Papa John's Announces First Quarter 2012 Results
2012 Earnings Guidance Increased on Strong First Quarter Results
Highlights
-
First quarter earnings per diluted share of
$0.69 in 2012 ($0.79 , excluding the net impact of a previously announced marketing incentive contribution, or an increase of 23.4% over earnings per diluted share of$0.64 in 2011) -
System-wide comparable sales increased 1.1% for
North America and increased 8.4% for international during the quarter - 50 worldwide net unit openings during the quarter
-
2012 earnings guidance increased to
$2.40 to $2.50 per diluted share and increased to 2.5% to 4.5% for international comparable sales
"We had an excellent first quarter," said
First quarter 2012 revenues were
First Quarter | |||||||
Mar. 25, |
Mar. 27, |
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Global restaurant sales growth (a) | 6.1 | % | 11.0 | % | |||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
6.3 | % | 10.7 | % | |||
Comparable sales growth (b) | |||||||
Domestic company-owned restaurants | 3.0 | % | 6.7 | % | |||
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0.5 | % | 5.9 | % | |||
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1.1 | % | 6.1 | % | |||
System-wide international restaurants | 8.4 | % | 5.6 | % | |||
(a) |
Includes both company-owned and franchised restaurant sales. |
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(b) |
Represents the change in year-over-year sales for the same base of
restaurants for the same fiscal periods. Comparable sales results
for restaurants operating outside of |
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Management believes global restaurant and comparable sales growth
information, as defined in the table above, is useful in analyzing our
results since our franchisees pay royalties that are based on a
percentage of franchise sales. Franchise sales generate commissary
revenue in
Marketing Incentive Contribution
As previously announced, in connection with a new multi-year supplier
agreement, the company received a
PJNMF elected to distribute the
The overall impact of these transactions, defined as the "Incentive
Contribution," in the first quarter of 2012 was a net reduction to
income before income taxes of approximately
First Quarter | ||||||||
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(In thousands, except per share amounts) | 2012 | 2011 | ||||||
Income before income taxes, as reported | $ | 27,138 | $ | 26,780 | ||||
Incentive Contribution | 3,721 | - | ||||||
Income before income taxes, excluding Incentive Contribution | $ | 30,859 | $ | 26,780 | ||||
Net income, as reported | $ | 16,744 | $ | 16,427 | ||||
Incentive Contribution | 2,439 | - | ||||||
Net income, excluding Incentive Contribution | $ | 19,183 | $ | 16,427 | ||||
Earnings per diluted share, as reported | $ | 0.69 | $ | 0.64 | ||||
Incentive Contribution | 0.10 | - | ||||||
Earnings per diluted share, excluding Incentive Contribution | $ | 0.79 | $ | 0.64 | ||||
The non-GAAP measures shown above, which exclude the Incentive Contribution, should not be construed as a substitute for or a better indicator of the company's performance than the company's GAAP measures. Management believes presenting the financial information excluding the impact of the Incentive Contribution is important for purposes of comparison to prior year results. In addition, management uses these non-GAAP measures to allocate resources, and analyze trends and underlying operating performance. Annual cash bonuses, and certain long-term incentive programs for various levels of management, were based on financial measures that excluded the Incentive Contribution.
Revenue Highlights
Consolidated revenues were
-
Domestic company-owned restaurant sales increased
$5.1 million , or 3.7%, reflecting an increase of 3.0% in comparable sales during the first quarter of 2012. -
North America franchise royalty revenue increased approximately$800,000 , or 4.0%, primarily due to an increase in net franchise units over the prior year. -
Domestic commissary sales increased
$9.9 million , or 7.8%, due to an increase in the volume of sales and increases in the prices of certain commodities. -
International revenues increased
$4.1 million , or 32.1%, primarily due to an increase in the number of restaurants and an increase in comparable sales of 8.4% calculated on a constant dollar basis.
