Papa John's Announces Second Quarter 2017 Results and Increased Share Repurchase Authorization
Highlights
- Second quarter earnings per diluted share of
$0.65 in 2017 compared to$0.61 in the second quarter of 2016, an increase of 6.6% - System-wide comparable sales increases of 1.4% for
North America and 3.9% for international - Plan announced to return additional capital to shareholders through
$500 million increase in share repurchase authorization - In conjunction with increase to share repurchase authorization, leverage planned to be increased to 3.0x - 4.0x EBITDA over the next 12-18 months
"The Company delivered solid results in the second quarter, including the 27th consecutive quarter of positive
Operating Highlights |
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(In thousands except per share amounts) |
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Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
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Increase |
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Increase |
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Total revenue | $ | 434,778 | $ | 422,964 | 2.8 | % | $ | 884,044 | $ | 851,559 | 3.8 | % | |||||||||||||
Operating income | 37,217 | 36,831 | 1.0 | % | 80,898 | 79,729 | 1.5 | % | |||||||||||||||||
Net income | 23,538 | 22,541 | 4.4 | % | 51,966 | $ | 48,723 | 6.7 | % | ||||||||||||||||
Diluted EPS | $ | 0.65 | $ | 0.61 | 6.6 | % | $ | 1.42 | $ | 1.29 | 10.1 | % | |||||||||||||
All operating highlights are compared to the same period of the prior year, unless otherwise noted.
Consolidated revenues increased
On higher revenues, consolidated operating income increased
North America commissary and other margin, as a percentage of related revenues, decreased 0.7% due primarily to start-up costs related to our new domestic commissary inGeorgia .- International margin, as a percentage of international revenues, decreased 2.0% primarily due to lower operating margins at our
United Kingdom commissary from higher commodity costs. - These decreases were somewhat offset by lower general and administrative costs, as a percentage of consolidated revenues, of 0.4% primarily due to higher revenues and lower management incentive costs.
On higher revenues, consolidated operating income increased
The effective income tax rates were 29.5% and 29.0% for the three and six months ended
Diluted earnings per share increased 6.6% to
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Three Months Ended | Six Months Ended | ||||||||||||||||
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Global restaurant sales growth (a) | 4.1 | % | 5.9 | % | 4.5 | % | 4.0 | % | |||||||||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
5.1 | % | 7.7 | % | 5.3 | % | 5.8 | % | |||||||||
Comparable sales growth (b) | |||||||||||||||||
Domestic company-owned restaurants | 2.3 | % | 5.6 | % | 2.7 | % | 3.2 | % | |||||||||
1.1 | % | 4.5 | % | 1.4 | % | 2.1 | % | ||||||||||
1.4 | % | 4.8 | % | 1.7 | % | 2.4 | % | ||||||||||
System-wide international restaurants | 3.9 | % | 5.3 | % | 4.9 | % | 5.5 | % | |||||||||
(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
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
Free Cash Flow
The company's free cash flow, a non-GAAP financial measure, was as follows for the first six months of 2017 and 2016 (in thousands):
Six Months Ended | |||||||||||
2017 | 2016 | ||||||||||
Net cash provided by operating activities (a) | $ | 77,863 | $ | 79,613 | |||||||
Purchases of property and equipment (b) | (30,457 | ) | (24,001 | ) | |||||||
Free cash flow | $ | 47,406 | $ | 55,612 | |||||||
(a) The decrease of
(b) The increase of
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 liquidity measure because it is one factor that management uses in determining the amount of cash available for investment, however it does not represent residual cash flows available for discretionary expenditures. 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 liquidity 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 North |
International | System-wide | |||||||||||||||||
Second Quarter |
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Beginning - |
705 | 2,723 | 3,428 | 1,654 | 5,082 | ||||||||||||||||
Opened | - | 28 | 28 | 49 | 77 | ||||||||||||||||
Closed | (28 | ) | (28 | ) | (43 | ) | (71 | ) | |||||||||||||
Ending - |
705 | 2,723 | 3,428 | 1,660 | 5,088 | ||||||||||||||||
Year-to-date |
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Beginning - |
702 | 2,739 | 3,441 | 1,656 | 5,097 | ||||||||||||||||
Opened | 2 | 43 | 45 | 87 | 132 | ||||||||||||||||
Closed | - | (58 | ) | (58 | ) | (83 | ) | (141 | ) | ||||||||||||
Acquired | 1 | - | 1 | - | 1 | ||||||||||||||||
Sold | - | (1 | ) | (1 | ) | - | (1 | ) | |||||||||||||
Ending - |
705 | 2,723 | 3,428 | 1,660 | 5,088 | ||||||||||||||||
Unit growth (decline) | 3 | (16 | ) | (13 | ) | 4 | (9 | ) | |||||||||||||
% increase (decrease) | 0.4 | % | (0.6 | %) | (0.4 | %) | 0.2 | % | (0.2 | %) | |||||||||||
The company has added 153 net worldwide units over the trailing four quarters. Our development pipeline as of
