What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-29 · 269 added, 300 removed, 340 unchanged (63% of the section changed)

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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 consists of 53 weeks.

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 31, 2023, there were 5,906 Papa John’s restaurants in operation, consisting of 648 Company-owned and 5,258 franchised restaurants.

At December 29, 2024, there were 6,030 Papa Johns restaurants in operation, consisting of 552 Company-owned and 5,478 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, approximately 50% of our North America revenues in each of the last two fiscal years were derived from sales to franchisees of various items including food and paper products from our Domestic Quality Control Centers (“QC Centers”), 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, printing and promotional items and information systems equipment, and 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 John’s system.

Recent Business Matters

In 2023, the Company focused on executing strategic priorities and building a foundation for long-term success, while navigating a dynamic macroeconomic environment.

Our progress and significant transactions during the year are described below.

Growth Strategy .

The Company delivered its eighteenth consecutive quarter of Global system-wide restaurant sales growth, fueled by continued product innovation and expansion both domestically and internationally.

We launched the “Back to BETTER” initiative in late 2022, which focused on improving operational execution at the restaurant level in order to drive better financial performance.

We have improved out-the-door times and overall customer satisfaction, and focused on increasing orders and optimization.

Running BETTER operations is intended to increase customer and employee satisfaction, as well as drive customer loyalty.

We are seeing improvement in our restaurant level operating margins, and we experienced a 3.4% increase in comparable sales for Domestic Company-owned restaurants for 2023.

Focusing on future growth, we recently announced “Back to BETTER 2.0,” which is comprised of long-term strategic initiatives focused on driving systemwide sales through enhancing North America national marketing investment and effectiveness and accelerating North America development.

In addition, we are evolving our Domestic Commissary business to provide cost savings for our franchisees and incremental profit for our business model.

• Product innovation:

Our menu and digital innovations are an important part of our long-term strategy to drive new customers and ticket sales.

We focus our menu innovations on products that add both value and variety for our customers but do not add complexity to our restaurant operations or to our supply chain.

Our menu innovation calendar is expansive, flexible and differentiated and allows us to adjust our offerings depending on what customers want – whether that is extending a Limited-Time-Offer or building upon existing platforms.

We believe our digital innovations, like our website, digital app, third-party aggregator partnerships and Papa Call call centers are a differentiator for our customers and provide attractive channels that promote customer retention and help us grow our customer base.

In 2023, approximately 85% of our Domestic transactions came through these digital channels.

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.

Recent Developments and Trends

In 2024, the Company focused on strategic transformation priorities and building a foundation for long term success, while navigating a challenging macroeconomic environment.

We continue to put our efforts and investments towards initiatives that improve our price/value perception and improve our digital and loyalty experience to increase conversion and reduce friction within the customer experience.

Several key areas of focus include:

• Marketing strategy:

We are activating a new marketing strategy in 2024.

Based on a comprehensive review of our creative and media strategy, we have identified opportunities to improve audience selection, offer differentiated category solutions, improve marketing return on ad spend, sustain loyalty and create cultural buzz.

Correspondingly, our franchisees have voted to increase the contribution rate to PJMF by 20%, or 100 basis points of sales.

This change is intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver.

At the same time, we have made local marketing optional for franchisees, resulting in a net decrease in required marketing spend and an opportunity to increase the overall profitability of restaurants.

In 2024 we activated a new marketing strategy that increased the PJMF contribution rate and made local marketing optional for franchisees, which became effective in the second quarter.

This strategy shift was intended to increase the productivity of franchisees’ marketing contributions by leveraging the scale that national investments deliver.

Additionally, in the first half of 2024 we launched a new brand campaign “Better Get You Some” that was part of our deepened commitment to, and investment in, our new marketing strategy.

Our 2024 investments focused on improving audience segmentation, building consumer loyalty and driving cultural relevance.

We also evolved our messaging and promotions to showcase our BETTER INGREDIENTS.

BETTER PIZZA.

at appropriately-valued price points to improve our overall value perception.

We believe if we maintain an appropriate balance of value offerings and premium products, it will lead to improving sales trends over time.

In 2025, we anticipate spending up to an additional $25 million in marketing investments, including investments in our customer relationship management platform and our loyalty program, when compared with 2024.

This incremental spend will focus on 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 actively identifying opportunities for customers to more quickly access information, streamline the ordering journey and improve the overall user experience.

In 2024, we focused on enhancing our mobile applications and website to improve call to actions and navigation, elevate imagery and more prominently feature our loyalty rewards program.

In the fourth quarter, we also updated our loyalty program to allow members to unlock redeemable rewards in the form of “Papa Dough” faster, activating our members at higher rates to help drive transactions and frequency.

We believe that converting points to Papa Dough in smaller increments to members can unlock rewards faster for more immediate customer gratification.

In 2025, we will continue evolving our loyalty and digital experiences as they must be flexible and easy to understand to create strong, emotionally connected consumer engagement that seamlessly integrates with our creative, paid, earned and owned messaging.

• Domestic commissary growth strategy:

We are evolving our commissary business to drive profitable growth and overall supply chain productivity that provides cost savings and incremental profit for the system.

Effective in the first quarter of 2024, we increased the fixed operating margin that Domestic QC Centers charge by 100 basis points, and we will continue to increase the margin by the same increment in each of the next three years, moving from 4% in 2023 to 8% in 2027.

The increase to the fixed operating margin benefited North America Commissary revenue and operating income in 2024.

To mitigate this cost for franchisees, we have offered new opportunities for franchisees to earn annual incentive-based rebates as they increase volume and open new restaurants.

Franchisees who increase case-volume purchases at the highest volume growth could realize target market rates lower than the prior 4% rate.

Additionally, we expect the incremental volume driven by increased marketing and additional development will reduce the shared supply chain costs across the system over time.

Lastly, we will be focused on driving continued productivity throughout the supply chain through improved operations and supplier relationships.

• Development strategy:

Our expanding development pipeline is also a key long-term growth driver as we believe there is significant opportunity to offer our differentiated, premium position to more customers globally and domestically.

Development is a key long-term growth driver as we believe there is significant opportunity to offer our quality product to more customers globally and domestically.

In 2024, we expanded our global footprint by 2.1%, with 124 net new units comprised of 81 net unit openings in North America and 43 net unit openings in International markets.

To pursue the significant opportunities we have identified in the U.S.

and accelerate development in 2024 and beyond, we have designed a new development incentive intended to deliver higher restaurant-level profit margins for new restaurants opened in 2024 through a waiver of PJMF contributions during the first five years of operations.

To pursue the opportunities we have identified in the United States and accelerate development, we introduced a new development incentive intended to deliver higher restaurant-level profit margins for new restaurants opened in 2024 through a waiver of PJMF contributions during the first five years of operations.

We are also offering a three-year waiver of PJMF contributions for new restaurants opened in 2025.

This new incentive is intended to improve profitability for franchisees, add scale in key markets and attract growth-driven franchisees.

We are pleased with the performance of our recently opened restaurants in North America and expect net new unit development for North America to increase by more than 20% in 2024 relative to 2023 net unit openings.

From an International perspective, we are approaching 2024 with caution taking into account the ongoing dynamic geopolitical environment.

In addition, this year we anticipate an increased number of strategic restaurant closures in certain markets which will likely have an impact on our ability to execute on our net new unit development goals in the near-term.

In 2024, we expect gross openings of more than 100 new International restaurants.

Additionally, we will evaluate making strategic restaurant closures in markets to improve marketplace health and exit unprofitable restaurants.

