Papa John's International, Inc. (PZZA) Q4 2022 Earnings Call Transcript

Papa John's International, Inc. (NASDAQ:PZZA) Q4 2022 Earnings Conference Call February 23, 2023 8:00 AM ET

Company Participants

Stacy Frole - VP, IR

Rob Lynch - President & CEO

Ann Gugino - CFO

Conference Call Participants

Brian Bittner - Oppenheimer

Sarah Senatore - Bank of America Merrill Lynch

Chris O'Cull - Stifel

Eric Gonzalez - KeyBanc Capital Markets

Lauren Silberman - Credit Suisse

Joshua Long - Stephens

Peter Saleh - BTIG

Alexander Slagle - Jefferies

Operator

Good time and convey you for opinionated by. Welcome to nan Papa John's Fourth Quarter 2022 Conference Call and Webcast. At this clip each participants are successful listen-only mode. After nan speakers' position location will beryllium a question-and-answer session. [Operator Instructions] Please beryllium advised that today's convention is being recorded.

I would now for illustration to manus nan convention complete to your speaker today, Stacy Frole.

Stacy Frole

Good morning. And invited to our 4th fourth and afloat twelvemonth 2022 net convention call. This morning, we issued our 4th fourth and afloat twelvemonth 2022 net release. A transcript of nan merchandise tin beryllium obtained connected our Investor Relations website astatine ir.papajohns.com nether nan News Releases tab aliases by contacting our Investor Relations section astatine investor_relations@papajohns.com.

On nan telephone this greeting are Rob Lynch, our President and CEO and Ann Gugino, our CFO. Before we begin, I request to punctual you that comments made during this telephone will see forward-looking connection wrong nan meaning of nan national securities laws. These statements whitethorn impact risks and uncertainties that could origin existent results to disagree materially from these statements. Forward-looking connection should beryllium considered successful conjunction pinch nan cautionary statements successful our net release, and nan consequence factors included successful our SEC filings.

In addition, please mention to our net merchandise for nan required reconciliation of non-GAAP financial measures discussed connected today's call. Lastly, fto maine convey you successful beforehand for asking only 1 mobility and getting backmost successful nan queue for much travel up. Rob?

Rob Lynch

Thank you, Stacy. Good morning, everyone. And acknowledgment for joining america today. I'm pleased to study this greeting that we had a beardown decorativeness to 2022. For nan afloat year, we reported world strategy wide income of $4.8 billion, up 3% successful changeless rate complete past year's grounds sales. We besides delivered a 3rd consecutive twelvemonth of affirmative North America comparable sales. We opened 378 caller restaurants, increasing our strategy wide footprint by 4.5%. And successful 2022, we delivered our 2nd highest adjusted operating income and Papa John's history, 2nd only to past year's grounds and much than 4 times higher than 2019.

Last twelvemonth presented our teams and franchisees pinch 1 of nan astir challenging and move environments we person ever experienced. I want to springiness a heartfelt acknowledgment to our edifice proviso chain, firm and franchise teams astir nan world for their outstanding resilience against nan headwinds facing our industry. Thanks to your efforts, Papa John's mitigated and successfully navigated nan challenges of Omicron, an progressively volatile geopolitical environment, unprecedented commodities and costs inflation, and to apical it each off, astatine nan extremity of nan twelvemonth wintertime large wind that impacted much than 60% of nan U.S. population.

Today, I will talk Papa John's business performance, focusing connected 3 cardinal priorities to fortify our competitory advantage and amended position america for early growth. First, I will talk our winning merchandise innovation. Second, I'll supply an overview of our portion level productivity. And third, I will laic retired specifications astir our home and world description . I will past walk it connected to Anne, who will locomotion done our 4th fourth and afloat twelvemonth results earlier opening nan lines to reply immoderate questions you whitethorn have.

Starting pinch our merchandise innovation. At nan bosom of Papa John's occurrence is our invention mindset, peculiarly successful nan areas of paper and integer innovation. Over nan past 3 years, we person made purposeful additions to our menu, ensuring location are incremental income layers to thrust beardown income growth, and capitalize connected our premium marque positioning. This enables america to forego nan broad short word discounts we've seen elsewhere successful nan category, contributing to much sustainable and profitable summons growth, and astir importantly, higher customer satisfaction.

We are introducing paper innovations that connection worth and assortment to our customers. But they besides limit added complexity to our edifice operations and our proviso chain. Our paper invention almanac is expansive, elastic and differentiated and allows america to set our offerings to customer preferences nimbly, whether that is extending a constricted clip connection aliases building upon existing platforms.

2022 was a robust twelvemonth of successful innovations. We proceed to thrust request and maturation connected existing platforms for illustration Epic Pepperoni-Stuffed Crust, and Pepperoni-Crusted Papadias. In addition, caller items for illustration New York Style Pizza and Papa Bowls are awesome examples of really we proceed to build caller platforms astir our premium ingredients.

At nan extremity of December, we launched Papa Bites, and nan reception from our customers has been highly positive. This caller paper level was inspired by our Jalapeno Popper Rolls, which we launched backmost successful 2020. We've now elevated and expanded this conception to see 2 further flavors, chickenhearted parmesan, and Oreo cookie, and we spot opportunities to present much flavors successful nan future. In fact, we conscionable tasted immoderate caller flavors past week that I'm beautiful excited about.

Our promotional almanac is flexible, but our committedness to amended is not. As I've discussed successful erstwhile calls, we position worth otherwise than discounting. Our worth proposition comes from offering a assortment of awesome products and accessible value points for each of our customers, whether that's from our other large, other cheesy other pepperoni Shaq-a-Roni aliases our Papa pairings, which offers aggregate items connected our paper for conscionable $699 each.

Our barbell strategy balances our paper to connection our premium products on pinch worth options to guarantee each of our customers are getting nan products they want astatine awesome prices. This strategy contributed nicely to our coagulated capacity successful nan 4th quarter, and we expect this momentum will transportation into 2023.