Share Repurchase Activity and Increased Authorization
The following table reflects our share repurchases for the three and six months ended
Period |
Number |
Cost | ||||||
Three months ended |
262 | $ | 20,892 | |||||
Six months ended |
421 | 33,968 | ||||||
177 | $ | 13,158 | ||||||
There were 37.2 million and 37.3 million diluted weighted average shares outstanding for the three and six months ended
Effective immediately, the Board has authorized a
The timing and volume of share repurchases may be executed at the discretion of management on an opportunistic basis, or pursuant to trading plans or other arrangements. Any share repurchase under this program may be made in the open market, in privately negotiated transactions, or otherwise, and may depend upon prevailing market conditions and other factors. The Company expects to implement an accelerated share repurchase program in the second half of 2017 for a portion of the increased share repurchase authorization. Repurchases under the Company's share repurchase program may be commenced or suspended from time to time at the Company's discretion without prior notice.
Cash Dividend
We paid a cash dividend of approximately
2017 Outlook
The company provided the following 2017 outlook update and reaffirmed all of our remaining 2017 outlook:
Updated Outlook | Previous Outlook | ||||||
Net global new unit growth | 3.0% to 4.0% | 4.0% to 5.0% | |||||
The company is reducing the net unit outlook to reflect the closure of the
The reaffirmation of the earnings outlook excludes the impact of the increased share repurchase authorization discussed above.
Conference Call and Website Information
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," "intend," "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, cash flow, contingent liabilities, resolution of litigation, commodity costs, profit margins, unit growth, unit level performance, capital expenditures, other financial and operational measures and our plans to increase our existing credit facility or enter into new debt facilities to finance the increased capital return program. 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 profitability; and new product and concept developments by food industry competitors;
- changes in consumer preferences or consumer buying habits, including changes in general economic conditions or other factors that may affect consumer confidence and discretionary spending;
- changes in our liquidity or debt markets in general, which may adversely affect our ability to increase our existing credit facility or enter into a new credit facility on favorable terms;
- the adverse impact on the company or our results caused by product recalls, food quality or safety issues, incidences of foodborne illness, food contamination and other general public health concerns about our company-owned or franchised restaurants or others in the restaurant industry;
- failure to maintain our brand strength, quality reputation and consumer enthusiasm for our better ingredients marketing and advertising strategy;
- the ability of the company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, including difficulties finding qualified franchisees, store level employees or suitable sites;
- increases in food costs or sustained higher other operating costs. This could include increased employee compensation, benefits, insurance, tax rates, new regulatory requirements or increasing compliance costs;
- increases in insurance claims and related costs for programs funded by the company up to certain retention limits, including medical, owned and non-owned automobiles, workers' compensation, general liability and property;
- 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, natural disasters including drought, disease, or geopolitical or other disruptions beyond our control;
- increased risks associated with our international operations, including economic and political conditions, instability or uncertainty in our international markets, especially emerging markets, fluctuations in currency exchange rates, difficulty in meeting planned sales targets and new store growth;
- the impact of current or future claims and litigation, including labor and employment-related claims;
- current, proposed or future legislation that could impact our business;
- failure to effectively execute succession planning, and our reliance on the multiple roles of our founder, chairman and chief executive officer, who also serves as our brand spokesperson;
- disruption of critical business or information technology systems, or those of our suppliers, and risks associated with systems failures and data privacy and security breaches, including theft of confidential company, employee and customer information, including payment cards; and
- changes in GAAP, including new standards for accounting for share-based compensation that may result in changes to our net income. Based on recent share prices, the impact of the 2017 adoption of this guidance is expected to be favorable throughout 2017.
