Papa John's International, Inc. (PZZA) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Papa John's Second Quarter 2017 Conference Call and Webcast. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Mr. Lance Tucker. You may begin.

Yes. Thank you, Catherine. Good morning. Joining me on the call today are our Founder, Chairman and CEO, John Schnatter; our President and COO, Steve Ritchie; and other members of the senior management team. After the financial update, John and Steve will have comments about our business, and the management team will then be available for Q&A. Our discussion today will contain forward-looking statements involving risks that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with the cautionary statements in our earnings press release and the risk factors included in our SEC filings. Please refer to our earnings release in the Investor Relations section of our website for a reconciliation of non-GAAP financial measures discussed on this call. Now onto a discussion of our second quarter operating results. Diluted EPS in the second quarter was $0.65, up 7% over the prior year. EPS benefited by $0.01, due to the adoption of the new stock-based compensation accounting rules. Second quarter revenues were up 2.8%, driven primarily by higher QCC sales from volume increases and higher commodity prices, as well as increased global comp sales and units. These increases were partially offset by reduced corporate restaurant sales due to the sale of the Phoenix market in quarter four of 2016, which negatively impacted year-over-year revenues by over $9 million. Domestic company-owned restaurant margins were roughly flat with 2016, with both cost of sales and other operating expenses largely in line with the prior year. North America commissary and other margins decreased 70 basis points, primarily due to startup costs related to the opening of our new quality control center in Georgia, which opened up in the third quarter. The margin decrease was partially offset by improved operating margins from our online and mobile ordering businesses. International margins decreased 2%, due primarily to lower U.K. QCC margins, driven by commodity increases that were not fully passed on. G&A was lower by approximately $600,000 and came in at 9.7% of revenues, a 40 basis point improvement versus the prior year. The primary drivers of the improvement were favorable bad debt experience, lower management incentive costs and lower restaurant supervisory bonuses. Our effective tax rate was 29.5% in the second quarter, down 2% from the prior year, due primarily to the new stock-based compensation accounting rules. We repurchased $21 million of stock during the quarter. Our free cash flow, a non-GAAP measure we define as cash flow from operations less capital expenditures, was approximately $47 million in the first half of the year, down approximately $8 million from 2016, due primarily to increased capital expenditures. As noted in our press release, the company is reaffirming all aspects of its previously issued 2017 outlook, with the exception of net unit openings, which were decreased from the original range of 4% to 5% to a revised range of 3% to 4%. The reduction in units is due to the closing of all restaurants in the Indian market late in the second quarter and early in the third quarter, a total of 66 restaurants for the year. As noted in our press release, these closures are not expected to impact 2017 earnings. Also, as noted in our press release, the company's share repurchase authorization was increased by $500 million. We intend to repurchase the full amount of the increased authorization over the next 12 to 18 months, utilizing a mixture of open market repurchases and an accelerated share repurchase program. In order to execute this program, we will also be entering into new debt facilities before the end of the year. We will announce the terms for the new facilities once we enter into the agreement, and we'll also give more details around the ASR once it has been entered into as well. Finally, given that these agreements will be entered into late in the year, we do not expect a significant impact on 2017 EPS. However, we will update guidance if necessary once the program has been finalized and fully implemented. Now I'd like to turn the call over to our Founder, Chairman and CEO, John Schnatter. John?

Thanks, Lance, and good morning, everyone. Thanks for joining us on the call today as we discuss our second quarter 2017 results. We continue to perform well in a very challenging, competitive environment. We expect 2017 to be a solid year of growth for the Papa John's global brand. Our consistent success comes from our unwavering devotion to be better and to drive the highest product quality and the best customer service experience in the pizza industry. And that's what we have been doing. We followed up our top ranking as the Pizza Chain Brand of the Year in the 2017 Harris Poll ranking with a Number 1 ranking for both product quality and customer satisfaction among all QSR pizza brands. And also, the last 15 out of 18 years were unprecedented, we've been the champ of the American Customer Satisfaction Index. I think it shows kudos off to our Chief Ingredient Officer, Sean Muldoon, and his team for continuing to push the brand forward on improving our quality on our better ingredients journey. Now striving for better doesn't just mean that we start with quality ingredients. It extends to our team members. And in this day and age, you don't have to have good talent or great talent; you've got to have extreme talent. That is why we announced the new addition to our executive leadership team, Brandon Rhoten, our new CMO, to evolve and evaluate our approach to marketing. Brandon is bringing a new digital-first mindset to the marketing and will partner with Mike Nettles on the technology front to make our brand even more relevant and more powerful. It is this consistency and strong growth in our business and cash flow that we just announced the large increase in our share repurchase plans over the next 12 to 18 months, as Lance just spoke about. I like where we're at, at the business. I admire this leadership team, and I like our brand. And I'm confident in our prospects in the coming years. To conclude, I'm pleased to get 2017 off to a good start with this great team. We will continue to find ways to improve our customer experience and strive for better ingredients and better pizza on all our menu items. With that, I'll turn it over to Steve Ritchie, our President. Steve?

