Good morning, everybody. I'm Brian Bittner, the restaurant analyst here at Oppenheimer, and thank you again for attending our 25th Annual Consumer Conference. We're incredibly excited to welcome Papa John's International back to our conference, and we're thrilled to be joined by Papa John's President and CEO, Todd Penegor. He joined the company in August of 2024 after a solid run as CEO at Wendy's. We are also joined by Ravi Thanawala, who's been CFO since July of 2023, and he's also Executive VP of International. We are also joined by Heather Hollander, Senior VP Strategy and Investor Relations. This refreshed management team is making real solid progress against its new strategic plan to drive improving traffic and enable more profitable growth. We'll dive into this and other important topics for the story. We thank you all for spending time with us today. Thank you so much.
Our pleasure, Brian, and good morning, everyone. Thanks for joining this morning. It's hard to believe that it's been 10 months since I've been here. So excited to be on board and looking forward to the chat today.
Todd, I'd like to start there, start by zooming out, starting big picture. You've been at the company for less than a year, 10 months, but you've already made some major strategic shifts to try to improve traffic, to elevate the market share, and enhance the restaurant economic model. Can you just start about the progress you believe you've made over these last 10 months? And more importantly, where do you see the largest unlocks as you look forward into 2026 and beyond?
Yeah, no, thanks for that, Brian. It really started with the team. You know, there was a lot of talent that I was able to inherit when I came on board. Ravi, you know, clearly had a lot of potential and picked up the international business along the way to continue to develop himself. Joe Seavey, who I had on board, picked up global remit around development. We brought in some new talent. Bringing in Kevin Vasconi on the technology front has been great. He's really built out a really strong team around him. Jenna Bromberg on the marketing and culinary front, she's built a strong team around her. Those things were important because that was step one, make sure we had a really good team that was really consumer-focused, insight-driven on everything that we did.
You know, we were in a position where the brand had a strong foundation. We had a lot of loyal customers. We weren't just seeing the frequency that we needed to have in our brand, and we knew we had to do a few things differently. We were coming out of, you know, a campaign around better get you some, which really didn't pay off, you know, why we were Better Ingredients, Better Pizza. We had to come back to the core of really telling our story of why we're better, unique, and different than the competition.
You are starting to see that in our Meet the Makers campaign, first talking about the pizza craftsmanship in our restaurants, and you are going to see that evolve and talk about our unique differences around simple ingredients and, you know, kind of the farm to fork and made from scratch nature of our food, which is so on trend for today's consumer. We knew we had to get back into position on value, and value is not just the price point, it is worth what you pay. First and foremost, having an always-on message around $6.99 Papa Pairings, having a good compelling message on our high- end of the barbell at a good price point, those things were important. We also knew that we had to really fall in love with being great operators all over again. We put some things in play.
We put some additional coaches into play. We spend more time in the restaurants coaching, supporting our franchise community and holding them accountable to really raise the bar and deliver on great experiences every single time. You know, the combination of, you know, having that quality message, getting back into position on value, and then paying it off at the restaurant level, and we're still in the early innings on all of those things, has made a big impact on our business. We made a couple of other moves. You know, really helping on the value perception front was evolving our loyalty program, really moving it to, you know, getting $2 off of $15 versus, you know, $10 off of $75, helped drive frequency, helped drive engagement. We're really proud of the way our program works because it's not bouncing you back to a product.
It's giving you cold, hard cash that, you know, you make a purchase, you're going to be getting a discount off your next purchase. We're seeing some nice frequency, and we can talk about that as we go through this morning on that program. We're seeing our worth what you pay metric move nicely, both from a value for the money as well as the quality aspect. Those things have been important moves that we've made along the way. Importantly, we've been able to leverage all the great data that we have. We have a really strong loyalty program. We're up to 37 million folks that are enrolled in the program, and we just weren't leveraging the data to the extent that we should or could.
We have really evolved that, really worked the customer journey, worked to connect the consumer to change behavior, and really having a retail mindset with all the data and the information we have and watching the partnership with folks with some retail backgrounds, with Ravi on his background and Jen on her background, to be able to check and adjust really quickly in our business to make sure we are connecting our programs to our customer and bending trends. Those things have all really driven some positive momentum in our business. You know, our strategy seems to be working. You know, we have got some work to still do. We are still rebuilding and building out our innovation pipeline.
