FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Papa John's International, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PZZA)") else Response.Write("(Nasdaq: PZZA)") end if %>
P.O. Box 99900
Louisville, KY 40269-9990
(502) 266-5200
http://www.papajohns.com

UNION CITY, CA (March 3, 1997)/FOOLWIRE/ --- Papa John's International announced record revenues of $360.1 million and net income of $18.6 million for fiscal year 1996. They also recorded record revenues of $102.9 million and net income of $5.9 million. They exceeded the Street consensus with earnings per share of $0.21, an increase of 50% over the same quarter of 1995. On a full-year basis, earnings per share was $0.66, an increase of 47% over 1995.

NEW UNITS. They set a new unit opening record during the quarter at 83 units with the company opening 18 (3 ahead of plan) and franchisees opening 65 (7 ahead of plan). Three franchise units were closed during the fourth quarter. The company also acquired 18 restaurants in the Dallas market at the beginning of the quarter. Unit count at the end of 1996 was 303 company stores and 857 franchise stores for a total of 1160 units in 32 states and the District of Columbia.

OUTLOOK ON UNIT OPENINGS. Thus far in the first quarter they have opened 10 of their 16 planned company stores and 28 of their 55 planned franchise openings. Their development pipeline continues to improve with 120 signed leases, 39 corporate and 81 franchise, and 143 additional approved sites for a total of 263 sites. Their plan for 1997 in terms of openings is 370 corporate and 230 franchise units. They want to get through this first quarter or so before they raise their estimates, but they are tracking ahead of plan and certainly ahead of where they have been historically as a company. They have 775 restaurants sold, not yet opened. They have another 350-400 in the pipeline, of which they expect to sell about 200+ of those. They have about 1000 in their expected sales or sold pipeline. They feel very good about their franchise sales as well. Again, it is way ahead of plan and stronger than they have historically been.

COMP SALES. Strong system-wide sales continued in the quarter with corporate comps at 8.7% and franchise comps at 5.9%. Full-year same store sales increases were 11.9% for corporate units and 5.9% for franchisees. Their sales momentum has continued into 1997 with corporate units posting double-digit comps and franchisees in high single digits. The fourth quarter corporate comp base consists of 182 restaurants, or 60% of the total and the franchise comp base consists of 588 restaurants or 69% of the total.

AVERAGE WEEKLY SALES. Average weekly sales for the corporate comp base restaurants were $14,170. Restaurants not included in the comp base averaged $11,800 for an overall average of $13,295. Average weekly sales for the franchise comp base were $12,950 and restaurants not included in the franchise comp base averaged $10,365 for an overall average of $12,235.

COST OF SALES. Restaurant cost of sales was 27% and operating expenses were 55.1% compared to 28.3% and 53.5% during the fourth quarter of 1995. Restaurants included in their comp base averaged cost of sales of 26.7% and operating expenses of 52.3% compared to 28% and 52.6% during the fourth quarter of 1995. As expected, restaurants not included in their comp base averaged higher cost of sales at 27.5% and operating expenses of 60.6% versus 30.4% and 60.4% during the fourth quarter of 1995.

OTHER OPERATING EXPENSES. Much of other operating expense is driven by sales (e.g., 5% of the 12% is just mileage related to deliveries, which is sales driven). The company has aggressively rolled out training throughout the company and they will continue that in 1997. They talk a lot about that they aren't anywhere close to where they feel they need to be out in the field with their product and running their stores. A lot of that has to do with making 9s and 10s instead of 5s and 6s in terms of pizza quality. Their product is probably one of the most difficult products to make in the market, but when it is made correctly it is probably one of the best. Their training has put in a full court press in emphasizing and highlighting how important it is to make the product correctly, from the dough to the mix of the toppings to, if it's not a 10 they throw it away. Just in the last 4-5 months, if they are going to own this quality position in the marketplace, they have to back it up with a superior product and that all starts with training, so a lot of those dollars are training dollars.

COMMISSARY OPERATING MARGINS. Commissary and equipment operating margins improved, offset by an increase in G&A and depreciation, resulting in less than 3% profit after tax. Their commitment to their franchisees is to manage these support groups to approximately 3% profit after tax and they will continue to do that. They think commissary margins will be about flat for 1997. What they have laid out for budgeting and internal plans would say that at the 9% or so operating margin, taking into consideration the G&A and the depreciation and some cost of capital, that gets them down to 2.5-3% pre-tax. Where they have not had some of the other costs associated with commissaries in the past, they think the fourth quarter is much more representative of what they will see going forward.

