Papa John's approximately 600 company-owned restaurants are the secret to its growth.
The Louisville, Ky.-based restaurant is looking at options to increase its numbers in the U.S., helping the fourth-largest pizza company grow even more. One such option is to sell some restaurants to prospective franchisees who could use the restaurants to start even more restaurants.
Rob Lynch, Papa John's CEO, said nothing is concrete, but there is an opportunity for the company that its competitors do not have. For example, Domino's requires its new franchisees to operate a single location and Pizza Hut is currently closing stores. Papa John's said it might sell restaurants in some of the 10 markets where it has locations to prospective franchisees who want to operate a restaurant with the brand.
Lynch said this could facilitate growth. And, the company is positioned uniquely in a way that allows them to do so. He said there are 600 stores, which allows them to sell some off and bring more in.
Papa John's business model is focused on unit development – both domestically and internationally. The company has a little more than 3,100 locations in the U.S., making it the smallest of the four well-known pizza chains. It's got half the number of Domino's and 1,100 fewer restaurants than Little Caesars. The company said it sees a tremendous chance to close the gap while increasing its presence internationally.
On top of the possible new franchisees' growth, Papa John's is looking to establish new corporate locations in 2021 – the first time in years that new locations are being considered. The chain has the same number of company locations it did back 10 years ago.
Lynch said it'd been quite some time since there's been an active company restaurant development plan. There's a simple reason. There's been an improvement in its sales strength, which makes it the right time for a new unit development. Lynch said the market has a lot of white space that could go into making money from the organic restaurant operations. He said the company is producing a lot of cash at the moment.
The pandemic has helped the restaurant recover from its same-store sales slump from the last two years, rising 24 percent last quarter. The company also has not had to help franchisees struggling. Lynch said the higher sales assisted the company in producing strong profits.
There is also a healthy cash flow, with $134 million in free cash flow being generated in the first nine months of the year. According to executives, the balance sheet is the strongest it has been in three years.
For that reason, Papa John's has the money to invest and give cash back to shareholders, buying back nearly $75 million in stock. One investment is the new store development, but executives say there are other investments being looked at, such as technology that will bring more customers to the restaurant.
Lynch said technological investments are being entertained that will help them stay ahead of the competitors. He said they are looking at an e-commerce business, making sure to continue to support it.