You know, you'll see a lot more innovation come onto the calendar in the back half of this year and into early next year as we've tested and proven out some of the things that we need to bring to life. We've stayed away from that for the last 10 months. We've been really focused on the core, but it has been paying off as we're selling a lot more pies. We talked about pie sales being up, you know, 4% in the first quarter. You know, we know we've got some sides and handhelds that, you know, we're going to have to bring some news to over time to make sure that that isn't a leaky bucket.
We are focused on improving the overall satisfaction of the whole experience, not just what we deliver and what we make, but all the way through the whole journey and what we're doing through the app and making it a lot easier to get through with less clicks and more seamless. Lots of little levers that we're pulling, but they all add up to make a difference for the overall customer experience. It's starting to bend some trends in a market that's very competitive, both from a competitor perspective in the pizza category as well as, you know, a tougher consumer landscape. We know we can deliver good value for the money and keep building on the trends that we're seeing.
Building on that, you are bending some trends. We are starting to see some measurable success. Sales and traffic trends have showed pretty consistent sequential improvements into the first quarter and year to date. A big piece of this is improving the value perception. That is kind of what you started with on this journey. What are the largest indicators that your strategy to improve the value perception is resonating with the customer? From a market share perspective, you know, just based on your traffic, it looks like you are starting to retake some share. Where do you think that is coming from?
Yeah, so, I mean, first and foremost, we do track our brand health, and we look at it on a regular basis. Worth what you pay and value for the money are important metrics that we've seen significant movement in over the course of the last nine, ten months. We really believe that the levers we're pulling are making a difference. We're hearing it in the verbatims back from the consumer. You know, we've always had $6.99 Papa Pairings on the menu. We just didn't talk about it as regularly and frequently as we have. We haven't really played a strong barbell strategy consistently, and we're doing that now on both the low end and the high end. We know our opportunity is to bring some new news into the high end, and you'll start to see that.
You're seeing it right now with Cheddar Crust Pizza, and you'll see a steady cadence of innovation in the back half of the year. You know, all of those things have really allowed us to connect to the consumer. It is important. You got to pay it off at the end of the day. You know, we talked not that long ago on our earnings call that we did a lot of mystery shops. We knew what we did well. We knew what we needed to do better. We purposely have spent more time in our restaurants with our franchisees and with our teams to coach and make sure we continue to raise the bar to deliver on a great experience every single time. That's a journey that will never end. Those things are making a difference.
Us just talking about, you know, the craftsmanship and what we do in the restaurants and, you know, the visuals that we're now providing in the Makers campaign and the evolution that we're going to talk about and Six Simple Ingredients and fresh, never frozen original dough, those things will really continue to resonate with the consumer to make sure they do feel, you know, everything's worth what they've paid. We have continued to look at the full ecosystem: price, quality, messaging. We will continue to tell our story, not just on a linear front, but through our digital and social voice. Anything else to add, Ravi?
Yeah, Todd, I think you covered a lot of it. This focus on Six Simple Ingredients, the way we make our tomato sauce from tomato to sauce in 24 hours, we think that's really powerful for the consumer today. When we think about where the market share opportunity is, we think that this positioning speaks to a lot of consumers across the world. We think that it's an opportunity to invite more consumers into the brand. As we talked about on our earnings call, we saw a sequential improvement in sales and transactions in Q1. We expected that to continue into Q2. We feel like we're on track with that. As we talked about on the last earnings call, we expect to see comps continue to accelerate as we progress through the year.
We're bringing a true data-first mindset to how we check and adjust in the business every single day. This notion of being able to look and understand what's happening in our value perception by campaign is possible. It's something we study deeply. We're seeing that consumer behavior across all of our frequency bands are improving. We're pushing and pulling levers at a fairly micro level, but it's all grounded in this notion of we are a quality player and we have a great positioning when it comes to Six Simple Ingredients and a truly pizza that pays off in quality.
