PZZA
#Yes, <UNK>, it's Steve.
I'll start.
So I think the important thing is always to look at the business long term.
You think about our business: over the last 16 quarters, we've had 9 of those quarters that have been above a 4% comp; 7 of those that have been below a 4% comp.
But you look at the last five years of our business, we have not had a year in the corporate side of the business that's been below a 4%, and we've produced a 3.6%, a 3.8%, a 4.2%, and 6.8% last year; and as you saw, we're at a 5% comp year to date.
Our initial guidance was a 3% to 5% comp.
Coming off a 3% quarter, I can tell you that obviously we're not expecting to produce over a 5% comp or we would have considered increasing our guidance.
However, we feel very confident on the momentum that we have in the business.
I think the important thing, as I stated in my opening comments is, we did see more aggressive pricing activity in the summer.
I don't want to get into the cadence of the overall comps within the quarter.
However, we did see some unpredicted, very aggressive pricing activity happening from some of the national regionals, and even some of the independents within the category that gave us a slightly lower than anticipated comp for the quarter.
Still pleased with the 3% comp, but it's slightly lower than anticipated.
As the official partner of the NFL, clearly getting back into the fourth quarter in the NFL season, we feel very confident in coming in within that guidance, and certainly are hoping to come closer to the higher end of that guidance in North America.
<UNK>, this is John.
The P10 promotion mixed very healthy.
Robert, you want to comment on that at all.
Sure.
<UNK>, it's Robert.
So coming out of the gate, starting our fourth quarter, we were very pleased with the promotion.
It gave us great momentum and consistency as we roll into the other promotionals for period 11 and period 12.
So we feel very confident where we're going to land for the quarter.
<UNK>, I'll jump in on that one here.
It's Lance.
First of all, for 2016, we'll give our guidance in February.
But with that said, we expect 2015 and 2016 overall to look pretty consistent as far as the dollars going through the P&L.
Hopefully it will look a little more even than you have seen this year, because the way we build our reserves ---+ without going into tremendous detail ---+ the way we build our reserves is looking at what the history has been this year, and then we attempt to build that in, in a fairly even way throughout the year.
So you should see 2016 look pretty similar to 2015; probably be a little bit more evened out.
That is all, of course, based on what we know today.
<UNK>, this is John.
We also in 2014 ran the actuaries twice a year.
This year we ran it three times to make sure that something like this, we would catch it if it happened; we would find it out quickly, and we did.
It doesn't make it any less painful, but the point there is, we are all over this.
<UNK>, the last part of your question, I believe you asked about the remainder of this year.
It is, in fact, incorporated into our guidance for the remainder of 2015.
It will either be more times or more detailed when we do it ---+ one or the other.
Yes, Chris.
Steve.
I think some of the better examples are probably of the, some of the larger players.
The largest player, in fact, has gone to more significant discounting.
Clearly, they've continued to struggle from a sales growth standpoint, but they have seen some pickup.
Some of that pickup has been driven through extreme value.
I think the good thing for the Papa John's brand, we're much less reliant upon extreme value seekers in the deep discounting part of the segment.
However, we do have a small percentage of our consumer base that is looking for that value and variety.
But interestingly, we did see a lot more regionals and independents that were going towards the deeper discount inside of ---+ you think about a $5 and $6 pizzas on larges across the industry.
You know, Little Caesar's sells $5 pizzas; Domino's sells $5.99 medium pizzas; and Pizza Hut has been selling $6.99 medium pizzas.
And you're starting to see a lot of independents and regionals trying to follow suit to stay competitive.
The good thing is, we didn't make any change to our strategy in the quarter and still produced 3% comps.
I think it's one of the factors, Chris.
I wouldn't say that it was the factor in total; but certainly with their media buys and good visibility to that offer, I suspect it's driving some additional traffic into their brand and that's taken away from, again, some of those folks that are on the value side.
Good question, Chris.
At the end of the day, quality always wins.
It won last quarter, despite our competition doing some pretty aggressive promotions.
The wonderful thing about high commodities is it forces our competition to used cheaper ingredients or put less on.
The situation right now, where commodities are fairly reasonable ---+ they are still having to discount their product to a point where they're going to have to continue to cheapen and put less on.
And we are definitely seeing a decline in the product quality attributes of some of our big competitors.
Clean label ---+ we started this initiative four or five years ago.
It was more defensive.