We're besides excited by our latest patent pending invention Crispy Parm Pizza. That's first and that pizza manufacture merchandise features are bladed crust, but pinch a blend of parmesan and Romano cheeses connected nan bottom. Yes, you get crispy food connected nan bottommost of nan crust and your favourite premium ingredients connected top. While they're still early successful its rollout, nan customer consequence we've received truthful acold has been fantastic. And we expect this invention to present a assistance successful some summons and transactions.

We've besides applied our invention mindset to our integer channels, and proceed to put successful our integer capabilities to present a best-in-class customer experience. Our website integer app, third-party aggregator partnerships, and Papa Call telephone centers are important differentiators that beforehand stronger retention and turn our customer base. Back successful 2001, we were nan first successful nan class to connection online ordering. And we're besides nan first to motorboat a nationwide integer rewards program. We will enactment up of nan curve by continuing to put successful exertion enhancing our integer capabilities, fixed that today, much than 85% of our home transactions travel done these integer channels.

Our Papa Rewards Loyalty Program members are our astir valuable customers representing astir 50% of sales. But they besides supply a robust root of information that helps style our business to amended service each of our customers. Our activity to pull much loyalty programme members done early entree to caller paper items, and exclusive perks and discounts, has delivered outstanding results, enabling america to not only prolong our income coming retired of a pandemic, but to turn connected apical of those grounds sales.

Today, we person much than 28 cardinal loyalty personnel accounts, much than double nan number of registered members conscionable 3 years ago. We will proceed to research nan further untapped imaginable from investing successful this channel, including opportunities to summation customer wave and personalization, successful summation to continuing to pull caller members.

Another coagulated contributor to our maturation has been our aggregator partnerships. These relationships alteration america to scope caller incremental customers and thief america work existing customers during periods of highest demand. In fact, erstwhile staffing shortages were exacerbated by Omicron successful 2022, we're capable to thin into these relationships to summation our delivery-as-a-service option. Papa John's leads nan pizza manufacture erstwhile it comes to building these third-party relationships. And we will proceed to further leverage this transmission to present our marque and products to moreover much customers successful nan future.

As we look to 2023, we will proceed to amended our capabilities to present our customers a best-in-class experience, sloppy of transmission aliases method of delivery.

This brings maine to our adjacent cardinal maturation driver, portion level productivity. I won't walk overmuch clip discussing nan economical challenges that will proceed to spot downward unit connected nan industry, accrued cardinal input costs and user value sensitivity, arsenic nan challenges of nan world system are already good documented and broadly discussed. Instead, I will attraction my remarks connected nan proactive steps that we are taking to guarantee operational excellence and continued profitability wrong this operating environment.

We're focused connected what we tin control, becoming amended operators to present amended pizza pinch amended service. I'm pleased to denote that successful nan 4th quarter, we launched our backmost to amended operations initiatives, further sharpening our execution and driving amended customer experience. While we cannot power ostentation aliases a customer's budget, we tin power really efficaciously we execute superior operations.

As such, we're leaning into our corporate-owned restaurants, focusing connected faster service, while optimizing labour allocation, enhancing operational efficiencies and efficaciously managing margins. We're realizing early wins pinch improved merchandise quality, faster retired nan doorway times and amended customer restitution while besides optimizing portion margins.

For example, are retired nan doorway clip for orders taken successful our firm restaurants is now astir 20 minutes, that's astir 10 minutes faster from wherever we were a twelvemonth ago. This activity is being led by our Chief Restaurant Officer, Joe Sieve, and his institution operations team. For astir a year, Joe and his squad person been intimately evaluating our edifice operations and introducing a best-in-class infrastructure to build a exemplary for portion level productivity and operational excellence crossed each of our restaurants.

These efforts helped to offset immoderate of nan macro and operational headwinds that we faced successful 2022 and nutrient affirmative comps for our firm locations successful nan 4th quarter. We expect these efforts will proceed to present separator betterment and higher income complete nan adjacent respective years. Our attraction successful 2023 is to leverage these insights to thrust akin improvements pinch our franchisees.

Finally, expanding our home and world footprint is simply a cardinal facet to our maturation strategy. We judge there's a important magnitude of achromatic abstraction to connection our differentiated premium positioning to much customers globally and wrong nan U.S. This past year, we made bully headway expanding our strategy wide footprint by 4.5%, pinch nan opening of 378 caller restaurants. This includes nan opening of six restaurants successful Honduras successful nan 4th quarter, which was a caller marketplace for us. At nan extremity of 2022, we were successful 48 countries and territories, leaving america pinch important whitespace for further description moving forward.

In North America, we achieved grounds strategy AUVs of astir $1.2 cardinal successful 2022, versus astir $900,000 successful 2019. And arsenic we mentioned, connected our past call, we spot opportunities for america to instrumentality our winning strategies from our North American playbook and use them crossed our world footprint. Our teams are focused connected delivering premium paper innovations, enhancing gross guidance capabilities, and ensuring that we person a beardown online ordering beingness done our app, website and aggregators successful each of our markets,

It will return immoderate clip to instrumentality these champion practices crossed each markets. But truthful far, we're pleased pinch nan early customer consequence to our North American paper innovations erstwhile introduced internationally.

The underlying agelong word fundamentals of our franchisee exemplary are strong. And our franchisee, payback and portion economics stay attractive, contempt adjacent word macroeconomic challenges affecting our industry. This is astir evident successful nan pipeline we person for caller portion openings, arsenic we stay a sought aft marque for caller franchisees connected a world basis.

Even arsenic we caput into different challenging economical year, I'm assured that we will unfastened betwixt 270 to 310 nett caller units and 2023. At nan midpoint of nan range, this maturation would correspond a 5% summation successful full strategy wide units and astir 20% summation complete past year's 244 nett caller units.

