The Pizza Hut chain in China survived the Avian Flu scare relatively unscathed. So, Papa John’s competition from Yum! Brands, Inc. (NYSE:YUM) remains as intense as ever.
Domino’s Pizza, Inc. (NYSE:DPZ)’s store count exceeds Papa John’s by a more than a 2 to 1 margin. Over half of Domino’s stores operate on the international scene. Its international same stores sales grew 7% in Domino’s Pizza, Inc. (NYSE:DPZ)’s most recent quarter.
In addition, Domino’s Pizza, Inc. (NYSE:DPZ)’s lacks the same weakness as Papa John’s concerning domestic franchise stores. Domino’s same store sales for its domestic franchise stores increased 6% versus 5% for its company-owned stores.
However, Domino’s Pizza, Inc. (NYSE:DPZ)’s balance sheet comes loaded with debt, even to the point where liabilities exceed assets and it runs a stockholder’s deficit. Domino’s operating income exceeds interest expense by only four times. The standard rule of thumb for any company should be five times interest expense. Papa John’s operating income exceeds interest expense by 46 times. Domino’s ubiquitous advantage gets undermined by its sub-par balance sheet.
Papa John’s also faces challenges from major privately held players such as Little Caesar Enterprises, Inc.’s, which operates thousands of restaurants as well and was one of the first pioneers of the take out concept.
Moreover, Domino’s and Pizza Hut also possess an online ordering platform that can effectively compete with Papa John’s. While operating an online platform gives the three companies a slight edge over the mom and pop player, it levels the playing field among the top three publicly traded pizza chains.
PR Mishap – Possible lawsuits resulting from the recent racial slurs of a former Papa John’s employee could prove detrimental to the company’s fortunes and valuable brand name.
Conclusion
In summary, Papa John’s strengths and opportunities outweigh its weaknesses and threats. Its powerful partnership with the NFL, a manager-owner who believes in and stands by the brand, combined with a quality product, provide this company the strength to deliver decent returns to its shareholders. Papa John’s definitely deserves a look.
William Bias has no position in any stocks mentioned. The Motley Fool owns shares of Papa John’s International. William is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article A Strategic Look at This Pizza Company originally appeared on Fool.com is written by William Bias.
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