Operating Highlights
First quarter 2012 income before income taxes was
First Quarter | |||||||||||||||||
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Increase | |||||||||||||||
2012 | 2011 | (Decrease) | |||||||||||||||
Domestic company-owned restaurants (a) | $ | 12,321 | $ | 10,883 | $ | 1,438 | |||||||||||
Domestic commissaries | 11,166 | 9,554 | 1,612 | ||||||||||||||
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18,140 | 18,009 | 131 | ||||||||||||||
International | 272 | (816 | ) | 1,088 | |||||||||||||
All others | 395 | (378 | ) | 773 | |||||||||||||
Unallocated corporate expenses (b) | (15,166 | ) | (9,769 | ) | (5,397 | ) | |||||||||||
Elimination of intersegment loss (profit) | 10 | (703 | ) | 713 | |||||||||||||
Total income before income taxes | $ | 27,138 | $ | 26,780 | $ | 358 | |||||||||||
(a) |
Includes the benefit of a |
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(b) |
Includes a |
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First quarter 2012 income before income taxes increased approximately
-
Domestic company-owned restaurants operating income improved
approximately
$400,000 , excluding the benefit of a$1.0 million advertising credit from PJNMF related to the Incentive Contribution, primarily due to an increase of 3.0% in comparable sales. -
Domestic commissaries operating income increased
$1.6 million primarily due to an increase in the number of North American restaurants. -
International operating income improved due to increased royalties
attributable to strong comparable sales of 8.4% and net unit growth.
In addition, our
United Kingdom results improved due to restaurant openings and our company-owned restaurant results improved inBeijing, China . - The improvement in the All others segment was primarily due to an improvement in the operating results of our eCommerce business unit.
The first quarter 2012 effective income tax rate was 33.4%, representing a decrease of 1.1% from the first quarter 2011 rate of 34.5%. Our effective income tax rate may fluctuate from quarter to quarter for various reasons, including the settlement or resolution of specific federal and state issues.
The company's free cash flow for the first quarters of 2012 and 2011 was as follows (in thousands):
First Quarter | ||||||||||
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Mar. 27, | |||||||||
2012 | 2011 | |||||||||
Net cash provided by operating activities | $ | 44,093 | $ | 26,687 | ||||||
Purchase of property and equipment | (6,403 | ) | (4,823 | ) | ||||||
Free cash flow * | $ | 37,690 | $ | 21,864 | ||||||
*The increase in free cash flow is due to favorable changes in working capital. |
We define free cash flow as net cash provided by operating activities
(from the consolidated statements of cash flows) less the purchase of
property and equipment. We view free cash flow as an important measure
because it is one factor that management uses in determining the amount
of cash available for discretionary investment. Free cash flow is not a
term defined by accounting principles generally accepted in
See the Management's Discussion and Analysis of Financial Condition and
Results of Operations section of our Quarterly Report on Form 10-Q filed
with the
Global Restaurant Unit Data
At
Domestic |
Franchised |
Total North |
International | System-wide | ||||||||||||||||
First Quarter |
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Beginning - |
598 | 2,463 | 3,061 | 822 | 3,883 | |||||||||||||||
Opened | - | 47 | 47 | 23 | 70 | |||||||||||||||
Closed | (1 | ) | (12 | ) | (13 | ) | (7 | ) | (20 | ) | ||||||||||
Ending - |
597 | 2,498 | 3,095 | 838 | 3,933 | |||||||||||||||
Restaurant unit growth (decline) | (1 | ) | 35 | 34 | 16 | 50 | ||||||||||||||
% increase (decrease) | (0.2 | %) | 1.4 | % | 1.1 | % | 1.9 | % | 1.3 | % | ||||||||||
Our development pipeline as of
Acquisition
As previously announced, effective
Share Repurchase Activity
The company repurchased 372,000 shares of its common stock at an average
price of
There were 24.4 million diluted weighted average shares outstanding for
the first quarter, representing a decrease of 5.1% over the prior year
comparable period. Diluted earnings per share increased
2012 Earnings Guidance Update
The company raised its 2012 guidance for diluted earnings per share and international comparable sales based on solid first quarter results and reaffirmed all other guidance. The update is as follows:
Updated Guidance | Previous Guidance | |||
Diluted earnings per share (a) |
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International comparable sales | +2.5% to +4.5% | +1.5% to +3.5% | ||
(a) |
The 2012 fiscal year will consist of 53 weeks. The impact of the 53rd
week of operations is expected to increase earnings per share by
approximately |
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The company also announced a change in its policy for providing guidance related to key operating assumptions and earnings. Effective at the end of 2012, the company no longer plans to issue a separate press release in December to announce key operating assumptions and earnings guidance for the following year. Instead, the company now plans to include such guidance with the fourth quarter and full year earnings press release, generally issued in February. Please visit the investor relations section of our website for a list of upcoming earnings press release and earnings conference call dates for fiscal 2012 results.
Conference Call
A conference call is scheduled for
Forward-Looking Statements
Certain matters discussed in this press release and other company communications constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as "expect," "estimate," "believe," "anticipate," "will," "forecast," "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 statements may relate to projections concerning business performance, revenue, earnings, contingent liabilities, commodity costs, margins, unit growth, 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. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements.
