Papa John's Announces First Quarter 2015 Results
First Quarter EPS Growth of 22% with Comparable Sales Increases of
6.5% for
Highlights
-
First quarter earnings per diluted share of
$0.55 in 2015 compared to$0.45 in 2014, an increase of 22.2% -
System-wide comparable sales increases of 6.5% for
North America and 7.7% for international - 36 net global restaurant openings
-
Increased 2015 diluted earnings per share guidance to a range of
$2.00 to$2.08 ;Increased North America comparable sales guidance to a range of +3% to +5%
"We would like to thank our customers for an incredible quarter, which
saw demand for our "Better Ingredients. Better Pizza." soar, measured by
comp sales, earnings growth and new unit openings," said Papa John's
founder, chairman, president and CEO,
First quarter 2015 revenues were
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First Quarter | ||||||||
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Global restaurant sales growth (a) | 7.4 | % | 12.5 | % | ||||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
9.6 | % | 13.2 | % | ||||
Comparable sales growth (b) | ||||||||
Domestic company-owned restaurants | 8.1 | % | 11.4 | % | ||||
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6.0 | % | 8.9 | % | ||||
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6.5 | % | 9.6 | % | ||||
System-wide international restaurants | 7.7 | % | 6.4 | % | ||||
(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 |
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We believe 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 and Operating Highlights
All revenue and operating highlights below are compared to the same period of the prior year, unless otherwise noted.
Revenue Highlights
Consolidated revenues were
-
Domestic company-owned restaurant sales increased
$19.1 million , or 10.7%, primarily due to an increase of 8.1% in comparable sales during the first quarter of 2015. -
North America franchise royalty revenue increased$2.7 million , or 12.1%, primarily due to an increase of 6.0% in comparable sales and due to reduced levels of royalty incentives in the first quarter of 2015. -
Domestic commissary sales decreased
$1.7 million , or 1.0%, as lower revenues associated with lower cheese prices, were somewhat offset by increases in sales volumes.PJ Food Service pricing for cheese is based on a fixed dollar markup; when cheese prices decrease, revenues will decrease with no overall impact on the related dollar margin. -
Other sales increased
$8.9 million , or 69.5%, primarily due to point-of-sale system ("FOCUS") equipment sales to franchisees. See the "FOCUS Update" section for additional information. -
International revenues increased
$1.8 million , or 7.6%, primarily due to an increase in the number of restaurants and an increase in comparable sales of 7.7%, calculated on a constant dollar basis. This was somewhat offset by the negative impact of foreign currency exchange rates.
Operating Highlights
The table below summarizes income before income taxes on a reporting segment basis: |
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First Quarter | |||||||||||||||
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Increase | |||||||||||||
(In thousands) | 2015 | 2014 | (Decrease) | ||||||||||||
Domestic company-owned restaurants | $ | 18,480 | $ | 13,285 | $ | 5,195 | |||||||||
Domestic commissaries | 11,800 | 10,431 | 1,369 | ||||||||||||
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22,319 | 19,484 | 2,835 | ||||||||||||
International | 1,344 | 732 | 612 | ||||||||||||
All others | 443 | 590 | (147 | ) | |||||||||||
Unallocated corporate expenses | (17,205 | ) | (12,461 | ) | (4,744 | ) | |||||||||
Elimination of intersegment profits | (745 | ) | (651 | ) | (94 | ) | |||||||||
Total income before income taxes | $ | 36,436 | $ | 31,410 | $ | 5,026 | |||||||||
First quarter 2015 income before income taxes increased approximately
-
Domestic company-owned restaurants increased approximately
$5.2 million primarily due to the 8.1% increase in comparable sales and due to higher profits from lower commodity costs. The market price for cheese averaged$1.54 per pound for the first quarter of 2015, compared to$2.21 per pound in the prior year. The results for the first quarter of 2015 include approximately$500,000 of depreciation expense associated with FOCUS equipment. -
Domestic commissaries income increased approximately
$1.4 million due to incremental profits from higher restaurant volumes. -
North America franchising increased approximately$2.8 million primarily due to higher royalties attributable to the 6.0% comparable sales increase and reduced levels of royalty incentives. -
International income increased approximately
$600,000 primarily due to the previously mentioned increase in units and comparable sales of 7.7%, which resulted in both higher royalties and an increase inUnited Kingdom profits. This was somewhat offset by the impact of negative foreign currency exchange rates.
