Papa John's Announces Third Quarter 2017 Results
Highlights
-
Third quarter earnings per diluted share of
$0.60 in 2017 compared to$0.57 in the third quarter of 2016, an increase of 5.3% -
System-wide third quarter comparable sales increases of 1.0% for
North America and 5.3% for International - 2017 North America comp sales outlook revised to positive up to 1.5% from the prior range of 2.0% to 4.0%; revised diluted earnings per share growth to 3% to 7% from a previous range of 8% to 12%, including the 53rd week but excluding the impact of new equity based compensation accounting standard
"Our global operators delivered another quarter of positive comp sales,
with International leading the way, posting the 30th
consecutive quarter of International positive comps," said Papa John's
founder, chairman and CEO,
Operating Highlights
(In thousands except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
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Increase |
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Increase |
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Total revenue | $ | 431,709 | $ | 422,442 | 2.2 | % | 1,315,753 | $ | 1,274,001 | 3.3 | % | |||||||||||||
Operating income | 33,515 | 33,383 | 0.4 | % | 114,413 | 113,112 | 1.2 | % | ||||||||||||||||
Net income | 21,817 | 21,467 | 1.6 | % | 73,783 | $ | 70,190 | 5.1 | % | |||||||||||||||
Diluted EPS | $ | 0.60 | $ | 0.57 | 5.3 | % | $ | 2.02 | $ | 1.86 | 8.6 | % | ||||||||||||
All operating highlights are compared to the same period of the prior year, unless otherwise noted.
Consolidated revenues increased
Consolidated operating income increased
- Domestic company-owned restaurant margin, as a percentage of restaurant sales, decreased 1.2% primarily due to higher delivery costs, including higher non-owned auto insurance costs.
-
North America commissary and other margin, as a percentage of related revenues, decreased 1.5% due primarily to higher operating and start-up costs related to our new commissary inGeorgia that opened in the third quarter of 2017. -
Offsetting these decreases, the International margin, as a percentage
of international revenues, increased 2.0% due to higher revenues on
higher comps and increased units. For the three month period, the
United Kingdom ("UK") margin also increased due to the 2016 results including a non-recurring expense of approximately$800,000 to recordUK head lease arrangements on a straight line basis. - General and administrative costs, as a percentage of consolidated revenues, decreased 1.0% primarily due to lower management incentive costs and the benefit of higher revenues.
On higher revenues, consolidated operating income increased
The effective income tax rates were 26.8% and 28.4% for the three and
nine months ended
Diluted earnings per share increased 5.3% to
Three Months Ended | Nine Months Ended | |||||||||||
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Global restaurant sales growth (a) | 4.4% | 7.6% | 4.5% | 5.2% | ||||||||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
5.0% | 8.9% | 5.2% | 6.8% | ||||||||
Comparable sales growth (b) | ||||||||||||
Domestic company-owned restaurants | 1.7% | 6.3% | 2.3% | 4.2% | ||||||||
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0.7% | 5.1% | 1.2% | 3.0% | ||||||||
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1.0% | 5.5% | 1.5% | 3.4% | ||||||||
System-wide international restaurants | 5.3% | 7.6% | 5.0% | 6.2% |
(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 nine months of 2017 and 2016 (in thousands):
Nine Months Ended | ||||||||||||||
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2017 | 2016 | |||||||||||||
Net cash provided by operating activities (a) | $ | 114,917 | $ | 121,456 | ||||||||||
Purchases of property and equipment (b) | (43,195 | ) | (38,954 | ) | ||||||||||
Free cash flow | $ | 71,722 | $ | 82,502 |
(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 | ||||||||||||||||
Third Quarter |
||||||||||||||||||||
Beginning - |
705 | 2,723 | 3,428 | 1,660 | 5,088 | |||||||||||||||
Opened | 2 | 30 | 32 | 52 | 84 | |||||||||||||||
Closed | (2 | ) | (17 | ) | (19 | ) | (52 | ) | (71 | ) | ||||||||||
Ending - |
705 | 2,736 | 3,441 | 1,660 | 5,101 | |||||||||||||||
Year-to-date |
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Beginning - |