We felt like from an integrity point of view, and really building a big, wide, deep moat around better ingredients, better pizza, the clean label was the way to go.
We had no idea that four years later, it would actually be an offensive play where folks really like clean label.
They like ---+ the millennials like ---+ the fact that we put more natural ingredients on our ingredients and less chemicals.
We have not promoted that as much as we probably will in the future; but more on that later.
This is Robert.
There's always the potential, as we evaluate the right timing to get that communication out to those consumers who want that better ingredients, better pizza messaging.
So we'll continue to evaluate and see where that plays out.
40% of your flavor, <UNK>, comes from your fresh-packed sauce.
So that's one area that you don't want to cut corners on.
We've been using the same recipe in our fresh-packed sauce now for 31 years.
The factory's probably a $100 million factory, of which we packed sauce.
It sits idle for 10 months.
And then when the tomatoes' ripe and has the right characteristics, the right [fosilic], the right acid/sugar ratio, we pack it for 60 days.
And so that 60 day period, I'm in contact with our tomato folks out at, our fresh-pack folks out at Stanislaus, to make sure that we get that sauce packed.
So once we're 60%, 70% in the can, I know that we've got enough sauce to get through the next year.
So that's why it's a big deal, because you only, the tomatoes' only ripe once a year so you can only pack it once a year so we want to get that packed in the can and get it ready for the next year.
We have two plants out in California that make it, and we're looking to do some things in Portugal and also in the southern hemisphere.
We don't like a lot of different suppliers, Charlie, because I can't keep my eye on them.
We have basically one supplier that has two plants that does, for example, 95% of our cheese.
There's a problem with the cheese, I pick up and I called Jimmy Leprino and say, what's up with this.
The two plants that make our sauce ---+ we have an issue with the sauce, I pick up and call the Cortopassi family and say, what's up with the sauce.
So I don't, I can't watch 100 different suppliers around the world, so we keep it very consistent with a few.
<UNK>, this is John.
I think it's fair to say the Asian Pacific region is pretty tough on all fast food right now, all restaurants.
Fortunately for us, we don't have very many eggs in that basket.
Have we figured out China yet.
I'd say it's fair to say, no.
But remember, five years ago, we didn't have Russia figured out; we didn't have Latin America figured out ---+ which we do now ---+ we didn't have the UK figured out, which we do now.
So we'll keep chipping away at it.
We'll keep learning, we'll keep trial and erroring and eventually we'll figure that part of the world out and hopefully when we figure it out, it will have more of a recovery to it.
Steve.
Yes, thank you, John.
<UNK>, it's Steve.
So to reiterate: 236 stores in all of China, which is less than 5% of our global portfolio.
Doesn't make it unimportant.
Because of the growing middle class of 300 million and growing to potentially up to 600 million in the middle class, in the consuming class, over the next five to six years is an important market for the Papa John's brand.
With that being said, ever since the OSI incident in July of last year, there's been significant headwinds throughout the entire industry on the Western brand side of things.
Clearly, you don't have to look too far from Yum to understand some of those headwinds and pressures.
Our franchise business has experienced some of the same challenges that we've experienced on the corporate side of the business.
The differences and similarities: differences is, we have a different model, and about half of our restaurants have spoken to this in the past.
We have a DelCO business, delivering and carry-out, in a number of our restaurants, where our franchise business in East and South China is predominantly a casual dining model.
So you'll see very similar performance in the casual dining side of our franchise versus our corporate.
But our DelCO business has actually been performing pretty well this year in terms of overall traffic and sales growth.
So I think there's going to be a lot of synergies that we can apply.
We have been in the process of working on our marketing, our menu, our model and our customer journey and experience.
We will continue that work.
We have completed a significant amount of research as it relates to the design and the menu, so now it becomes around implementation of that work as we work parallel to source and find a very high-qualified franchisee to run these 46 restaurants in Beijing and Tianjin.
Thank you, <UNK>.
Thank you.
It's Lance, <UNK>.
That portion that is allocated to the commissary is actually the portion related to incidents involving commissary vehicles.
And it is something that will be spread across the entire system, which is what the commissary serves.
Lance to summarize.
I think we had a very good quarter, $0.45 ---+ that's a headwind of $0.06 of insurance and $0.02 of foreign currency, so hopefully we'll get a little break in the future on insurance and currency.
It would have been a $0.53 quarter.
Thank you.
Thank you all for being on the call.