As such, our anticipated gross openings could be offset by the closure of underperforming Company-owned and franchised restaurants to enhance long-term profitability.

• Domestic commissary growth strategy :

To drive profitable growth and overall supply chain productivity that provides cost savings and incremental profit for the system, we are evolving our commissary business.

Beginning in 2024, we will increase the fixed operating margin that Domestic QC Centers charge by 100 basis points in each of the next four years, moving from 4% in 2023 to 8% in 2027.

In total, this change should equate to approximately 100 basis points of cost at the restaurant level.

To mitigate this cost for franchisees, we will offer new opportunities for franchisees to earn annual incentive-based rebates as they increase volume and open new restaurants.

Franchisees who increase case-volume purchases at the highest volume growth could realize target market rates lower than the current 4% rate.

Additionally, we expect the incremental volume driven by increased marketing and additional development will reduce the shared supply chain costs across the system.

Lastly, we will be focused on driving continued productivity throughout the supply chain through improved operations and supplier relationships.

• International strategy:

In the fourth quarter of 2023, the Company launched several initiatives as part of the International Transformation Plan described in Note 16.

Restructuring of “Notes to Consolidated Financial Statements” to evolve its international business structure, which resulted in charges of $2.2 million in the fourth quarter.

These initiatives include the following:

◦ Establish International Regional Hubs – To deliver a frictionless, locally-valued offering with a recognizable and consistent customer experience, we are establishing hubs in our key regions – APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America.

These regional hubs will be led by experienced General Managers and their teams who will partner with franchisees to create a holistic strategy to boost performance in their markets.

These teams will align global best practices in operations, marketing and technology with local preferences and needs to accomplish our long-term objective of increasing market share in key markets around the world.

◦ Increase Technology Investments – To further our ability to deliver impactful innovations, targeted marketing, and enhanced value in key international markets, we are increasing our investment in consumer-facing technology, digital infrastructure and enhanced reporting.

By investing in expanded ordering capabilities through its website and app and leveraging analytics, we expect to improve purchase conversion, increase customer retention and deliver faster consumer insights to franchisees.

◦ Optimize UK Business Model – Over the past two years, the Papa Johns restaurants in the UK have experienced declines in sales.

As we have navigated a dynamic economic environment and worked towards repositioning the market, we established a Company-owned restaurant portfolio in the UK, acquiring 118 restaurants in the second and third quarters of 2023.

These Company-owned restaurants incurred operating losses in 2023.

In order to set up our largest international market for long-term success, we will continue to focus on driving profitability and strengthening our franchisee base within the UK.

As a result, multiple low-performing franchised restaurants were closed in the fourth quarter of 2023.

In February 2024, our Board of Directors approved the planned closure of approximately 50 underperforming Company-owned restaurants in the United Kingdom during the first six months of 2024.

As a result of the planned closures, the Company expects to incur restructuring charges of approximately $10.0 million to $15.0 million, which we expect will primarily be comprised of non-cash lease and fixed asset impairment charges and will be recognized during 2024 within our International segment.

We are continuing to evaluate our restaurant portfolio in the UK, which may result in additional strategic restaurant closures or divestitures.

Future closures would likely result in additional restructuring charges comprised primarily of lease, loan, and fixed asset impairment, though the amounts and nature of future expenses are currently not estimable as specific actions to effect those closures have not yet been determined.

The Company currently expects any resulting restructuring costs to be recognized in 2024 and 2025.

See Note “16.

Restructuring” and Note “25.

Subsequent Events” of “Notes to Consolidated Financial Statements for additional details.

Significant 2022 transactions

Refranchising .

In 2022, the Company sold its 51 percent controlling interest in a joint venture between Papa Johns and Blue and Silver Ventures, Ltd.

(“Blue and Silver Ventures”).

Sun Holdings, Inc.

(“Sun Holdings”), a leading multi-brand franchisee operator and one of Papa John’s largest Domestic franchise partners, assumed control of the 90 Papa John’s restaurants in Texas that operated under the joint venture.

By strategically refranchising its controlling interests in its joint venture with Blue and Silver Ventures to Sun Holdings, the Company provided Sun Holdings substantial scale to support new restaurant openings under its current, 100-restaurant development agreement with the Company.

This commitment is in addition to the 90 refranchised restaurants.

As a result, the deal is expected to accelerate the Company’s Domestic development, contributing to long-term earnings via high-margin franchise royalty growth.

The restaurants were consolidated in the Company’s results through the date of the transaction, and their results are included in the Company’s North America franchise royalties and fees beginning March 29, 2022.

This incentive is intended to improve profitability for franchisees, add scale in key markets and attract growth-driven franchisees.

International Transformation Plan

In December 2023, the Company announced international transformation initiatives (“International Transformation Plan”) 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.

Total estimated pre-tax costs associated with the International Transformation Plan are expected to be approximately $30 million to $35 million (inclusive of the $29.5 million incurred through December 29, 2024), the remainder of which we expect to be recognized in 2025.

See “Note 16.

Divestitures” of “Notes to Consolidated Financial Statements” for further information.

Suspension of Franchisee Support in Russia.

The Company has no Company-owned restaurants in Russia or Ukraine.

At the end of fiscal year 2021, 188 franchised restaurants were located in Russia, all of which were operated and supplied through a master franchisee.

As of March 2022, Papa John’s suspended its corporate operations and support for franchised restaurants in Russia, and fully reserved all receivables from the aforementioned master franchisee.

The Company recognized $17.4 million in one-time, non-cash charges related to reserves for certain loans and impairments of reacquired franchised rights due to the conflict in Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million.

All assets related to the franchised operations in Russia have been fully reserved or impaired, so there are no additional Russia related charges for reserves, write-offs, or impairments of amounts recorded on the Consolidated Balance Sheets.

Restructuring” of “Notes to Consolidated Financial Statements” for additional details.

During 2024, the Company made significant progress in executing the International Transformation Plan:

• We evaluated and optimized our restaurant portfolio in the UK, which resulted in the closure of 43 underperforming UK Company-owned restaurants and 30 franchised locations.

We also completed the refranchising of 60 formerly Company-owned restaurants to primarily existing franchisees and continue to operate 13 Company-owned restaurants in the UK.

We have completed substantially all of the strategic restaurant closures in the UK market and the Company’s efforts have turned towards growth opportunities and mitigating closure-related costs as we complete the optimization of the portfolio.

We expect to complete the remaining aspects of the UK optimization plan during 2025.

• As a result of these actions, we saw year-over-year improvement in the profitability of the UK market in the third and fourth quarters, and we continue to optimize the region through exiting leases and other contracts as well as transforming our operations to increase efficiency and effectiveness.

• We established hubs for our key regions – APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America.

These regional hubs are led by experienced General Managers and their teams that partner with franchisees to drive franchisee performance in their markets.

These teams help align global best practices in operations, marketing and technology with local preferences to accomplish our long-term objective of increasing market share in key markets around the world.

Presentation of Financial Results

Financial Statement Updates

The Company has implemented several financial statement changes in this Annual Report on Form 10-K, concurrent with the adoption of Accounting Standard Update (“ASU”) 2023-07, “ Improvements to Reportable Segment Disclosure s.” These changes evolve and modernize our financial statements and footnotes to increase transparency and better reflect management’s key performance metrics.

The Consolidated Statements of Operations have been reconfigured to classify revenues and expenses based on the nature of the underlying activities without regard to operating segment.