These increases were partially offset by higher unallocated corporate
expenses of approximately
The first quarter 2015 effective income tax rate was 33.5%, representing a decrease of 1.1% from the prior year rate of 34.6%. Our effective income tax rate may fluctuate from quarter to quarter for various reasons.
The company's free cash flow, a non-GAAP financial measure, for the first quarters of 2015 and 2014, was as follows (in thousands): |
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First Quarter | ||||||||||
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2015 | 2014 | |||||||||
Net cash provided by operating activities (a) | $ | 40,249 | $ | 26,678 | ||||||
Purchases of property and equipment (b) | (7,558 | ) | (11,137 | ) | ||||||
Free cash flow | $ | 32,691 | $ | 15,541 | ||||||
(a) |
The increase of approximately |
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(b) |
The decrease of approximately |
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We define free cash flow as net cash provided by operating activities (from the consolidated statements of cash flows) less the amounts spent on 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
FOCUS Update
As of
Global Restaurant Unit Data
At |
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Domestic |
Franchised |
Total North |
International | System-wide | ||||||||||||||||
First Quarter |
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Beginning - |
686 | 2,654 | 3,340 | 1,323 | 4,663 | |||||||||||||||
Opened | 3 | 18 | 21 | 50 | 71 | |||||||||||||||
Closed | - | (20 | ) | (20 | ) | (15 | ) | (35 | ) | |||||||||||
Acquired (divested) | 2 | (2 | ) | - | - | - | ||||||||||||||
Ending - |
691 | 2,650 | 3,341 | 1,358 | 4,699 | |||||||||||||||
Unit growth (decline) | 5 | (4 | ) | 1 | 35 | 36 | ||||||||||||||
% increase (decrease) | 0.7 | % | -0.2 | % | 0.0 | % | 2.6 | % | 0.8 | % | ||||||||||
Our development pipeline as of
Share Repurchase Activity
The following table reflects our repurchases for the first quarter
of 2015 and subsequent repurchases through |
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Period |
Number |
Cost | |||||
First Quarter 2015 | 402 | $ | 24,765 | ||||
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135 | $ | 8,341 | ||||
There were 40.5 million diluted weighted average shares outstanding for
the first quarter, representing a decrease of 5.1% over the prior year
first quarter. Diluted earnings per share increased
2015 Guidance Update
The company provided the following 2015 guidance updates: |
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Updated Guidance | Previous Guidance | |||||
Diluted earnings per share |
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+3% to +5% | +2% to +4% | ||||
Conference Call
A conference call is scheduled for
Investors and others should note that we announce material financial
information to our investors using our investor relations website, press
releases,
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, capital expenditures, 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 or consumer buying habits, including the impact of adverse economic conditions;
- the impact that product recalls, food quality or safety issues, incidences of foodborne illness, food contamination and other general public health concerns, including potential epidemics, could have system-wide on our restaurants or our results;
- failure to maintain our brand strength and quality reputation and risks related to our better ingredients marketing strategy;
- the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably;
- increases in or sustained high costs of food ingredients or other restaurant costs. This could include increased employee compensation, benefits, insurance, tax rates, regulatory compliance and similar costs; including increased costs resulting from federal health care legislation;
- disruption of our supply chain or commissary operations which could be caused by our sole source of supply of cheese or limited source of suppliers for other key ingredients or more generally due to weather, drought, disease, geopolitical or other disruptions beyond our control;
-
increased risks associated with our international operations,
including economic and political conditions, instability in our
international markets, fluctuations in currency exchange rates, and
difficulty in meeting planned sales targets and new store growth. This
could include our expansion into emerging or underpenetrated markets,
such as
China , where we have a Company-owned presence. Based on prior experience in underpenetrated markets, operating losses are likely to occur as the market is being established; - the impact of changes in interest rates on the Company or our franchisees;
- the credit performance of our franchise loan or guarantee programs;
-
the impact of the resolution of current or future claims and
litigation, in particular the Perrin litigation that is
scheduled for trial in
August 2015 (see the Form 10-Q for the quarter endedMarch 29, 2015 for additional information); - current or proposed legislation impacting our business;
- failure to effectively execute succession planning, and our reliance on the multiple roles of our Founder, Chairman, President and Chief Executive Officer, who also serves as our brand spokesperson; and
- disruption of critical business or information technology systems, and risks associated with systems failures and data privacy and security breaches, including theft of Company, employee and customer information.