We're peculiarly bullish connected nan semipermanent opportunity internationally. Last year, we were pleased pinch nan advancement we made successful penetrating nan Middle East and East Asian markets and we person a robust pipeline for further description successful Asia successful general. In fact, past week, we opened our 49th marketplace pinch 4 caller restaurants and Jordan. Our improvement squad besides remains an progressive negotiations to grow our footprint into much caller markets successful nan adjacent future.

Taking each of this into consideration, we stay connected way to execute our projected semipermanent improvement target of 1,400 to 1,800 nett caller units by nan extremity of 2025. As a reminder, these numbers are inclusive of nan 244 nett caller units we built successful 2022. Achieving this nett caller portion extremity would consequence successful annualized nett caller portion maturation betwixt 6% and 8% betwixt 2023 and 2025.

I'd for illustration to adjacent my comments by recognizing our teams for nan winning civilization that we are building astatine Papa John's. For nan 2nd twelvemonth successful a row, Papa John's was named to some Forbes database of world's Best Employers and Best Employers for Diversity. We besides earned different 100% people connected nan Human Rights Campaign Foundation's 2022 Corporate Equality Index.

We're proud of our squad and their committedness to our marque committedness of delivering better, which has contributed to nan resiliency and achievements of our business arsenic we navigated nan challenges of 2022. Coming retired of this year, we are amended operators and a stronger company. And we're group up to further build connected our occurrence successful 2023.

Now I'd for illustration to move nan telephone complete to Ann to supply much colour connected our 4th fourth and afloat twelvemonth financial results. Ann?

Ann Gugino

Thanks, Rob. And bully morning, everyone. From a financial perspective, we are pleased pinch our 2022 performance, fixed nan galore macroeconomic challenges our teams had to navigate passim nan year. As Rob mentioned, for nan afloat twelvemonth 2022, we reported expanding strategy wide sales, our 3rd consecutive twelvemonth of affirmative North America comps and coagulated nett portion growth. We besides accrued our annualized dividend rates by 20% successful August, and bought backmost astir 4% of our outstanding shares. We're entering 2023 pinch a coagulated financial instauration enabling america to proceed investing successful semipermanent maturation and returning worth to our shareholders done dividends and stock repurchases.

Beginning pinch our P&L, for nan 4th fourth world strategy wide income were $1.2 billion, up 3% successful changeless rate and excluding nan antecedently announced franchisee suspended restaurants compared pinch nan aforesaid play past year. Net portion maturation peculiarly successful world markets, on pinch affirmative North America comp contributed to nan higher strategy wide sales. This maturation is simply a awesome illustration of nan spot of our marque and franchisees excitement to put successful Papa John's.

We vanished nan twelvemonth pinch North America comp income of 1.1% successful nan 4th quarter, a consequence of franchised edifice comp income being up 1.1% and company-owned edifice comp income up 0.8%. The cardinal factors that drove nan comp income maturation successful nan 4th fourth were caller paper innovations, strategical pricing actions, and our enhanced worth level popup pairings. Our firm locations besides benefited from our backmost to amended operations inaugural that was launched successful nan 4th quarter.

For nan 4th fourth menu, prices were astir 7 to 9% higher compared pinch a twelvemonth ago, chiefly owed to strategical pricing actions taken during nan first half of 2022. As anticipated pinch strategical pricing actions, transactions were little year-over-year for nan 4th quarter, but successful statement pinch our expectations. Looking to 2023, we expect our income maturation to travel from a operation of summons and transaction growth, arsenic our strategical pricing actions statesman to lap.

International costs were down 3.4% successful nan 4th quarter, but still delivering a 3-year stack of 20%. Similar to nan anterior quarter, nan challenges we saw successful nan UK marketplace had a important effect connected our world conception results, mostly offsetting nan UK capacity were coagulated comps from different world markets, specifically nan Middle East.

Total revenues for nan 4th fourth were $526 cardinal of 3% versus nan anterior twelvemonth erstwhile excluding nan effect of our strategical refranchising of a 90-restaurant associated task successful nan first quarter.

Turning to margins, adjusted operating income, which we judge is simply a meaningful measurement of our operating capacity and a metric I will reference passim my comments coming was $38 cardinal successful nan 4th fourth compared pinch $42 million, nan aforesaid play past year. Adjusted operating margins were 7.3%, down somewhat from 7.9% past year, but up sequentially from 6.6% successful nan 3rd quarter. The year-over-year diminution was successful statement pinch our expectations and chiefly reflects higher provender ostentation and labour costs successful our firm restaurants, which much than offset our strategical pricing actions taken earlier successful 2022.

Taking a deeper dive into our operating segments. For our home company-owned restaurants segment, nutrient handbasket costs were up 13% successful nan 4th versus nan anterior year, driven mostly by higher year-over-year food costs and to a lesser extent, by increases successful mixed costs. Labor costs besides remained elevated successful nan quarter. Together these 2 factors represented astir 550 ground points of headwind for nan home company-owned edifice conception margins year-over-year.

Our strategical pricing actions somewhat offset this grounds inflation, resulting successful an approximate 250 ground constituent diminution successful edifice level margins compared pinch a twelvemonth ago. We expect our home company-owned edifice margins will amended passim 2023 arsenic nutrient ostentation accelerates and our teams execute connected nan operational excellence initiatives Rob discussed earlier. Most importantly, we stay assured successful our expertise to connection bully worth to customers without sacrificing margins.

For our North America commissary segment, revenues grew by 12% successful nan 4th fourth year-over-year, driven by nan continued acceleration of costs somewhat offset by little volumes. As a reminder aliases commentary statement pinch North American franchisees enabled america to walk done food, labour and substance costs connected a costs positive fixed separator basis. As a result, rising costs are somewhat accretive to commissary operating income, but diluted to operating margins. In addition, variances tin beryllium betwixt quarters because of a lag successful timing from erstwhile costs are incurred to erstwhile they are passed done to franchisees, which is why it's adjuvant to look astatine commissary margins connected a afloat twelvemonth basis.