This reconfiguration and the resulting reclassifications did not change previously reported Total revenues, Total costs and expenses, Operating income or Net income for any period.

The Consolidated Statements of Cash Flows include reclassifications to a new line item that include the net operating cash flows of the consolidated advertising funds.

The reclassifications did not change Net cash provided by operating activities, Net cash used in investing activities or Net cash used in financing activities for any period.

Presentation changes to the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows have been applied retrospectively, and as such, the results from the years ended December 31, 2023 and December 25, 2022 have been reclassified for consistency with the current year presentation.

Additionally, during the year ended December 29, 2024, the Company updated its internal cost allocation methodology to better reflect current levels of time and effort spent managing our different segments.

These updates resulted in a higher allocation of previously unallocated corporate expenses to primarily the North America franchising and International segments.

This update in methodology does not impact total reported expenses, and has been implemented prospectively beginning with the year ended December 29, 2024.

The comparative information has not been restated.

Critical Accounting Policies and Estimates

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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 more fully described in “Note 2.

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.”

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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.

Retention limits range up to $0.5 million.

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.

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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 recorded in Prepaid expenses and other current assets and Other assets 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 $45.2 million and $34.5 million as of December 29, 2024 and December 31, 2023, 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 highly complex due to the significant uncertainty in the potential value of reported claims and the number and potential value of incurred but not reported claims.

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

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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, communication assets, 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).

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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, as this represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

We perform these assessments at the operating market level for Domestic restaurants and at the restaurant level for our UK Company-owned restaurants, 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 and whether that is an indicator of future performance.

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 did not record any impairment losses on property and equipment during 2023 or 2021, and recognized lease impairment charges of $0.9 million in 2022 related to the termination of a specific and significant franchisee in the UK.

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.

During 2022, we recognized lease impairment charges of $0.9 million related to the termination of a specific and significant franchisee in the UK.

We did not record any impairment losses on property and equipment during 2023.

Allowance for Credit Losses on Franchisee Notes Receivable

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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 has also provided long-term financing to certain franchisees with royalty payment plans.

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.

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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).

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.

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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 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).

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Global Restaurant Sales and Unit Information

“Comparable sales” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods.

Comparable sales excludes sales of restaurants that were not open during both the current and prior fiscal periods and franchisees for which we suspended corporate support.

“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 total system restaurant sales year-over-year.

Global system-wide restaurant sales and global system-wide sales growth (decline) exclude franchisees for which we suspended corporate support.

“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.

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 North America, International and global restaurant and comparable sales growth (decline) and Global system-wide restaurant sales 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.

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.

Franchise restaurant and comparable sales growth information is also useful for comparison to industry trends and evaluating the strength of our brand.

Management believes the presentation of franchise 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.

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.

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Total comparable sales growth (decline) (3.1) % (0.1) %

System-wide restaurant sales growth (b) :

System-wide restaurant sales growth (decline) (b) :

Domestic Company-owned restaurants (4.7) % 6.7 %

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North America restaurants (4.2) % 4.1 %

International restaurants (c)

Total global system-wide restaurant sales growth (c)

International restaurants 0.4 % 7.7 %

Total global system-wide restaurant sales growth (decline) (3.1) % 5.0 %

______________________________

(a) Comparable sales growth (decline) in fiscal year 2023 includes a 52-week comparison to fiscal year 2022.

(b) System-wide restaurant sales growth includes 53 weeks in fiscal year 2023.

(a) Comparable sales growth (decline) includes a 52 week comparison for fiscal year 2024 to fiscal year 2023.

(b) System-wide restaurant sales growth (decline) includes 53 weeks in fiscal year 2023.

Restaurant Progression Year Ended

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Acquired — 118

Closed (43) —

Refranchised (61) (1)

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Opened 198 234

Closed (112) (83)

Refranchised 61 1

Suspended (a)

End of period (b)

End of period 2,503 2,356

Total restaurants – end of period 6,030 5,906

Full year net restaurant growth (a)

______________________________

(a) As previously disclosed, the Company has suspended corporate support for all franchised restaurants located in Russia.

These suspended restaurants are excluded from net unit growth calculations.

(b) 2022 full year restaurant activity has been adjusted from previous presentations, as eight International franchised locations were reclassified as closed locations following a review of temporary restaurant closures.

Full year net restaurant growth 124 208

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 consists of 53 weeks.

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

Financial Statement Updates

As noted above in “Presentation of Financial Results,” the Company has implemented changes to the presentation and classification of its financial statements in this Form 10-K.

Please see the “Presentation of Financial Results” section for details on the changes.

The following table sets forth the various components of Revenues from the Consolidated Statements of Operations.

(Dollars in thousands) December 29, 2024 December 31, 2023 Increase

Domestic Company-owned restaurant sales $ 726,362 $ 708,389 2.5 %

North America franchise royalties and fees 144,550 137,399 5.2 %

North America commissary revenues 852,361 869,634 (2.0) %

International revenues 157,187 129,903 21.0 %

Company-owned restaurant sales $ 724,666 $ 760,825 (4.8) %

Franchise royalties and fees 187,032 194,987 (4.1) %

Commissary revenues 899,664 924,648 (2.7) %

Other revenues 83,682 98,037 (14.6) %

Advertising funds revenue 164,343 157,216 4.5 %

Total revenues $ 2,059,387 $ 2,135,713 (3.6) %

The comparability of results between 2023 and 2022 is impacted by the acquisition of 118 formerly franchised restaurants in the UK in the second and third quarters of 2023 (the “UK franchisee acquisitions”) and the refranchising of 90 restaurants during the second quarter of 2022 (the “2022 refranchising”).

The UK franchisee acquisitions impact the composition of International revenues and the results of the International segment.

Additionally, the 2022 refranchising resulted in 90 restaurants moving from Domestic Company-owned restaurants into North America franchising, effective as of the second quarter of 2022, impacting revenues for both of these segments.

The comparability of 2024 results and 2023 results is impacted by the following:

• Results for the year ended December 29, 2024 are not directly comparable with the results for the year ended December 31, 2023, as year-over-year comparisons are affected by an additional week of operations in the fourth quarter of 2023 due to the 53-week fiscal year in 2023.

The estimated impact of the Company’s 53rd week on 2023 results has been highlighted in the discussion below to enhance comparability between the periods.

• The acquisition of 118 formerly franchised restaurants in the UK in the second and third quarters of 2023 (the “UK franchisee acquisitions”), and the subsequent closure of 43 and refranchising of 60 of these restaurants during the second and third quarters of 2024 impacts the comparability of revenues and expenses from the International segment for 2023 and 2024.

After prior disposals of two mobile restaurants, the Company operated 13 UK Company-owned restaurants subsequent to July 1, 2024.

See “Note 24.

Acquisitions” and “Note 16.

Divestitures” of the “Notes to Consolidated Financial Statements” for additional information on these transactions.

Additionally, results for the year ended December 31, 2023 are not directly comparable with the results for the year ended December 25, 2022, as year-over-year comparisons are affected by an additional week of operations in the fourth quarter of 2023 due to the 53-week fiscal year in 2023.

The estimated impact of the Company’s 53rd week on 2023 results has been highlighted in the discussion below to enhance comparability between the periods.

Total revenues increased $33.6 million, or 1.6% to $2.14 billion for the year ended December 31, 2023, as compared to the prior year.

Revenues for the 53rd week of operations in 2023 contributed approximately $41 million, or an increase of 1.9%.

