Papa John's International Inc. (NASDAQ:PZZA) Q2 2019 Earnings Conference Call - Final Transcript

Aug 06, 2019 • 05:00 pm ET

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Papa John's International Inc. (NASDAQ:PZZA) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Steve M. Ritchie

use up to half of the initial proceeds or $100 million to advance our strategic priorities, of which strengthening our brand and improving unit economics to support our franchisees health are at the top. Of this amount, we announced we're investing an additional $40 million in marketing, approximately one half will be spent in the second half of 2019 and the other half in 2020, coupled with a 25 basis point increase in the National Marketing Fund contribution rate to 5% of restaurant sales in 2020. This will provide six quarters of increased marketing dollars to amplify our differentiated market position and establish a strong national platform for our new brand ambassador, as I'll discuss here in just a moment.

The other element of our June announcement was a $40 million investment in six more quarters of tapered royalty relief for our North America franchisees allocated into three areas: number one, system-wide relief available to all of North America franchisees who agreed to some customary terms and to move on from the past events; number two, system-wide incentive-based royalty relief around guest service targets; and number three, additional needs-based royalty relief for targeted franchisees. By providing franchisees with certainty and transparency on the structure and schedule of remaining royalty relief, our goal is to help them succeed in the short term but also to plan and manage their business into the future. The program, titled We Win Together, was supported by franchise leadership and has been well received by the franchise system as nearly 100% of our franchisees opted in by last week's deadline. Of this additional $40 million investment in total royalty relief, we estimate spending will be roughly split between the remainder of fiscal 2019 and fiscal 2020. These incremental investments are reflected in our updated guidance for special charges, which Joe will discuss here in just a moment.

The process by which we arrived at this package, announced it and then rolled it out to our North America franchisees reflects the new Papa John's and our commitment to winning together with our franchisees. In late spring, our team led a series of intensive discussions with key franchisee representatives about how we continue the significant progress we have made together over the past six months. What emerged was a plan to help our franchisees manage recent sales declines as well as our shared responsibility to reinvigorate the brand and consumer sentiment.

Next, I would like to discuss what we're doing to amplify our brand differentiation, which is the primary strategic goal of the We Win Together program. As we have said, Papa John's partnership with Shaquille O'Neal is an important element of our strategy to reconnect with consumers around our truly differentiated market position. Since he joined the Board of Directors in March, we have finalized the other major elements of our partnership, including his investment in nine Atlanta area restaurants and the details of his multiyear role as Papa John's brand ambassador. Given the excitement Shaquille has