Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction and Overview
The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data and the Risk Factors set forth in Item 1A. Risk Factors.
This section of this Annual Report on Form 10-K generally discusses fiscal 2025 and 2024 items and year-to-year comparisons between the years ended December 28, 2025 and December 29, 2024. Discussion of 2023 items and year-to-year comparisons between the years ended December 29, 2024 and December 31, 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2024.
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented consist of 52 weeks except for the 2023 fiscal year, which consisted of 53 weeks.
Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) began operations in 1984. At December 28, 2025, there were 6,083 Papa Johns restaurants in operation, consisting of 475 Company-owned and 5,608 franchised restaurants. Our revenues are derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties and sales of franchise and development rights. Additionally, we generate revenue from sales to franchisees of various items including food and paper products from our North America Quality Control Centers (“QC Centers”) and operation of our International QC Center in the United Kingdom, contributions received by Papa John’s Marketing Fund, Inc. (“PJMF”) which is our national marketing fund, and fees related to the use of information systems equipment as well as software and related services. We believe that in addition to supporting both Company and franchised profitability and growth, these activities contribute to product quality and consistency throughout the Papa Johns system.
In discussions of our business, “Domestic” is defined as within the contiguous United States, “North America” includes Domestic and Canada, and “International” includes the rest of the world other than North America.
Recent Developments and Trends
In 2025, we remained focused on executing our strategic priorities as we position the business for long-term success amidst a challenging and softer consumer environment in North America and a dynamic market internationally. We continued to steer our efforts and investments towards initiatives that improve our value perception and enhance the customer journey across our digital platforms to increase conversion and reduce friction within the customer experience. Our key areas of focus include:
Marketing strategy: We continued investments in our messaging to showcase our BETTER INGREDIENTS. BETTER PIZZA ® platform by highlighting our six simple ingredients, fresh, never frozen original dough and the craftsmanship behind the products we serve, which we believe are key differentiators of our brand. We also sharpened our value perception with limited-time promotional offers while continuing to emphasize our Papa Pairings mix and match platform. We plan to maintain a compelling value proposition while staying true to our premium positioning and layering in exciting menu innovation to expand our addressable market and strengthen our barbell strategy. We spent an incremental $21 million in marketing investments throughout 2025 compared with 2024, including investments in our customer relationship management platform and our loyalty program. This incremental investment aided in ensuring a strong presence nationally as well as in key regional and local markets while leveraging our data to create more personalized offers for our customers.
Digital and loyalty strategy: Most of our sales occur through digital channels, and we are investing in our technology infrastructure to deliver a more seamless experience across our owned channels, better connect with customers, and support greater efficiency across our operations. In 2025, we introduced our new omnichannel platform, releasing new mobile apps across both Android and iOS platforms as well as our refreshed website and mobile web experience. We believe that the rollout of our new omnichannel platform will lead to a more streamlined ordering journey and simplify the overall experience for our customers. We may incur an additional $5 million to $10 million of accelerated depreciation expense related to the potential replacement and retirement of related technology assets currently in service as this project continues.
We also recently announced plans to begin a multi-year initiative to transition to a new point-of-sale system across all U.S. Company-owned and franchised restaurants that, if successful, could replace our existing point-of-sale system. At the time we determine that our legacy point-of-sale system will be replaced, these legacy technology assets may require adjustments to their useful lives to best reflect remaining technology utilization and become subject to future accelerated depreciation, which could have a material impact on our depreciation expenses.
Transforming our cost structure: In 2025, we initiated a comprehensive review of our expense structure. In connection with this review, in December 2025 our Board of Directors approved the first phase of a new business transformation program (the “Enterprise Transformation Plan”), with the goal of creating capacity to invest in our next phase of growth by reducing non-consumer-facing spending and optimizing our restaurant portfolio to improve unit economics. The initiation of the first phase, designed to reduce overhead duplication and non-consumer-facing spending, resulted in restructuring charges of $7.7 million incurred during the fourth quarter of 2025 and primarily consisted of employee severance costs related to reducing our corporate workforce as well as professional services fees. In February 2026, our Board of Directors approved the second phase of the Enterprise Transformation Plan, which focuses on optimizing our restaurant portfolio and improving restaurant-level profitability. We currently estimate that we will incur restructuring charges of approximately $24 million to $31 million related to actions approved thus far, inclusive of the $7.7 million recognized during 2025 and the remainder of which we expect will be recognized during 2026 and 2027. We believe that these initiatives will improve systemwide health and facilitate future growth, and we have identified at least $25 million of savings, of marketing spend, to be captured across fiscal years 2026 and 2027.
The implementation of the Enterprise Transformation Plan remains ongoing and may result in additional restructuring charges, although the amounts and nature of future expenses are currently not estimable as no specific actions necessitating additional expenses have been determined or approved by our Board of Directors. These actions are expected to include elevated levels of restaurant closures in North America during 2026 and 2027, as we focus on improving the health of our restaurant portfolio by closing underperforming restaurants that lack a path to sustainable financial improvement, allowing our franchisees to invest resources in their remaining restaurants to accelerate growth.
Optimizing our supply chain: We are also finalizing our previously announced internal review of our North American supply chain and have identified productivity initiatives that we believe will optimize our commissary business in an effort to reduce the overall cost to serve across all of our Domestic Company-owned and franchised restaurants, without impacting our commitment to product quality. We expect to achieve at least $60 million in North America systemwide supply chain savings over the next two years, equating to meaningful restaurant-level margin improvement with approximately $20 million to $25 million of the savings to be recognized by the end of 2026.
Development strategy: Development is a key long-term growth driver as we believe there is significant opportunity to offer our quality products to more customers globally and domestically. Our near-term development plan in North America includes focused development within our priority markets and on improving the quality and profitability of our restaurant portfolio, with fewer new restaurant openings expected in 2026. To aid our franchisees in pursuing profitable growth in conjunction with the supply chain and restaurant optimization initiatives described above, we are offering royalty incentives for new restaurants opening in 2026, which we believe will add scale in key markets and attract growth-driven franchisees.
Accelerating our refranchising program: We also achieved a key milestone in the acceleration of our Domestic refranchising program, completing the refranchising of 85 restaurants during the fourth quarter of 2025. Refranchising is a strategic action that we plan to continue to pursue across our Company-owned restaurants as it provides developing franchisees opportunities to expand their businesses and strengthens the long-term health of Papa Johns while providing additional means to reinvest into our transformation initiatives.
International Transformation Plan
We completed our previously announced international transformation initiatives (the “International Transformation Plan”) during the fourth quarter of 2025 and incurred total restructuring related costs of $34.4 million over the entire duration of the program, approximately $20 million of which were cash expenditures. Comparable sales for our International business increased by 5.0% during the year ended December 28, 2025, which we believe is attributable to the International Transformation Plan and the operational improvement resulting from its implementation.
