Lance Tucker - CFO John Schnatter - Chairman & CEO Steve Ritchie - President & COO Timothy O’Hern - CDO

Alton Stump - Longbow Research Alexander Russell Slagle - Jefferies LLC Will Slabaugh - Stephens Peter Saleh - BTIG LLC Chris O'Cull - KeyBanc Mark Smith - Feltl and Company

Good day, ladies and gentlemen, and welcome to the Papa John's First Quarter 2017 Conference Call and Webcast. [Operator Instructions] I would now like to turn the call over to Mr. Lance Tucker, CFO. Sir, you may begin.

Thank you, Chelsea and good morning everyone. Joining me on the call today are: Founder, Chairman and CEO, John Schnatter; our President and COO, Steve Ritchie, and other members of our senior management team. After the financial update, John and Steve will have comments about our business, and the management team will then be available for Q&A. Our discussion today will contain forward-looking statements involving risks that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with cautionary statements in our earnings press release and the risk factors included in our SEC filings. Please refer to our earnings press release in the Investor Relations section of our website for reconciliation and non-GAAP financial measures discussed on this call. Now onto to a discussion of our first quarter operating results. Diluted EPS in the first quarter was $0.77 up 12% over 2016. EPS benefitted about $0.03 due to the adoption of the new stock base accounting rules. First quarter revenues were up 4.8% driven primarily by higher QCC sales from volume increases and higher commodity prices as well as increased global comp sales in units. Domestic company owned restaurant margins decreased to 1.6% driven primarily by higher labor, higher non-owned automobile claims costs and increased mileage reimbursement expense from higher fuel prices. North America commissary and other margins decreased 50 basis points due primarily to the higher delivery expenses of commissaries offset partially by improved margins from our online and mobile ordering business. International margins improved 1% due primarily to an increase in franchise royalties from 6% comps and a year-over-year increase in units. G&A was lower by approximately $2.2 million down to 8.5% of consolidated revenues due to several factors including lower franchise incentives, lower bonuses, favorable bad debt experience and the timing of international marketing spend. Our effective tax rate was 28.6% in the first quarter down 3.7% from the prior year, of this decrease 3.2% was due to the new stock based compensation accounting rules. We repurchased $13 million of stock during the quarter and currently have approximately $120 million of remaining share repurchase authorization. Our free cash flow and non-GAAP measure, we define as cash flow from operations-less capital expenditures was approximately 32.3 million in the first quarter up from 2016 mainly due to large economic payment that occurred in 2016. As noted in our previous press release, the company is reaffirming all aspects of its previously issued 2017 outlook to reiterate our EPS outlook includes the benefit of the 53rd week and excludes the impact of a new stock based compensation accounting rules. And I would like to turn the call over to our founder chairman and CEO, John Schnatter. John.

Thanks Lance and good morning everyone. Thanks for joining us on the call today as we discuss our first quarter 2017 results. I'm pleased with our solid revenue and earnings growth in the first quarter. We continue to perform well in a challenging environment and expect 2017 to be another good year of growth for Papa John's global brand. Our continued success comes from our strong fundamentals as we continue to build upon our commitment of better ingredients, better pizza and having the cleanest label among national pizza brands. As part of that clean label and better ingredient journey we recently launched two separate menu pilot programs. First, we did the organic vegetable toppings in our pizza across the Lexington market. The test includes freshly sliced Roma tomatoes, green peppers, yellow onions and mushrooms and we have been receiving great feedback from our customers. This is an important step in offering better options to consumers in driving our businesses more than half of America's household purchase, organic products. We will continue to lead the way in creating positive change for the pizza category in our food system working with our suppliers like Green BEAN Delivery. Additionally, we also recently announced the pilot program for our gluten free crust made with ancient grains. The Papa John's R&D team has done a fantastic job led by chief ingredient officer Sean Muldoon set more than a year to develop this product with the goal of offering pizza fans a better taste in gluten free pizza crust, I think they delivered. Not only does it taste better the ancient grains are naturally gluten free and higher in protein and fiber than other grains. This new crust is currently being tested in Papa John's locations across Los Angeles, Phoenix, St. Louis, Houston and Nashville. Speaking of new additions, our sports partnerships continue to perform extremely strong for us. In February, we were named the official pizza partner of the NHRA. We remain the only QSR in sports and sponsored NHR's top driver. DSR’s Leah Pritchett who has won three of the first six races of the season and set a world speed record. We also announced the charity challenge series. We are always looking for ways to get back to local communities and throughout 2017 NHRA season we will be supporting and raising awareness for Infinite Hero Foundation, the foundation promotes awareness and provides resources to help combat the mental and physical issues that returning military heroes and their families have to deal with. I am proud to work with Leah, a valued member of the Papa John's family. Help [indiscernible] on the great work they do to better get the military heroes and their families. I am also happy that [indiscernible] is still positively have an impact on lab especially our military. To conclude I am pleased to get 2017 also to a solid start. With that I will turn it over to Steve Ritchie. Steve?