These and other risk factors are discussed in detail in "Part I. Item
1A. - Risk Factors" in our 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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Condensed Consolidated Statements of Income | ||||||||||
Three Months Ended | ||||||||||
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(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | ||||||||
Revenues: | ||||||||||
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Domestic company-owned restaurant sales | $ | 197,287 | $ | 178,193 | ||||||
Franchise royalties | 25,359 | 22,614 | ||||||||
Franchise and development fees | 265 | 144 | ||||||||
Domestic commissary sales | 162,333 | 164,047 | ||||||||
Other sales | 21,614 | 12,750 | ||||||||
International: | ||||||||||
Royalties and franchise and development fees | 6,498 | 5,779 | ||||||||
Restaurant and commissary sales | 18,928 | 17,850 | ||||||||
Total revenues | 432,284 | 401,377 | ||||||||
Costs and expenses: | ||||||||||
Domestic company-owned restaurant expenses: | ||||||||||
Cost of sales | 47,504 | 45,156 | ||||||||
Salaries and benefits | 53,658 | 47,583 | ||||||||
Advertising and related costs | 16,770 | 16,256 | ||||||||
Occupancy costs and other restaurant operating expenses | 37,100 | 34,598 | ||||||||
Total domestic company-owned restaurant expenses | 155,032 | 143,593 | ||||||||
Domestic commissary expenses: | ||||||||||
Cost of sales | 125,126 | 128,924 | ||||||||
Salaries and benefits and other commissary operating expenses | 24,610 | 22,879 | ||||||||
Total domestic commissary expenses | 149,736 | 151,803 | ||||||||
Other operating expenses | 20,603 | 11,431 | ||||||||
International restaurant and commissary expenses | 15,478 | 14,885 | ||||||||
General and administrative expenses | 41,933 | 36,966 | ||||||||
Other general expenses | 1,816 | 1,533 | ||||||||
Depreciation and amortization | 10,041 | 9,164 | ||||||||
Total costs and expenses | 394,639 | 369,375 | ||||||||
Operating income | 37,645 | 32,002 | ||||||||
Net interest (expense) income | (1,209 | ) | (592 | ) | ||||||
Income before income taxes | 36,436 | 31,410 | ||||||||
Income tax expense | 12,197 | 10,869 | ||||||||
Net income before attribution to noncontrolling interests | 24,239 | 20,541 | ||||||||
Income attributable to noncontrolling interests | (2,003 | ) | (1,230 | ) | ||||||
Net income attributable to the company | $ | 22,236 | $ | 19,311 | ||||||
Calculation of income for earnings per share: | ||||||||||
Net income attributable to the company | $ | 22,236 | $ | 19,311 | ||||||
Decrease (increase) in noncontrolling interest redemption value | 70 | (8 | ) | |||||||
Net income attributable to participating securities | (100 | ) | (137 | ) | ||||||
Net income attributable to common shareholders | $ | 22,206 | $ | 19,166 | ||||||
Basic earnings per common share | $ | 0.56 | $ | 0.46 | ||||||
Diluted earnings per common share | $ | 0.55 | $ | 0.45 | ||||||
Basic weighted average common shares outstanding | 39,827 | 41,778 | ||||||||
Diluted weighted average common shares outstanding | 40,510 | 42,696 | ||||||||
Dividends declared per common share | $ | 0.14 | $ | 0.125 | ||||||
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Condensed Consolidated Balance Sheets | ||||||||
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2015 | 2014 | |||||||
(In thousands) | (Unaudited) | (Note) | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 23,524 | $ | 20,122 | ||||
Accounts receivable, net | 56,187 | 56,047 | ||||||
Notes receivable, net | 6,103 | 6,106 | ||||||
Income taxes receivable | 3,628 | 9,527 | ||||||
Inventories | 26,354 | 27,394 | ||||||
Deferred income taxes | 7,576 | 8,248 | ||||||
Prepaid expenses and other current assets | 26,114 | 28,564 | ||||||