Announced in December 2023, the International Transformation Plan was designed to evolve our business structure to deliver an enhanced value proposition to our International customers and franchisees, ensure targeted investments and efficient resource management, and better position certain international markets, including the United Kingdom, for long-term profitable growth and brand strength. See “Note 16. Restructuring” of “Notes to Consolidated Financial Statements” for additional details.
Presentation of Financial Results
Critical Accounting Policies and Estimates
The results of operations are based on our Consolidated Financial Statements, which were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The preparation of Consolidated Financial Statements requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements. A number of our significant accounting policies involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. On an ongoing basis, our management evaluates its estimates, including those related to insurance reserves, long-lived assets, the allowance for credit losses on franchisee notes receivable, and income taxes. Actual results may differ from those estimates, and significant changes in assumptions and/or conditions in our critical accounting policies could materially impact our operating results. The Company’s significant accounting policies, including recently issued accounting pronouncements, are also described in “Note 2. Significant Accounting Policies” of “Notes to Consolidated Financial Statements.”
We believe that our most critical accounting estimates are:
Insurance Reserves
Our insurance programs for workers’ compensation, owned and non-owned automobiles, general liability and property insurance coverage are funded by the Company up to certain retention levels ranging up to $0.8 million. We record the liability for losses based upon undiscounted estimates of the liability for claims incurred and for events that have occurred but have not been reported using certain third-party actuarial projections and our historical claims loss experience.
As of December 28, 2025, our insurance reserves were $61.8 million compared to $65.7 million at December 29, 2024. Reserves are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Consolidated Balance Sheets. Our insurance reserves primarily relate to auto liability and workers’ compensation claims and include the gross up of claims above our retention levels, with a corresponding receivable of $42.8 million and $45.2 million as of December 28, 2025 and December 29, 2024, respectively, recorded in Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheets. The insurance reserves represent the mid-point of the range as determined by our actuarial analysis, which considered various actuarial valuation methodologies. The determination of the recorded insurance reserves is complex due to the actuarial valuation methods utilized in determining the reserve and the assumptions related to the loss development factors and loss trends.
Property and Equipment, Net and Impairment of Long-Lived Assets
We record property and equipment at its historical cost, which includes all costs necessarily incurred to bring the asset to the condition and location necessary for its intended use. Purchases of property and equipment were $74.4 million in 2025 and $72.5 million in 2024. Purchase of property and equipment for 2025 included $9.7 million of capital expenditures related to damages from natural disasters. Property and equipment are depreciated on a straight-line basis over their useful lives, which are based on management’s estimates of the period over which the assets provide a benefit to the Company. The useful lives are estimated based on historical experience with similar assets as well as other information regarding condition and utility of the assets. Our asset useful lives are generally five to ten years for restaurant, commissary, and other equipment, twenty to forty years for buildings and improvements, and five years for technology and capitalized software. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the respective lease, including the first renewal period (generally five to ten years). We will re-assess our useful life estimate for an asset when facts and circumstances indicate the period over which the asset is expected to provide economic benefits has changed, which can occur for various reasons including technological , a demonstrable change in usage patterns, market demand, or legal or regulatory changes. Depreciation expense was $80.8 million in 2025 and $59.6 million in 2024. The increase in 2025 was due mainly to $18.4 million of accelerated depreciation expense related to investments in technology platforms, primarily our new omnichannel experience.
We evaluate property and equipment and other long-lived assets (primarily right-of-use operating lease assets) for potential indicators of impairment at least annually, or as facts and circumstances indicate that the carrying value of the asset may not be recoverable. We perform these assessments at the operating market level for Domestic restaurants and at the restaurant level for our Company-owned restaurants in the United Kingdom (“UK”), as this represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If we determine there are indicators of impairment, we compare the net carrying value of the asset group to the projected undiscounted cash flows to be generated from the use of the asset group. If the carrying amount of the long-lived asset group exceeds the amount of
estimated future undiscounted cash flows, then we estimate the fair value of the asset group and record an impairment loss if the carrying value exceeds fair value. If indicators of impairment are present, calculating projected undiscounted cash flows requires management to make assumptions and estimates for factors that include future comparable sales growth and gross margin based on internal projections as well as the historical performance of the market or individual restaurant and whether that is an indicator of future performance. These assumptions for future growth are subjective and may be negatively impacted by future changes in operating performance or economic conditions.
We recorded total impairment losses of $8.6 million in 2025, consisting of property and equipment and lease asset impairment, related primarily to damages to our QC Centers in Grand Prairie, Texas and Louisville, Kentucky caused by tornadoes as well as restructuring activities under our International Transformation Plan and Enterprise Transformation Plan. Of these amounts, we recorded an anticipated insurance recovery for $6.4 million as we believe such losses are probable of recovery under our insurance policy. We recorded impairment losses of $11.7 million in 2024, primarily consisting of property and equipment and lease asset impairment, related to the closure of 43 UK Company-owned restaurants and 30 UK franchised restaurants as well as five UK Company-owned restaurants where the carrying value of the asset group was not deemed to be recoverable. We also incurred impairment losses of $5.5 million during 2024 in connection with the refranchising of 15 Domestic Company-owned restaurants.
Allowance for Credit Losses on Franchisee Notes Receivable
The Company has provided financing (recorded as notes receivable) to select Domestic and International franchisees principally for use in the construction and development of their restaurants and for the purchase of restaurants from the Company or other franchisees. Most notes receivable bear interest at fixed or floating rates and are generally secured by the assets of each restaurant and the ownership interests in the franchise.
The Company establishes an allowance for credit losses on franchisee notes receivables based on management’s estimate of the lifetime expected loss on the notes. The allowance for credit losses on notes receivable is judgmental and subjective based on management’s evaluation of historical collection experience and external market data and other factors, including those related to current market conditions and events. The Company is provided collateral rights of the franchisee’s restaurants (e.g., underlying franchise business, property and equipment) and personal guarantees from the operators to recover the carrying value of the outstanding note receivable in the event collectability concerns arise. Therefore, the Company considers the fair value of the underlying collateral rights (e.g., underlying franchisee business, property and equipment) and any guarantees when assessing the allowance for credit losses (which may require third-party valuations of fair value). Notes receivable balances are charged off against the allowance after recovery efforts have ceased.
Franchisee notes receivable was $24.4 million with an allowance for credit losses of $17.8 million as of December 28, 2025 compared to $29.0 million with an allowance for credit losses of $15.2 million as of December 29, 2024. See “Note 10. Allowance for Credit Losses” of “Notes to Consolidated Financial Statements” for further information.
