This Major Pizza Chain Has Just Reported Its First Sales Decline In Years

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Coming off a three-year high during which it saw its sales incrementally growing, America's fourth-largest pizza chain has hit its first snag since 2019.

Papa Johns, one of several fast-food chains that benefitted greatly from the pandemic-related changes in consumer habits, has just reported declining sales in third quarter. Revenues for Q3 in 2022 came in at $511 million, but in comparison to Q3 of last year, that figure represents a decline of $2 million, or less than 1%. Earnings per share also dropped by 25% in comparison to the same time a year ago.

So what's behind this slight yet undeniable downturn? During the company's recent earnings call, CEO Rob Lynch pointed to a number of factors, describing the third quarter as "especially challenging."

Lynch noted that the this time of year is typically the slowest in terms of pizza deliveries, as people tend to spend more time away from home in the summer, a trend especially apparent this year as Americans got back to traveling.

"Pizza does better in bad weather, when people are kind of stuck in their houses in colder or rainy weather," he said on the earnings call. "We didn't see that during the pandemic because people were in their houses, but now we're seeing that return to seasonality. It was also exacerbated this summer as people were doing even more traveling after being cooped up the last couple years."

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Beyond the highs and lows of delivery season, Papa Johns also acknowledged the impact of rising costs. Lynch explained on the earnings call that costs related to both commodities and labor have reached all-time highs. Surging energy bills in the United Kingdom have hindered international profits, and the company's "food basket costs" have jumped 18% due to rising cheese prices.

So, in response to 15 to 17% inflation year over year, Papa Johns has raised its prices by around 8 to 10%. These actions no doubt have impacted Q3 sales as well.

"Obviously our comps are a little tougher than some of our competitors," Lynch continued. "But thinking about this quarter, it's the culmination of a lot of things. I think everyone needs to recognize, the segment of our industry has taken a lot of pricing to mitigate the significant amount of inflation."

On a more positive note, the mammoth pizza brand boasting over 5,000 locations all over the world is optimistic about fourth quarter. Executives say the end of 2022 is already off to a "solid start."

In an effort to offer customers a quality meal at a competitive price, Papa Johns recently debuted Papa Pairings, giving customers the opportunity to buy two or more items from a limited menu for $6.99 a pop.

Since its introduction in September, Papa Pairings has proven successful, promoting more transactions "from our more value-oriented customers by engaging them with an accessible price point," Lynch said on the earnings call.

Papa Johns is also moving full speed ahead in terms of franchise development and expansion. Earlier this year the pizza brand announced plans to open around 1,600 to 1,800 locations by 2025, both domestically and abroad. Around 250 new locations are expected to open by the end of this year.