The risks, uncertainties and assumptions that are involved in our
forward-looking statements include, but are not limited to: aggressive
changes in pricing or other marketing or promotional strategies by
competitors which may adversely affect sales, including an increase in
or continuation of the aggressive pricing and promotional environment;
new product and concept developments by food industry competitors; the
ability of the company and its franchisees to meet planned growth
targets and operate new and existing restaurants profitably, which could
be impacted by challenges securing financing, finding suitable store
locations or securing required domestic or foreign government permits
and approvals; our ability to successfully integrate the operations of
franchised restaurants we acquire; the credit performance of our
franchise loan program; adverse macroeconomic or business conditions;
general economic and political conditions and resulting impact on
consumer buying habits; changes in consumer preferences; increases in or
sustained high costs of food ingredients and other commodities, paper,
utilities and fuel; increased employee compensation, benefits, insurance
and similar costs (including the impact of federal health care
legislation); the ability of the company to pass along increases in or
sustained high costs to franchisees or consumers; the impact of current
or future legal claims and current or proposed legislation impacting our
business; the impact that product recalls, food quality or safety
issues, and general public health concerns could have on our
restaurants; currency exchange and interest rates; credit risk
associated with parties to leases of restaurants and commissaries,
including those Perfect Pizza locations formerly operated by us, for
which we remain contractually liable; risks associated with security
breaches, including theft of company and customer information; and
increased risks associated with our international operations, including
economic and political conditions in our international markets and
difficulty in meeting planned sales targets for our international
operations. These and other risk factors are discussed in detail in
"Part I. Item 1A. - Risk Factors" of the Annual Report on Form 10-K for
the fiscal year ended
For more information about the company, please visit www.papajohns.com.
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Consolidated Statements of Income | ||||||||||||
Three Months Ended | ||||||||||||
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(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | ||||||||||
Revenues: | ||||||||||||
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$ | 143,815 | $ | 138,671 | ||||||||
Franchise royalties | 20,518 | 19,731 | ||||||||||
Franchise and development fees | 222 | 185 | ||||||||||
Domestic commissary sales | 137,610 | 127,672 | ||||||||||
Other sales | 12,258 | 13,447 | ||||||||||
International: | ||||||||||||
Royalties and franchise and development fees | 4,486 | 3,762 | ||||||||||
Restaurant and commissary sales | 12,367 | 8,999 | ||||||||||
Total revenues | 331,276 | 312,467 | ||||||||||
Costs and expenses: | ||||||||||||
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Cost of sales | 32,456 | 32,100 | ||||||||||
Salaries and benefits | 38,813 | 37,649 | ||||||||||
Advertising and related costs | 12,699 | 12,789 | ||||||||||
Occupancy costs | 7,898 | 7,869 | ||||||||||
Other operating expenses | 20,418 | 19,915 | ||||||||||
Total domestic Company-owned restaurant expenses | 112,284 | 110,322 | ||||||||||
Domestic commissary and other expenses: | ||||||||||||
Cost of sales | 112,838 | 106,443 | ||||||||||
Salaries and benefits | 9,003 | 9,011 | ||||||||||
Other operating expenses | 14,306 | 13,585 | ||||||||||
Total domestic commissary and other expenses | 136,147 | 129,039 | ||||||||||
International operating expenses | 10,392 | 7,728 | ||||||||||
General and administrative expenses | 31,596 | 29,074 | ||||||||||
Other general expenses | 5,674 | 781 | ||||||||||
Depreciation and amortization | 7,927 | 8,312 | ||||||||||
Total costs and expenses | 304,020 | 285,256 | ||||||||||
Operating income | 27,256 | 27,211 | ||||||||||
Net interest expense | (118 | ) | (431 | ) | ||||||||
Income before income taxes | 27,138 | 26,780 | ||||||||||
Income tax expense | 9,068 | 9,231 | ||||||||||
Net income, including noncontrolling interests | 18,070 | 17,549 | ||||||||||
Net income attributable to noncontrolling interests | (1,326 | ) | (1,122 | ) | ||||||||