All right. Thank you John and good morning everyone. Thanks for joining us on the call today, as we discuss our first quarter 2017 results. I am very proud of our franchises and operators for continuing to drive exceptional service and quality to our customers across the globe maintaining our position as the recognized leader in quality within the industry. As always we maintain our commitment to deliver superior customer experiences amplified our team member first approach. As John stated, our relentless focus on high quality clean level ingredients, operational execution of the fundamentals and giving back for our local communities are just some of the key factors that continue to differentiate our brand. Our consistent commitments are core values delivered our 26 consecutive quarters of positive comp sales growth. Our domestic restaurants continue to produce positive sales growth and has ever evolving consumer environment. Restaurant margins were negatively impacted in the quarter by wage inclination higher cheese cost and delivery related headwinds. But despite the Q1 headwinds we are confident in our reoccurring figure 2017 comparable sales and earnings guidance as well as our long term growth potential. Moving to international, we have now reached over 1600 locations in 45 countries and territories. We see a significant opportunity for growth aboard and continued our great momentum in this front in Q1 with improved sales margins and profits. Q1 marked our 29th consecutive quarter of positive comp sales growth for our international business. In March we announced the opening of our 100th location in Russia, one of our strongest international markets as well as the opening of our second market in Northern Africa in Casablanca and Morocco. Speaking of expansion our sports partnership continues to perform strongly for us. In late March we announced the start of our second year official pizza of major league baseball. And we will extend our successful Papa’s land promotion for pizza fans we see 40% regular menu price pizza the day after our grand slam is hit. This was a great sales driver for us last season and we expect the same this season. On the technology front, we continue to reinforce our commitment to providing better customer experience with enhancements to our digital ordering process. We averaged over 60% domestic sales across our digital channels in Q1 of which roughly 70% is from our mobile orient channels. In addition to being the leader in digital payment options to check out in March we announced the introduction of Papa Track a digital pizza tracker that allows customers to follow the pizza process from the oven to delivery. Just as we do with our ingredients we prioritize and invest in additional digital payment options in the development of Papa Track to provide customers with a seamless experience from ordering and paying for their pizza to tracking that order to delivery. To conclude we are happy to report consumers recognizing our unwavering commitment to quality and our efforts to improve the customer experience. Papa John's has taken its place as the 2017 pizza brand of the year in the 2017 Harris Poll EquiTrend rate rankings. The Poll measures planned perceptions of more than 100,000 U.S. consumers across more than 4000 brands from automobiles to TVs and technology. We are proud to be recognized as the pizza category leader by consumers in confident that we have the brand strength to continue producing great results for years to come. With that I will turn it back over to Lance for questions.

Thank you Chelsea, we are ready for questions.

Certainly. [Operator Instruction] And our first question comes from the line of Alton K. Stump with Longbow Research LLC. Your line is now open.

Thank you. Good morning everyone.

Good morning.

I know you would like to talk about inter quarter comps but if you go back to your comments on fourth quarter conference call as the trends did at that point first quarter it appears, the comps pick up little bit in the back half first quarter is that true sort of what drove that and then if you can give us any kind of color commentary on how that turn to us so far here in 2Q?

Sure it’s Steve. I will take that one thanks for the question. As I alluded to on the last call to your point we did come out of the gate a little softer than what we had planned for we are pleased with the overall 2% comp that we produced within the quarter to your question of cadence we typically don't like to get in the cadence what I would say is to your question we did get a little bit better just in terms of the transaction improvements that we saw coming out of the quarter in March. Some of that attributed to some slightly more aggressive promotions that we did the last couple of weeks of the quarter from the national perspective we implemented our customer appreciation league for the last couple of weeks of the quarter. But overall, we are pleased with the quarter and to your question of how are things going now I guess what I would lead to is that you think about our full year guidance of 2 to 4 we feel very confident and then we talked about in the opening remarks that we will, well within our full-year guidance of 2 to 4.