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.
Condensed Consolidated Statements of Income | |||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||
(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||
Revenues: | |||||||||||||||||||||
Domestic company-owned restaurant sales | $ | 202,756 | $ | 204,248 | $ | 409,652 | $ | 409,927 | |||||||||||||
26,588 | 25,302 | 54,195 | 51,778 | ||||||||||||||||||
175,204 | 164,954 | 361,449 | 333,939 | ||||||||||||||||||
International | 30,230 | 28,460 | 58,748 | 55,915 | |||||||||||||||||
Total revenues | 434,778 | 422,964 | 884,044 | 851,559 | |||||||||||||||||
Costs and expenses: | |||||||||||||||||||||
Operating costs (excluding depreciation and amortization shown separately below): |
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Domestic company-owned restaurant expenses | 162,433 | 163,469 | 327,852 | 324,779 | |||||||||||||||||
162,989 | 152,258 | 336,701 | 309,064 | ||||||||||||||||||
International expenses | 19,482 | 17,752 | 37,472 | 35,342 | |||||||||||||||||
General and administrative expenses | 42,003 | 42,623 | 80,010 | 82,870 | |||||||||||||||||
Depreciation and amortization | 10,654 | 10,031 | 21,111 | 19,775 | |||||||||||||||||
Total costs and expenses | 397,561 | 386,133 | 803,146 | 771,830 | |||||||||||||||||
Operating income | 37,217 | 36,831 | 80,898 | 79,729 | |||||||||||||||||
Net interest expense | (1,759 | ) | (1,631 | ) | (3,569 | ) | (3,120 | ) | |||||||||||||
Income before income taxes | 35,458 | 35,200 | 77,329 | 76,609 | |||||||||||||||||
Income tax expense | 10,476 | 11,088 | 22,448 | 24,446 | |||||||||||||||||
Net income before attribution to noncontrolling interests |
24,982 | 24,112 | 54,881 | 52,163 | |||||||||||||||||
Income attributable to noncontrolling interests | (1,444 | ) | (1,571 | ) | (2,915 | ) | (3,440 | ) | |||||||||||||
Net income attributable to the company | $ | 23,538 | $ | 22,541 | $ | 51,966 | $ | 48,723 | |||||||||||||
Calculation of income for earnings per share: | |||||||||||||||||||||
Net income attributable to the company | $ | 23,538 | $ | 22,541 | $ | 51,966 | $ | 48,723 | |||||||||||||
Change in noncontrolling interest redemption value | 662 | 279 | 1,182 | 499 | |||||||||||||||||
Net income attributable to participating securities | (99 | ) | (91 | ) | (216 | ) | (201 | ) | |||||||||||||
Net income attributable to common shareholders | $ | 24,101 | $ | 22,729 | $ | 52,932 | $ | 49,021 | |||||||||||||
Basic earnings per common share | $ | 0.66 | $ | 0.61 | $ | 1.44 | $ | 1.30 | |||||||||||||
Diluted earnings per common share | $ | 0.65 | $ | 0.61 | $ | 1.42 | $ | 1.29 | |||||||||||||
Basic weighted average common shares outstanding | 36,732 | 37,203 | 36,771 | 37,567 | |||||||||||||||||
Diluted weighted average common shares outstanding | 37,217 | 37,507 | 37,283 | 37,904 | |||||||||||||||||
Dividends declared per common share | $ | 0.20 | $ | 0.175 | $ | 0.40 | $ | 0.35 | |||||||||||||
Condensed Consolidated Balance Sheets | |||||||||
2017 | 2016 | ||||||||
(In thousands) | (Unaudited) | (Note) | |||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 22,247 | $ | 15,563 | |||||
Accounts receivable, net | 59,882 | 59,691 | |||||||
Notes receivable, net | 3,680 | 3,417 | |||||||
Income taxes receivable | 2,417 | 2,372 | |||||||
Inventories | 24,586 | 25,132 | |||||||
Prepaid expenses and other current assets | 30,505 | 33,143 | |||||||
Assets held for sale | 6,272 | 6,257 | |||||||
Total current assets | 149,589 | 145,575 | |||||||
Property and equipment, net | 234,524 | 230,473 | |||||||
Notes receivable, less current portion, net | 10,709 | 10,141 | |||||||
