Papa John's CEO on Q2 earnings, retaining new customers

Papa John’s CEO joins Yahoo Finance’s Brian Sozzi and Alexis Christoforous to discuss the company’s latest earnings report, and future business outlook.

Video Transcript

BRIAN SOZZI: Papa Johns continues to deliver some sizzling sales growth during the pandemic. Let's bring in Papa john's CEO Rob Lynch to discuss. Rob, always good to speak with you.

So coming out of the second quarter-- which I've never seen same-store sales gains like this before-- your sales have continued to accelerate. How do you explain this to investors? We're not seeing this type of strength with same-store sales up over 30% in a month-- we're not seeing that at the sandwich guys, and I know that's a space that you know quite well, having come from Arby's.

ROB LYNCH: You know, it's been a really interesting time for all of us, obviously, as we've all struggled to figure out how we're going to work in this pandemic environment. And obviously for our business, we're built for this. You know, we-- 70% e-commerce business, 70% of our orders coming in through digital channels, and then obviously an organic delivery capability that we've built. And those two platforms are going to perform extremely well through the pandemic and then as behaviors continue to be impacted by the pandemic.

So our strength is really a testament to our ability to react very quickly to the situation. Our teams moved quickly to implement new safety procedures at the restaurants to protect our employees and our customers. And then launching no-contact delivery was a big deal for us, changing all of our operations, changing our communications around that.

So a huge platform, and that sustained through the first three months of the pandemic. And then in July, you know, we have now brought in over almost 4 million new customers during the last four months, and those customers are tending to come in through our loyalty platform and are stickier. They stick around. They repeat at a high rate. Their frequency is higher. So we've been focused on retaining those customers so that when the pandemic recedes, we're able to continue taking good care of those new customers, and that'll keep our sales going strong.

ALEXIS CHRISTOFOROUS: Rob, that's incredible, the number of new customers you're bringing to Papa John's, and you're saying they're becoming repeat customers. Could you give us a feel-- I mean, I know we're still sort of just the first few days into the month, but what are August sales looking like, and do you think you can hold onto that momentum in the fourth quarter?

ROB LYNCH: You know, we haven't released August sales, so I can't speak to those. But obviously July is indicative of our ability to continue the strong sales momentum. And, you know, we think that we're going to be set up really well as long as the concerns and fears relate to-- or pertaining to the pandemic and the behaviors associated with all the changes everyone's had to make keep going. We're going to be set up to keep this momentum going.

BRIAN SOZZI: Rob, a little fun fact here. You are coming up on your one-year anniversary of being the CEO of Papa John's. August 27, 2019 was your day, and we actually talked on that day. To me, it feels like yesterday. You've had several different chapters in your one year as CEO. What is the next chapter? I sense you're gearing up for a big development push around the globe. Can you share the number of restaurants you plan to open next year?

ROB LYNCH: Yeah, for sure. Well, thank you for the anniversary shoutout there. This first year has gone exactly how I would have foreseen it when I came in. You know, the global pandemic and everything, I know we were all predicting that.

No, it's been a really interesting first year as a CEO of Papa John's. And, you know, the great thing about where we are right now is that although we've gone through this pandemic, none of our strategies that I shared with you, particularly over the first six months of my tenure-- we came in. We built out our strategic priorities. None of them have changed. You know, we are still focused on making our food the hero. We believe we have a better product, and we're going to market it as such.

We've made big investments into our technology infrastructure that have paid dividends and fixing our loyalty program and one-to-one marketing capabilities but also the partnerships we've put in place with the aggregators. The percent of our business with aggregators has doubled over the last four months, and their growth rates, as you know, are astronomical, even bigger than ours. And we're growing with them as a strategic partner.

And then, you know, lastly is the development piece. And although our new-unit development has slowed this year given the global dynamic around governments making it harder to open up stores and restaurants right now just from a pure getting permits through and working with local governments, but as we come out of that and the real-estate market shakes out, we feel like we are going to have a unique opportunity to accelerate unit development.

Our unit economics have improved dramatically over the course of this year, and our franchisees are in a much better financial position than they have been in the last couple years, probably the best they've ever been in terms of the margins that they're seeing at the restaurants and the sales-- the highest sales we've ever had. So with that comes an opportunity to invest, and we want them to invest in Papa John's and grow.

BRIAN SOZZI: Rob, when you say a unique opportunity on development, are you talking to a couple hundred restaurants here? Are you going all in over the next 12 months where you might see 300 to 500 new Papa John's restaurants open around the globe?

ROB LYNCH: Yeah, this year is still going to be a challenge. Some new-unit development just because of the dynamic in these geographies with the government regulations and what have you, but 2021 and beyond, it is my number-one priority to make sure that we're growing our footprint, both domestically as well as internationally.

And we've been talking. There's a lot of excitement from prospective franchisees about getting into this brand. They look at it almost as pandemic proof. They look at it as a complement. Big, sophisticated franchise organizations look at this as a complement to their other businesses that they may already operate, other traditional QSR and even sit-down dining.

So we think that we're going to have a lot of partners coming that want to build into our brand and invest the resources in our brand. So lots of growth ahead.

ALEXIS CHRISTOFOROUS: That's a new one I think we have to start getting used to, pandemic-proof companies. We're used to saying recession proof but pandemic proof.

All right, you know, Rob, I know that menu innovation has been a big focus of yours since you came on board in August. Most recently, you got that new Shaq-a-Roni pizza with some funds going for COVID-19 relief. But what about when you look ahead to some different menu items? Are you at all delving into the fake-meat category with a Beyond Meat or an Impossible Foods maybe?

ROB LYNCH: You know, I love it that you call it fake meat because that's what I call it. You know, one of the things we pride ourselves in very strongly here at Papa John's is the quality of our ingredients. Our dough has five simple ingredients. Everything is made fresh every day. Nothing's frozen in regards to our pizza.

So, you know, I've been talking to the Beyond Meat and Impossible Meat folks since my days back at Arby's. And the thing about those products-- and there's a lot of people that like them, so I won't denigrate them. But the thing about those products is they are fake. They have a lot of different ingredients that we're not comfortable with putting on our pizzas. So that's probably not in the near future to be working with those folks.

BRIAN SOZZI: All right, let's leave it there. Papa John CEO Rob Lynch, good to see you, and congrats on the upcoming one-year anniversary.

ROB LYNCH: Thank you, Brian. And you guys stay safe and healthy, and look forward to talking again soon.

BRIAN SOZZI: You too.