That's helpful. Thanks and then was there any impact, you know Easter, after shift there in the quarter?

I am sorry Alton. What was your question again?

Yes, just the impact Easter shift?

For the Easter shift, okay, sorry about that and I heard your question at first. Not a material impact. Certainly it's a slight low benefit not really material within the quarter and obviously the shift to Q4 and Q2 we – same thing we don't really expect the material improvement.

Got it and then one just follow-up and then I will hop back in queue but just on your growth front the first quarter running over lower guides, what gives you confidence that you get it for the full year and then if you can may just touch on the 30 stores closure North America what drove that?

Sure. Steve again. I would say somewhat last year look like 2016 in the first quarter we came out of the gate towards a little softer the category has been consistently really aggressive just in terms of pricing, promotional activity and media spend across the category from our competitor so I would say if you look at the trailing quarters last several years if you look at stacks that's what gives us really the confidence and some of this is cyclical in nature. From the initiative standpoint we look at our marketing promotional calendar that we have planned as I alluded to the major league baseball, the second year build up from that, the things that we haven't placed and planned for our partnership, our new partnership within HRA over the summer and then kicking off the NFL as we kick off that in period nine through the end of the year. So certainly if you look at the promotional plans that we have in the year really taking the step up against what we did last year and that drives us again to kind of fall into that 2 to 4 which will produce kind of 3.5 to 5.5 two year stack. As your question to the closures really a function of the timing we talked about this in the last call that the predominant amount of our openings are going to occur in the back half of the 2017 from the timing standpoint we also had an increase in those closures that did occur in Q1 where some of our anticipation that will be spread out a little bit more in the Q2 I would highlight that there is it's predominantly in the couple of regions and some of that strategic in nature. The first would be in the Northeast where we had – we just had a slight pickup in closures in couple of under-penetrated markets but from strategic standpoint, some cleanup in China on the franchise side and South and East China within our franchise so the majority of the vast majority of the closure did occur there. Highlighted strategically because we are starting to see some real pickup from the sales momentum perspective with our franchise in China which gives us lot of optimism in the long term potential of our China business. The last thing I would just say is that we are well in that 4% to 5% full-year guidance still on the development front.

That's great. Thanks for the color.

Thank you. And our next question comes from the line of Alexander Russell Slagle with Jefferies LLC. Your line is now open.

Hey thanks. Good morning guys. I wanted to follow-up on development just announced a number of new development agreements entered a bunch of new countries, trying to get an idea how we should think about the potential ramping growth over the next couple of years and if there is a certain point where we will reach an inflation and see those opening to really accelerate? Timothy O’Hern: This is Timothy O’Hern, the Chief Development Officer. We feel really strong about our international ramp in where it's headed we have a very robust pipeline in terms of units in the queue to be developed. We really like where we are headed with our development in Northern Africa, Tunisia, Morocco, Egypt have been very strong for us. We like what we have seen out of our development in Europe. Our Russian franchisee continues to grow that market and is perusing additional markets within the former Soviet states. We are really happy with that. We have some struggles in China frankly but we have gotten turned around in one of the markets focusing than the other so we are happy with that but all in all our pipeline is very robust, very strong we have a number of groups we are working with, develop other countries and our lead generation continues to be strong.

Thank you Tim. Alex the only thing I would add is that we talked about in the last call we had record number of new country openings and Tim hit some of those and we anticipate to have new countries again this year I don't know we will hit record but the build of that does take a little bit of time so the first couple of years you will see minimal units but as we expand in those unites the scale will provide the growth and obviously the guidance indicates coming off last year's 204 units openings, our range in the case we are going to see nice growth from a development perspective in 2017.

Okay. Thanks for that. And then Lance on the corporate cost of goods it was slightly lower year-over-year and I imagine you are still seeing some benefits from favorable cheese contracts and perhaps lower meat and dough cost but I think you previously talked about obviously -- cost of goods as a percentage of revenue up 50 to 150 basis points this year do the cheese cost still look for that kind of increase?

Good morning Alex. I think given the cheese has come down a little bit relative to where we thought would be we are more in the 50 to 100 basis points. So we are going to take the top end of that range down a little bit for right now and you are right relative to the first quarter we have got some benefit from the forward pricing arrangements we had done and really we are able to keep the cheese increase very well in check in Q1?

