Papa John's Announces First Quarter 2013 Results
2013 Earnings Guidance Increased; First Quarter Comparable Sales
Increases of 1.6% for
Highlights
-
First quarter earnings per diluted share of
$0.85 in 2013 compared to$0.69 in 2012 ($0.84 in 2013 and$0.79 in 2012, or an increase of 6.3%, excluding the impact of the 2012 Incentive Contribution) -
System-wide comparable sales increases of 1.6% for
North America and 8.2% for international during the quarter - 34 worldwide net unit openings during the quarter
-
2013 earnings guidance increased to a range of
$2.90 to$3.00 per diluted share, from prior guidance of$2.85 to$2.95 per diluted share -
Borrowing capacity on the line of credit increased to
$300 million from$175 million
"We are pleased to maintain our momentum in the first quarter,
with solid increases in EPS, global comp sales, and unit builds," said
Papa John's founder, chairman and chief executive officer,
First quarter 2013 revenues were
Marketing Incentive Contribution
The following table reconciles our GAAP financial results to our results excluding the Incentive Contribution for the first quarter of 2013 versus the first quarter of 2012:
| First Quarter | |||||||
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| (In thousands, except per share amounts) | 2013 | 2012 | |||||
| Income before income taxes, as reported | $ | 30,297 | $ | 27,520 | |||
| Incentive Contribution (a) | (250 | ) | 3,721 | ||||
| Income before income taxes, excluding Incentive Contribution | $ | 30,047 | $ | 31,241 | |||
| Net income, as reported | $ | 19,306 | $ | 16,981 | |||
| Incentive Contribution (a) | (165 | ) | 2,439 | ||||
| Net income, excluding Incentive Contribution | $ | 19,141 | $ | 19,420 | |||
| Earnings per diluted share, as reported | $ | 0.85 | $ | 0.69 | |||
| Incentive Contribution (a) | (0.01 | ) | 0.10 | ||||
| Earnings per diluted share, excluding Incentive Contribution | $ | 0.84 | $ | 0.79 | |||
(a) As previously disclosed, in connection with a 2012 multi-year
supplier agreement, the Company received a
The results shown in the table above and elsewhere in this press
release, which exclude the Incentive Contribution, are not measures
defined by accounting principles generally accepted in
| First Quarter | |||||
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| Global restaurant sales growth (a) | 6.1% | 6.1% | |||
| Global restaurant sales growth, excluding the | |||||
| impact of foreign currency (a) | 6.5% | 6.3% | |||
| Comparable sales growth (b) | |||||
| Domestic company-owned restaurants | 3.9% | 3.0% | |||
|
|
0.8% | 0.5% | |||
|
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1.6% | 1.1% | |||
| System-wide international restaurants | 8.2% | 8.4% | |||
(a) Includes both company-owned and franchised restaurant sales.
(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
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
Revenue Highlights
Consolidated revenues were
-
Domestic company-owned restaurant sales increased
$14.1 million , or 9.8%, primarily due to an increase of 3.9% in comparable sales during the first quarter of 2013 and the net acquisition of 50 restaurants in theDenver andMinneapolis markets from a franchisee in the second quarter of 2012. -
North America franchise royalty revenue increased$215,000 , or 1.0%, as the increase in net franchise units over the prior year and positive comparable sales of 0.8% were substantially offset by reduced royalties attributable to the company's net acquisition of the 50 restaurants noted above. -
Domestic commissary sales increased
$6.3 million , or 4.6%, due to an increase in the volume of sales as well as increases in the prices of certain commodities. -
International revenues increased
$3.1 million , or 18.2%, primarily due to an increase in the number of restaurants and an increase in comparable sales of 8.2%, calculated on a constant dollar basis.