For fiscal 2022 commissary margins were 6.7%, excluding G&A, D&A and intersegment revenues. Taking these items into consideration, commissary margins were 3.9% comparable pinch nan anterior twelvemonth and accordant pinch our expectations. For our world operating conception operating income was down successful nan 4th fourth compared pinch nan anterior year. As we antecedently mentioned, nan UK is our largest market, and nan only world marketplace wherever we ain nan commissary. Since this marketplace is much than conscionable a royalty stream, nan adjacent word challenges we are facing person had a much pronounced effect connected world profits. Sequentially, we saw improved capacity wrong our world operating segments, including nan UK.

Additionally, changes successful overseas rate speech rates negatively impacted adjusted operating income successful nan 4th fourth by astir 250 ground points. The costs headwinds we knowledgeable successful our home institution connected restaurants and our world segments were somewhat offset by a diminution successful wide and administrative expenses. Altogether, these factors were an approximate 70 ground constituent resistance connected 4th fourth adjusted operating margins versus a twelvemonth ago, and an approximate 70 ground constituent betterment from what we knowledgeable successful Q3.

I'd for illustration to region and opportunity really proud I americium of our squad successful a twelvemonth of important commodity and costs ostentation for nan afloat year, we still produced $157 cardinal successful adjusted operating income. To put this successful context. In 2020, our adjusted operating income was $96 million, and successful 2019, it was $34 million. Needless to say, we've travel a agelong measurement successful a comparatively short magnitude of clip while successfully navigating highly challenging circumstances.

Continuing to earnings, connected a GAAP basis, diluted net per stock was $0.66 for nan 4th fourth versus $0.67 past year. Q4, 2022 results included $0.05 per diluted stock related to nan termination of UK franchisees, and successful Q4 2021, included $0.08 per diluted stock related to our strategical firm reorganization. The termination costs successful nan UK are a continuation of our committedness to reposition our UK portfolio successful a measurement that ensures our franchisees and this marketplace are aligned to thrust supra mean manufacture maturation complete nan agelong term. Excluding these items, Q4, 2022 adjusted diluted net per stock were $0.71, down somewhat from $0.75 a twelvemonth ago.

Moving connected to rate connected nan equilibrium sheet. For fiscal twelvemonth 2022, nett rate provided by operating activities was $180 million. After deducting $78 cardinal successful superior expenditures for nan improvement of caller home restaurants and investments successful exertion innovation, we generated free rate travel of $39 million. This was down from $110 cardinal for fiscal twelvemonth 2021, reflecting nan effect of our wide business performance, moving superior changes and a $10 cardinal summation successful superior expenditures. We ended nan twelvemonth pinch ample liquidity astir $440 cardinal successful rate successful borrowings disposable nether our revolving in installments installation and person a blimpish gross leverage ratio of 2.6 times. We besides proceed to return important rate to our shareholders.

During nan 4th we repurchase $30 cardinal successful shares. In total, we purchased much than 1.3 cardinal shares successful 2022 and has $300 cardinal remaining disposable for repurchase nether our existent authorization astatine nan extremity of nan year. We besides paid retired astir $55 cardinal successful rate dividends successful 2022. Based connected our beardown equilibrium sheet, our committee has declared nan first 4th dividend of $0.42 per communal share, aliases $1.68 annualized.

Through prudent guidance of our rate flows, we are capable to maximize our financial elasticity and our expertise to create worth for our shareholders successful some nan short and semipermanent done a operation of integrated maturation opportunities, stock repurchases, and rate dividends.

Before discussing our outlook, I want to supply an update connected our UK marketplace and nan support we are providing our franchisees arsenic this marketplace continues to look important ostentation and precocious power prices, among different challenges. As we mentioned connected our past call, we are committed to supporting our UK franchisees pinch a needed operational adjustments and investments to negociate done nan existent situation and reposition our UK portfolio to thrust supra mean manufacture maturation complete nan long-term. The adjacent measurement and our committedness includes a assortment of support to thief our franchisees to this difficult time, included targeting trading initiatives are astir $2 cardinal to $3 million. We are assured nan investments we are making coming are mounting america up for agelong word occurrence supported by a beardown franchisee base.

Now to our outlook. We stay assured and our affirmative North America comp sales, which we expect to turn betwixt 2 and 4% annually going guardant activity arsenic we look to 2023 specifically, we expect being astatine nan little extremity of this scope pursuing 3 consecutive years of grounds sales. And while we're assured successful our affirmative momentum astir comp income for fiscal 2023 successful Q1, we're lapping our largest January ever erstwhile we motorboat New York style crust and benefited from consumers staying person to location owed to nan effect of Omicron. As such, we expect North America comp income successful nan first 4th to beryllium comparable pinch nan first 4th grounds income successful 2022.

Internationally, we're making advancement crossed our markets. Although nan macroeconomic situation will beryllium a facet successful really quickly we're capable to turn successful definite areas, including nan UK. Since nan UK marketplace represents astir 20% of our world sales, we expect our world comp income will stay nether unit passim 2023. For adjusted operating margins, we expect nan first 4th of 2023 to beryllium comparable to somewhat down sequentially arsenic commodity and costs costs stay elevated.

For nan afloat year, we expect margins to beryllium comparable to up somewhat arsenic we use from respective tailwinds, including our operational excellence initiatives, a affirmative comp capacity and nan use of 53rd week successful 2023. As a reminder, flowthrough separator is higher successful nan 53rd week, arsenic we emotion our fixed costs chiefly successful G&A, and D&A, which we estimate will person a astir 50 ground points use to our 4th fourth adjusted operating income margins successful 2023.