Great. Thank you.

Thank you. And our next question comes from the line of Will Slabaugh with Stephens, Inc. your line is now open.

\Yes thanks guys. First question on the commissary that number looked a little higher than what we thought was going to be. It looks like that growth is up around 10% this quarter. I think 12% or so is the growth last quarter and I am wondering what's driving that and how we should think about that growth rate in the coming quarters?

Sure and -- talking about the revenue number correct?

Correct.

All right. So we have a fixed 6 penny margins on our cheese which is the biggest single item that’s about sales so about 30% to 35% of the cost of pizza so when you see the price of cheese go up and it was up about $0.14 on the block in the first quarter what you are going to see is you are going to see the gross revenue number go up, dollar margin then change so the percentage margin actually comes down a little bit but that's what drove that increase of the 17 or so million dollar the big piece that was in fact the cheese increase. There was also an increase in pizza though.

Got you. That's helpful. On the G&A side that came down pretty nicely and I am curious where that flexibility came from in the quarter and as you think about G&A for the year if that changes much of the outlook for how we think about the remaining quarters.

Sure so during the quarter couple of things that are mentioned in queue that I mentioned in the last, we did have a little bit of lower incentive cost some of our bonuses were down and it's really don't necessarily don't want to see frankly. We had favorable bad debt experience and then we did have a little bit of timing from some marketing spend in the United Kingdom that runs through our G&A for the full-year what I would expect is we are going to be priced slightly down as a percentage you should see some leverage on the revenue against the revenue lines so we will be down as a percentage versus last year I am not going to put a number on it but I would say that a little bit.

Great and last think I had was on the tax rate you mentioned the benefit you had this quarter I am curious if the guidance now includes the benefit going forward than that?

No I am glad that you asked that question. There have been several reports of that are kind of asking that question. So I reiterated this at the end of last scripted remarks and I will say it again guidance is 8% to 12% it includes the 53rd week but it excludes the impact from the stock comp guidance. So what you should see certainly the stock comps accounting is going to be positive for us so at a minimal what I would tell you is, you wouldn't see the guidance coming down at least not due to stock comp.

Got it. Thank you.

Thank you and our next question comes from the line of Peter Saleh with BTIG LLC. Your line is now open.

Yes, great. Thank you. I wanted to ask about the overall promotional environment and maybe what you guys are seeing today versus what you saw the past couple of months and just give us a little bit history lessons on its roll. I am just wondering as the promotional environment, has it subsided at all on the discounting side and historically is it more aggressive in the first quarter than it is in the second and third quarter?

Hey Peter it's Steve. Good question. I would say just overall just to hit the first part of your question the competitive environment remains main consistent in 2017 versus where we were in 2016 across the category. It's just if you think about pricing for Papa John's pricing as the tactical element of what we do some of the brands will use pricing as more of a strategy and is really the brand positioning clearly our brand positioning is on quality. We will leverage pricing to be competitive and ensure that we continue to take and grow share within the US business but it's not our brand positioning. To your question on the first quarter yes it has historically least over the last three to four years been extremely more aggressive in the first quarter than the trialing three quarters however, the environment is ever evolving and its performance is down or commodity cost decrease from time to time you will see have tendency to see the competitors get have windows of more aggressiveness throughout the year. But we have our plans in place to be able to react to that and we do pick our spots where we might get a little bit more aggressive. The digital side of the business is clearly an area where we are going to continue to apply and make sure that we are being very targeted with our segments and in fact I might turn it over to Mike Nettles just to make some comments where we are at in the digital space. Our new chief information and digital officer. Mike?

Thank you Steve. So I think a big part of what we have in opportunity forward is you are going to see lot more of this is tying our digital marketing into the rest of our digital properties. So we have got a tremendous opportunity to leverage unique meal experiences if you are watching NFL game and we are have a deep integrated sponsorship with NFL. We can tie that into half time promotions make sure that the customers are well aware that they are hungry they are thinking of snacks for their parties they are able to get those quickly. We present them to them as opportunities ahead of the game so they are not actually waiting on it. Use Papa Track to actually tell them that hey it's going to be there on time for half time and kind of run with those types of programs wherever possible. I think we have many other opportunities you are going to see this year where we are going to be continuing to tie that digital outreach particularly through our social media channels where we get the opportunity to really connect with customers more to targeted demographics segment as oppose to kind of broad brush the entire industry. So more to come on that. And don't necessarily want to reveal all those things we are doing but you are going to see a lot of those things repeating themselves over the course of the next several quarters.