All right. Thanks, John, and good morning, everyone. I'd like to start by thanking our franchisees and operators for continuing to provide award-winning service, delivering on our quality promise each and every day to our customers across the globe. As always, we maintain our commitment to superior customer service, amplified by our team-member-first approach. As John stated, our relentless focus on high-quality and clean-label ingredients, robust digital capabilities, consistent operational execution of the fundamentals, and the new talent to our strong executive leadership team are truly enhancing the customer experience and building even greater long-term growth potential for the brand. This focus led to another quarter of positive revenue and earnings growth for the business. Our domestic comp sales growth of 1.4% marks our 27th consecutive quarter of positive comp sales, posting an improved two and three year comp for the quarter of 6.2% and 11.7%, respectively. We have reaffirmed our full year domestic sales guidance of 2% to 4%, confirming our confidence in the sales-driving initiatives planned for the back half of this year. Our international comps for the quarter were 3.9%, marking our 29th consecutive quarter of positive comp sales growth. Sales were very solid across most of our markets, highlighted by continued sales success throughout Europe, the Middle East, and Latin America. And I'm very happy to report we experienced another quarter of solid sales improvements across our markets in China, somewhat offset by a recent traffic slowdown in our U.K. business. Our year-to-date comps are roughly 5%, and we have reaffirmed our full year international sales guidance of 4% to 6%. On the development front, and as noted in our press release, all the restaurants in the India market have now been closed. As Lance alluded to, 4 closed in Q1, 29 in Q2, and the remaining 33 closed here in July. There will be no significant financial impact to our 2000 [ph] profitability, as we have not been collecting royalties on these units while we worked to improve the performance post the Pizza Corner brand conversion in the fourth quarter of 2014 and the first quarter of 2015. Unfortunately, the restaurants were not able to meet the joint expectations of Papa John's and the franchise of the India market. As a result of these closures, our outlook has been reduced to 3% to 4% net unit growth in 2017. Excluding this country closure, we would expect to be within our original 2017 unit guidance range. With that said, our global pipeline has over 1,100 stores signed to open, and we remain confident in our ability to reaccelerate unit growth in 2018 and beyond. On the technology front, we continue to reinforce our commitment to providing a better customer experience with enhancements to our digital ordering process. We averaged over 60% domestic sales across our digital channels in Q2, of which roughly 70% is from our mobile channels. We have long-term efforts in motion to further leverage data insights to enable segmentation for one-to-one consumer marketing and broaden our digital accessibility to meet current and new customers where they are. A recent example we announced in June is the introduction of instant ordering directly from our Facebook page. This provides Papa John's pizza lovers yet another way to order simply and easily while they are surfing social media. We love that Facebook has given our 2 billion active monthly users access to real-world experiences like food ordering. Expect more efforts like this from Papa John's in the months and years ahead, led by our new CMO, Brandon Rhoten, and our CIDO, Mike Nettles. The new talent and thought leadership coming from Brandon and Mike, combined with our highly skilled and experienced executive leadership team, make for a very bright future for the Papa John's brand. To conclude, we are happy to report consumers are continuing to recognize our unwavering commitment to quality and our efforts to improve the customer experience. The next chapter of our brand story will be focused on taking our quality, our branding, technology and operations to an even higher level of differentiation within the industry. We now have an enhanced brand vision and mission statement, a comprehensive long-term strategic plan and over 120,000 passionate team members around the world who are ready to execute. With that, I will turn it back over to Lance for Q&A.

Catherine, we're ready for questions.

Thank you. [Operator Instructions] And our first question comes from Alex Slagle with Jefferies. Your line is open.

Thanks. Hi guys. I had a question on the buyback authorization and bumping up the leverage target, a topic investors have been asking about for a while now. If you could provide some additional background on what change triggered this decision?

