Revenue declined 11.5% year over year to $398.4 million. Papa John's reported a net loss of $1.73 million. That marks a 109.9% negative change compared to 2018's net income of $17.44 million. On a diluted basis, that net loss breaks down to $0.12 per diluted share vs. a profit of $0.52 a share in 2018.
When looking at these earnings, it does need to be taken into consideration that the company experienced one-time items. On an adjusted basis, the pizza company reported earnings of $0.31 per share. This still marks a decline compared to last year's earnings of $0.52 per share.
The stock was up 4% in after hours trading on Tuesday thanks to better results than some had expected. Analysts had expected earnings of $0.24 per share on an adjusted basis. Estimates also had sales revenue at around $384 million vs. the actual $398.4 million. Many had also expected North American same-store sales to decline by more than what happened.
Altogether, system-wide North American same-store sales declined 6.9%. International same-store sales declined by 0.1%. This is an interesting dynamic, as the company's fallout over poor remarks from CEO John Schnatter seemed to be limited mainly to the domestic market in the first quarter.
In my view, the verdict is still out here. I certainly don't think Tuesday's after hours rally is anything to get involved in. PZZA stock is way overpriced compared to the actual earnings. It's clear that investors are interested in the potential of the stock if management (and to a large extent, hedge fund Starboard) can restore the company back to the momentum it had pre-scandal.
There is still much to be done at Papa John's and we're not going to get a clear view on the company's health for a while. Right now, I see an overpriced stock with a weak balance sheet. Just because sales declined less than estimates, doesn't make it a good reason for the stock to climb. If PZZA manages to keep this after-hours momentum on Wednesday, I'd view it as nothing more than a trade.
The company reiterated its previous guidance for the year, meaning Papa John's expects full-year earnings of $0.00-$0.50 per share on a GAAP basis. On the liberal side, $0.50 per share does not justify a share price of $51.41. That would mean the stock is currently trading at over 100x potential full-year earnings guidance. Why on earth would you pay that much for a company with a shareholder deficit on the balance sheet?
News that John Schnatter is looking to possibly sell his stake in Papa John's might be a smart move all around. He's no longer in control of the company, and the shares are decidedly overvalued. If he sells, it will alleviate the company of a great pressure. It would also mean Schnatter could monetize his shares into actual cash and move on. When you look at the price-to-earnings on this stock, it seems like an incredibly smart move. The news might also drive the stock up, if investors share my sentiment that the stores might be viewed more favorably if Schnatter is no longer an owner. Nonetheless, buying on news is not the smartest move.
At this price, I'd like to see more in terms of progress on sales. It doesn't make sense to me to pay such a high premium right now.