Other increases include a $31 million increase from our Domestic Company-owned restaurants, a $3 million increase in North America franchise royalties and a $24 million increase in International revenues primarily related to the UK franchisee acquisitions.

These increases were offset by a $44 million decrease in North America commissary revenues reflecting lower commodity prices and transaction volume in 2023, a $3.4 million decrease primarily resulting from the sale of Preferred Marketing and a $17.8 million decrease resulting from the 2022 refranchising.

Domestic Company-owned restaurant sales increased $18.0 million, or 2.5% for the year ended December 31, 2023 compared to the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $14 million, and 2022 included revenues of $27.3 million from the restaurants that were part of the 2022 refranchising.

Excluding the impact of the 2022 refranchising and the additional week in 2023, Domestic Company-owned restaurant sales would have increased $31 million, or 4.6%, primarily due to increased comparable sales of 3.4% and equivalent unit growth of 1.0% for the year ended December 31, 2023.

North America franchise royalties and fees increased $7.2 million, or 5.2% for the year ended December 31, 2023 compared to the prior year.

Restructuring” of the “Notes to Consolidated Financial Statements” for additional information on these transactions.

Total revenues decreased $76.3 million, or 3.6% to $2.06 billion for the year ended December 29, 2024, as compared to the prior year.

Revenues for the 53rd week of operations in 2023 contributed approximately $41 million to prior year total revenues.

Excluding the impact of the additional week in 2023, Total revenues decreased approximately $35 million, or 1.7%.

Company-owned restaurant sales, which include sales from both Domestic and International Company-owned restaurants, decreased $36.2 million, or 4.8% for the year ended December 29, 2024 compared to the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $15 million.

The 2023 increase resulting from the 2022 refranchising was $1.4 million.

Excluding the 2022 refranchising and the additional week, North America franchise royalties and fees would have increased approximately $3 million, or 2.0% for the year ended December 31, 2023 primarily due to positive comparable sales of 0.1%, equivalent unit growth of 2.5% and fewer royalty waivers in 2023.

North America franchise restaurant sales, excluding the impact of the 2022 refranchising, increased 3.4% to $3.09 billion ($3.03 billion on a 52-week basis) for the year ended December 31, 2023 compared to the prior year.

Excluding the impact of the additional week in 2023, Company-owned restaurant sales would have decreased approximately $21 million.

This decrease was primarily due to a decrease in comparable sales of 4.9% for our Domestic Company-owned restaurants that was partially offset by approximately $5 million of additional deferred revenue recognized during 2024 related to lowering the redemption thresholds for our Papa Rewards program, which allowed consumers to redeem rewards more quickly.

Additionally, Domestic equivalent units grew 3.4% for the year ended December 29, 2024.

Franchise royalties and fees, which include revenues generated from both North American and International franchisees, decreased $8.0 million, or 4.1% for the year ended December 29, 2024 compared to the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $3 million.

Excluding the additional week, Franchise royalties and fees would have decreased approximately $5 million.

The decrease was primarily due to declines in North America franchised and International comparable sales of 3.5% and 0.8%, respectively.

This was partially offset by North America equivalent unit growth of 4.6% and fewer royalty waivers in 2024 as compared to 2023.

North America franchise restaurant sales, excluding the impact of foreign currency fluctuations, decreased 4.1% to $2.97 billion for the year ended December 29, 2024 compared to the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $65 million.

Excluding the impact of the additional week in 2023 and foreign currency fluctuations, North America franchise restaurant sales decreased 2.0%.

North America franchise restaurant sales are not included in Company revenues;

however, our North America franchise royalties are derived from these sales.

North America commissary revenue decreased $17.3 million or 2.0% for the year ended December 31, 2023 compared to the prior year.

The benefit from the 53rd week of operations was approximately $19 million, or 2%.

The impact of the

2022 refranchising was an increase in 2023 of $8.2 million.

Excluding the impact of the 2022 refranchising and the 53rd week, North America commissary revenue decreased approximately $44 million, or a decline of 5.0% for the year ended December 31, 2023.

The decline in North America commissary revenues was primarily a result of lower commodity prices, primarily poultry, cheese and wheat, in addition to lower volumes.

International revenues increased $27.3 million, or 21.0% for the year ended December 31, 2023 compared to the prior year.

however, our franchise royalties and fees are derived from these sales.

International franchise restaurant sales decreased $22.7 million to $1.16 billion for the year ended December 29, 2024 compared to $1.19 billion for the prior year.

The benefit of the 53rd week of operations in 2023 was approximately $25 million.

The impact of the UK franchisee acquisitions was a net increase of approximately $20.3 million in 2023, representing sales attributable to the acquired UK franchisee restaurants less prior year franchise royalty and food distribution revenue generated from the UK formerly franchised restaurants.

Excluding the impact of the UK franchisee acquisitions and the additional week, revenues would have increased approximately $3 million, or 2.9% primarily due to new unit development in 2023 and positive foreign currency fluctuations.

These increases were partially offset by a comparable sales decline of 3.1% in International markets.

International franchise restaurant sales increased $21.1 million to $1.19 billion ($1.16 billion on a 52-week basis) for the year ended December 31, 2023 compared to $1.17 billion for the prior year.

Excluding the impact of the UK franchisee acquisitions, the previously disclosed franchisee suspended restaurants, and foreign currency fluctuations, International franchise restaurant sales increased $88.3 million or 7.9% for the year ended December 31, 2023.

As mentioned above, the UK franchisee acquisitions in 2023 and the UK restaurant closures and refranchising transactions in the second and third quarters of 2024 impacted the comparability of International franchise sales earned in each period.

Excluding the impact of the UK franchisee acquisitions, the additional week, and foreign currency fluctuations, International franchise restaurant sales increased $41.4 million or 3.6% for the year ended December 29, 2024.

International franchise restaurant sales are not included in Company revenues;

however, our International royalty revenue is derived from these sales.

Other revenues, which primarily includes our national marketing fund, online and mobile ordering business and our previously wholly-owned print and promotions subsidiary, decreased $1.5 million, or 0.6% in 2023.

The benefit of the 53rd week of operations was approximately $2 million, and the impact of the UK franchisee acquisitions decreased Other revenues by $3.2 million in 2023.

Excluding the impact of the UK franchisee acquisitions and the additional week, Other revenues would have been flat as increased technology services from higher comparable sales and equivalent units were offset by the sale of our previously wholly-owned print and promotions subsidiary, Preferred Marketing, in the fourth quarter of 2023.

however, our franchise royalties and fees are derived from these sales.

Commissary revenues, which includes sales from our North American and International QC Centers, decreased $25.0 million or 2.7% for the year ended December 29, 2024 compared to the prior year.

The benefit from the 53rd week of operations in 2023 was approximately $20 million.

Excluding the impact of the additional week in 2023, Commissary revenues decreased approximately $5 million for the year ended December 29, 2024.

The decline in Commissary revenues was primarily a result of lower volumes.

This was partially offset by the previously-disclosed increase to the fixed operating margin charged by Domestic QC Centers that took effect during the first quarter of 2024.

Other revenues, which primarily includes revenues derived from our online and mobile ordering business and our previously wholly-owned print and promotions subsidiary, decreased $14.4 million, or 14.6% in 2024.

The benefit of the 53rd week of operations in 2023 was approximately $1 million.

Excluding the impact of the additional week in 2023, Other revenues would have decreased by approximately $13 million, as our 2023 results included $16.1 million of revenues from Preferred Marketing, our previously wholly-owned print and promotions subsidiary which was sold in the fourth quarter of 2023.

See “Note 22.