Thanks and then I just wanted to come back to the I guess using price as a lever comment I mean when looking at your cost in the first quarter how should we think about I know you don't want to give us exact numbers but ticket versus your traffic components of getting to that 2% number in the U.S.?

Yes Peter it's Steve. Clearly we don't give specific on our traffic versus our ticket but what I will say is the last five years we have had traffic growth and we don't intent to move off of that for our full-year in 2017 it is delicate balance from promotional winter to promotional window and to Mike's point on how we leverage the digital side of the business to drive the overall sales component and how that might impact on the traffic side but we are going to remain focused on traffic because for our brands all about market share growth and a very fragmented category where a national chain still have less than half of the overall shares. So we know that we need to remain competitive and have good balance pricing strategy but leveraging the strength of our brand positioning as I alluded to before pricing for us is not a strategy it is a tactical element on how we drive the overall business.

Yes Peter this is John. If you look at from 40,000 feet the category, Papa Murphy is losing pizzas loosing big, McDonald's is frankly on fire and Papa John's is just solid and just very consistent performing and that's the big picture of this thing.

Great. And then, the last question I had is on the sports partnership I think last quarter or few months ago we were talking about maybe how the NFL partnership was a little bit less relevant in the fourth quarter than it had been in prior years now we talk about the major league baseball partnerships and other partnerships. Can you just talk about how relevant some of these partnerships still are and you are confident in them to driving results going forward?

Sure Peter. It's Steve and not necessarily to your question around relevance. We do believe the NFL the major league baseball NHRA all of our team partnerships remain relevant and we are relevant in the fourth quarter and continue to be in the first quarter. Just the evolution of what's happenings from the frequency and reach standpoint on television to moving to digital so there was decline in the overall ratings with the NFL what we talked about little bit in the first quarter we do spend still a significant amount of our media investments in television and a significant portion of that television media investment is in the NFL. So when the ratings are down that impact a little bit of our reach on that side as we think about the 2017 season in fact the folks with the NFL were in just a couple of short weeks ago and they’re very optimistic about their plans for the 2017 season and how we’re going to integrate into the NFL and take advantage of those opportunities. So, we still feel really good about our play just in terms of league partnerships, the individual team partnerships, they are relevant and they’re part and component of our positioning. But our number one positioning and key differentiator is quality and the quality of our ingredients and that has been that way for the last 33 years and frankly we’ll always be the key differentiator. The sports is more the vehicle to deliver that message.

All right, thank you very much.

Thank you, Peter.

Thank you. And our next question comes from the line of Chris O'Cull with KeyBanc. Your line is now open. Chris O'Cull: Thanks, good morning guys.

Hi, Chris.

Hi, Chris. Chris O'Cull: Lance, store profits were down year-over-year with a 2% comp. so, what comp do you think is needed to keep store profit dollars flat?

Chris, your question is really going to margin. So, let me start with that, I’m not going to give you an exact comp it takes. Because frankly, it kind of varies that quarter and what else is going on. I will say our restaurant margins were down a little bit over a 1.5% as we’ve mentioned in our followings a little bit in the scripts. We have a little bit higher rates with twice with minimum wage, you had higher norm on auto claims cost which is been a recurring theme as you’re aware. Had some mileage increases due to fuel. It’s fair to think I’d point out, we’re not going to give specific guidance on restaurant margins as you can imagine. But we certainly don’t expect our full-year margin to be off or be significantly off anyway with 20% or so we ran both for the full-years in 2015 and ’16. So, I’m not saying it’s going to look exactly like those years but we don’t expect to see anywhere near the decline we saw in Q1. One of the things about Q1 is that Q1 ’16 had a very strong margin. It had very low commodities as you recall and it also had or did not have any of the insurance charges we’ve seen in some of the other quarters. So, in comparison its average looked it for that reason. So, Chris I don’t think the comp really that we need to run is any different than it’s been in the past. I just think the margins look a little bit fine, given really some of the things we’ve had in last year this time. Chris O'Cull: Were franchise profits down year-over-year in the first quarter?