VALIDITY OF THE COMMISSARY STRATEGY. The company was asked about the commissary investment's impact on returns and whether they have considered an alternative to the big investment they have to make in commissaries. The responded that they are not changing that game plan and went on to explain the rationale. They think it is important to note both in the restaurants and in the commissaries it is very important for them to build those facilities well ahead of the need, so while they are seeing some declining if you look at total returns over the last couple of years, once they have the commissaries built out (at the end of this year they will have 8-9 open commissaries), they really only have maybe two more facilities that they will need to cover the country. So, they have done a lot of investment spending and they talk about the quality issues and maintaining control over that product. That is a big part of their success story. And, when you take the total cost of their commissary facility, it adds about $10,000-15,000 per capital investment in their stores and they could not buy dough equipment and make that dough for that kind of investment at store level. So, it is not only a continuity/consistency issue, it actually works out better from a dollar standpoint. What they will have invested at the end of June will be enough in commissaries to service 1500 more stores than what they really have open right now. So it is a timing issue before you see that total return come back in line.

FOOD COSTS. The cheese block price was $1.70 per pound at the beginning of the quarter which was the 1996 high, dropping to $1.24 by the end of the quarter which was the 1996 low. It is currently at $1.33 per pound. This swing during the fourth quarter improved food costs at restaurant levels while reducing sales volumes in their commissaries.

GENERAL & ADMINISTRATIVE EXPENSES. G&A was in line with revenues at 7.6% for the quarter and 7.4% for the full year, a 50 basis points improvement over 1995. They should start to see some leveraging of G&A against their revenue stream. Basically, the way they manage earnings is to open stores. That allows them to get ahead on the store count side and still meet the expectations of the Street and that has been their goal and their commitment all along -- to get stores open and still meet expectations. They did have in the fourth quarter as they have seen in the past, some year-end expenses associated with meetings and those are getting to be much bigger. The other thing with G&A that you have to remember is that much of it is restaurant-level driven because much of the G&A there is compensation for supervisors, district managers, and regional vice presidents, much of that is driven by sales and profit so you won't always see the leverage you would expect because of the way their compensation programs are. They are looking very closely at G&A as a whole and expect to bring that down. Their budgets this year actually bring G&A down and they expect to continue to focus on that because they have built a good infrastructure that they can now leverage and leverage across more stores.

ADVERTISING TO PROMOTE THIN-CRUST/NEW MARKET OPENINGS. They ran a little more advertising in the fourth quarter because they rolled out thin-crust pizza and wanted to make sure that was well-supported. Also, the store openings were higher and they do a lot of investment spending in the first 2-3 months of a store opening to get those sales up quickly and into a profitable situation. In the third quarter they opened 21 company restaurants, so a lot of the trailing advertising was showing up in the fourth quarter along with 18 openings in the fourth quarter, so 39 of the 66 openings were in the last half of the year and a lot of those advertising costs are showing up in the fourth quarter.

NEW MARKETS EXCEEDING EXPECTATIONS. Ongoing, one of the exciting things they have seen as they continue to build these markets out, most of what they are doing in 1997 is building out markets they have already been in. There are only two brand new markets they are going into in 1997, although they will still have record corporate growth. Those two markets are Delaware and Albuquerque New Mexico. The exciting news on Delaware is that they have opened in that market with the highest sales they have ever had in a company market. They have opened two stores in the last week of January. The first week they did $8,600 and the second week they did over $11,000, and the third and fourth week they hit $14,000. They opened a third restaurant last week and in 5 days it did almost $13,000. So, as they continue to push these new markets and get into them with higher sales, if an opportunity comes up where they see a chance to get more aggressive with market share, they will take that and spend accordingly for the year.

ADVERTISING EFFICIENCIES. In 1996 they had about 7 company markets where they had 90%+ in terms of penetration and by the end of 1997 that number will jump to at least 12. When it comes to advertising efficiencies, they have been doing some testing in 1996 and find that they can go on air with television before they have full market penetration and they get terrific sales increases that help even grow the market faster. In terms of all company and franchise markets, which is the way they look at their system, last year they did 37 markets for the launch of thin-crust pizza and shortly they will be in 45 markets in terms of advertising efficiencies and will be beyond 50 by the end of 1997, so those numbers continue to grow very quickly. They are working very aggressively to be a regional TV advertiser before the end of this year -- by that it would mean that they would cover a majority of their system, not every store but a majority of their system.

STRONG BALANCE SHEET. They ended the quarter with a strong balance sheet including $89 million in cash and investments and $1.7 million in long-term debt.

GOOD POSITION GOING INTO 1997. As they start 1997, this is the first year that Papa John's has been able to be in a proactive situation on several fronts -- store openings for company, store openings for franchises, their commissaries, their people and most of their systems. Also, their ability to achieve higher margins by leveraging their market penetration, operations, volume (whether technology, training, distribution) their operation overhead has been very beneficial in Q4 and looks very good for 1997. This is going to be a long, hard, and tough battle. As they position Papa John's, the exciting thing about their concept is that it is performing extremely well in the marketplace. Of the 13-14 markets they have, they are ahead or above plan in 95% of them and that is where the battle is won or lost.