I'll tell you what, Brian. The one thing that we had to refocus the whole system on is we had to bring in more customers more often. We purposely went after making sure we were driving transactions, and then we'll continue to work to figure out how we drive check in the economic model. You know, Ravi and the team work that closely day in and day out with the marketing and the operations team to continue to do that. We talked about it. You know, every incremental transaction that we bring in is, you know, $17 of variable profit. It starts there because we got to make sure we're in the consideration set. We drive some frequency. You know, the loyalty program's clearly been a frequency driver for us.
It's been great where we used to have only two in 10 folks actually buy with an offer through the loyalty program, and now we're almost, you know, five in 10. The opportunity is to now recruit some more new customers in as we start to get frequency up with our core. That's why you'll start to see some more news coming our way with, you know, Cheddar Crust Pizza being the first one that's out there today. You know, those things make an impact to continue to drive our sequential improvement in our business. As Ravi said, all of that's on track with what we talked about coming out of our first quarter earnings call.
This is how we bring the sales layers together. Papa Pairings is high repeat purchase. Consumers are now trained that we have that offer available, and now we're layering on a new sales layer with great innovation like Cheddar Crust.
In your last business update, you just touched on it, but you did reiterate your guidance for same-store sales for 2025, flat to + 2% in North America. You talked about how that does incorporate accelerating trends, getting to flat comps by midyear with positive traffic and positive accelerating comps exiting the year. It sounds to me like you're speaking to confidence in that trend. What forward indicators are you seeing in your business that's driving that confidence in this positive curve?
Yeah, I think as we talked about on the earnings call coming out of period four, where we actually saw, you know, transactions continue to grow nicely north of 1%. At the time, our same restaurant sales comps were still down, but down less than 1%. We talked about continuing to build momentum from that point through the quarter. We're on track with all of that. You know, in a tough consumer and competitive landscape, we continue to deliver on that. I think it's all the levers that we're pulling, bringing some news in with innovation, continuing to refine our one-to-one marketing communications through CRM, continuing to recruit new folks into our loyalty program, and continuing to engage with the folks in the loyalty program.
All of those things have continued to build our momentum and telling our story around who we are and really getting back to our core of Better Ingredients, Better Pizza, and really paying off why we're better in a lot of respects than a lot of the other choices out there. Those all have built on our trends, and we're on track with all of that. Importantly, as you look to the back half of the year, we just still have a lot of growth levers to pull in front of us. We can continue to refine our CRM messaging. We test and learned a lot, and, you know, we know what's connecting the consumer, and we know what's not. We spent a lot of time rebuilding our innovation pipeline.
You know, it was barer than we would have liked at the end of last year, but that's replenished, and we have a good cadence of news that'll come for the back half of this year. We're going to continue to lean in on, you know, really making sure that we're partnering with the franchise community to help our teams continue to make the best pizzas in the business. We talk about being the best pizza makers in the business. Words have to turn into delivering on that promise. We're seeing our overall satisfaction metrics improve at the restaurant level. All those things start to give us confidence in the back half that we'll continue to accelerate. Least of not all, our comps get a little bit easier. Anything else you'd add, Ravi?
The metrics I obsess every single day on this topic is what's happening in our consumer accounts, and are we seeing growing confidence that our accounts are getting stronger? Is the distance to the second transaction getting shorter? That helps us to predict that another transaction is coming. Third is like, are we actually seeing the retention rate of our consumer improve? We do see that the recipe of strong consumer buy in a digital-first business gives us the levers to go push and pull to continue to drive comps. To Todd's point, we've spent time replenishing the innovation calendar for the business, and we'll continue to drive some excitement with the consumer as we look into the future.
Excited to see all this innovation. You guys have always done a great job with innovation. As we think about the financial impacts of these strategy shifts, you have very defined EBITDA guidance this year, $200 million-$220 million. Interestingly, this actually includes $25 million of incremental investments in marketing in your kind of amplifying marketing piece of your strategy. What are your early learnings on deploying this incremental advertising thus far? And how do you think about the sustainability of that investment, say, in 2026 or 2027?
Yeah, I'll start, and then Ravi provide a little bit of color. I mean, clearly, we had a lot to invest to really tell our story. You start to think about where we have historically been, and we've been a very linear-driven, you know, ad message, which got us broad reach and appeal. We continue to test and learn and evolve our media mix. What's the appropriate level of linear, and how do we support it with social digital? You know, how do we amp up and ramp up what our social voice needs to be? You're starting to hear our voice be a little more brazen and really talking about why we're unique and different than the competitive set. You know, in that social and digital landscape, it can really complement what we're doing in the linear spot.