Alex, it's Lance. I'll start with that one, and I'll let John or Steve jump in if they'd like. But as we've talked about in the past, the board and management do periodically assess how to best optimize the company's capital structure. And after considering the confidence in the long-term outlook for Papa John's, the stability and consistency of our cash flows, and the fact that the current favorable lending environment's not going to last forever, we decided now is the right time to put some additional leverage on. We think the 3 to 4x leverage that we quoted in our press release, our cash flows, and again, they're very stable and consistent, should allow the higher debt to be comfortably serviced without constraining the day-to-day decision-making of the company, which is very important to us.

Alex, it's Steve. I'll add just a little additional color. Just to echo some of the things that I already said in the opening prepared remarks there. I think it's around the confidence and the enhanced brand vision I had just spoken to. I think we have more clarity than we've ever had before on the mission statement and where we're really going long term with the brand. Clearly, that's aligned with having the right strategic plan and the right talent and leadership to be able to execute upon that. So, we've had a heck of a run the last 7 or 8 years here for the brand. And even though sales have slowed a little bit here in the U.S. over the last couple of quarters, we're really in a transformative time for the brand and more confident than ever in the long-term future of the brand.

Alex, this is John. As you know, I own a little less than 30% of the company. Seven years ago, I just didn't have the confidence in the brand and what we were doing that I have today with this leadership team and our momentum and, frankly, our positioning in what we're doing. I think it's just really solid. So the business, EBITDA was a little over $200 million, and I think the dividend $30 million. And I would like as much of that as I can get my hands on. I believe in what we're doing.

That's helpful. Thank you. And then just a follow-up, if you could provide some additional perspective on the U.S. same-store sales, and what the cadence looked like through the quarter. And what gives you confidence you can continue accelerating the momentum through the rest of the year? It just seems like it would require a notable acceleration in the trends to hit the midpoint of your 2% to 4% guidance.

Sure. Alex, it's Steve. I'll talk to that for just a moment. And I highlighted some of this in the initial remarks. We started out the first quarter to 2%. We posted a 1.4%. And that's where you've got to kind of step back and look at the two-year and the three-year stacks that we're producing here. And that's really what gets us to the confidence, just looking at, for one, the stacks. So the first quarter, we had a two-year stack of a 2%, and then we turned around in the second quarter. Even though posted a 1.4% for the first quarter, our two-year comp was a 6.2%. In order to get in the full year range of a 2% to 4%, we've got to be on a full two-year basis of a 5.5% comp at the bottom side of the range to upwards to a 7.5%. So, I really believe the back half of the year, and we spoke to this a little bit on the back half of the call - on the last quarter's call, the initiatives that we have planned for the back half, second year, the MLB, the NFL challenge that we had last year and the plans that we have from a campaign standpoint. The NFL have a lot of confidence on the upcoming season. And the introduction of - with Brandon coming onboard here and some of the things that he is working on in real time on our media investments that we're making, looking at our brand messaging and our positioning. In fact, Brandon's on the call with us here today and thought maybe Brandon might just give you a little bit of assessment because some of these things are what's driving our confidence in the future. Maybe, Brandon, just talk a little bit about what you're assessing with the brand and some of the things that we can provide these guys with the knowledge and insights of what we're going to be doing.

Sure. Thanks, Steve. The - as I kind of came on to this brand, it became very clear that this really is the only brand in the category that can own better, that can own - that can have an equity position versus just a value position. There's a balance there, but can have an equity - serious equity position that differentiates it. So the team's working on positioning, and you'll see it come to life actually in the NFL work over the next couple of months, that clearly positions Papa John's as the better pizza choice and utilizes all the hard work that our team in the field and our franchisees and our restaurant system goes through to get to better pizza. So beyond that positioning, which is a pretty bold thing to do, I think, in this category, we're looking at media allocation, understanding exactly what investments are driving a return. So that's a huge batch of work that the team is currently undertaking to really understand, when we put a dollar in, how much do we get back from a marketing and media standpoint. And beyond that, we're shifting a lot of our discussion to acting like an e-commerce company. So fundamentally, more than half of our transactions come across digital platforms. And we have to step up and act like we're an e-commerce company and advertise like an e-commerce company. So you're seeing us consider avenues of advertising and media that we really haven't in the past, primarily because we were focused on awareness versus actually driving e-commerce transactions. So, I'm really excited about the potential of the brand and about where these tweaks will take the brand in the near term. And ultimately, I think this is the only brand that can really differentiate in the category when it comes to product.

