Why Papa John’s EBIT Margin Declined in 1Q17



1Q17 EBIT margins

In 1Q17, Papa John’s (PZZA) posted EBIT[1. earnings before interest and tax] of $43.7 million, which translates to an EBIT margin of 9.7%. Comparatively, the company posted an EBIT margin of 10% in 1Q16.

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Factors that led PZZA’s margins to decline

The decline in Papa John’s 1Q17 EBIT margins was due to decline in operating margins of company-owned restaurants and North American commissaries. However, some of the declines were offset by lower SG&A (selling, general, and administrative) expenses and improved margins from international operations.

During the quarter, the restaurant margins of company-owned restaurants declined 1.6% due to increased labor expenses from a wage increase, higher non-owned automobile claim costs, and increased reimbursement from higher fuel prices.

The margins of North American commissaries fell 0.5% due to higher delivery expenses. However, improved margins from its online and mobile ordering business offset some of the declines.

The margins from international operations rose 1% due to a rise in royalties from same-store sales growth of 6% and the addition of new restaurants. The SG&A expenses fell from 9.4% of total revenues to 8.5% of total revenues. The SG&A expenses declined due to lower bonuses, lower franchise incentives, and the timing of international marketing spending.

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Peer comparisons

During 1Q17, Domino’s Pizza (DPZ) and Yum! Brands (YUM) posted respective EBIT margins of 18.6% and 27.2%, compared to respective EBIT margins of 18.3% and 22.1% in 1Q16.


For the next four quarters, analysts expect Papa John’s (PZZA) to post a 9.4% EBIT margin compared to 8.9% in the corresponding quarters in 2016. This expansion is expected to be driven by sales leverage from positive same-store sales growth.

Next, we’ll look at Papa John’s 1Q17 earnings.


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