0001628280-26-031668
SEC filingPapa John's Q1 2026 total revenue fell 7.7% YoY to $478.6M, driven by refranchising and softer North America comparable sales, while adjusted EPS of $0.32 declined from $0.36.
Papa John's Q1 2026 total revenues of $478.6M declined 7.7% compared to $518.3M in the prior year quarter. The decrease was primarily driven by the refranchising of 85 Domestic Company-owned restaurants in November 2025, which contributed a $24.9M reduction in company-owned restaurant sales. Additionally, North America comparable sales fell 6.4% (company-owned -5.2%, franchised -6.7%) due to lower transaction volumes, partially offset by higher average tickets. Commissary revenues decreased 2.8% to $222.6M, impacted by food cost deflation and lower volumes, while franchise royalties and fees dipped 1.0% to $47.6M. International revenues grew 10.5% to $43.2M, supported by 3.6% constant-currency comparable sales growth.
Gross profit fell 9.3% to $137.7M, with gross margin contracting 50 basis points to 28.8%, reflecting the mix shift away from higher-margin company-owned sales and the impact of franchisee food cost subsidies. Operating income declined 13.4% to $20.8M, and operating margin decreased 28 basis points to 4.34%. Net income attributable to the Company dropped to $7.3M from $9.2M, and diluted EPS fell from $0.27 to $0.21. On an adjusted basis, net income was $10.5M and adjusted diluted EPS was $0.32, down from $11.8M and $0.36 a year ago. The effective tax rate rose to 37.4% from 32.7%, driven by a shift in income between jurisdictions and tax shortfalls from restricted stock vesting.
Total assets at March 29, 2026 were $831.9M, down slightly from $837.5M at year-end 2025. Cash, cash equivalents, and restricted cash stood at $39.0M, up from $37.0M. Total debt (including current portion) was $735.2M, compared to $715.4M at December 28, 2025, a net increase of $19.8M driven by draws on the revolving credit facility. The company had $458.7M of remaining availability under its $600M PJI Revolving Facility. Total stockholders' deficit widened to ($438.4M) from ($433.7M), primarily due to dividends and share repurchases (though no buybacks occurred in Q1). The leverage ratio was 3.3x, well below the 5.25x covenant, and the interest coverage ratio was 3.3x, above the 2.00x minimum.
Operating cash flow was $7.2M in Q1 2026, down sharply from $31.3M in the prior year, as lower net income and higher compensation payments (including transformation-related expenses) weighed on cash generation. Capital expenditures of $13.5M (including $0.1M for disaster-related purchases) led to negative free cash flow of -$6.2M, compared to positive $19.1M a year ago. Financing activities provided $0.2M, driven by net revolving credit borrowings of $19.4M, offset by $15.3M in dividends and $2.6M in finance lease payments. The company's liquidity remains adequate given the undrawn credit facility.
Management highlighted several strategic priorities: (i) enhancing marketing and value perception through limited-time offers and menu innovations (pan pizzas, oven-toasted sandwiches); (ii) investing in digital and loyalty (new omnichannel platform, POS system upgrade); (iii) executing the Enterprise Transformation Plan, which includes closing underperforming restaurants and reducing corporate headcount by ~7%; (iv) optimizing the supply chain to achieve at least $60M in North America systemwide savings over two years, with $7M realized in Q1; and (v) pursuing development with royalty incentives and refranchising. The company reiterated its 2026 capex guidance of $70M-$80M and expects total restructuring charges of $24M-$31M through 2027. G&A savings of at least $30M are targeted across 2026-2027.
Segment performance varied widely. The Domestic Company-owned segment posted a $2.9M improvement in adjusted EBITDA to $7.9M, benefiting from a cost allocation change that shifted $2.1M of costs to corporate and commissaries. North America Franchising saw a $1.9M decline to $25.4M due to weak comparable sales. North America Commissaries' adjusted EBITDA plunged $6.9M to $12.4M, hurt by food cost subsidies and unfavorable pricing timing. International adjusted EBITDA rose $2.8M to $8.1M on sales growth and favorable FX. The company reported a net gain of $0.9M on the refranchising transaction as leases were assigned. Restructuring costs under the Enterprise Transformation Plan totaled $4.3M, including $3.5M in professional services and $0.6M in asset disposal losses. Other non-recurring costs of $1.6M related to strategic initiatives were also recognized. No share repurchases occurred in Q1, and $90.2M remained under the existing buyback authorization. A $0.46 per share quarterly dividend was declared for Q2.