We've learned a lot on that, and I think we brought our franchise system along on the journey that it is powerful and it does connect to the next generation of consumer and it can drive sales and frequency. We're also really trying to evolve and learn what's the appropriate national and local mix of all of our overall advertising spend. That's still a big opportunity for us into 2026 around how do we make sure we stand back up our co-ops, how do we have the right level of local pressure, how do we work as a unit in those local markets, and have the right balance that works in the economic model between national advertising and local advertising. We're testing and learning on that every single day. We know some of that investment will carry forward into 2026 to really build a strong foundation.
It'll continue to help us build momentum in this business to make sure we stay in the consideration set. We're driving frequency and we're winning the hearts and minds of more new customers. We're feeling good that, you know, the strategy that's in play, the investments that we're making will pay off for the long run. Any other thoughts on that, Ravi?
The payoff for the long term is really clear to us. We think that this is the time to be going out there and taking market share and taking market share from a transaction lens. High variable profitability model with every new transaction. There is still capacity in our existing restaurants in order to add more orders and transactions. That is going to strengthen the four-wall economic model, and it is going to help us to take market share for the long term. This is all underpinned against this notion of we deliver a quality product with a great loyalty program. Us investing right now to win consumers' hearts and minds, we think is going to be really impactful, especially as there is a lot of dynamic elements to the consumer environment right now. We feel well-positioned right now that this is the time to go take share.
On loyalty, 37 million members, which is a meaningful statistic for the size of your company. You talked about better leveraging data to drive the business going forward. You have now partnered with Google Cloud. You have an amazing tech executive in Kevin Vasconi. What is the biggest opportunity you see on the loyalty data side of the business to unlock for future growth?
Yeah, I think we still, even though we got 37 million folks in the loyalty program, I think we can still continue to recruit more. It was nice that we added another million in the first quarter. You know, that loyalty program is clearly working. To recruit more folks in will allow us to continue to drive frequency and connect to that consumer. I think our opportunity is we've got such a rich minefield of data that we haven't utilized to the full extent that we should. We're starting to do that right now with the teams and the partners we have in place. We're starting to see some very impactful, you know, CRM journeys and connections to bend trends. We can move quickly, which I love that the team's checking and adjusting.
We will continue to do that to make sure that we're staying relevant in the consumer mindset to make sure that we're getting one more purchase out of them on a more regular basis. We do think there's a huge amount of opportunity. I mean, Kevin's recruited a first-class team. He's brought some unbelievable talent in, and we've got some great partners. You know, Google Cloud, when you start to think about what they could do to help us leverage AI and mine all the data to anticipate customer needs, to have hyper-personalized loyalty experiences, to really drive some predictive ordering and personalized marketing, improve the overall ordering experience, and even leverage some AI to help us supplement kind of the call center and have better customer interactions to have better engagement when folks can't get through the restaurant on a busy Friday or Saturday night.
Those are all opportunities still ahead, and we can get at them really quickly with a great partner that's super hungry to figure out how we leverage all this great data. You know, the thing that we're blessed with is we've got purity of data. I mean, you've got 30 or 40 years of great data, which really gets, you know, our tech and marketing teams super excited, but the partners that we work with equally excited to go figure out how you mine it to connect to the consumer even better to drive that one more purchase experience.
Right. The most consistent conversation I have with Kevin is like, what is our next action to shorten the distance to the next transaction? That is constantly what we spend our time on. That can happen on a really micro scale that as soon as we identify you, making sure that within a few clicks, we can get to ordering your last purchase, or it could be on trigger-based marketing campaigns that understand your consumer profile. That is the conversation that Kevin, Jenna, and I are always having. We know that if we do that and take friction out of the consumer journey, we are going to win their loyalty over time when there is a payoff with a fantastic quality pizza at the end.
I think we just need to do one quick touch on third- party just because it's a popular topic right now in the pizza space. You guys have been on third-party platforms since early 2019. That piece of your business has grown nicely to close to 17% of your sales. Obviously, a big competitor has been on Uber for over a year now, getting on DoorDash now. Can you talk about your confidence in protecting your market share on these platforms? It's been a popular question amongst the investment community, and I just love your thoughts on that topic.