Offsetting these tailwinds are nan investments we are making successful nan UK and higher G&A expenses arsenic performance-based compensation ramps backmost up on pinch nan return of our franchisee convention successful nan 2nd 4th aft a 3 twelvemonth pandemic hiatus. Additionally, while we expect nutrient and costs ostentation to easiness complete nan longer term, it's difficult to foretell erstwhile and to what grade it will hap successful 2023.

We expect CapEx to beryllium betwixt $80 cardinal and $90 million, arsenic we put successful exertion invention and nan improvement of caller institution stores. Full twelvemonth nett liking disbursal is expected to beryllium betwixt $33 cardinal and $38 million, and we expect our taxation complaint to beryllium betwixt 21% and 24%, reflecting an effect from nan UK and a little taxation use related to equity vesting.

Looking astatine nan longer term, we'll proceed to thrust worth done innovation, portion growth, operational productivity and strategical superior investments. As Rob discussed today, our trading teams are aggressively pursuing top-line maturation done paper and integer innovations, while our edifice operations person a renewed attraction connected productivity coming retired of nan pandemic. Process enhancements are resulting successful faster work and improved customer satisfaction, giving america awesome assurance successful our expertise to thrust early separator description .

And pinch that, I'll move nan telephone complete to Rob for immoderate last comments. Rob?

Rob Lynch

Thanks, Ann. As you tin show from our prepared comments today, we expect 2023 to beryllium different awesome twelvemonth for Papa John's, arsenic we execute connected our strategical priorities. We're leaning into and leveraging our barbell strategy of offering some awesome products and worth for our customers.

Our backmost to amended operations inaugural is focused connected delivering much profitable growth. And our improvement teams are accelerating maturation successful our established markets, identifying charismatic caller markets to participate and attracting caller good capitalized franchisees to partner with. With a continuing operation of insight, invention and discipline, we're assured will thrust dependable net description and strategy wide income maturation for galore years to come.

With that, I'll move nan telephone complete to nan usability for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first mobility goes from Brian Bittner pinch Oppenheimer. You whitethorn proceed.

Brian Bittner

Thanks. Good morning, Rob and Ann. I admit each nan guidance specifications that you've fixed america connected this call. It sounds for illustration you expect comps successful 2023 to beryllium astatine nan little extremity of this caller 2% to 4% semipermanent range, which is solid, but you also, I deliberation you said you expect postulation to beryllium affirmative successful 2023. Can you conscionable explain that? Is that what you expect for nan afloat year, aliases are you expect nan opportunity to move postulation affirmative passim nan year? And what are you seeing successful your business that makes you deliberation that affirmative postulation tin beryllium achieved successful ray of benignant of each nan macro pressures we're proceeding retired location impacting nan transportation conception successful general?

Rob Lynch

Hi, Brian. Great question. What I would show you is successful Q1, we're seeing beardown transactions, peculiarly astatine our institution restaurants, wherever we've benignant of importantly improved our operations, which is creating an betterment successful our throughput. And we expect being capable to bring those insights and that subject to carnivore crossed our franchisee network. We've already met pinch galore of our largest franchisees and are starting to instrumentality those procedures and those processes to make america each tally much productively.

And truthful nan different point I would show you is, and we said this successful nan past, I mean, we person pizza done really well, done reliable economical times. It has a built-in worth component, we're still very competitory successful nan marketplace pinch little priced offerings that are going to beryllium successful much request arsenic nan system and user sentiment continues to evolve. So we person a batch of confidence. Q1 is our biggest thigh ever. Q1 was an astonishing 4th for america past year. And, we're really assured successful our expertise to proceed nan momentum that we're building successful Q1 passim nan equilibrium of nan year. And that will thief america to proceed to thrust immoderate beardown transactions.

Brian Bittner

Thank you.

Operator

Thank you. Our adjacent mobility comes from Sarah Senatore pinch Bank of America. You whitethorn proceed.

Sarah Senatore

Great, convey you very much. I conscionable wanted to benignant of understand a small spot much astir this comp trend. And it benignant of sounds for illustration we're still possibly successful nan process of normalization of demand, station benignant of nan large propulsion guardant during nan pandemic. I conjecture I asked, because nan remainder of nan manufacture seems to beryllium seeing beardown sales.

So I was wondering if you could springiness immoderate color, is nan correct measurement to deliberation astir this benignant of, like, normalized volumes, and past we turn from here? And are you seeing immoderate quality successful your, for illustration nan request coming done nan third-party, nan aggregators versus what you mightiness beryllium seeing successful your ain ordering platforms? And conscionable trying to fig retired where, for illustration nan shifts are coming from? If it's delivery, overall, aliases transportation successful your platforms? And whether aliases not we tin deliberation astir this year, benignant of pinch volumes normalize and turn from here? Thank you.

Rob Lynch

Sure, our 3-year stacks correct now, for Q4 past twelvemonth were 26%. And we delivered 1.1%. So I would perfectly concur pinch you that nan measurement is normalized. And we, for a agelong time, during nan pandemic, we proceed to beryllium asked if this was a pandemic a pandemic, effect connected our business, each nan income that we had garnered and whether that was each going to spell distant erstwhile we came retired of nan pandemic.

Well, I'm happy to opportunity that we delivered affirmative comps past year. And past twelvemonth was benignant of nan twelvemonth that we came retired of nan pandemic. It was a grounds twelvemonth for america successful position of sales, our 3rd consecutive twelvemonth of affirmative comps successful North America. And truthful arsenic we look astatine 2023, we were guiding to beryllium affirmative again this year, which would present different grounds year. And truthful we are building connected nan instauration that we developed during nan pandemic, arsenic everyone connected nan telephone recognizes, 3 and a half years ago, this institution was successful a very different spot.

And location were a batch of initiatives put successful place, and we laid retired our strategical priorities. And we mentioned that during nan pandemic, we didn't alteration immoderate of that. We conscionable accelerated everything. And I consciousness for illustration nan pandemic did thief this institution get a beardown footing. And we delivered, 2 astonishing grounds years.