Divestitures” of “Notes to Consolidated Financial Statements” for additional information.

This was partially offset by higher revenues generated from technology services due to an increase in the technology fee charged to franchisees during the second half of 2024.

Advertising funds revenue, which includes the operations of PJMF, local marketing funds and International marketing funds, increased $7.1 million or 4.5% in 2024.

Beginning with the second quarter of 2024, PJMF increased its contribution percentage, while local marketing was made optional.

The change in mix to our marketing contributions, along with more franchised locations during 2024, increased Advertising funds revenue in 2024 by approximately $10.1 million.

This was partially offset by a 3.5% decline in North America franchised comparable sales.

Costs and Expenses

The following table sets forth the various components of Costs and expenses from the Consolidated Statements of Operations, expressed as a percentage of the associated revenue component.

The following table sets forth the various components of Costs and expenses from the Consolidated Statements of Operations:

(Dollars in thousands) Year Ended

December 31, 2023 % of Related

Revenues December 25, 2022 % of Related

Revenues Increase (Decrease) in % of Revenues

December 29, 2024 December 31, 2023

Costs and expenses:

Operating costs (excluding depreciation and amortization shown separately below):

Domestic Company-owned restaurant expenses $ 587,889 80.9 % $ 585,307 82.6 % (1.7) %

North America commissary expenses 787,554 92.4 % 811,446 93.3 % (0.9) %

International expenses 103,198 65.7 % 76,001 58.5 % 7.2 %

Other expenses 235,483 92.3 % 238,810 93.0 % (0.7) %

Cost of sales $ 1,478,426 $ 1,558,438

General and administrative expenses 190,515 208,083

Depreciation and amortization 69,407 64,090

Advertising funds expense 164,335 157,960

Total costs and expenses 1,902,683 1,988,571

Refranchising and impairment loss — — % (12,065) (0.6) % 0.6 %

Operating income $ 156,704 $ 147,142

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This decrease in total costs and expenses, as a percentage of revenues, was primarily due to the following:

Domestic Company-owned restaurant expenses were $587.9 million, or 80.9% of related revenues in 2023, compared to expenses of $585.3 million, or 82.6% of related revenues for the prior year.

The expenses, as a percentage of revenues, decreased 1.7% in 2023 primarily due to a reduction in food costs attributable to lower commodities prices.

North America commissary expenses were $787.6 million, or 92.4% of related revenues in 2023, compared to $811.4 million, or 93.3% of related revenues, for the prior year.

The expenses, as a percentage of revenues, decreased 0.9% primarily due to lower commodities prices, principally related to poultry, cheese and wheat costs.

International expenses were $103.2 million, or 65.7% of related revenues, for 2023 compared to $76.0 million, or 58.5% of related revenues for the prior year.

International expenses increased in 2023 as a result of the UK franchisee acquisitions, partially offset by declining commodity prices at our International commissary.

Other expenses were $235.5 million, or 92.3% of related revenues in 2023, as compared to $238.8 million, or 93.0% of related revenues for the prior year.

General and Administrative Expenses General and administrative (“G&A”) expenses were $210.4 million, or 9.8% of total revenues for 2023 compared to $217.4 million, or 10.3% 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,

advertising costs related to Company-owned restaurants, and insurance expense.

Cost of sales was $1.48 billion in 2024, a decrease of $80.0 million, or 5.1%, from the prior year.

The impact of the 53rd week of operations in 2023 was approximately $31 million.

Excluding the impact of the additional week, Cost of sales would have decreased by approximately $49 million.

The decrease in cost of sales primarily relates to lower volumes within our North America commissary segment as year-over-year comparable transactions were down approximately 3% for our franchisees.

In addition, Cost of sales were lower in our Domestic Company-owned restaurants segment primarily relating to lower food and labor costs as comparable transactions were down approximately 4.5% year-over-year and advertising expense decreased as reduced local marketing reserves and lower spend in the first half of 2024 more than offset incremental marketing spend in the second half of 2024.

Cost of sales by segment for the years ended December 29, 2024 and December 31, 2023 were as follows:

(Dollars in thousands) December 29, 2024 December 31, 2023 Increase

Domestic Company-Owned Restaurants $ 611,685 $ 637,994 (4.1) %

International 104,138 115,499 (9.8) %

NA Commissaries 934,980 966,653 (3.3) %

Total segment cost of sales 1,650,803 1,720,146 (4.0) %

All other (a)

51,347 68,880 (25.5) %

Intersegment cost of sales (223,724) (230,588) (3.0) %

Total cost of sales $ 1,478,426 $ 1,558,438 (5.1) %

______________________________

(a) “ All other” refers to all other business units that do not meet the quantitative thresholds for determining reportable segments, which primarily includes our online and mobile ordering business and our marketing funds and are not operating segments.

General and administrative expenses (“G&A expenses”) were $190.5 million, or 9.3% of total revenues for 2024 compared to $208.1 million, or 9.7% of total revenues for the prior year.

G&A expenses consisted of the following (in thousands):

December 29, 2024 December 31, 2023

Administrative expenses (a)

$ 197,959 $ 180,159

UK re-positioning and acquisition-related costs (b)

International restructuring costs (c)

Middle East related costs (d)

Refranchising and impairment losses (e)

Legal settlement accruals (f)

Other costs (g)

Other general expenses, net 2,515 998

Administrative and other general expenses, net $ 199,036 $ 198,200

Gain on sale of QC Center properties (a)

International restructuring costs (b)

Other costs (c)

UK re-positioning and acquisition-related costs (d)

General and administrative expenses $ 190,515 $ 208,083

______________________________

(a) The increase in administrative expenses of $17.8 million for the year ended December 31, 2023 compared to the prior year was primarily due to higher incentive compensation linked to Company performance, higher labor and benefit costs, professional fees and additional costs for our franchisee operators conference held in 2023.

(b) Represents costs associated with repositioning the UK portfolio of $2.1 million in 2023 and $5.1 million in 2022, primarily related to lease and loan impairments and related costs.

In 2023, we also incurred $2.1 million of acquisition and transition costs related to the UK franchisee acquisitions.

During the period, costs incurred related to the restructuring include $1.5 million in severance and compensation costs and $0.7 million in consulting and professional fees.

See “Note 16.

Restructuring” to our “Notes to Consolidated Financial Statements” for additional details.

(d) Represents a one-time non-cash charge of $0.9 million recorded in the fourth quarter of 2023 related to the reserve of certain accounts receivable related to the conflict in the Middle East, which were recorded as G&A expense.

(e) Represents a one-time non-cash charge of $14.6 million recorded in the first quarter of 2022 related to the reserve of certain loans and impairment of reacquired franchised rights related to the conflict in Ukraine and subsequent international government actions and sanctions.

(f) Represents previously disclosed litigation recorded in General and administrative expenses.

(a) Represents pre-tax gain on sale of Texas and Florida QC Center properties, net of transaction costs.

See “Note 22.

Litigation, Commitments and Contingencies” to our “Notes to Consolidated Financial Statements” for additional information.

(g) Represents severance and related costs associated with the transition of certain executives.

Depreciation and Amortization Depreciation and amortization expense was $64.1 million, or 3.0% of revenues in 2023, as compared to $52.0 million, or 2.5% of revenues for the prior year, primarily due to an increase in capital expenditures for our technology platforms and new restaurants.

Refranchising and Impairment Loss We did not record any refranchising and impairment loss for the year ended December 31, 2023, following a $12.1 million refranchising and impairment loss in prior year.