Yeah, maybe I'll start and Todd, jump in. First, we've been in this game for six years, so we've learned a lot. We've also seen what happens when competitors do join the space, and we actually grow through those moments, and we also learn how we're going to continue to adapt and adjust. We think that the pizza category, in broad strokes, is still underpenetrated in the aggregators. We think, second, that we have been quite successful and continue to show really strong strength in terms of our ability to grow even with growing competition in that space. Third, we actually think because we're 10%-11% market share, now we get a fight for placement, and it actually is a net advantage to us to continue to grow because we think that this brand deserves more market share.
We believe that we have a great quality proposition at a great price point in the aggregators, and we think that we'll continue to grow and take share over time, not only in the aggregators, but in our broader market. If I zoom further back out, we still see a tremendous opportunity to accelerate and grow our carryout business. We see multiple vectors of growth opportunity for this business over time. We are going to compete where the consumer is, and our economic model allows for that. There are growth opportunities in first- party and third- party, and consumers are pulling from this brand.
I think it's well said. I think, you know, 3P and 1P are going to have to learn to coexist. I think, you know, our best experiences have to happen in first-party delivery, and we'll continue to amp up, you know, our app and our loyalty program, and we're not done. We'll continue to evolve all of that. Third- party extends the reach. I mean, we don't have drivers clocked in early in the day, late at night. There's opportunities, and we got to create equal experiences in both, but the best in first P. I do think we're uniquely positioned. Where our share is, pizza can grow in third- party still as it's underpenetrated, underrepresented.
We have had a nice commanding position, and I do think quality and news and innovation certainly help in 3P, and we have got a lot of that in front of us, which will have us compete well. I think several of the pizza folks can win together. It does not have to be expensive one another. I think we can all win together. We have seen that in some of the sequential improvements with our business all being on track with some of the competitors coming into a new 3P channel now. We are feeling confident that we will continue to build on that momentum.
Great. I know we're jumping around a bit here, but there's a lot of pieces of the business I want to get to. I just want to ask about the supply chain business. There was a very interesting comment on the last earnings call where you talked about how you were looking to optimize the value proposition of your supply chain business for franchisees. I know you're not ready to announce anything specific yet, but can you just maybe unpack what this means exactly? What's the ultimate goal of this strategy and what you were hinting at on the last earnings call?
Yeah, no, we've taken a hard look at our overall supply chain. You know, you look at the white glove service and the cost to serve all the restaurants across the U.S., and you look at the capacity and how it's utilized and where we're located. We've done a nice inside out and outside in look at all of that and really changing the mindset to make sure we're not just a cost-plus model, but we're really driving productivity, efficiency, and cost savings that can fuel reinvestment to drive the economic model. Folks will reinvest into technology and into their people and into reimaging and into new builds over time. We've been pleasantly surprised that we see a lot of opportunity. You know, we know we can get after them.
We expect to start to see some of those savings transpire and hit into the P&L in 2026. The team's moving quickly with great urgency, and we're getting smarter every day with the work that's underway. We'll be prepared in the upcoming quarter or two to start sharing a little bit more and start to build some of that confidence around the cost savings and productivity into the outlook into the future. Ravi, you spent a lot of time going through it. I mean, just your level of confidence, some of the things we've seen, some of the hope and optimism on what we might be able to unlock there.
Real tangible growth opportunities and cost savings opportunities for us that we've identified. This was really in the spirit of protecting the quality of our product and improving the four-wall economics. We have identified a list of efforts and actions we can take that continue to maintain and drive our quality proposition, but take cost out. It is optimizations in the transportation, it is optimizations in how we deliver to the back of house. It is how we look at our network strategy as a whole. I think as Todd talked about, we will start to see these benefits flow through the P&L in 2026. We think that giving ourselves the opportunity to serve the consumer with the best possible price with a fantastic quality product is a winning recipe for long-term market share gains and development opportunity.
Great. When I think about your 2025 financial outlook on the unit growth side, it assumes about 2% global unit growth. I know that includes some cleanup that you're doing, perhaps some refranchising, which maybe we'll have time to talk about. Are you able to talk about the normalized unit growth you think is the right level for this business across international, across North America as we look out over the past several years?