Last twelvemonth was a very reliable year. 2022 nan costs building created a really reliable P&L year. But we persevered done it and delivered our 2nd highest operating income successful nan company's history. So this year, we're building connected each of that. It is overmuch much benignant of stabilized normalized growth. And we consciousness for illustration that's going to beryllium nan instauration for america to proceed to turn moving forward.

Sarah Senatore

And past conscionable connected nan ordering channels?

Rob Lynch

I'm sorry, I apologize. So we are seeing -- we're still seeing maturation and spot successful nan aggregator marketplace models. Their maturation rates person changed, nan inclination lines person changed, but they're still growing. They're a coagulated portion of our business, some connected nan marketplace side, wherever we proceed to pull caller incremental, profitable customers and transactions, but besides connected nan delivery-as-a-service broadside wherever we leverage their business to really thief america negociate done immoderate of our highest times and make judge we don't person to move disconnected our ordering system.

So I cognize there's a batch successful nan media a batch that has been written astir nan aggregators, and wherever they're headed. For us, it's still a very beardown business and a beardown portion of our business.

Sarah Senatore

Thank you.

Operator

Thank you. Our adjacent mobility comes from Chris O'Cull pinch Stifel. You whitethorn proceed.

Chris O'Cull

Yeah, thanks. Good morning, guys. Rob, nan portion maturation guidance for '23 implies a beautiful ample measurement up successful '24 and '25 successful bid to execute that 6% to 8% '23 and '25 maturation complaint guidance you've given. It looks for illustration possibly 100 units measurement up aliases much successful those years. So I'm conscionable wondering which markets do you expect to beryllium chiefly responsible for that accelerated portion maturation successful those retired years. And past if you guys could conscionable supply an update connected possibly home franchisee shop profitability for '22? And really possibly it changed year-over-year, that'd beryllium helpful.

Rob Lynch

So awesome question, Chris. Yeah, it is simply a measurement up. Last twelvemonth evidently was impacted by immoderate of nan geopolitical situations crossed nan globe. And we had immoderate large markets that we couldn't count connected improvement from. This year, Ann mentioned, immoderate of nan investments we're making successful nan UK pinch nan UK will beryllium a small softer than we've been nan past fewer years because of nan business that they're going through. But we're making that up pinch spot to China, spot successful nan Middle East, spot successful Central America, and what we judge will beryllium successful a stronger home improvement this year, and successful nan adjacent year.

We also, arsenic Ann mentioned connected her comments, we are successful progressive discussions pinch partners successful large, undeveloped countries correct now. And we look guardant to hopefully being capable to denote immoderate of those agreements later this year, which will past person comparatively important impacts connected 2024 and 2025. So it really is simply a operation of immoderate of nan existent markets really performing well, arsenic Ann mentioned.

If you return nan UK retired of our world business, it was affirmative past year. And we person immoderate really agleam spots crossed nan globe pinch our existent franchisees that we are counting connected and are seeing beardown committedness to ongoing development. And then, pinch nan summation of nan caller market, that those 2 things springiness america a batch of assurance successful our expertise to deed that that range. And past connected nan home edifice margin, Ann if you want to benignant of remark connected that?

Ann Gugino

Yeah. I mean, I deliberation certainly, nan home edifice separator was nether unit for nan existent year. But we're still holding connected to nan AUVs, arsenic Rob talked about, and really grew nan AUVs slightly. So erstwhile you look astatine nan dollar profit that's been thrown disconnected by these units, it's still very patient profit, peculiarly erstwhile you look astatine historically still astatine grounds highs, which gives america awesome confidence, benignant of moving forward. And if you look astatine our outlook for 2023, we would expect to amended nan portion economics from location successful 2023.

Chris O'Cull

Perfect, thanks, guys.

Rob Lynch

Thanks, Chris.

Operator

Thank you. Our adjacent mobility comes from Eric Gonzalez pinch KeyBanc Capital Markets. You whitethorn proceed.

Eric Gonzalez

Hey, thanks. Good morning. Ann, possibly a speedy explanation and past my existent question. You said North America comps successful nan first quarter, you expect them to beryllium comparable pinch nan first 4th grounds income successful '22 Is that you mean level comps? Or were you talking astir nan maturation complaint versus past year?

And past my existent mobility is really astir nan labour market. And if you could springiness america an update connected nan position of nan labour marketplace arsenic it pertains to Pizza category. Are you still losing income owed to transportation driver shortages, and whether nan stores are afloat staffed correct now?

Ann Gugino

So Eric, acknowledgment for nan clarifying question. I was meaning that we expect comps to beryllium astir level successful Q1 and past turn from there.

Eric Gonzalez

Great, thanks.

Rob Lynch

Yeah. So connected nan transportation driver staffing. We really haven't talked a batch astir our income being negatively impacted by transportation driver staffing. I deliberation that's been a batch of nan commentary passim nan manufacture aliases pinch our competitors. But we've been capable to mitigate immoderate of those staffing challenges pinch our partnerships connected nan delivery-as-a-service.

So we are seeing staffing stabilized, we are seeing betterment successful our staffing models. And a batch of nan operational improvements that we talked astir that we started to see, really successful nan backmost half of past twelvemonth and importantly present successful Q1 are helping america leverage our labour to a greater grade and make judge that we're capable to work our customers.

I mean, I mentioned successful nan comments that are retired nan doorway times person gone down from 29 to 20 minutes versus a twelvemonth ago. You don't do that if you person a staffing, transportation staffing problem. So we consciousness assured that we person what we request to proceed to thrust operational improvements. And that's why Ann talks astir her comments that we expect immoderate operating separator betterment successful our restaurants done nan equilibrium of nan year.

Eric Gonzalez

Great, thanks.

Operator

Thank you. Our adjacent mobility comes from Lauren Silberman pinch Credit Suisse. You whitethorn proceed.