The 2022 activity was

comprised of an $8.4 million loss on our 2022 refranchising, an impairment loss of $2.8 million for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and lease impairment charges of $0.9 million related to the termination of a significant franchisee in the UK.

Divestitures”.

(b) Represents costs associated with the International Transformation Plan.

See “Note 16.

Divestitures” of “Notes to Consolidated Financial Statements” for additional information on the 2022 refranchising and the charge related to the conflict in Ukraine.

Restructuring”.

(c) Represents non-cash impairment and remeasurement charges related primarily to fixed and intangible assets from the refranchising of 15 Domestic Company-owned restaurants for the year ended December 29, 2024.

Refer to “Note 22.

Divestitures” for further details.

For the year ended December 31, 2023, $2.0 million of severance and related costs associated with the transition of certain executives, $0.9 million one-time non-cash charge related to the reserve of certain accounts receivable related to the conflict in the Middle East, and $0.6 million accrual related to certain legal settlements are included.

(d) Represents costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of restaurants from franchisees.

Depreciation and amortization expense was $69.4 million, or 3.4% of revenues in 2024, as compared to $64.1 million, or 3.0% of revenues for the prior year, primarily due to higher depreciation expense related to our investments in technology platforms.

Advertising funds expense was $164.3 million, or 100.0% of advertising revenues in 2024, as compared to $158.0 million, or 100.5% 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

The increase was primarily due to higher advertising spend resulting from the previously discussed increase in contributions to the national marketing fund during 2024.

Operating Income by Segment

Operating income is summarized in the following table on a reporting segment basis.

Adjusted operating income, a non-GAAP measure, is presented below.

Operating income and Adjusted operating income are summarized in the following table on a reporting segment basis.

Adjusted operating income is a non-GAAP measure.

See “Non-GAAP Measures” for a reconciliation to the most comparable U.S.

3 unchanged sentences

Year Ended December 29, 2024 Year Ended December 31, 2023

Adjusted Reported (a)

Adjusted Reported

Adjusted US GAAP (a)

Adjusted US GAAP

(Decrease) Adjusted

3 unchanged sentences

International (13,505) 27,273 13,768 11,766 7,289 19,055 (25,271) (5,287)

All others 10,116 — 10,116 10,084 — 10,084 32 32

All other 4,065 — 4,065 10,116 — 10,116 (6,051) (6,051)

Unallocated corporate expenses (51,054) — (51,054) (85,353) 2,594 (82,759) 34,299 31,705

5 unchanged sentences

Operating income was $156.7 million for the year ended December 29, 2024 compared to $147.1 million for the prior year, an increase of $9.6 million.

Adjusted operating income was $157.0 million for the year ended December 31, 2023 compared to $157.5 million for the prior year, a decrease of $0.5 million, or 0.3%.

The 53rd week contributed approximately $8 million to operating income in 2023.

The changes in adjusted operating income compared to the prior year were primarily due to the following:

• Domestic Company-owned restaurants increased $9.1 million for the year ended December 31, 2023.

The 53rd week of operations contributed approximately $4 million to operating income in 2023.

The impact of the 2022 refranchising decreased the segment’s operating income by $2 million for the year ended December 31, 2023.

Excluding the impact of the additional week and the 2022 refranchising, Domestic Company-owned restaurants would have increased approximately $8 million primarily due to comparable sales growth of 3.4%, partially offset by higher benefits and utility expenses.

• North America franchising increased $5.9 million for the year ended December 31, 2023.

Adjusted operating income was $148.2 million for the year ended December 29, 2024 compared to $157.0 million for the prior year, a decrease of $8.8 million.

The 53rd week contributed approximately $8 million to operating and adjusted operating income in 2023.

The changes in operating income and adjusted operating income compared to the prior year were primarily due to the following:

• Domestic Company-owned restaurants operating income decreased $14.3 million for the year ended December 29, 2024.

The 53rd week of operations contributed approximately $4 million to operating income in 2023.

The impact of the 2022 refranchising increased the segment’s operating income by $1.4 million in 2023.

Excluding the impact of the additional week and the 2022 refranchising, the segment would have increased $2 million primarily due to an increase in comparable sales of 0.1%, higher equivalent units of 2.5% and fewer royalty waivers in 2023.

• North America commissaries increased $0.8 million for the year ended December 31, 2023.

Excluding the impact of the additional week, Domestic Company-owned restaurants would have decreased approximately $11 million due to $5.5 million of non-cash impairment and remeasurement charges incurred during 2024 related primarily to fixed and intangible assets from the refranchising of 15 Domestic Company-owned restaurants and an approximate 60 basis point decrease in operating margin resulting from the lower sales in 2024, somewhat offset by lower advertising expenses due to lower spending in the first half of 2024.

• Adjusted operating income for Domestic Company-owned restaurants decreased by $8.8 million due to the factors discussed above, excluding the non-cash impairment and remeasurement charges related to the refranchising of 15 Domestic Company-owned restaurants.

• Operating income and Adjusted operating income from North America franchising decreased $25.6 million for the year ended December 29, 2024.

The 53rd week of operations contributed approximately $3 million to operating income in 2023.

The impact of the 2022 refranchising decreased the segment’s operating income by $0.3 million in 2023.

Excluding the additional week and the impact of the 2022 refranchising, operating income would have been down $1 million to 2022.

• International decreased $8.5 million for the year ended December 31, 2023.

The 53rd week of operations contributed approximately $0.8 million to operating income during 2023.

The impact of the UK franchisee acquisitions was a decrease of approximately $9 million in 2023 compared to 2022, driven by 2023 operating losses attributable to the recently acquired UK Company-owned restaurants that previously generated royalty

income in 2022.

Excluding the additional week and the impact of the UK franchisee acquisitions, operating income would have increased $1.7 million primarily due to equivalent unit growth, partially offset by comparable sales declines of 3.1%.

• All Others, which primarily includes our online and mobile ordering business and our marketing funds, were flat year over year.

• Unallocated corporate expenses increased $8.7 million for the year ended December 31, 2023, primarily due higher incentive compensation and benefits costs, higher insurance costs and higher depreciation expense related to our investments in technology support initiatives and additional costs for our operators conference held in 2023.

Excluding the impact of the additional week, operating income would have decreased approximately $23 million.

The primary driver was an update to our internal cost allocation methodology implemented during 2024, resulting in a reduction of $22.9 million in Operating income in the North America franchising segment during 2024, with an offsetting decrease in unallocated corporate expenses.

Other drivers include a 3.5% decline in comparable sales, partially offset by higher equivalent units of 4.6% and fewer royalty waivers in 2024.

• Operating income from North America commissaries increased $46.5 million for the year ended December 29, 2024 primarily due to a $41.3 million pre-tax gain on sale, net of transaction costs, realized upon the August 2, 2024 sale of our Texas and Florida QC Center properties.

The 53rd week of operations contributed approximately

$1 million to operating income in 2023.

Operating income in 2024 also benefited from the increase in the commissary fixed operating margin, which became effective in 2024, partially offset by rebates to franchisees and lower volumes.

• Adjusted operating income from North America commissaries increased by $5.2 million compared to 2023, which is due to the drivers mentioned above, excluding the gain on sale of the QC Center properties.

• Operating income from our International segment decreased by $25.3 million for the year ended December 29, 2024 primarily due to expenses of $27.3 million associated with the Company’s International Transformation Plan during 2024, while 2023 results included restructuring expenses of $2.2 million as well as $4.2 million of UK acquisition and repositioning costs.

