In this FDD Talk 2015 post, you’ll learn the following:
- Section I – Background information on the Papa Murphy’s franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Papa Murphy’s franchise, based on Item 7 of the company’s 2015 FDD
- Section III – Presentation and analysis of Papa Murphy’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
- 2014 average net sales and range of net sales for the top third, middle third, and lower third of the 1,332 traditional Papa Murphy’s Take ‘N’ Bake Pizza stores, both franchise-owned and company-owned, that were open and operating during the entire period of the company’s 2014 fiscal year
- 2014 average net sales, cost of goods sold, labor costs, advertising expenses, occupancy costs, other store expenses, and store contribution for the 661 Papa Murphy’s stores that were open and operating for all of the trailing 52 weeks ending on September 29, 2014, and submitted profit and loss statements in the appropriate format for this period
- average same-store net sales percentage increase for Papa Murphy’s stores from 2006 to 2014
- 2014 average weekly net sales during the first 12 full operating weeks for the 48 Papa Murphy’s stores that opened in 2014 and had 12 or more full operating weeks as of the week ended December 29, 2014
Section I – Background Information
Papa Murphy’s joined the stock market (NASDAQ) in 2014. Papa Murphy’s Holdings Inc. (FRSH) had its initial public offering on May 2, 2014, with 5.83 million shares priced at $11 each. The stock has risen as high as $20 since, and closed April 24, 2015 at $17.66.
Papa Murphy’s was founded in 1981 as Papa Aldo’s Pizza in Hillsboro, Oregon, and picked up its current name from a 1995 merger with Murphy’s Pizza, which started in Petaluma, California, in 1984. The largest bake-at-home pizza chain in the world, Papa Murphy’s has more than 1,400 stores and $785 million in systemwide sales.
Each Papa Murphy’s store prepares its own dough daily. The pizzas are assembled in the store after being ordered by customers, who take them home to bake.
Following are some notable additions to the menu:
- In November 2014, some gourmet pizza toppings were added to the Gourmet Delite pizza line as Papa Murphy’s introduced its Spicy Fennel Sausage pizza, which also features creamy garlic sauce, sun-dried tomatoes, mushrooms, spinach and Parmesan cheese; and its Angus Steak and Roasted Garlic pizza, which is accompanied by creamy garlic sauce, mushrooms, green onions and Parmesan cheese.
- New Thick ‘n’ Cheese HomeBaked Bread was introduced in October 2014 at Papa Murphy’s locations around the country. The fresh-made bread is topped with a quarter-pound of whole-milk mozzarella cheese.
- Papa Murphy’s began offering 12-inch Udi’s gluten-free pizza crusts in September 2014 at more than 1,000 locations. The chain reminded customers at the time that although the crust is certified gluten-free, the toppings are placed on the crust in a kitchen that also houses ingredients that contain gluten.
- Fresh Pan crust became a menu option in February 2014. It’s available only in a large size pizza.
Through a partnership with Nutritionix, Papa Murphy’s has introduced a mobile-friendly interactive online tool that provides nutrition and allergen information about all signature menu items, also providing data on items customers create themselves. The tool can help customers make healthy dietary choices as well as avoid ingredients that could be dangerous to some people, such as milk, shellfish, gluten and MSG.
In its annual report, Papa Murphy’s Holdings addressed lawsuits dating back to April 4, 2014 by franchise owner groups that claimed they were fraudulently misled about what sales and profits they could anticipate. Twelve franchisees filed suit on April 4, 2014, joined by 16 more on June 18. Some disputes have been resolved, some have been dismissed, and the remaining plaintiffs filed an amended complaint in February. The company does not anticipate significant financial adversity from the lawsuits.
“Lawsuits require significant management attention and financial resources and the outcome of any litigation is inherently uncertain,” Papa Murphy’s Holdings stated in the report. “We do not, however, expect that the costs to resolve these routine matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.”
Section II – Estimated Costs
- Please click here for detailed estimates of Papa Murphy’s franchise costs, based on Item 7 of the company’s 2015 FDD (updated).