Income Tax Accounts and Tax Reserves
Papa John’s is subject to income taxes in the United States and several foreign jurisdictions. Judgment is required in determining Papa John’s provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted.
Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize and were $48.2 million and $44.5 million as of December 28, 2025 and December 29, 2024, respectively. The determination as to whether a deferred tax asset will be realized is based on the evaluation of historical profitability, future market growth, future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company assesses deferred taxes and the adequacy or need for a valuation allowance on a quarterly basis.
Tax authorities periodically audit the Company. We record reserves and related interest and penalties for identified exposures as income tax expense. We evaluate these issues and adjust for events, such as statute of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for such exposures.
In the event the Company is unable to generate future taxable income, there is a material change in the actual effective tax rates, the time period within which the underlying temporary differences become taxable or deductible, or if the tax laws change unfavorably, then we could be required to increase the valuation allowance against deferred tax assets, resulting in an increase in income tax expense and the effective tax rate. We estimate that a one percent change in the effective income tax rate would impact the 2025 income tax expense by $0.5 million . See “Note 17. Income Taxes” of “Notes to Consolidated Financial Statements” for additional information.
Global Restaurant Sales and Unit Information
“Comparable sales” represents sales for the same base of restaurants for the same fiscal periods. “Comparable sales growth (decline)” represents the change in year-over-year comparable sales. “Global system-wide restaurant sales” represents total restaurant sales for all Company-owned and franchised restaurants open during the comparable periods, and “Global system-wide restaurant sales growth (decline)” represents the change in global system-wide restaurant sales year-over-year. Comparable sales, Comparable sales growth (decline), Global system-wide restaurant sales and Global system-wide sales growth (decline) exclude franchisees for which we suspended corporate support.
“Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis.
We believe Domestic Company-owned, North America franchised, and International comparable sales and comparable sales growth (decline) and Global system-wide restaurant sales and sales growth information is useful in analyzing our results since our franchisees pay royalties and marketing fund contributions that are based on a percentage of franchise sales. Comparable sales and Global system-wide restaurant sales results for restaurants operating outside of the United States are reported on a constant dollar basis, which excludes the impact of foreign currency translation. Franchise sales also generate commissary revenue in the United States and in certain international markets. Comparable sales growth (decline) and Global system-wide restaurant sales information is also useful for comparison to industry trends and evaluating the strength of our brand. Management believes the presentation of Global system-wide restaurant sales growth, excluding the impact of foreign currency, provides investors with useful information regarding underlying sales trends and the impact of new unit growth without being impacted by swings in the external factor of foreign currency. Franchise restaurant sales are not included in the Company’s revenues.
Year Ended
Amounts below exclude the impact of foreign currency
December 28, 2025
December 29, 2024
Comparable sales growth (decline):
Domestic Company-owned restaurants
North America franchised restaurants
North America restaurants
International restaurants
Total comparable sales growth (decline)
System-wide restaurant sales growth (decline):
Domestic Company-owned restaurants
North America franchised restaurants
North America restaurants
International restaurants
Total global system-wide restaurant sales growth (decline)
Restaurant Progression
Year Ended
December 28, 2025
December 29, 2024
North America Company-owned:
Beginning of period
Opened
Closed
Acquired
Refranchised
End of period
North America franchised:
Beginning of period
Opened
Closed
Sold
Refranchised
End of period
International Company-owned
Beginning of period
Closed
Refranchised
End of period
International franchised:
Beginning of period
Opened
Closed
Refranchised
End of period
Total restaurants – end of period
Full year net restaurant growth
Fiscal Year
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented in the accompanying Consolidated Financial Statements consist of 52 weeks except for the 2023 fiscal year, which consisted of 53 weeks.
Results of Operations
Revenues
The following table sets forth the various components of Revenues from the Consolidated Statements of Operations.
(Dollars in thousands)
December 28, 2025
December 29, 2024
Increase
(Decrease)
Revenues:
Company-owned restaurant sales
Franchise royalties and fees
Commissary revenues
Other revenues
Advertising funds revenue
Total revenues
The comparability of 2025 and 2024 results is impacted by the following transactions that have changed the composition of our Domestic and UK restaurants:
• On November 24, 2025, the Company completed the refranchising of 85 Domestic Company-owned restaurants previously owned and operated by Colonel’s Limited, LLC, a consolidated joint venture (the “2025 refranchising transaction”). Additionally, the Company refranchised 15 Domestic Company-owned restaurants on September 30, 2024 (collectively referred to with the 2025 refranchising transaction as the “Domestic refranchising transactions”). See “Note 21. Divestitures” of the “Notes to Consolidated Financial Statements” for additional information on these transactions.
• At the beginning of 2024, the Company operated 117 UK Company-owned restaurants. In the second and third quarters of 2024, the Company closed 43 Company-owned restaurants in the UK and refranchised 60 formerly Company-owned restaurants in the UK. After prior disposal of one mobile restaurant, the Company operated 13 UK Company-owned restaurants subsequent to July 1, 2024. See “Note 16. Restructuring” of the “Notes to Consolidated Financial Statements” for additional information on these transactions.
Total revenues decreased $5.6 million, or 0.3%, to $2.05 billion for the year ended December 28, 2025, as compared to the prior year.
Company-owned restaurant sales, which include sales from both Domestic and International Company-owned restaurants, decreased $49.0 million, or 6.8% for the year ended December 28, 2025 compared to the prior year, primarily due to the transactions discussed above. Company-owned restaurant sales in the UK declined by approximately $18.8 million compared to 2024 due to the UK Company-owned restaurant closures and refranchising transactions in 2024, and the Domestic refranchising transactions discussed above resulted in a decrease of approximately $18.5 million as compared to the prior year. Additionally, the 2024 period included approximately $5 million of additional deferred revenue related to lowering the redemption thresholds for our Papa Rewards program in 2024, which allowed consumers to redeem rewards more quickly. The remaining decline was a result of a decline in Domestic company-owned restaurant comparable sales of 3.3% driven by lower transaction volumes, partially offset by increases in International comparable sales of 5.0% compared to the prior year.
Franchise royalties and fees, which include revenues generated from both North American and International franchisees, increased $3.9 million, or 2.1%, for the year ended December 28, 2025 compared to the prior year. The increase was primarily due to a $4.0 million increase from our International franchisees due to growth in International comparable sales of 5.0%. Royalties and fees from our North America franchisees were flat for the year ended December 28, 2025 compared to the prior year, as an increase in franchise equivalent units of 2.6% and fewer royalty waivers in 2025 as compared to 2024 were offset by declines in comparable sales for our North America franchised restaurants of 2.3%.