702 | 2,739 | 3,441 | 1,656 | 5,097 | |||||||||||||||
Opened | 4 | 73 | 77 | 139 | 216 | |||||||||||||||
Closed | (2 | ) | (75 | ) | (77 | ) | (135 | ) | (212 | ) | ||||||||||
Acquired | 1 | - | 1 | - | 1 | |||||||||||||||
Sold | - | (1 | ) | (1 | ) | - | (1 | ) | ||||||||||||
Ending - |
705 | 2,736 | 3,441 | 1,660 | 5,101 | |||||||||||||||
Unit growth (decline) | 3 | (3 | ) | - | 4 | 4 | ||||||||||||||
% increase (decrease) | 0.4 | % | (0.1 | %) | - | 0.2 | % | 0.1 | % | |||||||||||
The 2017 International franchise closures include 33 India closures in
the third quarter and 66 India closures for the nine months ended. As of
the end of the third quarter, the
The company has added 130 net worldwide units over the trailing four
quarters. Our development pipeline as of
Share Repurchase Activity
The following table reflects our share repurchases for the three and
nine months ended
Period |
Number |
Cost | |||||||||
Three months ended |
1,152 | $ | 87,737 | ||||||||
Nine months ended |
1,573 | 121,705 | |||||||||
|
418 | 29,722 | |||||||||
There were 36.6 million and 37.0 million diluted weighted average shares
outstanding for the three and nine months ended
The Company expects to repurchase the remaining authorization by early to mid-2019. 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 fourth quarter of 2017 for a portion of the 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 Revised Outlook
The company provided the following 2017 outlook update and reaffirmed all of our remaining 2017 outlook items:
Updated Outlook | Previous Outlook | ||||||||||
North America Comparable Sales | positive up to 1.5% | 2.0% to 4.0% | |||||||||
Diluted EPS Growth (*) | 3.0% to 7.0% | 8.0% to 12.0% | |||||||||
Debt/ EBITDA ratio | 2.5x to 3.5x | 1.5x to 2.0x | |||||||||
Block Cheese Prices per lb. |
Low |
Mid |
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(*)Excludes impact of new equity-based compensation accounting standard; includes 53rd week |
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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. 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 changes in the debt markets in general, including adverse changes in interest rates, and our ability to meet debt service requirements;
- 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.
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 | Nine Months Ended | |||||||||||||||||||||
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(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Domestic company-owned restaurant sales | $ | 196,267 | $ | 199,041 | $ | 605,919 | $ | 608,968 | ||||||||||||||
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25,567 | 24,776 | 79,762 | 76,554 | ||||||||||||||||||
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178,083 | 169,684 | 539,532 | 503,623 | ||||||||||||||||||
International | 31,792 | 28,941 | 90,540 | 84,856 | ||||||||||||||||||
Total revenues | 431,709 | 422,442 | 1,315,753 | 1,274,001 | ||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||
Operating costs (excluding depreciation and amortization shown separately below): |
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Domestic company-owned restaurant expenses | 161,867 | 161,750 | 489,719 | 486,529 | ||||||||||||||||||
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168,031 | 157,552 | 504,732 | 466,616 | ||||||||||||||||||
International expenses | 19,785 | 18,594 | 57,257 | 53,936 | ||||||||||||||||||
General and administrative expenses | 37,330 | 40,549 | 117,340 | 123,419 | ||||||||||||||||||
Depreciation and amortization | 11,181 | 10,614 | 32,292 | 30,389 | ||||||||||||||||||
Total costs and expenses | 398,194 | 389,059 | 1,201,340 | 1,160,889 | ||||||||||||||||||
Operating income | 33,515 | 33,383 | 114,413 | 113,112 | ||||||||||||||||||
Net interest expense | (2,566 | ) | (1,756 | ) | (6,135 | ) | (4,876 | ) | ||||||||||||||
Income before income taxes | 30,949 | 31,627 | 108,278 | 108,236 | ||||||||||||||||||
Income tax expense | 8,280 | 8,977 | 30,728 | 33,423 | ||||||||||||||||||
Net income before attribution to noncontrolling interests | 22,669 | 22,650 | 77,550 | 74,813 | ||||||||||||||||||
Income attributable to noncontrolling interests | (852 | ) | (1,183 | ) | (3,767 | ) | (4,623 | ) | ||||||||||||||
