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    PZZA
    Earnings call· Jun 2026(Q2 FY26)

    PAPA JOHNS INTERNATIONAL Q2 FY26 earnings call PZZA

    Aug 6, 2026 Source

    Executive summary

    Papa John's Q2 FY26 — Transformation Progress Amidst Challenging Environment and Strategic Rebalancing

    Papa John's Q2 FY26 results reflect ongoing transformation efforts yielding positive international comps and digital engagement, but North America faced significant headwinds from a softer consumer backdrop and aggressive QSR competition. The company is rebalancing its strategy with increased franchisee support, targeted value offerings, and accelerated technology rollouts, while suspending its dividend to fund these critical investments. Management acknowledges the transformation is taking longer than anticipated but remains committed to long-term growth and value creation.

    Highlights

    5

    • International comparable sales grew 1.5% in Q2 FY26, marking the seventh consecutive quarter of positive comps.

    • Papa Rewards membership surpassed 42 million members, with loyalty customers outperforming non-loyalty customers by 12 percentage points.

    • North America Commissary segment adjusted EBITDA margins improved by approximately 140 basis points to 8.7% due to supply chain savings and higher pricing.

    • Captured an additional $7 million in supply chain benefits in Q2 FY26, on track for at least $25 million in savings for the year.

    • Lou AI users convert at an 18% higher rate and complete orders approximately 3 minutes faster compared to non-AI assisted orders.

    Concerns

    5

    • North America comparable sales declined 8.3% in Q2 FY26, driven by reduced order volume and lower customer acquisition.

    • Global system-wide sales are now expected to decline between 2% and 4% for FY26, revised from prior outlook.

    • Adjusted EBITDA guidance for FY26 revised to $180 million to $190 million, including an incremental $18 million investment.

    • Domestic company-owned restaurants' 4-wall margins decreased 130 basis points to 11.2% due to lower transactions and higher food costs.

    • Innovation alone did not generate the expected level of new customer trial in the current challenging consumer environment.

    Guidance & targets

    24
    CategoryTargetConfidence
    Global system-wide sales growth
    decline between 2% and 4%
    high materiality
    High
    Adjusted EBITDA
    $180 million to $190 million
    high materiality
    High
    North America comparable sales
    down 6% to 8%
    medium materiality
    High
    International comparable sales
    increase between 1% and 3%
    medium materiality
    High
    Supplemental marketing and franchisee subsidies investment
    $35 million
    medium materiality
    High
    Elevated investment in marketing/subsidies
    continue into 2027
    medium materiality
    Medium
    G&A savings (excluding marketing)
    $13 million
    medium materiality
    High
    Cumulative cost savings
    at least $30 million
    medium materiality
    High
    Stock-based compensation
    approximately $5 million
    low materiality
    High
    Net interest expense
    $35 million and $40 million
    low materiality
    High
    Adjusted D&A
    $70 million and $75 million
    low materiality
    High
    Capital expenditures
    $70 million and $80 million
    medium materiality
    High
    GAAP effective tax rate
    30% to 34%
    low materiality
    High
    Diluted shares outstanding
    approximately 33 million
    low materiality
    High
    North America gross new restaurant openings
    between 40 and 50
    medium materiality
    High
    North America restaurant closures
    between 200 and 250
    medium materiality
    High
    International gross restaurant openings
    180 to 220
    medium materiality
    High
    International restaurant closures
    5% to 6% of our international system
    low materiality
    High
    Dividend
    suspended
    high materiality
    High
    North America POS platform full deployment
    expected across all U.S. corporate and franchise locations by the end of 2027
    medium materiality
    High
    North American system supply chain productivity opportunities
    at least $60 million
    medium materiality
    High
    4-wall EBITDA improvement
    at least 200 basis points
    high materiality
    Medium
    North America company restaurant ownership
    mid-single-digit percentage of our North America system
    medium materiality
    High
    North America comp sales
    sequential improvement
    high materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Global System-Wide
    Global system-wide restaurant sales decreased 5% in constant currency, primarily due to lower North America comparable sales and strategic closures, partially offset by higher international comparable sales.
    		$1.2B-5%——
    North America
    Comparable sales declined 8.3%, driven by reduced order volume and continued pressure from lower customer acquisition. July North America comparable sales trended in line with Q2 on a year-over-year basis but decelerated on a 3-year stack.
    		—-8.3%——
    International
    Comparable sales grew 1.5%, marking the seventh consecutive quarter of positive comps. Performance was strong in the U.K. (10% comp growth) and Korea (9% comp growth), while the Middle East was effectively flat due to ongoing conflict.
    		—1.5%——
    Domestic Company-Owned Restaurants
    4-wall EBITDA was $15.6 million, and 4-wall margins decreased 130 basis points to 11.2%, primarily due to lower transactions and higher food costs, partially offset by transformation initiatives and refranchising.
    4-wall EBITDA: $15.6M
    		———11.2%
    North America Commissary
    Adjusted EBITDA margins improved approximately 140 basis points to 8.7%, reflecting supply chain cost savings and higher pricing, partially offset by lower volumes.
    Adjusted EBITDA margins: 8.7%
    		———8.7%