North America franchise restaurant sales are not included in Company revenues; however, our North America franchise royalties are derived from these sales. North America franchise restaurant sales decreased 1.0% to $2.93 billion for the year ended December 28, 2025 compared to the prior year, excluding the impact of foreign currency fluctuations. The decrease in franchise restaurant sales was due to the 2.3% decline in comparable sales, partially offset by North America equivalent unit growth noted above.
International franchise restaurant sales are also not included in Company revenues; however, our International franchise royalty revenue is derived from these sales. International franchise restaurant sales increased $123.7 million to $1.29 billion for the year ended December 28, 2025 compared to the prior year. The UK restaurant closures and refranchising transactions in 2024 impacted the comparability of International franchise restaurant sales earned as compared to the prior year period. Excluding the impact of the UK restaurant changes and excluding foreign currency fluctuations, International franchise restaurant sales would have increased 7.6% to $1.27 billion for the year ended December 28, 2025 compared to the prior year. The increase is due to growth in International comparable sales of 5.0% noted above as well as restaurant growth.
Commissary revenues, which includes sales from our North American and International QC Centers, increased $30.3 million or 3.4%, for the year ended December 28, 2025 compared to the prior year. The increase in Commissary revenues was primarily a result of higher prices and higher transaction volumes, partially offset by changes in product mix as compared to the prior year comparable period.
Other revenues, which primarily includes revenues derived from our online and mobile ordering business, increased $6.8 million, or 8.2% in 2025. This was primarily due to higher revenues generated from technology services as a result of an increase in the technology fee charged to franchisees that began in the second half of 2024 and continued through the first half of 2025.
Advertising funds revenue, which includes the operations of PJMF, local marketing funds, and International marketing funds, increased $2.4 million, or 1.5%, in 2025. The increase was primarily due to global system-wide restaurant sales growth of 1.1% as well as increases in the PJMF contribution percentage that took effect in the second quarter of 2024 and increases to contribution percentages in certain International markets. This was partially offset by national marketing fund rebates offered to franchisees and a decrease in local marketing spend in 2025.
Costs and Expenses
The following table sets forth the various components of Costs and expenses from the Consolidated Statements of Operations:
(Dollars in thousands)
Year Ended
December 28, 2025
December 29, 2024
Increase
(Decrease)
Costs and expenses:
Cost of sales
General and administrative expenses
Depreciation and amortization
Advertising funds expense
Total costs and expenses
Total costs and expenses were approximately $1.96 billion, or 95.7% of total revenues in 2025, as compared to $1.90 billion, or 92.4% of total revenues for the prior year.
Cost of sales consists primarily of Company-owned store and supply chain costs incurred to generate related revenues. Components of cost of sales primarily include food and paper products, labor, freight and delivery, occupancy costs, local advertising costs, and insurance expense. Cost of sales was $1.46 billion in 2025, a decrease of $17.9 million, or 1.2%, from the prior year.
Cost of sales by segment for the years ended December 28, 2025 and December 29, 2024 were as follows:
(Dollars in thousands)
December 28, 2025
December 29, 2024
Increase
(Decrease)
Domestic Company-owned restaurants (a)
North America commissaries (a)
International (a)
Total cost of sales by segment (b)
All other (c)
Intersegment cost of sales
Total cost of sales
(a) Segment cost of sales include stock-based compensation expenses and other adjustments that are excluded from our segment results, which are presented on an adjusted basis (see “Note 22. Segment Information” of the “Notes to Consolidated Financial Statements”).
(b) The North America franchising segment does not incur costs of sales, and therefore is not included in total cost of sales by segment. The North America franchising segment consists of our franchise sales and support activities for our franchisees located in the United States and Canada.
(c) “ All other” refers to all other business units that do not meet the quantitative or qualitative thresholds for determining reportable segments, and primarily includes our online and mobile ordering business and our marketing funds and are not operating segments.
The decrease in cost of sales primarily relates to lower volumes for our Domestic Company-owned restaurants and International Company-owned restaurants as a result of the Domestic refranchising transactions and the 2024 UK restaurant closures and refranchising transactions. The decreases were also due to lower local advertising costs for our Domestic Company-owned restaurants, partially offset by higher food costs for our Domestic Company-owned restaurants and higher volumes for our Domestic QC Centers compared to the prior year.
General and administrative expenses (“G&A expenses”) were $244.3 million, or 11.9%, of total revenues for 2025 compared to $190.5 million, or 9.3%, of total revenues for the prior year. G&A expenses consisted of the following components (in thousands):
(Dollars in thousands)
Year Ended
December 28, 2025
December 29, 2024
Administrative and other general expenses (a)
Gain on refranchising transaction, net and sale of QC Center properties (b)
Restructuring costs (c)
Other costs (d)
General and administrative expenses
(a) Administrative and other general expenses, net increased by $41.9 million to $240.9 million for the year ended December 28, 2025 compared to the prior year. The increase was primarily due to incremental marketing investments of $21.2 million, an increase in management incentive compensation of $13.8 million, and expenses resulting from our biannual franchise operating conference held in the first quarter of 2025.
(b) For the year ended December 28, 2025, represents pre-tax gain on sale, net of transaction costs, realized upon the completion of the refranchising of 85 restaurants on November 24, 2025. Net gain attributable to noncontrolling interests for the transaction was approximately $1.0 million. See “Note 21. Divestitures” for additional details. For the year ended December 29, 2024, represents pre-tax gain on sale, net of transaction costs, realized upon the August 2, 2024 completion of the sale of our Texas and Florida QC Center properties. See “Note 21. Divestitures” for additional details.
(c) Represents costs associated with the Company’s Enterprise Transformation Plan and International Transformation Plan. See “Note 16. Restructuring” for additional details.
(d) For the year ended December 28, 2025, other costs is comprised of the following:
i. Losses on disposal of equipment incurred in connection with the termination of a COVID-era program that pre-purchased store equipment due to supply chain challenges;
ii. Costs associated with project-based strategic initiatives that are not related to our ongoing operations.
iii. Costs incurred, net of anticipated insurance recoveries, arising from tornadoes that damaged the Texas QC Center as well as the restaurant support center and QC Center in Louisville, Kentucky.
For the year ended December 29, 2024, other costs represents non-cash impairment and remeasurement charges related primarily to fixed and intangible assets from the refranchising of 15 Domestic Company-owned restaurants.
Depreciation and amortization expense was $92.2 million, or 4.5% of revenues in 2025, as compared to $69.4 million, or 3.4% of revenues for the prior year, due mainly to accelerated depreciation expense related to the rollout of our new omnichannel experience and the corresponding retirement of certain assets within our legacy technology platforms. We began accelerating depreciation of legacy omnichannel and other technology assets during the third quarter of 2025 following the completion of the initial development and release of our new omnichannel platform, with the retirement of certain technology assets beginning shortly thereafter. We recognized $18.4 million in additional depreciation expense during the year ended December 28, 2025 related to the accelerated depreciation of these assets. We currently estimate that we may incur an additional $5 million to $10 million of accelerated depreciation expense by the end of 2026 related to the potential replacement and retirement of related legacy technology assets currently in service.
