 2021 to between 260 and 300 net new restaurants globally in 2022. At the midpoint of the range, this represents approximately 5% growth on our total systemwide unit count. Papa John's momentum today gives us more confidence than ever that we are positioned to consistently and sustainably deliver strong sales growth beyond 2022. Our view of our long-term unit opportunity, both domestically and internationally, continues to expand as we sign historic deals to develop within key areas of whitespace.
Last but not least, the purpose and values that have been the foundation for our progress and that guide our team members are as strong as ever. We continue to move closer to our goal of becoming the world's best pizza company, and I look forward to sharing more color on our path to that goal throughout the year. I'll now turn the call over to Ann to discuss our financial results as well as provide some more color on fiscal 2022 and Q1. Ann?
Thanks, Rob, and good morning, everyone. Papa John's begins 2022 with great momentum after breaking company records for systemwide sales, comparable sales growth, AUVs, adjusted operating income, and adjusted EPS in 2021. We also ended the year with our financial foundations and priorities stronger than ever, which is enabling us to invest in long-term growth and shareholder returns, as I'll discuss this morning. Beginning with our P&L, for the quarter, systemwide sales were up 13.1% excluding FX. Accelerating net new restaurant growth contributed approximately 300 basis points to systemwide sales growth in addition to strong underlying comp sales. Consolidated revenue rose 12.6% in Q4 and 14.1% for the year, driven by positive systemwide performance.
Q4 adjusted operating margins increased almost 250 basis points and adjusted operating income rose 63.1% to $41.9 million, excluding $3.7 million and $6 million in non-recurring corporate reorganization costs in 2021 and 2020 respectively. Strong top-line results and related operating leverage drove this improvement, which is a tremendous outcome given the inflation, labor, and supply chain challenges we faced in Q4. Adjusted operating income rose across all reporting segments in the quarter. Our corporate restaurants successfully delivered higher margins with solid operating leverage. This more than offset between 200 and 300 basis points of commodities and short staffing headwinds to the segment's margin. Continuing to earnings, for the quarter, on a GAAP basis, earnings per diluted share were $0.67 versus $0.28 in the prior year period.
Q4 results include $0.08 per diluted share related to our strategic corporate reorganization versus $0.12 in the prior year. Excluding these special items, Q4 adjusted earnings per diluted share rose to $0.75, up more than 85% from $0.40 a year ago. For fiscal 2021, GAAP earnings per diluted share were $0.12 for the FY versus $1.28 in the prior year period. These results include $3.10 per diluted share in one-time expense related to the repurchase and conversion of the company's Series B preferred stock, as well as $0.29 related to the corporate reorganization versus $0.12 of reorganization expenses in the prior year. Excluding these special items, fiscal 2021 adjusted earnings per diluted share rose to $3.51, our highest ever, as Rob noted, compared to $1.40 in 2020.
Now turning to cash flow and the balance sheet. Cash flow from operations was $184.7 million in fiscal 2021, compared to $186.4 million in 2020, largely reflecting the timing of payments, including deferred payroll taxes under the CARES Act, which allowed us to delay payments from 2020 into 2021. This was offset by significantly higher net income in 2021. As we announced at the start of 2021, we substantially increased capital expenditures to $68.6 million, up from $35.7 million in the prior year. We invested in Papa John's long-term growth drivers, including new technology to improve the customer experience and in ramping up development of company stores, which itself is a high return in strategic use of capital, as Rob described.
Free cash flow for the year was strong at $109.7 million, compared to $137.1 million in 2020, reflecting these higher year-over-year growth investments. As discussed on previous calls, a key focus in 2021 was aligning the company's balance sheet and capital allocation strategies with our outlook for system-wide growth, strong cash generation capabilities, and multiple investment opportunities. As we have consistently stated, our top capital allocation priority is to invest in strategic, accretive opportunities to grow the brand and its long-term profitability, followed by maintaining a strong and efficient balance sheet. Additionally, we intend to enhance long-term shareholder returns by returning capital exceeding the needs of our other two priorities. Last year, significantly increased CapEx, in line with our growing earnings, cash flow, and growth opportunities, reflects the first priority.