Total current assets | 149,486 | 156,008 | ||||||
Property and equipment, net | 216,080 | 219,457 | ||||||
Notes receivable, less current portion, net | 12,482 | 12,801 | ||||||
Goodwill | 81,421 | 82,007 | ||||||
Deferred income taxes | 3,914 | 3,914 | ||||||
Other assets | 38,594 | 38,616 | ||||||
Total assets | $ | 501,977 | $ | 512,803 | ||||
Liabilities and stockholders' equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 35,009 | $ | 38,832 | ||||
Income and other taxes payable | 9,804 | 9,637 | ||||||
Accrued expenses and other current liabilities | 55,521 | 58,293 | ||||||
Total current liabilities | 100,334 | 106,762 | ||||||
Deferred revenue | 3,906 | 4,257 | ||||||
Long-term debt | 231,000 | 230,451 | ||||||
Deferred income taxes | 20,508 | 22,188 | ||||||
Other long-term liabilities | 44,130 | 41,875 | ||||||
Total liabilities | 399,878 | 405,533 | ||||||
Redeemable noncontrolling interests | 8,798 | 8,555 | ||||||
Total stockholders' equity |
93,301 | 98,715 | ||||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | 501,977 | $ | 512,803 | ||||
Note: The Condensed Consolidated Balance Sheet has been derived
from the audited consolidated financial statements, but does 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 before attribution to noncontrolling interests | $ | 24,239 | $ | 20,541 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for uncollectible accounts and notes receivable | 659 | 145 | ||||||||
Depreciation and amortization | 10,041 | 9,164 | ||||||||
Deferred income taxes | 5,055 | 6,170 | ||||||||
Stock-based compensation expense | 2,264 | 2,190 | ||||||||
Excess tax benefit on equity awards | (5,091 | ) | (4,900 | ) | ||||||
Other | 1,180 | 1,110 | ||||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||
Accounts receivable | (1,312 | ) | (854 | ) | ||||||
Income taxes receivable | 5,899 | - | ||||||||
Inventories | 1,043 | (3,210 | ) | |||||||
Prepaid expenses and other current assets | 2,452 | 1,715 | ||||||||
Other assets and liabilities | (154 | ) | (795 | ) | ||||||
Accounts payable | (3,828 | ) | (1,311 | ) | ||||||
Income and other taxes payable | 167 | 3,268 | ||||||||
Accrued expenses and other current liabilities | (2,291 | ) | (6,958 | ) | ||||||
Deferred revenue | (74 | ) | 403 | |||||||
Net cash provided by operating activities | 40,249 | 26,678 | ||||||||
Investing activities | ||||||||||
Purchases of property and equipment | (7,558 | ) | (11,137 | ) | ||||||
Loans issued | (506 | ) | (1,758 | ) | ||||||
Repayments of loans issued | 1,083 | 1,164 | ||||||||
Acquisitions, net of cash acquired | (341 | ) | - | |||||||
Other | 20 | 7 | ||||||||
Net cash used in investing activities | (7,302 | ) | (11,724 | ) | ||||||
Financing activities | ||||||||||
Net proceeds on line of credit facility | 549 | 19,267 | ||||||||
Cash dividends paid | (5,545 | ) | (5,240 | ) | ||||||
Excess tax benefit on equity awards | 5,091 | 4,900 | ||||||||
Tax payments for equity award issuances | (5,557 | ) | (3,233 | ) | ||||||
Proceeds from exercise of stock options | 2,210 | 2,989 | ||||||||
Acquisition of Company common stock | (24,765 | ) | (32,800 | ) | ||||||
Distributions to noncontrolling interest holders | (1,705 | ) | (300 | ) | ||||||
Other | 253 | 223 | ||||||||
Net cash used in financing activities | (29,469 | ) | (14,194 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (76 | ) | (42 | ) | ||||||
Change in cash and cash equivalents | 3,402 | 718 | ||||||||
Cash and cash equivalents at beginning of period | 20,122 | 13,670 | ||||||||
Cash and cash equivalents at end of period | $ | 23,524 | $ | 14,388 | ||||||
Papa John's
Chief
Financial Officer
Source: Papa John's
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