Operating Highlights
First quarter 2013 income before income taxes was
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Increase | ||||||||||
| (In thousands) | 2013 | 2012 | (Decrease) | |||||||||
| Domestic company-owned restaurants | $ | 10,956 | $ | 12,321 | $ | (1,365 | ) | |||||
| Less: Incentive Contribution (a) | - | 1,029 | (1,029 | ) | ||||||||
| Domestic company-owned restaurants,excluding | ||||||||||||
| Incentive Contribution | 10,956 | 11,292 | (336 | ) | ||||||||
| Domestic commissaries | 10,163 | 11,166 | (1,003 | ) | ||||||||
|
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18,222 | 18,140 | 82 | |||||||||
| International | 341 | 272 | 69 | |||||||||
| All others | 659 | 395 | 264 | |||||||||
| Unallocated corporate expenses | (9,518 | ) | (14,784 | ) | 5,266 | |||||||
| Less: Incentive Contribution (a) | 250 | (4,750 | ) | 5,000 | ||||||||
| Unallocated corporate expenses, excluding | ||||||||||||
| Incentive Contribution | (9,768 | ) | (10,034 | ) | 266 | |||||||
| Elimination of intersegment (profit) loss | (526 | ) | 10 | (536 | ) | |||||||
| Total income before income taxes, excluding | ||||||||||||
| Incentive Contribution (a) | $ | 30,047 | $ | 31,241 | $ | (1,194 | ) | |||||
(a) See Marketing Incentive Contribution table above for additional details and GAAP reconciliation.
First quarter 2013 income before income taxes decreased approximately
-
Domestic company-owned restaurants operating income decreased
approximately
$300,000 primarily due to an increase in commodity costs. In addition, the first quarter of 2012 included significant supplier incentives. These decreases were substantially offset by incremental profits associated with higher comparable sales of 3.9%. -
Domestic commissaries operating income decreased
$1.0 million . The decrease was primarily driven by a higher than usual profit margin in the first quarter of 2012. The 2013 profit margin was in line with the Company's expectations. We manage commissary results on a full year basis and anticipate the 2013 full year profit margin will approximate 2012.
These decreases were partially offset by improvements in all remaining
segments, as outlined in the table above. This includes our
International segment, which reported operating income of
The first quarter 2013 effective income tax rate was 32.9%, representing a decrease of 0.6% from the prior year rate of 33.5%. The lower tax rate in the first quarter of 2013 was primarily due to the reinstatement of certain 2012 tax credits under the American Taxpayer Relief Act of 2012. 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, a non-GAAP financial measure, for the first quarters of 2013 and 2012 was as follows (in thousands):
| First Quarter | ||||||||
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| 2013 | 2012 | |||||||
| Net cash provided by operating activities (a) | $ | 29,914 | $ | 44,093 | ||||
| Purchase of property and equipment (b) | (13,248 | ) | (6,403 | ) | ||||
| Free cash flow | $ | 16,666 | $ | 37,690 | ||||
(a) The decrease of approximately
(b) The increased purchases of property and equipment primarily relate
to spend on equipment for the planned
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 a factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by GAAP and as a result our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of the company's performance than the company's GAAP measures.
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 |
International |
System-wide | ||||||
| First Quarter | ||||||||||
|
Beginning - |
648 | 2,556 | 3,204 | 959 | 4,163 | |||||
| Opened | 1 | 31 | 32 | 28 | 60 | |||||
| Closed | - | (15) | (15) | (11) | (26) | |||||
|
Ending - |
649 | 2,572 | 3,221 | 976 | 4,197 | |||||
| Restaurant unit growth | 1 | 16 | 17 | 17 | 34 | |||||
| % increase | 0.2% | 0.6% | 0.5% | 1.8% | 0.8% |
Our development pipeline as of
Share Repurchase Activity
The following table reflects our repurchases for the first quarter of
2013 and subsequent repurchases through
| Period |
Number of |
Cost | ||||
| First Quarter 2013 | 549 | $ | 32,122 | |||
|
|
290 | $ | 17,733 | |||
There were 22.8 million diluted weighted average shares outstanding for
the first quarter, representing a decrease of 6.7% over the prior year
comparable period. Diluted earnings per share increased
2013 Earnings Guidance Update
The company raised its 2013 guidance for diluted earnings per share and reaffirmed all other guidance. The update is as follows:
| Updated Guidance | Previous Guidance | |||
| Diluted earnings per share |
|
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Line of Credit Increased to
As announced on
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 forward-looking statements may relate to projections or guidance concerning business performance, revenue, earnings, contingent liabilities, resolution of litigation, commodity costs, profit 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; and new product and concept developments by food industry competitors;
- changes in consumer preferences and adverse general economic and political conditions, including increasing tax rates, and their resulting impact on consumer buying habits;
- the impact that product recalls, food quality or safety issues, and general public health concerns could have on our restaurants;
- failure to maintain our brand strength and quality reputation;
- 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;
- increases in or sustained high costs of food ingredients and other commodities;
- disruption of our supply chain due to sole or limited source of suppliers or weather, drought, disease or other disruption beyond our control;
- increased risks associated with our international operations, including economic and political conditions in our international markets and difficulty in meeting planned sales targets and new store growth for our international operations;
- increased employee compensation, benefits, insurance, regulatory compliance and similar costs, including increased costs resulting from federal health care legislation;
- the credit performance of our franchise loan program;
- the impact of the resolution of current or future claims and litigation, and current or proposed legislation impacting our business;
- currency exchange or interest rates;
- failure to effectively execute succession planning, and our reliance on the services of our Founder and CEO who also serves as our brand spokesperson; and
- disruption of critical business or information technology systems, and risks associated with security breaches, including theft of company and customer information.