International operating income also decreased due to comparable sales declines of 0.8% and an update to our internal cost allocation methodology implemented during 2024, resulting in a reduction of $3.3 million in Operating income in the International segment during 2024, with an offsetting decrease in unallocated corporate expenses.

As mentioned above, we have closed 43 of the UK Company-owned restaurants and refranchised an additional 60 restaurants under the International Transformation Plan during 2024.

The 53rd week of operations also contributed approximately $1 million to operating income during 2023.

• Adjusted operating income from International decreased $5.3 million for the year ended December 29, 2024, which is due to the drivers mentioned above and excludes expenses associated with the Company’s International Transformation Plan.

• Operating income and adjusted operating income related to All Other, which is not a reportable segment and primarily includes our online and mobile ordering business and our marketing funds, decreased $6.1 million for the year ended December 29, 2024.

The primary driver was an update to our internal cost allocation methodology implemented during 2024, resulting in a net reduction of $8.6 million in Operating income related to All Other during 2024, with an offsetting decrease in unallocated corporate expenses.

• Unallocated corporate expenses decreased $34.3 million for the year ended December 29, 2024 and $31.7 million on an adjusted basis.

The primary driver was an update to our internal cost allocation methodology implemented during 2024, resulting in a decrease of $34.6 million in unallocated corporate expenses, with offsetting reductions in operating income primarily in the North America franchising and International segments.

Items Below Operating Income

6 unchanged sentences

Income tax expense 29,929 20,874 9,055

Net income before attribution to noncontrolling interests 82,799 69,349 13,450

Net income 84,197 82,799 1,398

Net income attributable to noncontrolling interests (711) (701) (10)

Net income attributable to the Company $ 83,486 $ 82,098 $ 1,388

Calculation of net income for earnings per share:

Net income attributable to the Company $ 82,098 $ 67,772 $ 14,326

Dividends paid to participating securities — (306) 306

Net income attributable to participating securities — (104) 104

Net income attributable to common shareholders $ 83,320 $ 82,098 $ 1,222

2 unchanged sentences

Net Interest Expense

Interest expense increased approximately $18.2 million for the year ended December 31, 2023 compared to the prior year, primarily due to higher average outstanding debt on our senior secured revolving credit facility (the “PJI Revolving Facility”) as well as an increase in borrowing rates in 2023.

The higher outstanding debt on our PJI Revolving Facility was primarily utilized to finance share repurchases in the first quarter of 2023.

Total debt outstanding was $764.0 million and $605.0 million as of December 31, 2023 and December 25, 2022, respectively.

The 53rd week of operations in 2023 increased interest expense by approximately $0.5 million.

Interest expense decreased approximately $0.9 million for the year ended December 29, 2024 compared to the prior year primarily due to lower average outstanding debt on our senior secured revolving credit facility (the “PJI Revolving Facility”), primarily offset by slightly higher rates during 2024.

The 53rd week of operations in 2023 also increased prior year interest expense by approximately $0.5 million.

Income Tax Expense

The effective income tax rate was 26.2% for 2024 and 20.1% for 2023.

The effective rate was lower in 2022 due to higher excess tax benefits generated by stock option exercises and vesting of restricted shares in 2022 along with a lower pre-tax income.

The higher effective rate in 2024 was primarily due to impairment charges related to the International Transformation Plan, which resulted in unrecognized tax losses and prevented the Company from generating foreign tax credits.

Additionally, higher foreign withholding taxes and a tax shortfall from stock option exercises and the vesting of restricted shares in 2024 contributed to the higher rate.

(Dollars in thousands) Year Ended

11 unchanged sentences

See “Non-GAAP Measures” for additional information.

These changes were driven by the same factors impacting operating income and adjusted operating income as discussed above.

In addition, diluted earnings per share and adjusted diluted earnings per share reflect higher interest expense compared with 2022 due to higher borrowings used to fund share repurchases in the first quarter of 2023.

These changes were driven by the same factors impacting operating income, adjusted operating income, and income tax expense as discussed above.

In addition, diluted earnings per share and adjusted diluted earnings per share reflect higher income tax expense compared with 2023 due to the factors driving a higher effective tax rate in 2024 discussed above.

Non-GAAP Measures

9 unchanged sentences

GAAP measures to adjusted operating income, adjusted net income attributable to common shareholders and adjusted diluted earnings per common share are operating income, 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.

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.

2 unchanged sentences

Operating income $ 156,704 $ 147,142

UK repositioning and acquisition-related costs (a)

Gain on sale of QC Center properties (a)

International restructuring costs (b)

Middle East related costs (c)

Refranchising and impairment losses (d)

Legal settlements (e)

Other costs (f)

UK repositioning and acquisition-related costs (c)

Other costs (d)

Adjusted operating income 148,183 157,025

Net income attributable to common shareholders $ 83,320 $ 82,098

UK repositioning and acquisition-related costs (a)

Gain on sale of QC Center properties (a)

International restructuring costs (b)

Middle East related costs (c)

Refranchising and impairment losses (d)

Legal settlements (e)

Other costs (f)

Tax effect of adjustments (g)

UK repositioning and acquisition-related costs (c)

Other costs (d)

Tax effect of adjustments (e)

1,934 (2,234)

Adjusted net income attributable to common shareholders (h)

Adjusted net income attributable to common shareholders (f)

76,733 89,747

Diluted earnings per common share $ 2.54 $ 2.48

UK repositioning and acquisition-related costs (a)

Gain on sale of QC Center properties (a)

International restructuring costs (b)

Middle East related costs (c)

Refranchising and impairment losses (d)

Legal settlements (e)

Other costs (f)

Tax effect of adjustments (g)

(0.07) (0.31)

Adjusted diluted earnings per common share (h)

UK repositioning and acquisition-related costs (c)

Other costs (d)

Tax effect of adjustments (e)

Adjusted diluted earnings per common share (f)

$ 2.34 $ 2.71

(a) Represents costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of restaurants from franchisees.

(b) In the fourth quarter of 2023, the Company initiated an International restructuring plan.

During the period, costs incurred related to the restructuring include $1.5 million in severance and compensation costs and $0.7 million in consulting and professional fees.

(c) Represents a one-time non-cash charge of $0.9 million recorded in the fourth quarter of 2023 related to the reserve of certain accounts receivable related to the conflict in the Middle East, which were recorded as G&A expenses.

(d) Refranchising and impairment losses consisted of the following pre-tax adjustments:

(1) Represents a one-time, non-cash charge of $8.4 million ($0.24 loss per diluted share) recorded in the first quarter of 2022 associated with the 2022 refranchising, recorded as Refranchising and impairment loss;

(2) Represents a one-time non-cash charge of $17.4 million ($0.49 loss per diluted share) recorded in the first quarter of 2022 related to the reserve of certain loans and impairment of reacquired franchised rights related to the conflict in Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million;

(3) An impairment charge of $0.9 million on the right-of-use assets on leases recorded in the third quarter of 2022 associated with the termination of a significant franchisee in the UK, which was recorded in Refranchising and impairment loss.

(e) Represents accruals for certain legal settlements recorded in General and administrative expenses.

(f) Represents severance and related costs associated with the transition of certain executives incurred during the twelve month periods ended December 31, 2023 and December 25, 2022.

(g) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rate of 22.6% and 22.5% for the years ended December 31, 2023 and December 25, 2022, respectively.

(h) Amounts shown exclude the impact of allocation of undistributed earnings to participating securities.

(a) 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 22.