Chris, its Steve. And I think you’re probably going to see something fairly similar to the corporate performance. The comp spread was a little bit different, I think they ran a 170 around at three. But just in terms of margin, yes, disparity from where the corporate restaurants were at let’s say it’s by relative, consistent. Chris O'Cull: Steve, is it fair to assume that franchisees could be at the low end of the comp range, given the recent underperformance?

Well, I mean I think if you look at the historical results that we reported over the last several years, our corporate restaurants have outpaced the franchisees and we certainly don’t wouldn’t give any indication that that’s going to change in 2017. The spread however has decreased over the last couple of years. So, corporates probably going to outperform franchisees again in ’17. Chris O'Cull: Okay. Just on, I’m trying to understand the unit development and then some of the closures that occurred in the quarter and I mean the comps have been positive, you’ve got some favorable chief prices now. But I mean, you would think franchisees would be more inclined to the opening stores, has the discount, I mean, then the discount environment, promotional environment, has that deterred franchisees from wanting to open more stores and I’m talking domestic.

Chris, it’s Steve again. Now, has not, we still got aggressive openings in the stowaway. As Tim alluded to before, the strong pipeline and there’s heavy on the increased side of interest in the Papa John’s brand. The closure side as I alluded to before, is the 30 closures in the domestic side of the business, nearly 70% of them are in a couple of concentrated markets where we still got under penetration in terms of number of units. The AUVs in those markets is still rather low and we’ve also had some more significant wage pressure in those markets in addition to the occupancy cost being higher in those individual markets. I pointed out the North East. So, scenario where is a lot of opportunity for the Papa John’s brand but trying to find the right franchisees to move that business forward is really the focus that admin and his team are doing there. But again, at the end of the day it was more of a function of the timing and the number of closures that occurred in the first quarter. So, we certainly don’t think that we’ll see that kind of a trend on the full-year and I’ll just keep going back to the full-year guidance and we incorporate a lot of this thinking into our development goals in the 4% to 5%. So, 204 to 250 something, Lance, help me on the number side, I think it’s 204 to 255 on that 4% to 5% based on the basis of the number of units we had at the number of the year. Chris O'Cull: Okay, fair enough. And then lastly just, Lance, why did online order, the online ordering business margin improve during the quarter?

Chris, more than anything else, it’s just the increased volume you saw as go up. Actually we slightly exceeded 60% on the full-year -- full quarter basis rather for the online business. So, it’s just a matter of margins going up and leveraging the fixed cost that we have on that side of the business. Chris O'Cull: No pricing changes to the franchisees?

No.

No. Chris O'Cull: Okay, great. Thanks, guys.

Sure, thanks Chris.

Thank you. [Operator Instructions] And our next question comes from the line of Mark Smith with Feltl and Company. Your line is now open.

Hi, guys. Most of my questions have been answered. But just wanted if you could speak to the digital as that continues to grow. Do you see some regional or even metro versus real differences and how many people are using digital for ordering and does that give an indication of maybe where that business can continue to grow?

Hi Mark, great question, this is Mike Nettles. So, we don’t really see a difference in terms of overall demographics that you’re not seeing in the marketplace in general. I mean, you’re seeing a higher preponderance probably of your Gen Zs and your millennial and so forth, the favor. What we’re seeing the biggest change is probably the number of our customers who have quickly gravitated and stick to use of the mobile devices. I think mobile device use in general will continue to be in a very aggressive trend. We’re actually looking for ways to try to leverage some partnerships in that area. We had a very successful promotion this year with T-Mobile not too recently. And there’s some opportunity for us to really just recognize that mobile devices are such a unique part of the everyday experience of all consumers that people feel more comfortable using them. They feel more in control of the experience and that gives us an opportunity to really leverage that better ingredients better pizza. But also a better ordering experience overall. So, not so much a difference in terms of different types of people, different segments, but certainly we’re seeing a big push on the mobile and a lot of our development investment and effort is on that platform accordingly.

And Mark, this is John. The digital is the future of this business. One of the negatives on the execution part of running a Papa John’s restaurant is having to answer the phones. And we have weeks on corporate, where we’re in the 60s on digital percentages. I think in two or three years the digital will be 75% to 80% of our orders.

Mark, its Steve. I’d just add one more piece as we’ve talked about this on the road with the investment community, and it kind of ties to what both Mike and John were saying there. Is that some of this is just timing of adoption rate. So, our corporate restaurants were early adopters in the marketing initiatives to drive the digital traffic. So, as John said, our overall corporate business is in the mid-60s, but we now have multiple markets that are average on a weekly basis over 70% of digital. I while we have spoken the fact that we believe that the opportunity to get the 80% plus over the next several years here.