Thanks for that.

Yes. I think that's - it's Steve again, Alex. I think those are the key things from a marketing standpoint. But we're now, I guess, coming up on six months since Mike Nettles has been on board on the technology side. And clearly, things with technology take a little bit more time to make some movement. But maybe Mike can speak to a little bit about what we've been working on in 2017 and really driving a lot of the confidence that we spoke to before on the future as well.

Thanks, Steve. And Alex, I'm just going to echo maybe some things Brandon and Steve have both shared, but from a technology perspective. We really do believe not only do we have a better pizza, a better product, but we can deliver a better pizza experience, whether that's through ordering or our operators and our team members actually in delivering a better pizza and making a better pizza. So most of our effort thus far and moving forward, particularly into the latter half of this year and into next year, will be very much focused around providing our marketing team with better customer insights, more meaningful information about customer behavior, customer sentimentality, allowing them to make some strategic decisions with some of that information as opposed to just trying to have to throw out several different tentacles at once and try to figure out where each one actually has the appropriate touch point. On the operation side of the equation, I work very closely with Edmond Heelan, our operations ELT member, and leading that particular team, to make sure that our team members in the field are properly equipped with the technology they need to deliver that better pizza experience day in and day out, thousands of transactions at a time. We have good systems in place today, but we totally believe in the concept of total quality management. And we believe there's lots of things we can do to provide better technology experiences so it's easier to do their jobs, it's more fulfilling to do their jobs, and frankly, it gives them the empowerment they need technologically to digitalize the entire customer experience from beginning to end, including getting that feedback loop back in our hands. We're very excited about what that's going to do because, frankly, from my experience in the industry, we have an operations team that knows how to execute and can execute extremely well. I just want to better equip them to do their jobs, so they can get even better at it.

It's Steve again. Clearly, a lot going on there. Just wanted you guys to hear from our two new executives. We believe that, as I look at it, this is the three-legged stool. It's the most important, it's the engine of the company. Our marketing side, our technology side, but last, and certainly not least, and frankly, most importantly, is our operations side of the business. So just briefly, Edmond, we've got a lot of things we're working on to measure customer experience, the work you guys are doing in the field align with this. Maybe just to give them a glimpse of things that you guys got going on this year as well.

Yes. Sure, Steve. And Alex, this is Edmond Heelan. So we absolutely believe in the customer experience. And the thing about bringing Mike and Brandon on is now the operations team has total confidence that the three-legged stool can carry the load and continue to deliver on our Better Ingredients. Better Pizza promise. We work constantly to try and improve the customer experience through our Net Promoter Score. We're digging down into the analytics and understanding what consumers want and how we can better deliver what consumers want, when they want it and how they want it. So very excited about Mike Nettles joining. He did mention how we can improve inside the box. There's a lot of efficiencies to be had. So, we look forward to the future with these guys and driving the brand forward.

Thanks Edmond.

And our next question comes from Alton Stump with Longbow Research. Your line is open.

Thank you and good morning to all of you.

Good morning.

Good morning Alton.

Just a question first off on the U.S. market, if you talk a little bit about on the technology front, and maybe if you want to chime in, Brandon. The tracker was a pretty big launch. Maybe how that's going so far even though it is still pretty early. And what sort of technology advancements do you think you guys can take a look at or potentially roll out over the next 6 to 12 months domestically?

Alton, it's Steve. And I'll toss it over to Mike, who can maybe talk about what we're seeing with the Papa Track. And in general terms, well, obviously, we don't want give too much from a competitor standpoint. But I think in general terms, we can talk about the strategy, Mike.

Sure. Again, Alton, Papa Track, in particular, was designed to not only give our customers and our guests some degree of predictability over when they're going to eat their delicious pizza, but frankly, some transparency into what the process looks like. I think customers in the digital age to some extent really appreciate the fact that they get kind of that immediate, "Hey, you heard me. We got your order. It's on its way." And certainly, that seems to be the status quo for most of the better digital players out there. We wanted to represent it as well. I think, operationally, what it's actually opened up for us, that level of transparency has helped us to really gain a new metric on how well we are able to adhere to promise times. Operationally, it's given us an opportunity to really take a better look at driver route optimization and speed-of-service measures inside the store, et cetera, et cetera, and leverage that information so that we can make better forecasting decisions, and back to my other comment, and Edmund echoed this, better efficiencies and predictability around consistency of operations inside the store. So it's actually had some tremendous payback opportunities for us above and beyond the obvious, putting something out there that the customers like. It's actually given us the ability to really go in and start adhering to some operational principles that we hold dear and improve them more necessary as part of that constantly better model.