85,922 | 85,529 | ||||||||
Deferred income taxes | 315 | 769 | |||||||
Other assets | 44,583 | 40,078 | |||||||
Total assets | $ | 525,642 | $ | 512,565 | |||||
Liabilities and stockholders' equity | |||||||||
Current liabilities: | |||||||||
Accounts payable | $ | 38,653 | $ | 42,701 | |||||
Income and other taxes payable | 9,815 | 8,540 | |||||||
Accrued expenses and other current liabilities | 67,772 | 76,789 | |||||||
Total current liabilities | 116,240 | 128,030 | |||||||
Deferred revenue | 3,060 | 3,313 | |||||||
Long-term debt, net | 305,149 | 299,820 | |||||||
Deferred income taxes | 9,416 | 10,047 | |||||||
Other long-term liabilities | 60,179 | 53,093 | |||||||
Total liabilities | 494,044 | 494,303 | |||||||
Redeemable noncontrolling interests | 8,819 | 8,461 | |||||||
Total stockholders' equity | 22,779 | 9,801 | |||||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity |
$ | 525,642 | $ | 512,565 | |||||
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
Consolidated Statements of Cash Flows | |||||||||||
Six Months Ended | |||||||||||
(In thousands) | |||||||||||
(Unaudited) | (Unaudited) | ||||||||||
Operating activities | |||||||||||
Net income before attribution to noncontrolling interests | $ | 54,881 | $ | 52,163 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for uncollectible accounts and notes receivable | (1,091 | ) | 247 | ||||||||
Depreciation and amortization | 21,111 | 19,775 | |||||||||
Deferred income taxes | 158 | 3,786 | |||||||||
Stock-based compensation expense | 5,571 | 4,893 | |||||||||
Other | 1,978 | 1,883 | |||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
Accounts receivable | (355 | ) | 6,680 | ||||||||
Income taxes receivable | (45 | ) | 4,018 | ||||||||
Inventories | 550 | (877 | ) | ||||||||
Prepaid expenses and other current assets | 2,594 | 3,817 | |||||||||
Other assets and liabilities | (1,559 | ) | (1,724 | ) | |||||||
Accounts payable | (3,950 | ) | (8,654 | ) | |||||||
Income and other taxes payable | 1,275 | 3,703 | |||||||||
Accrued expenses and other current liabilities | (3,002 | ) | (11,425 | ) | |||||||
Deferred revenue | (253 | ) | 1,328 | ||||||||
Net cash provided by operating activities | 77,863 | 79,613 | |||||||||
Investing activities | |||||||||||
Purchases of property and equipment | (30,457 | ) | (24,001 | ) | |||||||
Loans issued | (1,476 | ) | (1,630 | ) | |||||||
Repayments of loans issued | 2,125 | 5,382 | |||||||||
Acquisitions, net of cash acquired | (21 | ) | (11,202 | ) | |||||||
Other | 25 | 165 | |||||||||
Net cash used in investing activities | (29,804 | ) | (31,286 | ) | |||||||
Financing activities | |||||||||||
Net proceeds on line of credit facility | 5,156 | 61,375 | |||||||||
Cash dividends paid | (14,703 | ) | (13,130 | ) | |||||||
Tax payments for equity award issuances | (2,282 | ) | (5,831 | ) | |||||||
Proceeds from exercise of stock options | 5,218 | 2,812 | |||||||||
Acquisition of Company common stock | (33,968 | ) | (96,355 | ) | |||||||
Distributions to noncontrolling interest holders | (1,389 | ) | (3,200 | ) | |||||||
Other | 494 | 391 | |||||||||
Net cash used in financing activities | (41,474 | ) | (53,938 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 99 | (129 | ) | ||||||||
Change in cash and cash equivalents | 6,684 | (5,740 | ) | ||||||||
Cash and cash equivalents at beginning of period | 15,563 | 21,006 | |||||||||
Cash and cash equivalents at end of period | $ | 22,247 | $ | 15,266 | |||||||
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Papa John's
Chief Financial Officer
Source: Papa John's
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