    Operational metrics

    27
    Papa Rewards members
    42 million
    Q2 FY26

    The Papa Rewards program surpassed 42 million members in the second quarter.

    Loyalty customer comp sales outperformance
    12 percentage points
    Q2 FY26

    Comparable sales from loyalty customers outperformed non-loyalty customers by 12 percentage points.

    Loyalty customer ticket size
    6% higher
    Q2 FY26

    Loyalty members generate tickets that are 6% higher per order.

    Loyalty customer order frequency
    approximately twice as often
    Q2 FY26

    Loyalty members order approximately twice as often as non-loyalty customers.

    Pies per order (multiple pizza orders)
    up 6%
    Q2 FY26

    Orders with multiple pizzas saw improvement with pies per order up 6%, positively impacting overall system ticket.

    System ticket
    flatcompared with last year
    Q2 FY26

    Overall system ticket was flat compared with last year.

    Pizza sales mix shift
    mid-single-digit declines
    Q2 FY26

    Pizza mix shifting to smaller non-specialty pizzas, resulting in mid-single-digit declines in overall pizza sales.

    Sides and desserts sales
    declines
    Q2 FY26

    Comparable sales were pressured by declines in sides and desserts.

    Sandwich sales offset
    almost fully offset
    Q2 FY26

    Sales of new sandwiches almost fully offset the removal of Papadias.

    Supply chain benefits
    $7 million
    Q2 FY26

    Captured an additional $7 million of benefits in Q2 FY26 through increased efficiency and reduced cost to serve at North America Commissary.

    Supply chain savings (YTD)
    $16 million
    YTD Q2 FY26

    Through Q2, captured approximately $16 million in supply chain savings.

    Restaurant margin benefit from supply chain savings
    43 basis points
    YTD Q2 FY26

    Supply chain savings represent 43 basis points of restaurant margin benefit.

    Total available liquidity
    $500 million
    end of Q2 FY26

    Total available liquidity was approximately $500 million at the end of the quarter.

    Covenant leverage ratio
    3.3x
    end of Q2 FY26

    Covenant leverage ratio was 3.3x.

    Net cash provided by operating activities
    $36 million
    YTD Q2 FY26

    Net cash provided by operating activities through the second quarter was $36 million.

    Supplemental marketing and franchisee subsidies
    $35 million
    FY26

    Total planned investment for the full fiscal year 2026, including an incremental $18 million for the back half of the year.

    G&A savings
    $13 million
    FY26

    Includes $13 million of G&A savings, excluding marketing.

    North America new restaurant openings
    17
    YTD Q2 FY26

    Opened 17 restaurants through the second quarter in North America.

    Restaurants closed (strategic closure program)
    101
    Q2 FY26

    Closed 101 of the planned 300 North American restaurants identified in the strategic closure program, focused on locations with AUVs below $600,000 and negative EBITDA.

    Sales transfer from closed restaurants
    strong
    Q2 FY26

    Early results from restaurant closures have shown strong sales transfer to neighboring restaurants.

    Operational scores gap (comp sales)
    400 basis point
    Q2 FY26

    There was a 400 basis point gap in comparable sales, comparable orders, and restaurant margin performance between restaurants in the highest quintile of operation scores versus the lowest quintile.