Advertising funds expense was $167.6 million, or 100.5% of advertising revenues in 2025, as compared to $164.3 million, or 100.0% of advertising revenues for the prior year. Advertising funds expense is comprised primarily of expenses incurred by PJMF, which is designed to operate at break-even as it spends all annual contributions received from the system. The increase was primarily due to higher advertising spend resulting from the previously discussed increase in contributions to the national marketing fund during the second quarter of 2024.
Segment Financial Performance
We evaluate the performance of our reportable segments and allocate resources to them based on earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, and other adjustments, referred to as Segment adjusted EBITDA. See “Note 22. Segment Information” of “Notes to Consolidated Financial Statements,” for further information regarding the Company’s segments. Segment adjusted EBITDA for each of our reportable segments is summarized in the table below.
Year Ended
(Dollars in thousands)
December 28, 2025
December 29, 2024
Increase
(Decrease)
Segment adjusted EBITDA:
Domestic Company-owned restaurants
North America franchising
North America commissaries
International
Domestic Company-owned restaurants decreased $15.3 million as compared to the prior year, primarily due to a 3.3% decrease in comparable sales, higher food costs, and the prior period benefit of approximately $5 million related to changes in our Papa Rewards program, as discussed above. The decrease was partially offset by lower local advertising costs in 2025 and the impact of refranchising 15 restaurants during the third quarter of 2024.
North America franchising decreased $4.8 million as compared to the prior year, primarily due to higher management incentive compensation allocated to the segment compared to the prior year period. Royalties and fees revenue from our North America franchisees were flat compared to the prior year, as discussed above.
North America commissaries increased $13.1 million as compared to the prior year, primarily due to higher prices and transaction volumes previously mentioned, partially offset by changes in product mix, higher salaries and benefits, and increases in rent due to the sale and subsequent leaseback of two Domestic QC Centers in Texas and Florida in the third quarter of 2024.
International increased $4.3 million as compared to the prior year. The increase was primarily to system-wide sales growth of 7.7%, comparable sales growth of 5.0%, and prior period operating losses attributable to the UK Company-owned restaurants. These increases were partially offset by increases in advertising spend in 2025.
4-wall EBITDA
4-wall EBITDA and 4-wall EBITDA margin are non-GAAP measures used to evaluate the performance of our Domestic Company-owned restaurants. See “Non-GAAP Measures” for the definition of 4-wall EBITDA and 4-wall EBITDA margin as well as a reconciliation to the most comparable U.S. GAAP measures.
4-wall EBITDA and 4-wall EBITDA margin are presented in the table below (in thousands). Segment revenue and segment cost of sales for our Domestic Company-owned restaurants in the table below are presented in the segment footnote to our Consolidated Financial Statements in accordance with Accounting Standards Codification 280. See “Note 22. Segment Information” of “Notes to Consolidated Financial Statements,” for further information on our segments.
Domestic Company-owned restaurants
Year Ended
December 28, 2025
% of Related Revenues
December 29, 2024
% of Related Revenues
Segment Revenue
COS - Product Costs
COS - Salaries & Benefits
COS - Other
Training Costs (a)
4-wall EBITDA
4-wall EBITDA margin
(a) Training costs for our Domestic Company-owned restaurants were reclassified from Cost of sales to General & administrative expenses prospectively beginning with the year ended December 28, 2025. We have excluded these training costs from Cost of sales in the historical period when calculating 4-wall EBITDA to ensure comparability.
4-wall EBITDA decreased $16.2 million as compared to the prior year, resulting in a 1.9% decrease in 4-wall EBITDA margin. The decrease was primarily due to an increase in COS - Product Costs and COS - Salaries & Benefits as a percentage of segment revenue of 0.7% and 0.9%, respectively. Domestic Company-owned restaurant cost of sales as a percentage of segment revenue increased due to higher food costs and a 3.3% decline in comparable sales as well as the prior period benefit of approximately $5 million related to changes in our Papa Rewards program. These increases in cost of sales were offset by lower local advertising costs in 2025 and the impact of refranchising 15 restaurants during the third quarter of 2024, as discussed above.
Items Below Operating Income
The following table sets forth the various items below Operating income from the Consolidated Statements of Operations:
(In thousands, except per share amounts)
Year Ended
December 28, 2025
December 29, 2024
Increase
(Decrease)
Operating income
Net interest expense
Income before income taxes
Income tax expense (a)
Net income
Net income attributable to noncontrolling interests
Net income attributable to the Company
Net income attributable to common shareholders
Basic earnings per common share
Diluted earnings per common share
(a) The signage of Income tax expense has been changed from the historic presentation for purposes of signage consistency with other expense items.
Net Interest Expense
Net interest expense decreased approximately $1.8 million for the year ended December 28, 2025 compared to the prior year primarily due to lower average interest rates during 2025.
Income Tax Expense
The effective income tax rate was 33.6% for 2025 and 26.2% for 2024. The higher effective rate in 2025 was primarily due to lower pretax book income and larger tax shortfall generated by vesting of restricted shares during 2025.
(Dollars in thousands)
Year Ended
December 28, 2025
December 29, 2024
Income before income taxes
Income tax expense
Effective tax rate
See “Note 17. Income Taxes” of “Notes to Consolidated Financial Statements” for additional information.
Net Income Attributable to Noncontrolling Interests
Net income included income attributable to noncontrolling interests of $1.6 million during 2025 and $0.7 million for the prior year. The increase was due primarily to the refranchising of 85 Domestic Company-owned restaurants previously owned and operated by Colonel’s Limited, LLC, a consolidated joint venture. The 2025 refranchising transaction resulted in the recognition of a $17.1 million gain during the year ended December 28, 2025, a portion of which was attributable to noncontrolling interests. See “Note 21. Divestitures” of “Notes to Consolidated Financial Statements” for further information.
Diluted Earnings Per Share
Diluted earnings per common share was $0.90 for the year ended December 28, 2025 compared to $2.54 for the year ended December 29, 2024, representing a decrease of $1.64. Adjusted diluted earnings per common share, a non-GAAP measure, was $1.43 for the year ended December 28, 2025 compared to $2.34 for the year ended December 29, 2024, representing a decrease of $0.91. See “Non-GAAP Measures” for additional information. These changes were driven by the same factors impacting operating income and income tax expense as discussed above.