As for the balance sheet, last summer, we simplified our capital structure by retiring all the shares of our Series B convertible preferred stock for $252 million. The transaction lowered our cost of capital and benefited long-term free cash flow and earnings, while only minimally increasing our leverage. In September, we refinanced our debt, locking in a very attractive 3 7/8% coupon with flexible terms on an eight-year unsecured bond. We also upsized our revolver, adding to our available liquidity. We ended 2021 with over $580 million in cash and liquidity available under our revolving credit facility and a conservative growth leverage ratio of 2x. Papa John's strong balance sheet will continue to ensure we have the security, flexibility, and optionality necessary to sustain and fuel Papa John's long-term growth.
With respect to our third priority, last year, we returned over $112 million to common shareholders. We repurchased $72 million in shares, completing the $75 million share repurchase authorization that we announced in November 2020. We distributed $40 million to shareholders in common dividends last year. We increased the common dividend by 56% last summer, bringing our yield in line with the S&P 500. In November, we demonstrated our confidence in Papa John's long-term future with an additional $425 million share repurchase program. We have already begun to deploy this, repurchasing an additional 110,000 shares for $13.5 million as of February seventeenth. I am so proud of our team.
Thanks to their hard work and commitment, Papa John's is delivering both excellent operational and financial results, allowing us to reinvest in our long-term growth and to enhance shareholder returns. Now to expand on Rob's comments about our outlook. I'd like to provide some color on our positive view of Q1 and fiscal 2022. Given the brand's strong momentum in Q4, continued robust consumer demand, and solid performance by New York Style Pizza and Epic Stuffed Crust, we continue to expect Q1 North America comp sales to be slightly positive, lapping the prior year's 26.2% comp growth, with positive comp sales growth continuing for the balance of the year. We currently expect Q1 adjusted consolidated operating margins to exceed Q4's, improving on a sequential basis, but landing below our record Q1 2021 margins.
This reflects incremental costs across our business segments related to temporarily acute staffing challenges as well as inflation. As necessary, we are taking targeted pricing actions which have mostly offset these increases. For the full year, our goal remains protecting our margins in the face of short-term commodity and labor headwinds. As Rob mentioned, we expect our strong development momentum to continue in 2022, adding 260-300 net new restaurants, with openings weighted towards the back half of the year per our normalized development cadence. We expect accelerating new restaurant growth to contribute more and more to our system-wide sales gains and consolidated revenue. CapEx for fiscal 2022 is projected to be between $75 million and $85 million as we continue investing in technology innovation and the development of new company stores, which was delayed last year by the availability of some equipment.
Q1 net interest expense is expected to be in line with Q4, and to be between $23 million and $25 million for the full year, as we moderately increase borrowings to invest in growth and return cash to shareholders. Our tax rate for the full year is expected to be between 18% and 20%. Q1 should be in the range of 12%-14%, reflecting the excess tax benefit expected from the vesting of equity awards, including performance-based shares, and from the increased share price since the grants were made. To wrap up my comments, I'd like to reiterate my excitement about Papa John's future. Strong demand, sustained comp sales, accelerating unit growth, and a differentiated strategy give us multiple reasons to be very bullish about Papa John's revenue, earnings, and free cash flow outlook in 2022 and the long term.
As the year progresses, we look forward to providing more details on our outlook for this year and beyond. I'll now turn the call back over to Rob for some final comments. Rob?
Thanks, Ann. I couldn't agree more. Papa John's continues to move forward on a sustainable long-term growth path with tremendous promise and potential thanks to the hard work of our team members and franchisees. Last year, our innovation culture proved that it can drive sustained comparable sales growth through new products, marketing, and technology. Now, with our development momentum and opportunity stronger than ever, we're delivering strong system-wide sales, earnings growth, and significant cash flow. As we enter 2022, our industry has felt some additional headwinds, but we're confident that these are temporary and that Papa John's differentiated strategy provides competitive advantage to manage them. Our outlook for 2022 and years beyond is very strong. As always, I'd like to thank our shareholders and everyone on this call for their interest in our company and for their continued support.
