Yahoo Finance's Brian Sozzi, Julie Hyman, and Myles Udland speak with Papa John's International CEO & President, Rob Lynch, about how the company is faring amid COVID-19 and outlook for the restaurant.

Video Transcript

BRIAN SOZZI: Papa John's is banking on new stuffed crust pizza to add a little extra sizzle to its year financially. The company is coming off a big 2020 as people stayed at home during the pandemic and ordered in a lot of food. Let's check in on what the company is cooking up with Papa John's CEO Rob Lynch. Rob, always good to speak with you here. Every day, I am seeing these stuffed crust pizza commercials all over the place. It sounds as though you are making a big push with this as a platform for this year. Is this specific pizza, is it helping you this quarter keep sales running at a double digit pace?

ROB LYNCH: Yeah, we've been really happy with the launch of stuffed crust. It's been something that our customers have been asking for a number of years. And now we're able to deliver it in a unique way that only Papa John's can. All of our crust is fresh every day. Five simple ingredients. We hand stuff this stuffed crust at the time you order it. Never frozen. And that's what Papa John's is all about. Better ingredients, better pizza. So this is a representation of that. It's been an unbelievable reception from our customers, exceeded every expectation we've had. So we couldn't be more happy with the way it's going right now.

BRIAN SOZZI: So I imagine you're seeing a higher check and that's always a good thing in the restaurant business. What's next for the stuffed crust pizza line?

ROB LYNCH: Well, we've had positive comps for the last five quarters. We have had double digit growth for the last three quarters. And stuffed crust is continuing to propel that growth, both on transactions and check. We gained over 10 million new customers last year. And they are coming back for stuffed crust. The stuffed crust customer is a loyal, avid, huge pizza lover. And now we've got a great offering that can meet their needs. And we think it's the best in the marketplace. So we're going to continue driving stuffed crust, making sure that we're creating awareness that Papa John's has stuffed crust. And we're excited about what the future holds.

MYLES UDLAND: Rob, it's Myles here, on your last earnings call, you guys didn't offer guidance. But certainly 2020 was just a huge year for the pizza space in general, yourselves, number of your competitors, had a lot of tailwinds as a result of COVID. How are you guys just thinking about this new dynamic? And you mentioned, you've got a lot of new diners last year, the new dynamic where people might have good memories of your food, which they hadn't ordered in a while or ordered for the first time, but they're also going to be able to go back and do other things. I think we all would like to do that. How are you guys kind of managing through some of those trends?

ROB LYNCH: Well, we're excited for the success of the vaccine. We're excited that people are going to be able to return to normal. And we know that we're a show me story. We know that we had a couple tough years and that we've had an unbelievable year throughout the pandemic. But we fundamentally believe that what we've built is built to last. As I mentioned, we brought in a ton of new customers last year. Everything we're doing is focused on taking care of those customers. We're working on our operations. Our franchisees have done an unbelievable job taking care of their employees and their communities through the pandemic. We've built relationships with these customers by taking care of them in their time of need.

And we're focused on that. And we believe that if we continue to deliver great customer service and the best products in the industry, that we'll be able to drive frequency amongst these customers that we brought in during the pandemic. And that'll carry us on as we come out of the pandemic. We are not a pandemic pizza company. We are a pizza company that has outperformed the industry for the last year. And we expect to outperform the industry for years to come.

JULIE HYMAN: And Rob, it's Julie here. That was reflected in the sales gains that you guys saw last quarter. Your earnings per share though did miss estimates. And Brian was talking about all the stuffed crust commercials he has been seeing. What's the cadence of spending look like and what effect is that going to have on earnings in the current quarter?

ROB LYNCH: Our earnings miss last year was 100% attributed to our decision to give hero bonuses to our frontline employees. We made that decision in Q4 last year. It was the right decision to take care of the people that were taking care of our customers and our communities in a very challenging time.

JULIE HYMAN: Rob, if I might then, if you guys made that decision, wasn't that something that the Street would have known that you were doing? I mean, you missed estimates. So wouldn't they have our factored that in?

ROB LYNCH: Sure. We did make the announcement when we made the decision. But as you know, right now, very few companies are giving forward-looking guidance, including us. So there is a challenge right now making sure that the expectations of the analysts and the Street are consistent with what we're going to deliver. We try to make sure that we're giving the right insights into our business and what we're doing. But in this unprecedented situation, where very few companies, especially restaurant companies, are giving guidance, there is that risk that there's going to be a discrepancy. But moving forward, we are very confident in our ability to deliver on the expectations that are in front of us.

Stuffed crust is a big part of that. But there's a lot of other great work going on too, around our core products, around our operations. Our franchisees have never had better unit economics. They're investing back into their businesses. We're investing in technology. Our partnership with the aggregators has driven a lot of our growth as they've continued to grow disproportionately during the pandemic. So we are set up to really outperform the industry ongoing.

BRIAN SOZZI: And Rob, in terms of unit development, I remember you and I were talking about this back in August last year. And it sounded like to me at the time, you were ready to pick things up a pace. How many new units will you open up this year in the US? Are you getting back to that historical Papa John's growth rate?

ROB LYNCH: We are. We are focused on getting back not just to the historical growth rate, but exceeding that growth rate. We spent 2020 building the infrastructure that was going to propel us in the future. One of the challenges that we've had at Papa John's over the last five years is we've had a lot of openings, but we've had a lot of closures. Through the challenges and the business model and throughout the system, a lot of restaurants were closing. With improved unit economics and confidence in the future, we're seeing a lot less closures.

And development is about both new store openings as well as mitigating closures. And we're very confident that we'll not only be able to get back to historical levels, but we're going to exceed historical levels in terms of net unit development.

BRIAN SOZZI: And Rob, real quickly before I let you go, brand sentiment. Have you seen improvement? You started as CEO in August 2019. The brand was in a different place back then. Really not in a good place, I would say.

ROB LYNCH: Yeah, brand sentiment has changed dramatically over the last 18 months. And it's a function of both the products that we've delivered and the excitement we've created through the products in the marketing. But even more so, I think it's a function of what we're building within our company is being brought to life outside of our company. We have instituted core values that give us an opportunity for everyone that's associated with our brand to take pride in the kind of company that we are, the kind of company our employees belong to, the kind of company that customers want to be a part of. And so it has dramatically changed. We're very excited about the brand sentiment externally.

But what I can tell you is that we're very proud of the way our employees are reacting to the kind of company, the transformation that our company has undergone and the kind of company we're building that's built to last for the future.

BRIAN SOZZI: Fair enough. We'll leave it there. Look forward to staying in touch this year. Papa John's CEO Rob Lynch. Always good to see you.

ROB LYNCH: Thank you, Brian.