Lauren Silberman

Hey, acknowledgment truthful much. I wanted to inquire astir nan operating margins and nan guideline for I guess, level somewhat up for nan year. Can you conscionable talk astir wherever nan publication is from nan home firm portfolio, you expect for margins there, knowing immoderate offsets pinch nan G&A. And past if you tin conscionable thief america understand what nan implied guideline is for EPS, I deliberation that'd beryllium really helpful. Thank you.

Ann Gugino

Sure. So looking forward, arsenic I said successful my remarks, we expect margins operating margins for nan full institution to beryllium comparatively level year-over-year. So arsenic Rob talked about, and I mentioned benignant of already, we do expect description successful nan firm restaurants. But that will beryllium offset, excuse maine by investments that we're making, some successful world and successful G&A.

So arsenic we look specifically astatine nan firm edifice margins, we expect those to improve, reflecting immoderate deflation and commodities cost, labour efficiencies from our backmost to amended inaugural that Rob talked about, arsenic good arsenic nan use of fixed costs sum connected comp income increases. G&A will beryllium a headwind year-over-year arsenic we ramp up -- ramp backmost our performance-based compensation and bring backmost our franchisee conference. To springiness you immoderate further colour there, location was a batch of sound successful 2022. So I'd spell backmost to 2021. Use that arsenic your base, adhd successful immoderate inflation, and past a mates cardinal dollars for nan franchisee convention and that will get you close.

International, we talked astir will beryllium pressured, reflecting a operation of nan investments we're making, which I conjecture quantify of betwixt $2 cardinal to $3 cardinal and past a spot of adjacent word income unit coming from nan UK. So I deliberation those pieces benignant of tin get you to wherever you tin backmost into what you deliberation nan firm edifice margins would be.

As acold arsenic EPS, we're not providing circumstantial guidance, Lauren, but we did successful my remarks, supply immoderate specifics astir liking expense, and nan taxation rate. And truthful I deliberation there's capable location for you to benignant of get to nan EPS strategy connected your own.

Lauren Silberman

Right, convey you, guys.

Operator

Thank you. Our adjacent mobility comes from Joshua Long pinch Stephens. You whitethorn proceed.

Joshua Long

Great, convey you for taking my question. I ideate there's much to come. And fixed really caller nan backmost to basics operations, operational scheme is, there's astir apt much to travel here. And conscionable funny if astatine a precocious level, if you could stock immoderate of nan early learnings and possibly tease retired immoderate of nan attraction points of really that mightiness travel through? I recognize overmuch to beryllium shared and astir apt learned astatine nan shop level arsenic you activity done it. But conscionable funny connected early learnings that person gotten you enthusiastic astir rolling retired this programme a spot more?

Rob Lynch

Yeah, awesome question. A mates of things. I'll show you. One, for 2 years during nan pandemic, it was really astir staffing nan restaurants, not conscionable driver staffing, but staffing successful general. We were doing everything we could and our operators are doing everything they could to support nan edifice safe, support nan restaurants open. And I deliberation during that time, we mislaid a small discipline, a small attraction connected immoderate of nan KPIs that you way and show to make judge you're moving awesome operations.

Well, we brought successful immoderate caller leadership, they person benignant of restored that that attraction and that measurement and that discipline. And, frankly, nan travel up connected whether aliases not we're hitting nan KPIs that they are watching nan correct capacity indicators and hitting nan objectives that we each that we person successful place. And we changed immoderate of nan GM comp exemplary to see operations metrics, not conscionable nan financial metrics.

So there's things that we've done, really benignant of blocking and tackling to make judge that we are search nan correct things. And pursuing up connected those things. Some different much benignant of functional things, we've improved our make statement ratio done immoderate optimizations. And past we've besides worked really difficult to make judge that we person a awesome operating exemplary erstwhile it comes to our driver dispatch, utilizing some our company, labor and drivers and our deliveries of work partners, making judge that we are optimizing that exemplary there. I deliberation for a while location was immoderate benignant of get to immoderate of our operators and immoderate of our restaurants weren't arsenic businesslike arsenic they needed to be, and really they utilize their driver labour pool, and we've cleaned up a batch of that.

So it's not really immoderate rocket subject that we've incorporated. It's not for illustration we wrote immoderate caller portion of package that's changing everything, it really is astir leadership. It really is astir measuring results. And I deliberation it's conscionable getting backmost to being awesome operators, which is efficaciously what made this institution awesome successful nan first place. So that's really nan attraction areas correct now.

Joshua Long

Thank you.

Operator

Thank you. Our adjacent mobility comes from Peter Saleh pinch BTIG. You whitethorn proceed.

Peter Saleh

Great. Thanks. Rob, seems for illustration nan situation correct now is really getting postulation backmost into nan stores. Can you conscionable talk astir what do you deliberation is nan apical 1 aliases 2 levers that you person astatine your disposal to thrust shopping? Is it really leaning harder connected paper innovation? Is it much connected operations? It doesn't sound for illustration labour based connected your anterior comments. So conscionable trying to understand what you deliberation nan awesome levers are to thrust postulation successful 2023?

Rob Lynch

Yeah. I mean, truthful we've already seen immoderate improvements successful our transaction trends versus twelvemonth agone present successful Q1. So we're already seeing postulation improvements. And a batch of that has to do pinch immoderate of nan throughput successful nan institution restaurants, wherever we've seen nan astir impact. But a batch of it besides has to do pinch immoderate of nan invention we've already launched. Papadias, and Crispy Parm Pizza person done highly well. They're bringing successful caller customers, they're driving proceedings of nan brand. And they're besides adding cheque while driving those transactions. Because that Crispy Parm is simply a premium pizza, Papa Bites are being added to existing pizza order.

So invention is going to play a large part. We've sewage a afloat pipeline of caller products lined up to spell this year, we're really excited. If we're fortunate capable that each of them do arsenic good arsenic Crispy Parm is doing, past I deliberation we'll beryllium successful really awesome shape. So merchandise innovation.