Yeah, I'll start. I think, you know, the good news, everything's on track on the development front in both the U.S. and the international front as we sit here today. You know, I know it's been, you know, a little more difficult for a lot of the franchise community, even the company restaurants over the last 12 months on the economic model, but we're making improvements every day. There's a lot of confidence that those improvements will continue with the business momentum that we're seeing that gives, you know, the franchise community and even the company the confidence to keep investing to build out new restaurants. We know we've got a lot of opportunity to infill in some of our top market share markets. We know we've got some white space to continue to grow still in the U.S.
There is a lot of untapped potential across our international business. You know, Ravi's gotten very focused to go narrow and deep on a lot of the international business. We have a little bit of cleanup to support that strategy, but we are working through that within our guidance. You know, we have done the same in the U.S. where we have done a little bit of cleanup, but we are on track. You know, probably worth you just talking a little bit, Ravi, around what do you think kind of the ongoing cadences once we get past this year on those fronts?
Yeah, the best way to frame it up as we talked about in prior calls is we expect this brand can drift and move towards high single-digit system-wide sales growth. To us, that's the real frame we're thinking about development opportunity through is we think that there's a mix of comp upside still in the business. There's a mix of development opportunity. We want to develop the right way. What that means is strong economic model on a four-wall basis, really deliberate and planful strategy. You know, in international, we've been going through a transformation over the last years, and we're starting to see the impact of that show up in our results. Our most important territories are growing at a healthy rate, and we had a solid comp in Q1. I think what we're most excited about is the growth is very deliberate. It's thoughtful.
We see our franchisees more and more engaged in long-term marketing strategy, the innovation approach, and being very deliberate on what is the next opportunity in terms of location and growth, and how does that fit into the broader marketplace and trade zone strategy. Development is absolutely a focus, but it's doing through this broader approach of we believe we can take market share, and we believe we can accelerate system-wide sales.
Select refranchising to the, you know, question that you had in there, Brian, will play a role. We've got a strong company portfolio. We know where our core markets are, where we got a number one or two share, and we'll continue to grow with those markets. We got some other great markets that we'll have to take a look at if we can recruit some new franchisees in or scale up some existing franchisees that are great brand stewards and partners. It'll give us an opportunity to really double down and really solidify some of the growth opportunities that we have in the future. That is a tool in the toolbox that's still ahead of us to continue to fuel some growth.
On the refranchising, you do have, you know, 540 company-owned units that you operate. You did say on the last call that you expect the initial set of units that will be refranchised to be accretive to your financial model, perhaps in the second half of the year. Can you just unpack that a little bit and help us understand what is your goal as far as what you're going to do with the cash proceeds from the refranchising process?
Yeah, I'll start and then Todd jump in. We see an opportunity to refranchise selectively, especially when there's an opportunity to bring in great operators into the system who have a great, the right growth mindset. To the specific comments that we made, there is a unique opportunity in our portfolio, which I wouldn't say is indicative of our total fleet that we could refranchise and end up EPS accretive. There is a unique structure there that we're working through. More broadly, we see growth-oriented franchisees wanting to join the system. As we think about our broader capital structure, we continue to maintain a balanced approach of wanting to return value to shareholders, paying down debt, and investing to grow.
We see clear opportunity for us to continue to think about refranchising not only as part of our growth narrative with franchisees, but just what we spend all of our time as a business focusing on. We think about our core business model as, you know, being a fantastic franchisor.
Yeah, and I think, you know, as we do some of the select refranchising, I mean, we do have a strong balance sheet to start. We got an opportunity to continue to invest in growth. We know we got a lot of growth levers, right? When you think about investments into technology or investments into reimaging some of our own restaurants, some opportunities to infill in the company markets, there's a lot of opportunities to drive profitable growth. That's where our mindset will start at first. You know, if we got some excess cash, we can pay down some debt and keep that strong balance sheet in play or think about other ways to return cash to shareholders. We feel good that we're in a position with a lot of leverage to pull ahead of us to continue to drive the momentum in this business.
Given that we're at time, that's a perfect spot to end. Todd, Ravi, Heather, thank you so much for joining us today and participating in our conference. I hope everybody has a wonderful rest of their day.