    Co-ops supported system
    approximately 50%
    Q2 FY26

    Approximately 50% of the U.S. restaurant system is supported by local co-ops.

    Co-op outperformance
    200 basis points
    Q2 FY26

    Markets supported by co-ops and meaningful supplemental local spend are outperforming other markets by 200 basis points.

    Earned media impressions (Toy Story 5 Pop-Ups)
    4 billion
    Q2 FY26

    Toy Story 5 Pizza Planet Pop-Ups generated approximately 4 billion total earned media impressions.

    Lou AI conversion rate
    18% higher
    Q2 FY26

    Customers using Lou AI are converting at an 18% higher rate compared with non-AI assisted orders.

    Lou AI order completion time
    3 minutes faster
    Q2 FY26

    Customers using Lou AI are completing their orders approximately 3 minutes faster.

    Digital sales mix
    more than 85%
    Q2 FY26

    More than 85% of sales are generated on digital channels, inclusive of aggregators.

    Industry KPIs

    3
    MetricValueDetails
    Comparable sales comps-8.3% (North America); 1.5% (International); 10% (UK); 9% (Korea); effectively flat (Middle East)%
    Global system wide sales$1.2 billionUSD
    Net unit growth development pipeline17 (North America openings); 101 (North America closures); 200-250 (FY26 North America closure target); 180-220 (FY26 International opening target); 5-6% (FY26 International closure target)units

    Product announcements

    3
    ProductTypeDetails
    Sandwicheslaunch
    Personal Pizzaslaunch
    Artisanal Sourdough Pizzalaunch

    Deals & partnerships

    4
    UndisclosedRefranchising of corporate restaurants

    Refranchising of 85 corporate restaurants in the fourth quarter of 2025, which decreased domestic company-owned restaurant revenues.

    UndisclosedAsset purchase agreement to refranchise 28 company restaurants in Orlando, Florida

    Entered into an asset purchase agreement to refranchise 28 company restaurants in Orlando, Florida, with closing expected in the third quarter. This transaction is factored into the 2026 financial guidance.

    Google CloudDevelopment of AI-powered pizza assistant (Lou AI)

    Lou AI, the next-generation, AI-powered pizza assistant, was developed in partnership with Google Cloud and is available on the Papa John's app.

    Disney and PixarPromotional partnership for Toy Story 5 theatrical release

    Launched 4 Pizza Planet Pop-Ups globally to celebrate the theatrical release of Disney and Pixar's Toy Story 5, generating strong global engagement and earned media impressions.

    Risks & headwinds

    6
    Softer consumer backdrop and highly promotional QSR environmentQ2 FY26 and expected to continue throughout FY26

    North America comparable sales declined 8.3%; global system-wide sales expected to decline 2-4% for FY26.

    Mitigation: Targeted personalized offers, traditional barbell strategy with short, targeted windows of disruptive value, rebalancing media mix, and increased franchisee support.

    Transformation taking longer than expectedOngoing

    Not quantified directly, but reflected in revised FY26 guidance.

    Mitigation: Making adjustments across strategic priorities and leadership team, accelerating investments in franchisees, marketing, technology, and portfolio optimization.

    Lower customer acquisition in North AmericaQ2 FY26

    Contributed to 8.3% decline in North America comparable sales.

    Mitigation: Sharper aggregator strategy, total addressable market expansion, rebuilt innovation pipeline, reenergized local presence through co-ops, and new first-party CRM platform.

    Geopolitical conflict in the Middle EastQ2 FY26

    Middle East comparable sales effectively flat.

    Mitigation: Not explicitly stated, but international business continues to outperform overall despite this pressure.

    Inconsistencies in operational execution across restaurantsQ2 FY26

    400 basis point gap in comparable sales, orders, and restaurant margin between highest and lowest quintile operators.

    Mitigation: Dedicated coaching, financial incentives tied to operational excellence, regional Franchise Business Director model, and standardized scorecards.

    Innovation not generating expected new customer trialQ2 FY26

    Not quantified, but noted as a challenge.

    Mitigation: Pairing innovation with a sharper aggregator strategy and new first-party CRM platform to improve reach, trial, and conversion.

