Papa John’s (ticker: PZZA) stock has taken a beating in 2018 amid slumping sales and management drama related to the resignation of former CEO John Schnatter. But while Papa John’s struggles to right the ship, analysts say Domino’s Pizza, Inc. ( DPZ) is well-positioned to siphon off more of Papa John’s business.
In the second quarter, Papa John’s reported a 6.1 percent decline in same-restaurant sales. With Domino’s reporting a 6.9 percent increase in domestic same-restaurant sales and a 4 percent increase in international same-restaurant sales in the same quarter, it’s clear Domino’s is taking a bite out of Papa John’s business.
Fortunately for Domino’s investors, analysts say the window of opportunity will likely remain open for at least the rest of 2018. Papa John’s guidance implies same-store sales will decline between 8.5 and 14.5 percent in the third and fourth quarters.
[See: 8 Ways to Satisfy a Craving for Restaurant Stocks.]
“In our opinion, this dynamic creates a visible opportunity for Domino’s and other leading brands in the industry to gain additional market share when looking on a short-term and longer-term basis,” Baird analyst David Tarantino says.
Tarantino says Domino’s third-quarter same-store sales growth could gain an additional 0.8 percent to 1.4 percent from Papa John’s sales losses alone.
Schnatter stepped down from the CEO position in July after admitting to using a racial slur on a conference call. But Schnatter is suing Papa John’s and has taken every opportunity to publicly bash the current management team since his departure. Schnatter also remains on the company’s board of directors.
Bank of America analyst Gregory Francfort says Papa John’s was already facing an uphill battle competing against Domino’s pricing advantages.
“Domino’s made a decision eight years ago to invest in pizza quality and hit aggressive price points that competitors are now having a difficult time matching,” Francfort says.
He says Domino’s loyalty program and its focus on technology should continue to help win over business.
[Read: Fast-Food Restaurant Stocks Offer a Safe Haven.]
“We believe that DPZ can continue to gain substantial market share and sustain its strong growth record at a faster pace than what is implied in its current stock price,” Francfort says.
Bank of America has a “buy” rating and $305 price target for DPZ stock.
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Domino’s Pizza Is Eating Papa John’s Lunch originally appeared on usnews.com