Divestitures” for additional details.

(b) Represents costs associated with the Company’s International Restructuring Plan.

See “Note 16.

Restructuring” for additional details.

(c) Represents costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of restaurants from franchisees.

(d) Represents non-cash impairment and remeasurement charges related primarily to fixed and intangible assets from the refranchising of 15 Domestic Company-owned restaurants for the year ended December 29, 2024.

Refer to “Note 22.

Divestitures” for further details.

The year ended December 31, 2023 includes $2.0 million of severance and related costs associated with the transition of certain executives, $0.9 million one-time non-cash charge related to the reserve of certain accounts receivable related to the conflict in the Middle East, and $0.6 million accrual related to certain legal settlements.

(e) The tax effect on non-GAAP adjustments was calculated by applying the marginal tax rate of 22.7% and 22.6% for the years ended December 29, 2024 and December 31, 2023, respectively.

(f) Amounts shown include the impact of dividends paid to participating securities.

In addition, we present free cash flow in this report, which is a non-GAAP measure.

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• returning capital to shareholders

The Company believes that its balances of cash and cash equivalents and borrowing capacity, along with cash generated by operations, will be sufficient to satisfy its cash requirements, cash dividends, interest payments and share repurchases over the next twelve months and beyond.

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.

The table below summarizes our cash flows for each of the last two fiscal years (in thousands):

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Total cash provided by operating activities was $106.6 million for the year ended December 29, 2024 compared to $193.1 million for the prior year.

The increase of $75.2 million primarily reflects higher net income in 2023 and favorable working capital changes.

Favorable working capital changes were principally related to higher incentive compensation payments and deferred payroll tax payments related to the CARES Act made during the prior year, as well as current year increases in accounts payable due to extension of certain vendor terms within our North America commissary business and a reduction in inventory levels during 2023.

These favorable changes were partially offset by the provision for allowance for credit losses of $20.5 million (See “Note 10.

Allowance for Credit Losses” of “Notes to Consolidated Financial Statements”) and refranchising and impairment losses of $12.1 million (discussed above in “Results of Operations”) that were incurred during the prior year.

The decrease of $86.4 million primarily reflects lower net income after considering the gain on sale of QC Center properties as well as unfavorable working capital changes in 2024, principally related to the following:

• Higher tax payments in 2024 due to higher income before income taxes, compared to lower prior year tax payments stemming from the application of 2022 overpayments towards 2023 tax payments;

• Higher accrual and accounts payable balances at December 31, 2023 related to the 53rd week of our 2023 fiscal year, which resulted in higher cash outflows in 2024.

Investing Activities

Total cash used in investing activities was $75.1 million in 2023 compared to $62.8 million in 2022, an increase of $12.3 million.

The increase in cash used in investing activities was primarily due to cash proceeds of $13.6 million, net of cash transferred, received from the 2022 refranchising during the year ended December 25, 2022, fewer note repayments during 2023, and payment of $5.6 million to purchase 37 International and Domestic restaurants during the year ended December 31, 2023.

This activity was partially offset by a slight reduction in capital expenditures and fewer note issuances during 2023.

Total cash used in investing activities was $17.3 million in 2024 compared to $75.1 million in 2023, a decrease of $57.8 million.

The decrease in cash used in investing activities was primarily due to cash proceeds of $46.7 million from the sale of two Domestic QC Centers, lower capital expenditures, and a $3.7 million increase in net repayments received on notes to franchisees.

We also received a $2.3 million investment distribution related to our deferred compensation plan during the year ended December 29, 2024.

Financing Activities

Total cash used in financing activities was $124.1 million in 2023 compared to $76.2 million in 2022, an increase of $47.8 million.

In 2023, cash used for financing activities includes outflows of $210.3 million in share repurchases and $58.5 million of dividends paid to common shareholders, partially offset by net borrowings of $159.0 million from the PJI Revolving Facility.

In 2022, outflows included $125.0 million in share repurchases as well as dividends paid to common shareholders of $54.8 million, partially offset by $115.0 million in net borrowings from the PJI Revolving Facility.

Total cash used in financing activities was $91.7 million in 2024 compared to $124.1 million in 2023, a decrease of $32.4 million.

In 2024, the principal financing outflows were related to dividend payments of $60.6 million, net repayments of $17.3 million to the PJI Revolving Facility, $8.5 million in payments related to finance leases, and $3.6 million in tax payments on equity compensation award issuances.

In 2023, the principal financing outflows included $210.3 million in share repurchases as well as dividend payments of $58.5 million, partially offset by $159.0 million in net borrowings from the PJI Revolving Facility.

On September 14, 2021, the Company issued $400.0 million of 3.875% senior notes (the “Notes”) which will mature on September 15, 2029.

Concurrently with the issuance of the Notes, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) replacing the Company’s previous credit agreement.

Concurrent with the issuance of the Notes, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) replacing the Company’s previous credit agreement.

The Credit Agreement provides for the PJI Revolving Facility, a senior secured revolving credit facility in an aggregate available principal amount of $600.0 million, of which up to $40.0 million is available as swingline loans and up to $80.0 million is available as letters of credit.

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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 with U.S.

Bank National Association, as lender.

On September 30, 2023, the Company amended the PJMF Revolving Facility to, among other items:

(i) extend the maturity date to September 30, 2024;

(ii) amend the variable interest rate to one-month SOFR plus 1.975%;

and (iii) expand the capacity from $20.0 million to $30.0 million.

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, 2024.

The PJMF Revolving Facility is secured by substantially all assets of PJMF.

The PJMF Revolving Facility matures on September 30, 2024, but is subject to annual amendments.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month SOFR plu s 1.975% .

The PJMF Revolving Facility matures on September 30, 2025, 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 29, 2024 or December 31, 2023.

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We are contingently liable on these leases.

The leases have varying terms, the latest of which expires in 2036.

The leases have varying terms, the latest of which

expires in 2034.

As of December 29, 2024, 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 $10.4 million.

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Impact of Inflation

We experienced price increases in food items and other commodities, labor and benefits, and fuel and other energy costs during 2022, which began to gradually ease throughout 2023 and which we expect to continue to moderate during 2024.

In recent years, we have experienced price increases in food items and other commodities, labor and benefits, and fuel and other energy costs.

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 the cost of gasoline 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.

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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, the current economic environment, 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, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product and digital 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, effective tax rates, regulatory changes and impacts, investments and repositioning of the UK market, International restructuring, International consumer demand, adoption of new accounting standards, and other financial and operational measures.

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, the current economic environment, 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 and digital 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, effective tax rates, regulatory changes and impacts, repositioning of the UK market, International restructuring plans, including timing of completion, expected benefits and costs, International consumer demand, 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 difficult to predict and many of which are beyond our control.

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The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:

• the ability of the Company to manage challenging macroeconomic conditions in the United States and internationally, including the United Kingdom;

• the ability of the Company to 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 or climate change;

• the ability of the Company to manage challenging macroeconomic conditions in the United States and internationally;

• 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 the conflicts in Ukraine and the Middle East and other international conflicts;

• risks to the global economy and our business related to geopolitical conflicts, including those in Ukraine and the Middle East;

• 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;

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• 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;

• increased risks associated with our International operations, including economic and political conditions and risks associated with the withdrawal of the UK from the European Union, instability or uncertainty in our international markets, especially emerging markets, fluctuations in currency exchange rates, difficulty in meeting planned sales targets and new restaurant growth;

• 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 including compliance with the European Union General Data Protection Regulation;

• 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 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;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis