• by Nina Lentini , May 10, 2007

Papa John's is reporting an 18% dive in net profit in its first quarter--but that bad news was offset by the No. 3 pizza chain's claim that it is the only national pizza chain to report positive same-store sales, which were up 0.2%.

No. 2 Domino's had a 2.9% sales decrease in the quarter, while sales at No. 1 Pizza Hut, which is owned by Yum Brands, went unreported.

Profit was hurt by higher labor costs and negative effects of a cheese-purchasing cooperative consolidation.

CEO Nigel Travis said during yesterday's conference call that the company hopes to increase national ad spending by 20 to 30% over the next two to three years as increased scale allows. Papa John's expects to net 100 to 120 new stores this year. In the quarter, it opened its first store in Vermont.

The company spent $101.1 million in 2006, according to Nielsen Monitor-Plus--compared to $170 million spent by Domino's, which has about twice as many restaurants, and $252 million spent by Pizza Hut, with three times as many restaurants.

"National TV is important as we continue to build brand awareness," he said. "But given the size of our national marketing budget, we need to be more creative with our funds. We're the leader [in the category] of direct mail and database marketing, and we'll enhance our leadership by continuing ... Papa John's also has a technological advantage with its online ordering capability. Several million people have opted to receive e-mailed marketing materials."

"Our strategy," Travis said, somewhat cryptically, "is, we don't have to follow the fashion."

Travis cited several factors for the soft quarter, starting with the softness of the entire pizza category. He pointed to increased minimum wages, a warmer winter, the extension of daylight savings time and a competitive landscape.

The company reports positive preliminary results of a test taking place in Chicago, where a Papa John's restaurant is located inside a Blockbuster.

Papa John's international division lost $2.3 million for the three-month period, about the same as a year ago. Robb Chase, the company's newly hired president of international operations, predicted that overseas stores will collectively turn a profit by 2010.

The company has 372 restaurants outside the U.S., and it hopes to open 120 overseas locations this year. Most recently, it opened the first of 40 planned restaurants in Egypt. There were 2,672 domestic Papa John's stores at the end of the quarter.

Travis also took a swipe at Pizza Hut's commercial that compares its pizza to Papa John's, saying the company was comfortable in knowing that consumers who compare the two prefer Papa John's because it uses fresh dough instead of frozen, as Pizza Hut does.