That's helpful. Thank you. And then just as far as U.K., because you highlighted that as being weak in the quarter. Certainly, a major competitor just talked about that being a challenging market in 2Q as well. What sort of plans in place do you have, if any, to kind of drive growth back up in the U.K. market specifically?

Yes. Alton, it's Steve. Once again, I think I'll just say we've had a couple of years of double-digit positive sales growth. In fact, I think we've had 8 or 9 quarters where we've seen sales up to the low teens on comp sales performance. The last couple of quarters are lapping very strong performance. But similar to what we've seen across the industry in the U.K., there has been a challenge with the consumer confidence with the situation with Brexit and the recent general election. So I do think that value has become a big part of the equation. So finding the right balance with our value, but even more importantly, finding the right messaging to be able to deliver that. So Brandon actually has spent some time in the U.K. evaluating some of that. So I'll let him maybe talk to some of the things that we're looking at as we evaluate the U.K. and the way forward to really get the business back to the kind of levels that we would expect. Brandon?

Yes. Thanks, Steve. The penetration of stores in U.K. is very different. So our awareness is very different than it is in the United States. So in some cases, we have an awareness job to do in parts of the U.K. versus a consideration job, which is more of a challenge in the United States. I would also echo some of the same branding and media efforts that we're undergoing in the U.S. We're looking at acting like an e-commerce business, and fundamentally shifting how we think about advertising and how we think about return on advertising. We're shifting that. We can cause a differentiation while building awareness in the U.K. We've already started running some tests. And so I went over there, and we started talking about the business and how it's performing. And so far, we feel good about where we're headed. But I would suggest the challenge in the U.K. is just a little different. We're a little further up the funnel, I would say. And therefore, the way we're actually approaching the marketing challenge is a little different.

Tim O'Hern, I assume, you're on the call?

Sure, John.

Talk to them a little bit about the pipeline, if you don't mind.

So as Steve mentioned in his opening remarks, we have 1,100 stores in the pipeline. We sold 320 this year, and we have more than that in our pipeline that we hope to close out by the end of the year. And we have a couple of deals that are working that are a fair number of stores in markets that we're in existing that will boost that number even higher. The sales team continues to work very hard, both domestically and internationally, to grow that pipeline. It's kind of a yin and yang. We open a store, we've got to refill the pipeline. They worked very hard to do that and real confident in the pipeline. I really like the way we're opening new markets and opening stores internationally. It's a lot different than it was a number of years ago. We're spending a lot of time on the front side, finding franchisees, vetting franchisees, spending time with franchisees in-market before they even sign the documents. And we really feel like we're doing a good job training and upfront, opening of the markets. And we're seeing that in the sales returns in the markets we've opened over the last two years.

And Alton, it's Steve. Just to echo some of what Tim is stating related back to the U.K. So traffic is down a little bit. But year-to-date, sales are still positive. I should state that. And our development pipeline in the U.K. is one of the strongest that we have in the world. And we don't anticipate any slowdown in development this year or next based on our recent trends, as everyone has alluded to. We've got a very solid team in the U.K. that's based out of our headquarters in London that are working every day to get this business moving in that right direction.

Great. And then if I could just slip one more in, and I'll hop back in the queue. As far as the decision to exit India, of course, I understand that that's a different market than most of where you are internationally. But is there any concern or kind of what happened there, if that can happen elsewhere in some of your upstart markets? Or is this, in your view, just an isolated issue in that country?

Alton, it's Steve. I'd say that - to start with, your last comment, I'd say this is an isolated issue. As you may recall in the past, back in 2014, we had 20 stores in the market. And the market had struggled for years with multiple franchisees involved to try to get the business going in the right direction. We were clearly out-scaled versus the larger competitor there. Domino's has done quite well in the India market. Our brand positioning in the market has been a challenge since we got into the marketplace. We took a calculated risk with a new partner and did a brand conversion in the latter part of 2014. So we went from 20 stores to 66 stores virtually over a four to five month period. It was a calculated risk. And I think we did - we had some learnings on what we could do better in the India market if we were ever to enter that market again. With that being said, I think that there is a very different consumer perception on quality in that marketplace, and Papa John's being a brand that is highly recognized and perceived for quality, it's not a market that we would see going back into any time in the near future. As it relates to other markets where we have a challenge like this, I think it is very isolated and different. With that being said, we have our challenges in some markets, as we talked about in the past, our challenges in China. But it's not a brand perception challenge, as it was in India, as it relates to quality perception. So I think it's kind of one of those deals you kind of move on. And as I alluded to in my prepared remarks, getting back to the kind of growth rates we would expect from a development standpoint in 2018 and beyond. And love what we're seeing in China, because China has been another one that we've had some closures over the last couple of years. And experience and sales growth in China drives the optimism for them being a contributor once again to the overall global development.

