Big Quarter for Pizza as Papa John's (PZZA) and Domino's (DPZ) Report Gains

With restaurant dining rooms only just starting to come back in a lot of places—some have been open for most of a month in at least some capacity—one thing was clear: when the going gets tough, America gets take-out. And take-out pizza was a very big deal in the last month, as reported by earnings from both Papa John's (NASDAQ: PZZA) and Domino's (NYSE: DPZ) who both reported gains, but on different levels.

The Domino Knocks Over Another Level

Sales for Domino's were brisk, no matter what metric you care to use. The company's same-store sales in the US were up 14% for the first two months of the second quarter. In just the period between April 20 and May 17, those sales were up 20.9%. By way of comparison, the international same-store sales were also up, but merely an anemic 1%.

The international markets proved a sticking point for Domino's, as the chain saw as many as 2,400 locations temporarily close. That's come back in recent days; the company noted that, as of May 24, just under 900 international locations were closed. That's going to weigh on Domino's futures going forward, but with the extremely positive results out of North America, the impact should be blunted.

Domino's CEO, Ritch Allison, was guardedly optimistic, noting that customer behavior was visibly trending toward takeout and delivery options, but that that may be less a matter of choice and more a matter of government mandate. It therefore remained to be seen if the trend would continue in any significant fashion, which left Allison in the less-than-pleasant position of potentially inoculating shareholders against drops to come once dining rooms start to reopen.

Father's Day Comes Early for Papa John's

While the results were definitely worth seeing at Domino's, it was even better at Papa John's. Back in April, the company set a record for same-store sales in North America, with estimated same-store sales up 26.9%. But in May, the company broke the record it set in April with estimated same-store sales up 33.5% in the US, and 7% throughout the rest of the world.

Papa John's is working to increase the amount of transparency it's delivering to shareholders, and as such, has moved to monthly reporting until the end of the second quarter, which hits in June. The end result has been some impressive gains, and the ability to report these gains more frequently to shareholders. Papa John's also asserted that its carry-out and delivery model was particularly well-suited to the times. This gave the company a particular leg up.

The market responded well, sending Papa John's shares up 7% in premarket trading. Though profit-taking seemed to follow directly afterward, sending the stock down to well below Tuesday's close, a distinctly V-shaped rally was in progress as of this writing, pushing back toward yesterday's close of $74.20.

The Times, They Are A-Changin'

Like Bob Dylan was famously heard to mutter in the song of the same name, the times, they are a-changin'. With more states opening up, and more dining rooms becoming a possibility, the same market conditions that kept both Domino's and Papa John's as one option among many will be back in play directly. While a pizza on Friday or Saturday night was a slice of blessed normalcy to a coronavirus-weary population, it remains to be seen how many take-out pizzas Americans can swallow while the Darden array of chain restaurant goodness opens back up, or any of a host of small-town staples you can only get in those small towns.

That's not to diminish either brand; both Papa John's and Domino's have some decent quality food on their side. They've kept their customer base despite a growing push to stay at home as much as humanly possible. But even I know that the success at these two chain pizzerias is less a matter of food quality and much, much more a matter of circumstance. Papa John's would not have back-to-back record-breaking months without the coronavirus lockdowns, and Domino's would be posting modest results instead of the mind-blowing ones we're seeing now.

There are a whole lot of choices out there, and with more of these choices becoming available, they're going to be taken more often. That's going to hurt the impressive sales runs both Domino's and Papa John's have seen lately, no matter how you slice it.