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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| (Unaudited) | (Unaudited) | |||||||
| (In thousands, except per share amounts) | ||||||||
| Revenues: | ||||||||
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$ | 157,898 | $ | 143,815 | ||||
| Franchise royalties | 20,733 | 20,518 | ||||||
| Franchise and development fees | 546 | 222 | ||||||
| Domestic commissary sales | 143,894 | 137,610 | ||||||
| Other sales | 12,607 | 12,258 | ||||||
| International: | ||||||||
| Royalties and franchise and development fees | 5,067 | 4,486 | ||||||
| Restaurant and commissary sales | 14,859 | 12,367 | ||||||
| Total revenues | 355,604 | 331,276 | ||||||
| Costs and expenses: | ||||||||
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| Cost of sales | 37,073 | 32,456 | ||||||
| Salaries and benefits | 43,272 | 38,813 | ||||||
| Advertising and related costs | 14,793 | 12,699 | ||||||
| Occupancy costs | 8,711 | 7,898 | ||||||
| Other operating expenses | 22,745 | 20,418 | ||||||
| Total domestic Company-owned restaurant expenses | 126,594 | 112,284 | ||||||
| Domestic commissary and other expenses: | ||||||||
| Cost of sales | 117,778 | 112,838 | ||||||
| Salaries and benefits | 10,067 | 9,003 | ||||||
| Other operating expenses | 16,007 | 14,306 | ||||||
| Total domestic commissary and other expenses | 143,852 | 136,147 | ||||||
| International operating expenses | 12,653 | 10,392 | ||||||
| General and administrative expenses | 33,158 | 31,596 | ||||||
| Other general expenses | 1,185 | 5,674 | ||||||
| Depreciation and amortization | 8,537 | 7,927 | ||||||
| Total costs and expenses | 325,979 | 304,020 | ||||||
| Operating income | 29,625 | 27,256 | ||||||
| Net interest income | 672 | 264 | ||||||
| Income before income taxes | 30,297 | 27,520 | ||||||
| Income tax expense | 9,978 | 9,213 | ||||||
| Net income, including redeemable noncontrolling interests | 20,319 | 18,307 | ||||||
| Income attributable to redeemable noncontrolling interests | (1,013 | ) | (1,326 | ) | ||||
| Net income, net of redeemable noncontrolling interests | $ | 19,306 | $ | 16,981 | ||||
| Basic earnings per common share | $ | 0.87 | $ | 0.71 | ||||
| Earnings per common share - assuming dilution | $ | 0.85 | $ | 0.69 | ||||
| Basic weighted average shares outstanding | 22,256 | 24,053 | ||||||
| Diluted weighted average shares outstanding | 22,806 | 24,438 | ||||||
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| Condensed Consolidated Balance Sheets | ||||||
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| 2013 | 2012 | |||||
| (In thousands) | (Unaudited) | (Note) | ||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 24,551 | $ | 16,396 | ||
| Accounts receivable, net | 44,792 | 44,647 | ||||
| Notes receivable, net | 3,181 | 4,577 | ||||
| Inventories | 23,922 | 22,178 | ||||
| Deferred income taxes | 7,575 | 10,279 | ||||
| Prepaid expenses and other current assets | 17,169 | 20,549 | ||||
| Total current assets | 121,190 | 118,626 | ||||
| Property and equipment, net | 198,559 | 196,661 | ||||
| Notes receivable, less current portion, net | 13,764 | 12,536 | ||||
| Goodwill | 78,065 | 78,958 | ||||
| Other assets | 31,707 | 31,627 | ||||
| Total assets | $ | 443,285 | $ | 438,408 | ||
| Liabilities and stockholders' equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 32,218 | $ | 32,624 | ||
