The macroeconomic factors may be challenging with commodity price on the rise, but that hasn’t stopped consumers from eating outdoor foods. Pizza maker Papa John’s (PZZA, Financial) cheered the market with its latest quarterly results that topped expectations and reported significant growth year over year. Led by its strong performance the stock is currently at its 52-week high. In fact its shares have reported fabulous growth in the past few years and had a manifold increase.
Robust growth
Its revenue for the quarter rose 12.7% to $390.4 million from a year ago period, while operating income was up 17.4% to $25.2 billion compared to last year. The numbers were mainly driven by the strong performance of its restaurant and franchising businesses. And with improving pizza quality, service levels, distribution, marketing and digital capabilities, the company is expected to carry this growth forward.
Headwinds to consider
However, John’s is facing various headwinds in China, which cannot be neglected. China is the only place in its overseas market where the company owns its stores and contributes 5% of the global total. But the pizza maker lost $2.3 million here in the first nine months, which is three times the amount it lost last year. Its turnaround strategies implemented in the past didn’t work, which includes the money invested into 11 locations in Beijing and North China last year.
As a result of these headwinds in the region, its plans to open hundred locations in Beijing by early 2015, doesn’t appeal investors any more. The management is still evaluating various alternatives that would lead to long term growth in the region.
Trying to get better
Apart from this, the pizza maker had a strong performance in the UK, Russia, Middle East and Latin America. In the U.S. comps were up 7.4% year over year and for the entire year John’s raised its comps guidance. These increased expectations are mainly driven by its initiatives to expand stores both domestically and on an international platform. Not only this, but the company is also investing in technology driven initiatives such as digital ordering, which will enable John’s to capitalize on the latest digital trend that is prominent in the U.S., fast casual restaurant sector.
Moreover, falling oil prices came as a positive for food service industry. According to the U.S. Census Bureau’s Retail Sales figures, there has been a sequential growth in Food Service & Drinking Places in the past few months. And if the gas prices continue to fall, this uptrend is expected to continue in the future as well.
Conclusion
Looking at all these facts, the company seems to be on the right track to continue its growth in the days ahead. It currently has a trailing P/E of 38.32, but its forward P/E looks impressive at 30, which indicates that its earnings will improve in the days ahead. In addition, the company is also hopeful of its prospects in China, where it is facing a number of challenges at the moment. The stock is already at its all time highs and considering its future plans we could see more upside to this stock in the coming years.