Great. Thanks so much.

Thank you.

Thank you. And our next question comes from Will Slabaugh with Stephens Inc. Your line is open.

I had a question on the buyback and the debt load. So with the increase in your debt load to the 3 to 4 range, does the management or board level conversation also involve any potential refranchising that may add to the earnings stability of the brand to accompany that added debt?

Lance, I'll take this from a high level, and then you can talk about the refranchising. The - where we spent - the board or management spent 1.5 days talking about this. So we were very diligent and disciplined about how we looked about this and how we thought about this. And Lance, I'll let you talk on the refranchising.

Yes. Will, good question. As of right now, we don't see a significant shift in our plans. As we said in the past, we're going to be opportunistic. Sometimes, there'll be chances to sell a market that makes sense to a franchisee that we think can run it better than we can. Conversely, from time-to-time, we'll buy a market where we think that makes sense, where we either need to turn it around or we think we want to hold it for a long time. So I think I'd say we'll continue to be opportunistic there. And that 3 to 4x leverage level that we've referenced, we still have a lot of flexibility and ability to run the business day-to-day and make decisions around markets, be they buy or sell. We've got plenty of capacity still on the note and the ability to run the business the way we always have. So certainly, we'll talk about refranchising as we keep going forward. And if it makes sense here and there to sell a market, we'll do that. But don't look for a full-scale change in our portfolio mix, at least not in the foreseeable future.

Lance, also the - Will, and this kind of aggravates me a little bit. So I'll make this quick. The reason we missed our revenues is because we sold Phoenix. The reason we sold Phoenix is so they would do Boston. And Lance, why don't you hit that? We didn't miss our revenues. We sold the market.

Right. So as I kind of said in my opening remarks, on a year-over-year basis, we sold a 40-some-odd store market in Phoenix. And we think long term, that was the right thing for the business. But it did cause a $4 million - or a $9 million, rather, year-over-year miss. And our revenues were down on the corporate restaurant line by only a couple of million dollars. So clearly, that was a big, big contributor, and we'd have been $7 million up without that. So it's just the transition that you have in the year following either a purchase or a sale and what happens to the revenue number. And certainly, we hope you guys understand that the revenues actually reflect a little bit better than maybe it read in the financials if you didn't take that into consideration.

Understood. Appreciate that. And one more, if I could. Can you talk about how the brand is approaching value in this increasingly competitive, it seems like, price point-centric environment, versus maybe how you've done it in the past? And how you would evaluate some of the more aggressive promotions that you've put out there recently in terms of where do you think it's bringing in a new customer, how the profitability may look for that customer, and then what that may mean for your future promotions?

Will, it's Steve. I'll start at a high level, and then I'm going to toss it over to Brandon because, clearly, this is something that he's digging deep into as he's assessing current state of the business and the future strategy as we kind of move forward here on how we look at value and how that ties to our brand. So clearly, in this category, Papa John's has been here for 33 years. It's always been a very value-centric category. And Papa John's has also been the brand that's being recognized as the quality leader. So I think balance is the most important word that we can use there. There's - clearly, we want to keep our brand positioning, but we also want to stay heavily focused on driving traffic and growing market share. So we've been doing that for 33 years. As I've stated before, the last 7 or 8 years have been some of the strongest years in the history of the company, and I think it's because we've struck the right balance over that last 7 to 8 years. We have a saying around here, also, what got you here won't get you there. So as I've stated before, we're in a transformative stage as we're looking at everything from our branding to our technology to our operations. So Brandon, maybe talk a little bit about how you're looking at this, and how we intend to approach value as we move forward.