Non-GAAP Measures
In addition to the results provided in accordance with U.S. GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: adjusted EBITDA, 4-wall EBITDA, 4-wall EBITDA margin, adjusted net income attributable to common shareholders, and adjusted diluted earnings per common share. We believe that our non-GAAP financial measures enable investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies. We believe that the disclosure of these non-GAAP measures is useful to investors as they reflect metrics that our management team and Board utilize to evaluate our operating performance, allocate resources and administer employee incentive plans. The most directly comparable U.S. GAAP measures to adjusted EBITDA, 4-wall EBITDA, adjusted net income attributable to common shareholders, and adjusted diluted earnings per common share, are net income, segment adjusted EBITDA, net income attributable to common shareholders, and diluted earnings per common share, respectively. These non-GAAP measures should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s U.S. GAAP results.
The table below reconciles our GAAP financial results to our non-GAAP financial measures.
Year Ended
(In thousands, except per share amounts)
December 28, 2025
December 29, 2024
Net Income
Income tax expense
Net interest expense
Depreciation and amortization
Stock-based compensation expense
Gain on refranchising transaction, net and sale of QC Center properties (a)
Restructuring costs (b)
Other costs (c)
Adjusted EBITDA
Segment adjusted EBITDA - Domestic Company-owned restaurants
General & Administrative - Domestic Company-owned restaurants
Training Costs - Domestic Company-owned restaurants (f)
4-wall EBITDA (g)
Segment revenue - Domestic Company-owned restaurants
4-wall EBITDA margin (g)
Net income attributable to common shareholders
Gain on refranchising transaction, net and sale of QC Center properties (a)
Restructuring costs (b)
Accelerated software depreciation (d)
Other costs (c)
Tax effect of adjustments (e)
Adjusted net income attributable to common shareholders
Diluted earnings per common share
Gain on refranchising transaction, net and QC Center properties (a)
Restructuring costs (b)
Accelerated software depreciation (d)
Other costs (c)
Tax effect of adjustments (e)
Adjusted diluted earnings per common share
(a) For the year ended December 28, 2025, represents pre-tax gain on sale, net of transaction costs, realized upon the completion of the refranchising of 85 restaurants on November 24, 2025. Net gain attributable to noncontrolling interests for the transaction was approximately $1.0 million. See “Note 21. Divestitures for additional details. For the year ended December 29, 2024, represents pre-tax gain on sale, net of transaction costs, realized upon the August 2, 2024 completion of the sale of our Texas and Florida QC Center properties. See “Note 21. Divestitures” for additional details.
(b) Represents costs associated with the Company’s Enterprise Transformation Plan and International Transformation Plan. Includes non-cash reversal of $1.2 million and $0.1 million related to the forfeiture of unvested stock-based compensation awards during the years ending December 28, 2025 and December 29, 2024, respectively. See “Note 16. Restructuring” for additional details.
(c) For the year ended December 28, 2025, other costs is comprised of the following:
i. Losses on disposal of equipment incurred in connection with the termination of a COVID-era program that pre-purchased store equipment due to supply chain challenges;
ii. Costs associated with project-based strategic initiatives that are not related to our ongoing operations.
iii. Costs incurred, net of anticipated insurance recoveries, arising from tornadoes that damaged the Texas QC Center as well as the restaurant support center and QC Center in Louisville, Kentucky.
For the year ended December 29, 2024, other costs represents non-cash impairment and remeasurement charges related primarily to fixed and intangible assets from the refranchising of 15 Domestic Company-owned restaurants.
(d) Represents incremental depreciation expense related to the shortened useful life of legacy capitalized software assets due to the ongoing development and deployment of our new omnichannel platforms and other technology improvements.
(e) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rate of 23.2% and 22.7% for the years ended December 28, 2025 and December 29, 2024, respectively.
(f) Training costs for our Domestic Company-owned restaurants were reclassified from Cost of sales to General & administrative expenses prospectively beginning with the year ended December 28, 2025. We have included these training costs along with general & administrative expenses in the historical period when reconciling Segment adjusted EBITDA to 4-wall EBITDA to ensure comparability.
(g) 4-wall EBITDA is defined as Domestic Company-owned restaurants segment revenue less total Domestic Company-owned restaurants segment cost of sales. Domestic Company-owned restaurants cost of sales include expenses incurred by our Domestic Company-owned restaurants in generating revenue, including cost of food, paper, and cleaning products (‘COS – Product Costs’), cost of restaurant-level labor (‘COS – Salaries & Benefits’), and costs of delivery expenses, Company-owned restaurant advertising costs, insurance, rent, aggregator fees, and other costs (‘COS – Other’). 4-wall EBITDA margin is defined as 4-wall EBITDA divided by segment revenue for our Domestic Company-owned restaurants segment. We use 4-wall EBITDA for the purposes of internally evaluating the performance of our Domestic Company-owned restaurants, and we believe 4-wall EBITDA provides additional information to investors as to the unit economics and restaurant-level profitability of our Domestic Company-owned restaurants. The most directly comparable U.S. GAAP measure to 4-wall EBITDA is segment adjusted EBITDA, which is our segment performance measure as presented in the segment footnote to our Consolidated Financial Statements in accordance with Accounting Standards Codification 280. See “Note 22. Segment Information” of “Notes to Consolidated Financial Statements,” for further information regarding the Company’s segments.
In addition, we present free cash flow in this report, which is a non-GAAP measure. Please see “Liquidity and Capital Resources – Free Cash Flow” for a discussion of why we believe free cash flow provides useful information regarding our financial condition and results of operations, and a reconciliation of free cash flow to the most directly comparable U.S. GAAP measure.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash flows from operations and borrowings under the revolving credit facility (the “PJI Revolving Facility”) that forms a part of our Second Amended and Restated Credit Agreement dated as of March 26, 2025 (the “Credit Agreement”). Our principal uses of cash are operating expenses, capital expenditures, and returning value to our shareholders in the form of cash dividends and share repurchases. Our capital priorities are:
• investing for growth
• maintaining a strong balance sheet, and
• returning capital to shareholders
The Company believes that its balances of cash and cash equivalents and borrowing capacity, along with cash generated by operations and from asset sales, will be sufficient to satisfy its cash requirements, cash dividends, interest payments and share repurchases over the next twelve months and beyond.
Cash Flows
The table below summarizes our cash flows for each of the last two fiscal years (in thousands):
Total cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Operating Activities
Total cash provided by operating activities was $126.0 million for the year ended December 28, 2025 compared to $106.6 million for the prior year. The increase of $19.4 million primarily reflects favorable changes in working capital accounts related to higher accrued expenses and lower accounts payable cash outflows, as well as a favorable impact from timing of marketing spend within our advertising fund and a reduction in cash taxes paid compared to the prior period.