Net income, net of noncontrolling interests | $ | 16,744 | $ | 16,427 | ||||||||
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$ | 0.70 | $ | 0.64 | ||||||||
Earnings per common share - assuming dilution | $ | 0.69 | $ | 0.64 | ||||||||
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24,053 | 25,484 | ||||||||||
Diluted weighted average shares outstanding | 24,438 | 25,757 |
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Condensed Consolidated Balance Sheets | ||||||
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December 25, | |||||
2012 | 2011 | |||||
(In thousands) | (Unaudited) | (Note) | ||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 45,112 | $ | 18,942 | ||
Accounts receivable, net | 30,251 | 28,169 | ||||
Notes receivable, net | 4,278 | 4,221 | ||||
Inventories | 18,969 | 20,091 | ||||
Prepaid expenses and other current assets | 13,737 | 13,732 | ||||
Deferred income taxes | 6,858 | 7,636 | ||||
Total current assets | 119,205 | 92,791 | ||||
Property and equipment, net | 184,167 | 185,132 | ||||
Notes receivable, less current portion, net | 11,498 | 11,502 | ||||
Goodwill | 75,328 | 75,085 | ||||
Other assets | 26,407 | 25,872 | ||||
Total assets | $ | 416,605 | $ | 390,382 | ||
Liabilities and stockholders' equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 34,953 | $ | 32,966 | ||
Income and other taxes payable | 13,819 | 3,969 | ||||
Accrued expenses and other current liabilities | 46,468 | 44,198 | ||||
Total current liabilities | 95,240 | 81,133 | ||||
Deferred revenue | 8,478 | 4,780 | ||||
Long-term debt | 50,000 | 51,489 | ||||
Other long-term liabilities | 23,795 | 22,014 | ||||
Long-term accrued income taxes | 3,993 | 3,597 | ||||
Deferred income taxes | 7,264 | 9,147 | ||||
Total liabilities | 188,770 | 172,160 | ||||
Total stockholders' equity | 227,835 | 218,222 | ||||
Total liabilities and stockholders' equity | $ | 416,605 | $ | 390,382 | ||
Note: The balance sheet at |
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Consolidated Statements of Cash Flows | ||||||||||
Three Months Ended | ||||||||||
(In thousands) |
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(Unaudited) | (Unaudited) | |||||||||
Operating activities | ||||||||||
Net income, including noncontrolling interests | $ | 18,070 | $ | 17,549 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for uncollectible accounts and notes receivable | 547 | 39 | ||||||||
Depreciation and amortization | 7,927 | 8,312 | ||||||||
Deferred income taxes | (1,057 | ) | 2,664 | |||||||
Stock-based compensation expense | 1,694 | 1,795 | ||||||||
Excess tax benefit on equity awards | (129 | ) | (107 | ) | ||||||
Other | 678 | 43 | ||||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||
Accounts receivable | (2,670 | ) | (3,011 | ) | ||||||
Inventories | 1,122 | (28 | ) | |||||||
Prepaid expenses and other current assets | (5 | ) | (239 | ) | ||||||
Other assets and liabilities | 764 | (721 | ) | |||||||
Accounts payable | 1,987 | (4,818 | ) | |||||||
Income and other taxes payable | 9,850 | 4,874 | ||||||||
Accrued expenses and other current liabilities | 1,221 | 296 | ||||||||
Long-term accrued income taxes | 396 | 366 | ||||||||
Deferred revenue | 3,698 | (327 | ) | |||||||
Net cash provided by operating activities | 44,093 | 26,687 | ||||||||
Investing activities | ||||||||||
Purchase of property and equipment | (6,403 | ) | (4,823 | ) | ||||||
Loans issued | (687 | ) | (165 | ) | ||||||
Repayments of loans issued | 703 | 1,468 | ||||||||
Other | 5 | - | ||||||||
Net cash used in investing activities | (6,382 | ) | (3,520 | ) | ||||||
Financing activities | ||||||||||
Net repayments on line of credit facility | (1,489 | ) | (51,000 | ) | ||||||
Excess tax benefit on equity awards | 129 | 107 | ||||||||
Tax payments for restricted stock | (303 | ) | - | |||||||
Proceeds from exercise of stock options | 3,728 | 1,314 | ||||||||
Acquisition of Company common stock | (13,820 | ) | (4,119 | ) | ||||||
Distributions to noncontrolling interests | - | (1,729 | ) | |||||||
Other | 82 | (10 | ) | |||||||
Net cash used in financing activities | (11,673 | ) | (55,437 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 132 | (6 | ) | |||||||
Change in cash and cash equivalents | 26,170 | (32,276 | ) | |||||||
Cash and cash equivalents at beginning of period | 18,942 | 47,829 | ||||||||
Cash and cash equivalents at end of period | $ | 45,112 | $ | 15,553 |
Papa John's
Chief
Financial Officer
Source: Papa John's
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