Sure, thanks. And value is an equation. It's equity over price, right? So fundamentally, you have to make sure that you build up your equity in order to have a deal or promotion actually drive value for a consumer net value. So for us, as Steve was saying, it's striking that balance. The wonderful thing about 2017 is the media landscape is so broad and so diverse. And segmentation, especially if you have the kind of data we have as essentially an e-commerce company, you can actually do both at the same time by segmenting your message and by actually delivering an equity message and delivering a value message based on what that individual who you're trying to deliver that message needs to hear to encourage a sale. So fundamentally, I feel like this brand is in an excellent position to balance out equity and price or promotion and ultimately lead to this better pizza differentiation by striking that right balance.

Thank you, Brandon.

Thanks guys.

Thank you. [Operator Instructions] And our next question comes from Peter Saleh with BTIG. Your line is open.

Great. Thanks for taking my question. I just wanted to come back to the North America guidance of 2% to 4% same-store sales. While I appreciate the confidence in getting there, I just want to know if you guys are seeing any change in the environment at all. I know it's highly promotional earlier this year. Or are you seeing an improvement in trends more recently that gives you some confidence in getting to those 2% to 4% numbers for the year?

Sure. Peter, it's Steve. And I'll just - I'll kind of reiterate. I don't think we're seeing any kind of differences in the competitive environment the first half of the year compared to what we're seeing in real-time now, and don't anticipate any real shift in the competitive promotional environment for the duration of 2017. With that being said, as we alluded to, there are a number of things that we are evaluating. We've made some changes to our media investment strategy. And we have the upside potential, as I alluded to before, the second year of the MLB, a better year anticipated with the NFL. And we also have, as you may be aware, an increase coming from our national marketing fund contribution rate that is currently at 4.25%, will go up to 4.5% starting in the fourth quarter of this year. So more investment dollars coming in, initiatives and promotions to drive the business and how we use those dollars as Brandon and Mike are working every day to evaluate what things are going to give us a better return. I think the last thing I would say is just the numbers - the numbers on the stacks. So we believe based on the two-year stack that we produced in the second quarter, we can replicate those kind of two-year stacks at a minimum in the next couple of quarters. And that gets us to that 2% to 4% kind of full year guidance number.

Got it, okay. And then, John, just wanted to ask if you plan to participate in this buyback in terms of selling some of your holdings?

Who is this, by the way?

It's Peter Saleh, John.

Peter, I'm not sure I'm understanding the question. I mean, I have no intention of selling stock. The only stock that I've sold the last couple of years was to either charity or we had to buy an airplane. And we - by the way, we looked to put an airplane on the books of the company, but it didn't work. It hurt the financials. It would have hurt the stock, and that's not what we're about. So the stock that I've sold the last year has gone to buying an aircraft. And I've known - in fact, I want more ownership, not less. If you look at the last 15 years, I've sold about $450 million worth of stock. So I don't need the money, and I can't find a better place to put my money than Papa John's. I believe in this management team. I believe in their leadership. We understand this business. We know there's ups and downs. Some years, it's going to run 2%. Some years, it's going to run 6%. But I have no intention of selling stock at this time. I want more stock. I want 40%. I want to hold 40% of Papa John's. I mean 40% of a $200 million EBITDA, I mean, that's crazy numbers. And we have that potential. So I totally believe in what we're doing. And I enjoy what I do. That's the main thing. Every day, I love going to work. And Steve and the team are great. And it makes me happy. I don't want to lay on a beach. I don't want to play golf. I want to work. What do I like to do? I like to work. And so - and it's not to the point where I'm calling Ritchie on the weekend or anything like that. I mean, we have a very healthy, I think, sustainable working environment, where we can all produce great results without being workaholics. I hope I answered your question.

Yes. No, very helpful. Last question for me. Lance, any sort of indication on the type of debt that you guys will enter into this year to increase the leverage and buy back the stock?

Yes. Pete, once we actually have the facilities in place, we'll give more details around that. But I'm not going to share the types of debt right now. We're going to tell you. We're going to - it will be bank debt. So I'll narrow it down a little bit for you. But we're not going to do anything real outrageous at 3 to 4x. We don't need to use some of the more exotic vehicles out there. So, we'll give you a lot of details around what that's going to look like once we actually execute and finalize the agreements.

Got it. Okay, thank you very much.

Thank you. I'm showing no further questions at this time. I would like to turn the call back to Mr. Lance Tucker for closing remarks.

All right. Catherine, thank you and thanks, as always, to everybody for participating in the call. And we'll look forward to doing this again in about three months. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.