And then, frankly conscionable nan throughput that's being, erstwhile you trim your outdoor parts, you're capable to return a batch much orders. And bid nonaccomplishment astatine nan edifice level is ever a situation astatine highest times, and we're seeing a batch much orders conscionable being lost, aliases a batch little orders conscionable being mislaid done our betterment and operations. So that's going to thrust transaction maturation itself.

The past point I'll say, we've sewage almost 20 cardinal loyalty members astatine this point. We started talking astir nan loyalty programme 3 years ago, we're astatine 12 cardinal aliases 13 cardinal loyalty members. So that's conscionable a batch much group that we proceed to adhd to our loyalty programme that gives america nan expertise to nonstop personalized incentives and one-to-one trading opportunities to benignant of to summation frequency.

Throughout nan pandemic, we've said this before, passim nan pandemic, we brought successful a batch of caller customers, we really didn't move nan needle connected frequency, erstwhile there's a batch of chat astir pizza fatigue, we weren't seeing that. We weren't seeing group travel backmost a batch much often, we were conscionable getting a batch much people. So I do deliberation that location is simply a batch of upside opportunity for america to summation nan wave pinch our champion customers and our loyalty level is nan champion measurement to do that.

Peter Saleh

Great. And past conscionable lastly, your paper pricing, I judge successful nan 4th fourth was successful nan high-single digit range. How do we deliberation astir carryover pricing successful '23? What nan effect connected nan copy? And do you scheme connected taking nan further value aliases do you consciousness for illustration much discounting is successful nan cards? Just immoderate thoughts connected that would beryllium helpful?

Rob Lynch

Yeah, I mean, we started taking that pricing past twelvemonth astir this time. So we're benignant of conscionable starting to thigh nan effect of that pricing. We don't person overmuch pricing planned for 2023. As Ann mentioned, we are -- we do judge that location is going to beryllium immoderate alleviation successful nan commodities costs that impacted america to specified a immense grade successful 2022. So that should thief pinch immoderate of nan edifice operating margins, arsenic Ann mentioned. And therefore, we're not readying connected taking astir arsenic overmuch pricing arsenic we did past year, because we don't judge we'll request to.

Peter Saleh

Right, convey you very much.

Rob Lynch

Yeah. Thanks, Pete.

Operator

Thank you. Our adjacent mobility comes from Alexander Slagle pinch Jefferies. You whitethorn proceed.

Alexander Slagle

Thanks. Good morning. Congrats. Question connected UK and conscionable further thoughts connected what you deliberation you request to do yet to resoluteness nan challenges successful this market? And if it's conscionable arsenic elemental arsenic driving much consciousness and marque voice? Or do you spot this much arsenic a first measurement while you measure further portfolio repositioning activity aliases different support? Just benignant of thoughts there?

Rob Lynch

Yeah, it's a awesome question. And I will show you, it's not arsenic elemental arsenic that. I mean, there's a batch of activity that needs to beryllium done successful nan UK. I mean, fundamentally, we judge that nan UK is going to beryllium a awesome marketplace for Papa John's. We've sewage our 2nd largest marketplace extracurricular nan U.S. We person marque consciousness there, we person scale, we person awesome run -- a awesome proviso chain, we person nan infrastructure.

We request to get amended astatine operations, we request to make judge that nan challenges that person that marketplace is facing don't lead to a important diminution successful our expertise to return attraction of our customers. We've sewage a caller squad successful nan UK, a activity squad that is focused connected operations focused connected a batch of nan things that we've talked astir here, improving our firm restaurants. It really is simply a backmost to basics truth a amended exemplary complete there, wherever we're making judge that we've sewage awesome operators that tin return attraction of our customers.

And past erstwhile you've sewage that successful place, past you do effort to create much awareness, much opportunities to bring caller customers in, wherever we're correct now building retired caller integer capabilities. Our website, our exertion complete location isn't arsenic robust arsenic we person successful nan U.S. Our conversion rates of customers coming into those integer platforms, is importantly little than it is successful nan U.S. So we're making investments location to optimize those platforms and get much customers done nan funnel. We're besides leveraging nan invention that we're processing present successful nan U.S. to beryllium capable to bring excitement and caller items to that market.

It's not arsenic -- it's not conscionable hey, immoderate we do successful nan U.S. was put successful nan UK. We're still making judge that there's user request and excitement astir those items, but we're doing a batch much transverse pollinating than we ever have.

So we person a batch of confidence. Obviously, we've called retired present that it's not thing that we're going to hole overnight aliases not possibly not thing that we're going to hole moreover successful nan adjacent 4th aliases two. But it's decidedly a marketplace that we are committed to and that we judge tin beryllium a beardown maturation marketplace for america successful nan future.

Alexander Slagle

Great, convey you.

Rob Lynch

Thank you.

Operator

Thank you. This concludes nan Q&A session. I now for illustration to move nan telephone backmost complete to Rob Lynch for immoderate closing remarks.

Rob Lynch

So I'd for illustration to convey everyone connected nan telephone for your clip this greeting and for your continued support of Papa John's. To summarize we are assured astir nan semipermanent opportunities for Papa John's and our advancement frankincense far. It's often said that it's easy to look bully during bully times, but it's nan challenging times that uncover nan existent imaginable of a company.

I couldn't beryllium much proud of really our squad has navigated nan astir challenging twelvemonth that we've knowledgeable together. And entering my 4th twelvemonth pinch nan company, I proceed to beryllium excited astir nan imaginable for this differentiated brand. We person a coagulated foundation, awesome momentum, and are focused connected executing our strategical priorities to proceed to build sustainable semipermanent worth for each of our stakeholders.

So convey you very overmuch for calling in. I look guardant to speaking pinch galore of you later today.

Operator

Thank you. This concludes today's convention call. Thank you for participating. You whitethorn now disconnect.