Investing Activities
Total cash used in investing activities was $21.5 million in 2025 compared to $17.3 million in 2024. Net cash used in investing activities during 2025 primarily reflects $74.4 million of capital expenditures, which includes $9.7 million of additional capital expenditures related to natural disasters, partially offset by $6.3 million of related insurance proceeds. These were partially offset by $34.5 million of proceeds received in the 2025 refranchising transaction and $6.4 million of repayments received on notes issued to franchisees.
Net cash used in investing activities during 2024 primarily reflects $72.5 million of capital expenditures, partially offset by net proceeds of $46.7 million from the sale of two Domestic QC Centers and $4.2 million of repayments received on notes issued to franchisees.
Financing Activities
Total cash used in financing activities was $106.3 million in 2025 compared to $91.7 million in 2024. In 2025, the principal financing outflows were related to dividend payments of $61.1 million, payments related to finance leases of $10.1 million, and distributions to noncontrolling interests of $5.7 million which were primarily to distribute proceeds from the 2025 refranchising transaction to our noncontrolling interest. Cash used in financing activities also reflects the impact of net repayments of $27.7 million under the PJI Revolving Facility throughout the year, which includes the refinancing of our debt via the Credit Agreement during the first quarter of 2025. This refinancing resulted in borrowings of $200.0 million under the new $200.0 million senior secured term loan (the “Term Loan”) that forms part of the Credit Agreement, from which the proceeds were used to repay $196.8 million to the PJI Revolving Facility as well as $3.2 million in related issuance costs.
In 2024, the principal financing outflows included dividend payments of $60.6 million, net repayments of $17.3 million under the PJI Revolving Facility, and payments related to finance leases of $8.5 million.
Debt
On September 14, 2021, the Company issued $400.0 million of 3.875% senior notes (the “Notes”) which will mature on September 15, 2029.
On March 26, 2025, the Company amended and restated the Amended and Restated Credit Agreement, dated as of September 14, 2021 and amended May 30, 2023 (together, the “Previous Credit Agreement”) with the Credit Agreement. The Credit Agreement contains the Term Loan with a principal amount of $200.0 million and the PJI Revolving Facility, a senior secured revolving credit facility in an aggregate available principal amount of $600.0 million (together with the Term Loan, the “PJI Credit Facilities”), of which up to $40.0 million is available as swingline loans and up to $80.0 million as letters of credit. The PJI Credit Facilities will mature on March 26, 2030 (the “Maturity Date”) with term loans amortizing in quarterly installments commencing on June 30, 2026 in amounts as set forth in the Second Amended and Restated Credit Agreement and the unpaid balance maturing on the Maturity Date.
Our outstanding debt as of December 28, 2025 was $722.3 million, which was comprised of $400.0 million outstanding under the Notes, $200.0 million outstanding under the Term Loan, and $122.3 million outstanding under the PJI Revolving Facility. Remaining availability under the PJI Revolving Facility was $477.7 million as of December 28, 2025.
The Credit Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates. The Company is also subject to certain financial covenants, as shown in the following table, that could restrict or impose constraints on the liquidity of our business:
Permitted Ratio
Actual Ratio for the
Year Ended
December 28, 2025
Leverage ratio
Not to exceed 5.25 to 1.0
Interest coverage ratio
Not less than 2.00 to 1.0
Our leverage ratio is defined as outstanding debt divided by Consolidated EBITDA (as defined in the Credit Agreement), for the most recent four fiscal quarters. Our interest coverage ratio is defined as the sum of Consolidated EBITDA and consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated interest expense and consolidated rental expense for the most recent four fiscal quarters. We were in compliance with all financial covenants as of December 28, 2025.
In addition, the Indenture governing the Notes contains customary covenants that, among other things and subject to certain exceptions, limit our ability and the ability of certain of our subsidiaries to: incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions or repurchase or redeem our capital stock; prepay, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into transactions with affiliates; enter into agreements restricting our subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially all of our assets.
PJMF, our national marketing fund, has a $30.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015, that was most recently amended on September 30, 2025. The PJMF Revolving Facility is secured by substantially all the assets of PJMF. The PJMF Revolving Facility matures on September 30, 2026, but is subject to annual renewals. The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of a one month SOFR plu s 1.975% . There was no debt outstanding under the PJMF Revolving Facility as of December 28, 2025 or December 29, 2024. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Credit Agreement.
See “Note 12. Debt” of “Notes to Consolidated Financial Statements” for additional information.
Share Repurchases
Share repurchases are part of our long-term growth and capital allocation strategy. On October 28, 2021, our Board of Directors approved a share repurchase program with an indefinite duration for up to $425.0 million of the Company’s common stock. There was no share repurchase activity during the years ended December 28, 2025 and December 29, 2024, and we did not repurchase any shares subsequent to December 28, 2025. Approximately $90.2 million remained available under the Company’s share repurchase program as of February 20, 2026.
The Company utilizes a written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, from time to time to facilitate the repurchase of shares of our common stock under this share repurchase program. There can be no assurance that we will repurchase shares of our common stock either through a Rule 10b5-1 trading plan or otherwise.
Dividends
The Company paid aggregate cash dividends to common stockholders of $61.1 million ($1.84 per share) and $60.6 million ($1.84 per share) for the years ended December 28, 2025 and December 29, 2024, respectively.
On January 26, 2026, our Board of Directors declared a first quarter 2026 dividend of $0.46 per common share, representing a $15.3 million aggregate dividend that was paid on February 20, 2026 to stockholders of record as of the close of business on February 9, 2026. The declaration and payment of any future dividends will be at the discretion of our Board of Directors.
Free Cash Flow
Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the Consolidated Statements of Cash Flows) less the purchases of property and equipment, excluding purchases of property and equipment related to damages from natural disasters. We view free cash flow as an important financial measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by GAAP, and as a result, our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP measures.
The Company’s free cash flow for the last two years was as follows (in thousands):
Year Ended
December 28, 2025
December 29, 2024
Net cash provided by operating activities
Purchases of property and equipment
Free cash flow
Contractual Obligations
The Company’s cash requirements greater than twelve months from contractual obligations and commitments include:
• Debt Obligations and Interest Payments : Refer to “Note 12. Debt” of “Notes to Consolidated Financial Statements” for further information on our obligations and the timing of expected payments.
• Operating and Finance Leases : Refer to “Note 3 Leases” of “Notes to Consolidated Financial Statements” for further information on our obligations and the timing of expected payments.
We estimate that our capital expenditures during 2026 will be approximately $70 million to $80 million. This estimate includes capital outlays for development for existing Company-owned restaurants and for development of new restaurants as well as investments in technology platforms and our supply chain. We intend to fund our capital expenditures with cash generated by operations and borrowings under our PJI Revolving Facility, as necessary.