| Income and other taxes payable | 11,672 | 10,429 | ||||
| Accrued expenses and other current liabilities | 53,577 | 60,528 | ||||
| Total current liabilities | 97,467 | 103,581 | ||||
| Deferred revenue | 6,892 | 7,329 | ||||
| Long-term debt | 108,911 | 88,258 | ||||
| Deferred income taxes | 9,689 | 10,672 | ||||
| Other long-term liabilities | 41,326 | 40,674 | ||||
| Total liabilities | 264,285 | 250,514 | ||||
| Redeemable noncontrolling interests | 6,294 | 6,380 | ||||
| Total stockholders' equity | 172,706 | 181,514 | ||||
| Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | 443,285 | $ | 438,408 | ||
|
Note: The Condensed Consolidated Balance Sheets have been derived
from the audited consolidated financial statements, but do not
include all information and footnotes required by accounting
principles generally accepted in |
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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 redeemable noncontrolling interests | $ | 20,319 | $ | 18,307 | ||||
| Adjustments to reconcile net income to net cash provided by | ||||||||
| operating activities: | ||||||||
| Provision for uncollectible accounts and notes receivable | 314 | 547 | ||||||
| Depreciation and amortization | 8,537 | 7,927 | ||||||
| Deferred income taxes | 3,325 | (912 | ) | |||||
| Stock-based compensation expense | 1,681 | 1,694 | ||||||
| Excess tax benefit on equity awards | (1,142 | ) | (129 | ) | ||||
| Other | (180 | ) | 296 | |||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (627 | ) | (2,670 | ) | ||||
| Inventories | (1,744 | ) | 1,122 | |||||
| Prepaid expenses and other current assets | 3,380 | (5 | ) | |||||
| Other assets and liabilities | 38 | 1,160 | ||||||
| Accounts payable | (406 | ) | 1,987 | |||||
| Income and other taxes payable | 1,243 | 9,850 | ||||||
| Accrued expenses and other current liabilities | (4,641 | ) | 1,221 | |||||
| Deferred revenue | (183 | ) | 3,698 | |||||
| Net cash provided by operating activities | 29,914 | 44,093 | ||||||
| Investing activities | ||||||||
| Purchases of property and equipment | (13,248 | ) | (6,403 | ) | ||||
| Loans issued | (1,748 | ) | (687 | ) | ||||
| Repayments of loans issued | 1,916 | 703 | ||||||
| Other | 319 | 5 | ||||||
| Net cash used in investing activities | (12,761 | ) | (6,382 | ) | ||||
| Financing activities | ||||||||
| Net proceeds (repayments) on line of credit facility | 20,652 | (1,489 | ) | |||||
| Excess tax benefit on equity awards | 1,142 | 129 | ||||||
| Tax payments for restricted stock issuances | (843 | ) | (303 | ) | ||||
| Proceeds from exercise of stock options | 2,704 | 3,728 | ||||||
| Acquisition of Company common stock | (32,122 | ) | (13,820 | ) | ||||
| Contributions from redeemable noncontrolling interest holders | 350 | - | ||||||
| Distributions to redeemable noncontrolling interest holders | (1,000 | ) | - | |||||
| Other | 112 | 82 | ||||||
| Net cash used in financing activities | (9,005 | ) | (11,673 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 7 | 132 | ||||||
| Change in cash and cash equivalents | 8,155 | 26,170 | ||||||
| Cash and cash equivalents at beginning of period | 16,396 | 18,942 | ||||||
| Cash and cash equivalents at end of period | $ | 24,551 | $ | 45,112 | ||||
Papa John's
Chief
Financial Officer
Source: Papa John's
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