Okay. And then just following-up on that. As you’ve gone to 60% and as you have less people answering the phone, have you been able to cut some labor or is that the volume within the restaurant kept that labor but maybe made it more efficient labor. And then also, can you speak to the difference in check from the digital order compared to a phone-in order. Are you executing on that upsell and getting a higher ticket on those digital orders?

Sure Mark, its Steve. I’ll hit the last part of your question first. So, as we have since the inception in 2001 of being the first national pizza chain to launch online ordering capability. The ticket average has been every year higher for an online customer than it is for an offline customer. That trend has continued into 2017. But not only higher, ticket average will also see higher levels of frequency and better overall customer experience. The introduction of our loyalty program which is also the first in the pizza category back in 2011. I think about the ticket average and frequency level there versus a traditional online customer, it’s even higher within the loyalty program. So, those initiatives and the functions of the future of the business are really the benefits of moving offline customers into the digital side. The work that I know Mike will do on data segmentation and personalization of customers is really the areas where we’re in the very much in the infancy of those opportunities and the work that Mike’s team will be doing over the next several years are really the benefits and the real improvements. So, we can drop to the overall margin side. The other part of your question, help me?

Labor.

On the labor side.

Labor.

So, Labor, now thank you. So, most of the benefits that we’re getting from an efficiency standpoint, Mark, have been reinvested into customer service. As you hear us like a broken record on customer experience and the benefits of customer experience to increase overall market share. We still believe that there is an inflection point. Where we reach a certain level of online mix, or there will be some efficiencies in the restaurant to drive some potential improvements in the labor side of the business. But at this stage of the game over the last several years, we really been doing more investment with the efficiencies to drive the benefit on the customer side.

Great, that’s helpful. Thank you.

Thank you, Mark.

Thank you. And we have a follow-up question from the line of Alton Stump with Longbow Research. Your line is now open.

Yes, thank you. And sort of make it back to in the queue. Just wanted to ask about kind of the questions earlier. On the first quarter, franchisees obviously would pick up in discounting. I was just curious if they were happy with the response you guys saw from that in the mid to late first quarter timeframe and what their outlook is over rest of the year and heading into 2Q and beyond, from a promotional strategy standpoint?

Sure, it’s Steve. I’m going to, I think in general franchisees understand the benefit of driving topline sales and taking market share. We have a metric that we look at which has got profit after FLM and that’s profit after Food, Labor and Mileage. So, that’s a component and if we drive enough sales, it can offset the potential of an increased food cost or increased labor. So, our profit after FLM numbers over the last several years have been very strong coming off a record profitability year for our franchisees in 2016. So, I think they understand the environment, they understand that we’ll have to make some decisions from time-to-time to implement some pricing and tactics to ensure that we’re still driving traffic. But overall, I think our franchise have been have been very happy and understand and support the promotional decisions.

Hi Al, it’s John. I think the key to franchising is a healthy relationship collaboration and I give Steve the credit on this one. This the franchisees, we have the best relationship with our franchisees in the history of over the company right now. And that’s critical.

Got it. And then one last one. Just on the outlook on the comp front. Of course you guys sticking to 2% to 4% guidance. If there is or is it more difficult, just to get the midpoint of that range would imply several 100 basis point acceleration into your stack, system-wide North America versus wages put up in the first quarter. What kind of gives you confidence that you guys get into that, full-year guidance range?

Sure, Al. it’s Steven again. I just kind of spoke to this earlier that if you look at historically, just go back point to last year coming out of the gates a little bit softer, the two year stocks. A little softer in the first quarter because of the competitive activity and the investment that we saw from our competitors. If you think about the trailing three quarters, the initiatives that we put in place last year are going to plus up on those partnerships at the national level, at the local level. And certainly, we’ve got some things from a digital perspective that we also intended to drive the traffic. So, I think we feel very comfortable on that 2% to 4% guidance and despite the stocks get into your point a little bit higher in the trailing three quarters.

Great. Thanks so much, again.

Thank you, Alton.

Thank you. And I’m showing no further questions at this time. I would now like to turn the call back to Mr. Lance Tucker, CFO, for any closing remarks.

Thank you, Chelsea. We appreciate everybody’s time. We will talk to you in a quarter.

Thank you, Chelsea.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.