    What to watch in Q3 FY26

    5

    North America comp sales sequential improvement

    H2 FY26
    CurrentJuly trended in line with Q2 (-8.3% YoY)
    TargetSequential improvement

    Why it matters

    Indicates effectiveness of new marketing co-ops, aggregator strategy, and CRM program in driving sales recovery.

    We expect sequential improvement in North America comp sales in the second half of the year, supported by our marketing co-op activations, a strengthened aggregator marketing strategy, our new CRM program and prior year comparisons.

    Q&A highlights

    10

    Where have transformation strategies had the intended impact, and where are they lagging compared to expectations?

    Technology platforms (app, website, AI, CRM) and innovation pipeline have shown good progress, as has operational excellence. Lagging areas include fully reestablishing local co-ops, balancing national and local messaging, and finding the right balance between driving transactions and protecting margins, especially in a highly promotional environment.

    “I think where we've been probably the most challenged is we haven't been able to get the full force of the local co-ops reestablished across the entire system.”

    asked by Andrew Strelzik · answered by Todd Penegor

    3 min read7 chapters

    Detailed Narrative

    01

    Strategic Review and Transformation Focus

    Papa John's Board and management conducted a comprehensive review of its strategy, including exploring a potential sale of the company. The conclusion is that the most actionable value creation opportunity lies in executing the current transformation plan. The company is committed to focusing 100% on these initiatives, which include improving restaurant-level economics, leveraging AI and digital investments, and optimizing the restaurant portfolio, despite the transformation taking longer than expected.

    02

    Leadership Changes and International Outperformance

    Several key management changes were announced to drive the transformation, including Chris Lyn-Sue as Global Chief Marketing Officer, Chris Phylactou as Senior Vice President, International, and John Moter as Global Chief Development Officer. The International business delivered 1.5% comparable sales growth in Q2 FY26, marking its seventh consecutive quarter of positive comps, with strong performance in the U.K. (10% comp growth) and Korea (9% comp growth), partially offset by Middle East conflict impacts.

    03

    North America Challenges and Value Proposition

    North America comparable sales declined 8.3% in Q2 FY26 due to reduced order volume and lower customer acquisition in a soft consumer and highly promotional QSR environment. The company aims to gain share by strengthening its value perception through targeted personalized offers and an elevated customer experience. This includes a shift to a more traditional barbell strategy in H2 FY26, focusing on popular products with short, targeted windows of disruptive value, rather than sustained extreme discounting.

    04

    Operational Excellence and Portfolio Optimization

    Papa John's is focused on elevating the customer experience and improving operational consistency, particularly for the bottom quintile of operators. Initiatives include dedicated coaching, financial incentives for operational excellence, and a regional Franchise Business Director model. The company is also optimizing its North American system by closing underperforming restaurants, having closed 101 of a planned 300 locations, with early results showing strong sales transfer to neighboring restaurants.

    05

    Technology and Digital Innovation

    Investments in technology are central to the transformation, including the rollout of a new personalization engine within the CRM platform, leveraging AI for targeted offers. Lou AI, an AI-powered pizza assistant developed with Google Cloud, is showing encouraging early results with 18% higher conversion rates and 3-minute faster order completion. The company is also progressing on a new POS platform, with full deployment expected across U.S. corporate and franchise locations by the end of 2027.

    06

    Marketing Strategy and Co-op Reinstatement

    The marketing strategy is being rebalanced towards greater mass exposure and higher TRPs, alongside local relevance. Approximately 50% of the U.S. restaurant system is now supported by local co-ops, which are outperforming other markets by 200 basis points. A field marketing team is being established to work with local operators, with a commitment to reinstate co-ops for the majority of the system by year-end. The company also engaged in experiential marketing with Pizza Planet Pop-Ups for Disney and Pixar's Toy Story 5, generating significant media impressions.

    07

    Supply Chain Savings and Capital Allocation

    The company captured $7 million in supply chain benefits in Q2 FY26, on track for at least $25 million this year, and expects at least $60 million in North American system-wide supply chain productivity opportunities by 2028. To fund these investments and accelerate the transformation, the Board intends to suspend the quarterly dividend starting in August, prioritizing investments in the business, maintaining a strong balance sheet, and supporting franchisees with financial incentives.

    AI-generated summary of the company’s earnings call. Not investment advice.