STRENGTHS VERSUS COMPETITORS. On a micro basis, they think their greatest asset is that they have a good team with good people who are doing an outstanding job. Macro, their greatest asset is their competition. They never want anything to happen to Little Caesar's, for example. Little Caesar's is the benchmark for "low price," are doing $6000-7000 per week in sales, and are the perfect competitor to compete with and the benchmark on the pricing. Dominos ran about 6-7% comps last year and are at about $9000 per week in sales. They don't think Dominos is ever going to go away, but they don't think Dominos is ever going to do some of the numbers Papa John's is doing in the $13000-15000 per week range. So, they don't want anything to ever happen to Dominos.

CONCERNS ABOUT PIZZA HUT FALTERING. They have proven 99.9% of the time that if they locate the store correctly and execute and penetrate a market where they can be successful, they do well. At store 4000, at $700,000 a unit, that's almost $3 billion. Pizza is a $30 billion category looking out a couple years, and around $23 billion now. It is going to be a lot easier for them to get a $3 billion market share if Pizza Hut is driving the category. What concerns them is that they don't like to see the leader faltering like the leader is now faltering (i.e., Pizza Hut). For Papa John's to get their 10-15% market share out of a $30 billion segment, they think Pizza Hut needs to get their act together. They think if Pizza Hut gets their act together and Dominos continues to do their thing, Papa John's thinks those players will drive the segment and Papa John's will continue to get their market share. What they don't want to see is Pizza Hut continue to falter and be in a category that is on the decline. They think the new head of Pizza Hut, David Novak, can do some good things, but Pizza Hut has some fundamental problems and is going to have to take a few steps backwards before they can go forward. Pizza Hut has certainly had some turmoil based on the results, which puts a lot of pressure at the restaurant and district level. With the spin-off that is going to continue for awhile which makes it difficult to have morale and attitude headed in the right direction. They think Pizza Hut has a lot of things to work through this year but they view the spin-off as a positive thing, short term for Papa John's. Hard to say what it will mean long-term.

PRICING VERSUS PIZZA SEGMENT COMPETITORS. Both Dominos and Pizza Hut started off the year in January at $9.99 price points which Papa John's was very excited about because they were at $7.99 or $8.99 and they were surprised the other price points were so high, but it meant that the others were more concerned about earnings than market share and their sales side. What they have seen recently is that they have moved the price point down to $7.99 but they are promoting a medium pizza versus a large. Papa John's also expects that Little Caesar's will also get more aggressive price-point wise as the year goes on. But, Papa John's is in good shape there already because the competition is moving a little closer in their specials to what Papa John's has been.

MCDONALD'S NEW BIG MAC PRICING. As far as McDonald's cutting Big Mac prices, McDonald's primary business is morning and lunch, which is not what Papa John's business is. They think McDonalds is not their problem and that $0.55 Big Macs are not going to solve McDonalds' problems either. They think McDonalds' problem is that they put a playground in the front and are promoting a grown-up sandwich in the back. They also think that most of the restaurant companies that are out there right now having trouble are not consistent with their focus. Papa John's thinks that if they stick to their focus, keep hammering the better ingredients theme, keep locating their stores correctly, keep putting their money back into things like training to reinforce their tactic of making a better pizza, they think they'll continue to do fine.

PAPA JOHN'S PREFERRED BY CUSTOMERS. A fast food user has a range of products that they move around in (burgers, pizza, chicken, Mexican, sandwiches), an array of products they move to. They have their frequency over a monthly period that they go back and forth. And within each sector they have preferred chains that they visit. The great news is that the pizza segment is over $20 billion and is a fair size of the whole fast food sector. Pizza is highly accepted, well into 90%+ of all households. They don't see that diminishing, it is an accepted food. Where they operate, they are one of those preferred pizza chains and they get a high usership. Their research says that there are very few exclusive pizza brand users, they have one and another brand because of other members in a household. They tend to be, in those households, the preferred brand. Their frequency per market is going up. Most importantly, the frequency of their heavy users is very high with Papa John's and that percent keeps growing. People will take advantage of specials or the deal of the day every now and then, but it is pretty hard to pick a brand if you don't like their offerings, even if the price is very low. The good news for Papa John's is that they have strong, strong preferences among heavy and moderate pizza users and their frequency continues to grow and they are going to continue to execute extraordinarily well to keep them satisfied. Papa John's is not the "low price" brand, but they get very high value ratings among customers as well as high overall ratings for taste and quality. From a pizza user's perception, Papa John's is well positioned.

OUTLOOK ON EPS GROWTH FOR 1997. The company thinks their earnings per share growth for 1997 will be in the 30-40% range. They think 30% is low. They think 40-41% is on the high side. They have to be at 34-35% to keep this P/E. What they saw in the first two periods, that looks very obtainable. The range they expect is 34-36% on the low side and 37-38% on the high side.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.