With that, I'll turn the call over to the operator for Q&A.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. We ask that you limit yourself to one question, then re-queue. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brian Bittner of Oppenheimer. Your line is open.
Thanks. Good morning, Rob and Ann. As it relates to the operating margins, you obviously told us that the Q1 is gonna be down year-over-year. Ann, you also said you continue to plan to protect margins for full year 2022. Does that specifically mean that you still believe you can hold margins flat for the full year of 2022?
Yes, it absolutely does. You know, we're really pleased that we've been able to offset the cost pressures in 2021 that we saw in the back half of the year, given our strong comp sales and just the benefit of operating leverage. While we expect the current inflationary environment around commodities and staffing to continue into fiscal 2022 and to be a headwind on margins for the H1 of the year until we lap that uptick in costs, our goal for the full year is to protect margins. We absolutely believe we can hold them flat. We have a number of actions we can take. As I mentioned, the most important is to drive sales through our differentiated strategy and product innovation.
As I mentioned in my comments, you know, we're taking targeted pricing actions, so we are very bullish about our margin outlook for 2022 on top of a record 2021.
Great. Rob, is there a way to think about how much the labor staffing challenges during the Omicron period maybe held back your sales trends, particularly in the Q1 ? You said demand remained extremely high, but labor was obviously holding your business back. Are you starting to see this headwind dissipate more recently?
Absolutely. Just to be clear, we're off to a great start in 2022. We reiterated our color on both Q1 and the year. There's a ton of confidence here. The staffing issues were temporary and driven by Omicron. We're seeing, you know, our cases almost go away at this point, and we're seeing staffing coming back quickly. We have nothing but confidence in this business right now and for the balance of 2022. You know, we're lapping the biggest year in the company's history, and we're telling everyone that we're gonna lap that positively and maintain margin. I don't think there's, you know, a lot to be upset about right now with Papa Johns.
Agreed. Thank you.
Thank you. Our next question comes from Chris O'Cull of Stifel. Your line is open.
Yeah. Thanks. Rob, you talked about staffing issues in the restaurant supply chain, but did the system experience any delays in construction because of supply chain or labor issues? Do you expect to see any issues in the early part of the year because of this?
Hi, Alton. Or I'm sorry, Chris. You know, the issues with opening restaurants was really a function of some equipment challenges that we saw in the back half of 2021. We have mitigated that issue, and, you know, it was really primarily a U.S. issue, and impacted our company restaurants disproportionately. As you know, we kind of just started building company restaurants again after a long time of not building company restaurants. It did not impact our international development, which is the disproportionate percentage of our new unit growth, and we don't anticipate any challenges, you know, achieving the targets that we just put forward on the call here, in 2022.
This will be, you know, the biggest year of development in Papa John's history.
Just one other question here. I'm curious if there was a step change in the international comp performance this quarter. I'm just curious what caused that change, and do you see it as a temporary issue?
The two-year stacks are about the same as the domestic business. We just had a much bigger Q4 last year on the international side, we were up over 20%. Both businesses performed in the 23%-24% two-year stack range. It was really just a function of a bigger comp from a year ago.
Fair enough. Thanks, guys.
Thanks, Chris.
Thank you. Our next question comes from Eric Gonzalez of KeyBanc Capital Markets. Please go ahead.
Hey, hey, thanks for the question, and good morning. My question is really about the supply chain and just in terms of the innovation pace here. You've had an exceptionally strong track record of menu innovation that I think typically follows a two-month cycle. I was wondering if you expect that cadence to continue or whether you're seeing any delays from ingredient availability or anything else that might break that pattern.
We don't have any issues with ingredient availability at this point. You know, I think I mentioned chicken wings in our last call as one of our challenges. We've even mitigated that challenge at this point. Supply chain is actually up and running, fully functional, operating at a high level, supporting our business. As you know, our innovation strategy is all about creating exciting products that can allow customers to self-select into and trade up and drive our ticket growth without causing significant restaurant operations or supply chain operations challenges. We've maintained that strategy. We don't foresee any challenges meeting the plan that we have in place. You ask about innovation. Absolutely. I mean, we just launched New York Style Pizza six weeks ago, and it's doing better than we anticipated.
It's more incremental and is gonna be a platform for us on an ongoing basis. We're really excited about the impact that all of our big platform innovation and our LTOs have had on our comp sales trajectory.
Thanks.
Thank you. Our next question comes from Alex Slagle of Jefferies. Your question, please.
Thanks. Good morning. Question, first on the development outlook, the portion of that 260-300 that'll be domestic, and then bigger picture when you think about the annual unit growth opportunity in North America, which is still a very big profit center for the company, but a relatively small portion of the annual unit growth. Is there a reason you can't grow, you know, from that 50 annual net units towards, say, the 150 level that, you know, you've seen many years ago and closer to where your larger peer is? Or are there bigger hurdles or reasons why it may not make sense?
You know, 2.5 Years ago, when I joined this brand, I think three of our top 25 franchisees had development agreements in place. Today, we have almost every one of our top 25 franchisees with development agreements in place. You know, it doesn't change overnight. It takes time to find sites. It takes time to build construction resources. It takes time to get the development infrastructure going. It's absolutely happening. There's no reason why we can't return to developing the number of restaurants that we've seen historically, domestically. You know, our international business is accelerating even more rapidly on development. Our, you know, comps internationally have been really strong, too.
You know, the top line sales of these units that are going up internationally are higher than they were last year or two years or three years ago. The profitability derived from the royalties of those restaurants is only gonna grow as those comps continue to grow. We're bullish both domestically and internationally. Like I said, 2022 is gonna be our biggest development year in the brand's history, and we see that rising ongoing year after year as these development agreements start to really come to fruition.
That's great. Should we expect the portion of that, the unit growth outlook, is it like the 80% or so ratio that you talked about for 2021? Is that the fair ballpark for us?
I think so. I mean, as much as I'm excited about the rate of growth domestically, it's gonna grow even faster internationally. You know, that 80/20 is kind of where we see the near future being, but it's gonna skew internationally, you know, looking out in years three, four, and five just because the rate is gonna grow so rapidly internationally.
Certainly. Thanks.
Thank you. Our next question comes from Alton Stump of Loop Capital. Please go ahead.
Great. Thank you and good morning. You know, just wanted to ask Rob, you know, you guys added nine company-owned units in the U.S., you know, in the Q4 . I have to go back to, you know, quite a few years to, you know, that big of a company-owned build in a quarter. You know, does that signal that you guys, you know, want to, you know, stay aggressive, if you will, moving into 2022 as it pertains to company-owned builds?
I mean, we are not ever going to be, you know, significant company-owned system. The percentage of company-owned is not gonna increase. At this, you know, there's no plan to do that. We do see significant opportunity for us to fill in our company markets and take advantage of the model, the fill-in model that we've talked a lot about, and leverage those results and that data to help franchisees make more informed decisions domestically. The earlier question about the domestic development, that is really a function of their confidence in their ability to build into markets that previously, historically were deemed saturated and penetrated.
Our new development models are suggesting that that's not the case, and that's why we've got, you know, all of these domestic franchisees now on with development agreements because they're seeing all these new opportunities. We see our corporate development. Obviously, we like the returns on invested capital from those units in and of themselves, but really the strategy is to use our company markets as the justification for franchisees going out and replicating that model, and that'll accelerate the growth domestically, very rapidly.
Great. Makes sense. Thanks so much, Rob.
Thank you, Alton.
Thank you. Our next question comes from Peter Saleh of BTIG. Please go ahead.
Great. Thanks. Rob, I was hoping you could give us a little bit of an update on traffic. How much of the comp in the Q4 was coming from traffic? And maybe just a little bit of detail around how much of that is coming from, you know, existing customers versus new customers coming to the brand.
We've been really happy with the fact that our growth over the last two years has been very balanced, both with traffic and check. As we've talked about in Q1, you know, there were some challenges with staffing and, you know, there were some impacts on traffic. We're not disclosing specific traffic numbers, but still, based on all the data we have, we're still significantly outpacing the industry in general on a traffic basis. You know, our innovation is driving a lot of check, and that's why we guided to, you know, or gave color and gave forecast for Q1 that we're gonna be positive comps. We're really happy with the balance of the business. As we talked about, you know, earlier, our loyalty program has doubled in size in the last two years.
We've gone from 12 million- 23 million. We are leveraging all of that to drive frequency among our current customers and you know, our innovation we're finding to be a great asset for us to bring in new customers. We're confident that we're gonna be able to continue to strike the balance between traffic and check as we move forward.
Great. Can you talk about or give us an update on PapaCall and the ability or initiative to try and move more sales digitally?
Yeah. Well, you know, Papa Call, our offices are in Indonesia and our offices were actually hit by a tsunami in Q4. I don't laugh because it's not a serious issue, but it is something that impacted our Papa Call service at the end of Q4 and Q1. But all of that has been mitigated. We're back up live. Papa Call has become a big part of our operating model and about, you know, all of our company restaurants leverage Papa Call, and I think about 30%, 40% of our franchisees are now using Papa Call.
For everyone that isn't completely familiar with PapaCall, you know, it's our call center, and every call that goes through there, we get the same kind of data that we get when people come in through our digital channel. Now about 90%-95% of all of our orders are coming in through conceptually digital channels, which we're able to document and learn from and leverage to drive our sales moving forward. It's been a big part of our business. It's gonna continue to help us continue to target our customers more effectively and drive one-to-one marketing capabilities.
Great. Just lastly on my end, don't know if I missed it. Did you guys give a commodity basket outlook for 2022 in terms of inflation expectations?
We haven't given any direction on that. I mean, our rate of cost increase is gonna be pretty consistent with, you know, the industry, but we haven't given any color on specific inflation numbers.
Okay. Thank you very much.
Thank you, Peter.
Thank you. Our next question comes from Andrew Strelzik of BMO. Your line is open.
Hey, good morning. Thanks for taking the question. You know, you've been pretty vocal about some of the new customer acquisition and the benefits there over the last two years. I was just curious if you could provide some color or metrics around, you know, spend levels or frequency as you've been able to track those new customers that have come into the brand over the last couple of years.
Yeah. I mean, in terms of spend levels, our check is up significantly. You know, it hasn't been a function of pricing until recently when we've taken a little bit of pricing to start to mitigate some of the impact of the inflation that we've seen. Almost all of it has been our customers, both current and new customers, self-selecting into our innovation. You think, you know, our average price per pie. Let's just say is around, you know, a little over $10, and then we launch, you know, Shaq-a-Roni, we launch stuffed crust, we launch New York Style, all of those at $12 or $13 dollar national promoted price points. Those are 20% and 30% increases in, you know, cost per pizza, price per pizza. That has been a significant driver of our check growth.
In addition to that, you know, things like Papadias and some of the, some of the poppers and rolls that we've launched have been much, you know, much more additive to check than necessarily people coming in to just buy those items. Those have also contributed significantly to check growth. We're seeing that across both our new customers as well as our loyal customers. Our loyalty members are our most valuable customers. Now that we've got 23 million of them, you know, we're able to tap into that to make sure that we're, you know, delivering value and both for the customers as well as for the company.
Okay. Thank you for that. If I could just squeeze in one other quick one. You mentioned balance sheet in your guidance around interest expense and using that to return cash to shareholders. I was just curious if there was anything more you could share around that. Is that just kind of normal course or any other expectations around that would be great. Thanks.
Yeah. I'll let Ann give a little color, but you know, in general, what I would say is we have a super clean balance sheet. In 2021, our team did an amazing job of you know, eliminating our highest cost of capital, which were the preferred shares that Starboard owned. The bond that we just issued is a great testament to how we're thinking about our capital management. You know, our leverage ratios are relatively low relative to the balance of our peer group in the industry. So we have a great balance sheet that we can leverage to drive shareholder value. We're doing that in multiple ways. We increased our dividend. We have executed very strong share buyback programs, and you know, we have a lot of flexibility there.
Ann, I don't know if there's anything that I didn't cover there.
Yeah. No. I mean, I think you nailed it. You know, we see our cash flow growing over time, and you talked about our debt capacity and the current share purchase authorization. We have a lot of flexibility and optionality to deploy capital and drive strong shareholder returns. We're gonna be very strategic and efficient in how we deploy our capital. We see a lot of opportunity to invest in the business. You saw our step up in CapEx spend to support our long-term profitable growth. We're gonna maintain that strong and flexible balance sheet, and then after that, we will return excess cash to shareholders.
Great. Thank you very much.
Thank you. As a reminder, so that we can get to everyone in queue with the time we have left, please limit yourself to one question. Our next question comes from the line of Lauren Silberman of Credit Suisse. Your question, please.
Thank you, guys. I wanted to ask about company margins, about 20% for 2021, which I think is the highest that we've seen Papa John's do even historically. Can you talk about how you're thinking about company margins in 2022 and opportunities for potential expansion from here?
Yeah. Once again, I'll tag team with Ann on this one, Lauren. You know, top line strategically, we're gonna continue to leverage the model that has been so successful over the last 2.5 years. We're gonna continue to bring new products and extensions of our current platforms we launched over the last two years that allow our customers and motivate our customers to self-select into these higher price, higher margin items. That really helps out our check. We're gonna continue to leverage our loyalty database to increase, you know, frequency and drive higher comps, which helps create, you know, leverage in the P&L. You know, we are taking some pricing. You know, the cost structure has continued to evolve.
We didn't have to take a lot of pricing throughout the pandemic, and we felt like it improved our value equation relative to our peer group, both within pizza and as well as, food overall, both in the restaurant segment and even eat at home. We felt like our value equation continued to improve throughout 2020 and 2021. In 2022, as we look to maintain our margins, and we feel like we have the right to do so, we're competing in the premium position in the QSR pizza marketplace. We feel like we have more pricing power.
The fact that we haven't taken pricing over the last couple years gives us even more confidence in being able to mitigate inflation both on our regular menu pricing as well as on some of our promoted items. You know, that's kind of the commercial side. I'll let Ann talk a little bit more on how we're gonna maintain margin across the P&L.
Yeah. I think the only thing I would add, and I've said this before, is just the advantages of scale, on our side in terms of the fixed cost leverage, in different areas. As we continue to grow the top line, and Rob talked a lot about that on the commercial side, you know, we can continue to leverage our existing assets, whether that's supply chain infrastructure, our technology footprint, our marketing assets. You know, you definitely saw the value of that scale in the margin expansion that we demonstrated, you know, both this year and last year.
Yeah. Continuing to build restaurants as our development pipeline continues to fill and the number of units that we open every year continues to grow, that's only gonna enhance that fixed cost coverage and commensurate margin.
Great. Thank you, guys. Congrats.
Thanks, Lauren.
Thank you. Our next question comes from Dennis Geiger of UBS. Your line is open.
Great. Thanks for the question. Rob, you've made what looks like a very smart decision to utilize third-party aggregators where it makes sense. Just wondering if you could speak more to the utilization of third-party delivery, where that mix has been trending most recently, and then going forward, how you see that opportunity playing out from here relative to where it's been. Thank you.
Thanks for the question, Dennis. Yeah, I mean, our partnerships with the third-party aggregators have become more and more important to us, as we've, you know, leveraged that partnership to bring in new customers and incremental profitable transactions through the marketplace that they offer. Also as the staffing challenges that we've seen, not just in the last six weeks where it's been, you know, greater than it had been previously, but really over the two years of the pandemic. I mean, I don't think it's a secret to anyone that there has been a staffing challenge in our industry, since the onset of the pandemic.
Our partnerships with the aggregators have really helped us get through that and are helpful, like I said, on the growth side from bringing new customers, but also from the labor management side. You know, our technology is a big part of what we do. As I mentioned earlier, with PapaCall, almost, you know, over 90% of our orders are coming through and being entered into our digital channels. I mean, we are an e-commerce company, and we are investing throughout the company in technology. The aggregator partnerships are just one piece of that, a very important piece, a growing piece. We still believe that it's a symbiotic relationship. We work with those guys. We add a lot of value to them. We provide a lot of trips for them. We're one of their largest customers.
It's been a great partnership. We'll continue to foster that. Through these times of staffing challenges, it's been definitely a strategic differentiator for us.
Great. Thanks, Rob.
Thank you, Dennis.
Thank you. Our next question comes from James Rutherford of Stephens Inc. Your line is open.
Hey, good morning, and thanks for taking the question. Rob, it seems like one of the results of signing these large domestic franchising deals might be that some existing operators in specific markets may choose to sell their stores rather than share a territory, which could make sense. I'm just curious, do you expect a gradual consolidation of the U.S. system? If so, what implications would that have if it plays out broadly?
You know, I think we've. Thanks, James. I think we've talked a lot about some consolidation in the system might be helpful. I mean, you know, the strategy of the past where you could come in and open a restaurant, a single restaurant, if you wanted to get into the pizza business, you know, we've moved away from that methodology. We're now looking for larger, you know, capitalized, sophisticated franchisees with operating experience. We have a lot of those in our system, and they're doing an amazing job. We also are bringing in new ones like Sun Holdings and Guillermo Perales. I do think that there's an opportunity here for larger franchisees to consolidate some of the system. You know, there's a lot of financial rationale to do so.
Our restaurants are more profitable today than they ever have been. There's a lot of interest to buy restaurants. We get approached all the time about selling our company restaurants. There's a lot of demand for Papa Johns right now, which could lead to, I think, some productive consolidation throughout the system.
Thanks, Rob.
Thank you.
Thank you. Our next question comes from Brian Mullan of Deutsche Bank. Your line is open.
Hey, thank you. You know, congrats on the development agreement with FountainVest Partners in China. Can you just talk a little bit about how that came to be? Just remind us where the dynamics stand in China today. Is there still another franchisee partner in that market, or could you potentially look for a similar exit for them? Or, you know, maybe they're planning to grow as well. Just any color on that market.
Hi, Brian. You know, prior to the FountainVest announcement, we had about 250 restaurants in China, and they're pretty much split between two franchisee organizations, one in the south, one in the north. FountainVest approached the southern franchisee organization with intention of purchasing them. They were excited about the momentum on the business. They liked the brand. They felt like they could accelerate the development efforts given their resources. Once that happened, we obviously engaged in that discussion and worked with FountainVest and the prior franchisee who is still operating the restaurants there in South China to develop an agreement that was gonna be in the best interest of both them as well as the brand. You know, 1,350 restaurants is a big commitment for any franchisee.
They're obviously very bullish on what Papa Johns can do in China to sign that big of an agreement. They wanted to lock up, you know, the ability to develop a lot of different territory. We still have the North China territories which are currently being developed and operated by a franchisee. We're currently having discussions with them on what their future looks like and what their aspirations are. You know, ideally, we'll be able to kind of create an opportunity for them like we did with FountainVest Partners.
Thanks a lot.
Thanks, Brian.
Thank you. Our next question comes from Brett Levy of MKM Partners. Your question, please.
Great. Thanks for taking the call. Just asking James' question in another direction. When you're looking at your franchisees right now, what are you seeing in terms of either unit level profitability just from a color perspective or even their enterprise level profitability? What kind of growth has materialized lately? And then also, when you think about your development growth plans over the next year, two years, how should we think about that in terms of either the top 25 new investors coming in, just things of that nature? Thank you.
You know, if you recall, three years ago, we created a We Win Together program for our franchisees, where we're essentially giving them cash to keep them afloat. You know, when I came in here, for the first two or three earnings calls, a lot of the questions were, "Are you gonna have to continue on that program? Are you gonna have to continue cash flowing franchisees?" You know, when that program came to a close, not only did we not have to continue it, you know, the franchisees were in the best financial position they'd been in a very long time. Today, the unit level economics are as good as they've ever been. You know, our AUVs have eclipsed $1.1 million. Our cost to build is significantly less than a traditional QSR restaurant.
The cash-on-cash returns on this business are, you know, frankly unbelievable. That's why we've got so much demand to come into the system. That's why we've gone from three or four franchisees building one or two restaurants three years ago to almost all of our top 20 franchisees signing multi-unit deals today. You know, unit-level economics do not keep me up at night. The development that we're seeing, the agreements that we're seeing both domestically and internationally, are really the biggest testament to that.
Thank you.
Thank you. Our next question comes from Nick Setyan of Wedbush. Your question please.
Thank you. You know, just given what wheat prices are doing, you know, post the Russian invasion of Ukraine, I think there's some concern around the impact on, you know, Papa John's and pizza dough. Can you just maybe let us know, you know, to what extent you're contracted on the dough, you know, for the year, and how much visibility you have into the pricing? If, you know, it does, if we do see a lot of inflation in those costs, do you have the ability to offset it, you know, given what the incremental headwind is as of this morning?
Yeah. You know, it's an interesting question. I was very surprised to see the reaction in the stock this morning given the year that we just closed and the momentum that we have in Q1. I guess, you know, my only rationale is that there is some concern that these actions today will have an impact on our company. What I can tell you is that we don't see it that way. You know, one of the great things about being in the food business is that, you know, through good times and bad, usually the business is pretty stable. You know, we're a globally diverse company. We operate in 50 countries. We have restaurants in Russia. We don't have any restaurants in the Ukraine.
We source, you know, our ingredients really pretty close to where we end up using the ingredients. You know, if there's disruption in the Ukraine, we don't have any restaurants there. Our restaurants in Russia, you know, it'll depend on how much disruption there is there and the impact of that business. We have about 185 restaurants in Russia. Our domestic business and our business globally in the U.K., Latin America, China, Korea, we don't see any operational disruption on the horizon. I would not expect our company or our stock to really be impacted by, you know, outside of the macro impact of the market in general. This really won't have a big impact on our operating situation or commensurately financials.
Thank you.
Thank you. Our next question comes from Chris O'Cull of Stifel. Your line is open.
Thanks. I just had one follow-up. In your prior comments, you indicated the company believes it can maintain its operating margin in 2022, which I understand is, you know, a very important feat here in this world with all the inflation. Do you believe the company can grow earnings per share kind of above that mid-single digit range in 2022, given you expect interest expense to also be up year-over-year?
You know, I think that getting to the high single digits is possible in the EPS growth for the year, when you look at combining the interest expense with the share buyback program.
Okay. Okay, that's helpful. Thank you.
Thank you. At this time, I'd like to turn the call back over to Rob Lynch for closing remarks. Sir?
Well, thanks everyone for joining us and for your questions this morning. We are really excited about 2022 and the future of Papa Johns. We spent 2.5 years building a foundation that we believe we can build on, not just maintain, but continue to grow. It's really a testament to the partnership that we have between our franchisees, our operators and everyone behind the scenes in the supply chain globally that take such good care of our business. 2021 was truly a record year on every front. 2022 is off to a fantastic start. We're very confident in our ability to meet expectations both in the short term and the long term. We look forward to reporting back to you on our continued momentum and outlook. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.