We guarantee leases for certain Papa Johns North American franchisees who have purchased restaurants that were previously Company-owned. We are contingently liable on these leases. The leases have varying terms, the latest of which
expires in 2036. As of December 28, 2025, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was approximately $12.1 million.
We have certain other commercial commitments where payment is contingent upon the occurrence of certain events. With our insurance programs, we are party to surety bonds with off-balance sheet risk for a total of $17.1 million as of December 28, 2025. The surety bond arrangements expire within one year but have automatic renewal clauses. See “Note 12. Debt” and “Note 18. Litigation, Commitments and Contingencies” of “Notes to Consolidated Financial Statements” for additional information related to contractual and other commitments.
International and Enterprise Transformation Plans
We have incurred and expect to continue to incur certain corporate reorganization costs as a result of the ongoing restructuring and transformation of our business. In December 2023, we announced the International Transformation Plan, which was completed during the fourth quarter of 2025. We incurred total restructuring related costs of $34.4 million in connection with the International Transformation Plan. As previously discussed, in December 2025, our Board of Directors approved the first phase of the Enterprise Transformation Plan. The initiation of these actions resulted in costs of $7.7 million incurred during the fourth quarter of 2025. In February 2026, our Board of Directors approved the second phase of the Enterprise Transformation Plan. We currently estimate that we will incur restructuring charges between approximately $24 million and $31 million related to actions approved to date, inclusive of the $7.7 million recognized during 2025, and the remainder we expect will be recognized during 2026 and 2027.
Impact of Inflation and Macroeconomic Trends
Inflationary pressures affect our profitability both directly, in our Company-owned restaurants and delivery mechanisms and through gross margins experienced by sales of food and supply items via our QC Centers, as well as indirectly, through higher food ingredient and paper and supply costs, rising fees from delivery aggregators driven by higher wage demands and increases in delivery costs that, once reflected in upward price adjustments on their fees, can exert downward pressure on unit sales, reducing royalty fees we realize from our Domestic and International franchisees. Compensating menu price increases are subject to competitive pressure in the markets in which we operate. Expense control measures are also deployed to offset higher costs when possible. Food costs, in particular the cost of cheese, are managed to an extent by pricing agreements with suppliers and forward purchase contracts we enter into, as discussed in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
While we continue to monitor the impact of current and potential tariffs and assess our ability to manage any impacts, we currently do not believe that tariffs in the form currently proposed or enacted by the United States government would have a significant negative impact to our Domestic business, as a substantial proportion of our ingredients and supply items are sourced domestically. However, the extent to which tariffs may increase the price of other goods and services and how they may alter discretionary spending patterns by our customers or impact our franchisees’ profitability is currently unknown.
Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-K and other Company communications that are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as “expect,” “intend,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “outlook”, “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such forward-looking statements include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, depreciation and amortization, interest expenses, tax rates, system-wide sales, transformation plans, adjusted EBITDA, 4-wall EBITDA, the current economic environment, industry trends, consumer behavior and preferences, commodity and labor costs, currency fluctuations, profit margins, supply chain operating margin, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, restaurant acquisitions, restaurant closures, labor shortages, labor cost increases, changes in management, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product, investments in digital and technology innovation, marketing efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, changes to our national marketing fund, changes to our commissary model, dividends, tax rates, regulatory changes and impacts, impacts of tariffs, insurance recoveries for related to natural , adoption of new accounting standards, and other financial and operational measures. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied
in such forward-looking statements. The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:
• economic conditions in the United States and international markets;
• changes in pricing or other marketing or promotional strategies by competitors, which has adversely affected, and may continue to adversely affect, sales and profitability; and new product and concept developments by food industry competitors;
• changes in consumer preferences or consumer buying habits, including the growing popularity of delivery aggregators, as well as changes in general economic conditions or other factors that may affect consumer confidence and discretionary spending, including higher unemployment;
• increased risks associated with our International operations, including economic and political conditions, instability or uncertainty in our international markets, especially emerging markets, fluctuations in currency exchange rates, difficulty in meeting planned sales targets, regulatory changes, increased tariffs and other trade barriers, and new restaurant growth;
• the adverse impact on the Company or our results caused by global health concerns, product recalls, food quality or safety issues, incidences of foodborne illness, food contamination and other general public health concerns about our Company-owned or franchised restaurants or others in the restaurant industry;
• the ability of the Company to retain key management and manage staffing and labor shortages at Company and/or franchised restaurants and our Quality Control Centers;
• increases in labor costs, food costs or sustained higher other operating costs, including as a result of supply chain disruption, inflation and related impacts, increased tariffs or other trade barriers, immigration policies, or climate change;
• the potential for delayed new restaurant openings, both domestically and internationally;
• the increased risk of phishing, ransomware and other cyber-attacks;
• risks to the global economy and our business related to geopolitical conflicts in areas in which we or our franchisees operate;
• increased costs for branding initiatives and launching new advertising and marketing campaigns and promotions to boost consumer sentiment and sales trends, and the risk that such initiatives will not be effective;
• risks related to a possible economic slowdown that could, among other things, reduce consumer spending or demand and result in changing consumer practices;
• risks related to social media, including publicity adversely and rapidly impacting our brand and reputation;
• the effectiveness of our technology investments and changes in unit-level operations;
• the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, including difficulties finding qualified franchisees, restaurant level employees or suitable sites;
• increases in insurance claims and related costs for programs funded by the Company up to certain retention limits, including medical, owned and non-owned vehicles, workers’ compensation, general liability and property;
• disruption of our supply chain or commissary operations which could be caused by our sole source of supply of mozzarella cheese, desserts, garlic cups or limited source of suppliers for other key ingredients or more generally due to weather, natural disasters including drought, disease, or geopolitical or other disruptions beyond our control;
• the impact of current or future claims and litigation and our ability to comply with current, proposed or future legislation that could impact our business;
• risks related to our indebtedness and borrowing costs, including prolonged higher interest rates, and the current state of the credit markets;
• the Company’s ability to continue to pay dividends to stockholders based upon profitability, cash flows and capital adequacy if restaurant sales and operating results decline;
• our ability to effectively operate and improve the performance of International Company-owned restaurants;
• disruption of critical business or information technology systems, or those of our suppliers, and risks associated with systems failures and data privacy and cybersecurity incidents, including theft of confidential Company, employee and customer information, including payment cards; and
• changes in Federal or state income, general and other tax laws, rules and regulations and changes in generally accepted accounting principles.
These and other risk factors are discussed in detail in “Part I. Item 1A. — Risk Factors” of this Annual Report on Form 10-K, and they may be updated from time to time in our future reports filed with the Securities and Exchange Commission. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.