Net income attributable to the company | $ | 21,817 | $ | 21,467 | $ | 73,783 | $ | 70,190 | ||||||||||||||
Calculation of income for earnings per share: | ||||||||||||||||||||||
Net income attributable to the company | $ | 21,817 | $ | 21,467 | $ | 73,783 | $ | 70,190 | ||||||||||||||
Change in noncontrolling interest redemption value | 237 | (157 | ) | 1,419 | 342 | |||||||||||||||||
Net income attributable to participating securities | (89 | ) | (87 | ) | (305 | ) | (288 | ) | ||||||||||||||
Net income attributable to common shareholders | $ | 21,965 | $ | 21,223 | $ | 74,897 | $ | 70,244 | ||||||||||||||
Basic earnings per common share | $ | 0.61 | $ | 0.57 | $ | 2.05 | $ | 1.88 | ||||||||||||||
Diluted earnings per common share | $ | 0.60 | $ | 0.57 | $ | 2.02 | $ | 1.86 | ||||||||||||||
Basic weighted average common shares outstanding | 36,146 | 36,989 | 36,563 | 37,374 | ||||||||||||||||||
Diluted weighted average common shares outstanding | 36,581 | 37,359 | 37,047 | 37,712 | ||||||||||||||||||
Dividends declared per common share | $ | 0.225 | $ | 0.200 | $ | 0.625 | $ | 0.550 | ||||||||||||||
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Condensed Consolidated Balance Sheets | |||||||||
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2017 | 2016 | ||||||||
(In thousands) | (Unaudited) | (Note) | |||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 39,543 | $ | 15,563 | |||||
Accounts receivable, net | 63,266 | 59,691 | |||||||
Notes receivable, net | 3,829 | 3,417 | |||||||
Income taxes receivable | 577 | 2,372 | |||||||
Inventories | 28,369 | 25,132 | |||||||
Prepaid expenses and other current assets | 23,731 | 33,143 | |||||||
Assets held for sale | 8,274 | 6,257 | |||||||
Total current assets | 167,589 | 145,575 | |||||||
Property and equipment, net | 236,812 | 230,473 | |||||||
Notes receivable, less current portion, net | 10,921 | 10,141 | |||||||
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86,825 | 85,529 | |||||||
Deferred income taxes | 289 | 769 | |||||||
Other assets | 48,492 | 40,078 | |||||||
Total assets | $ | 550,928 | $ | 512,565 | |||||
Liabilities and stockholders' equity (deficit) | |||||||||
Current liabilities: | |||||||||
Accounts payable | $ | 38,235 | $ | 42,701 | |||||
Income and other taxes payable | 10,443 | 8,540 | |||||||
Accrued expenses and other current liabilities | 69,376 | 76,789 | |||||||
Current portion of long-term debt |
20,000 | - | |||||||
Total current liabilities | 138,054 | 128,030 | |||||||
Deferred revenue | 2,987 | 3,313 | |||||||
Long-term debt, less current portion net | 378,548 | 299,820 | |||||||
Deferred income taxes | 11,823 | 10,047 | |||||||
Other long-term liabilities | 58,898 | 53,093 | |||||||
Total liabilities | 590,310 | 494,303 | |||||||
Redeemable noncontrolling interests | 6,434 | 8,461 | |||||||
Total stockholders' equity (deficit) | (45,816 | ) | 9,801 | ||||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity (deficit) | $ | 550,928 | $ | 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 |
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Consolidated Statements of Cash Flows | ||||||||||||
Nine Months Ended | ||||||||||||
(In thousands) |
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(Unaudited) | (Unaudited) | |||||||||||
Operating activities | ||||||||||||
Net income before attribution to noncontrolling interests | $ | 77,550 | $ | 74,813 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision (credit) for uncollectible accounts and notes receivable | (353 | ) | 153 | |||||||||
Depreciation and amortization | 32,292 | 30,389 | ||||||||||
Deferred income taxes | 1,283 | 4,966 | ||||||||||
Stock-based compensation expense | 8,094 | 7,525 | ||||||||||
Other | 3,004 | 2,811 | ||||||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
Accounts receivable | (5,131 | ) | 3,867 | |||||||||
Income taxes receivable | 1,795 | 5,045 | ||||||||||
Inventories | (3,234 | ) | (2,673 | ) | ||||||||
Prepaid expenses and other current assets | 7,965 | 5,627 | ||||||||||
Other assets and liabilities | (4,092 | ) | (3,085 | ) | ||||||||
Accounts payable | (2,480 | ) | (6,290 | ) | ||||||||
Income and other taxes payable | 1,779 | 3,381 | ||||||||||
Accrued expenses and other current liabilities | (3,229 | ) | (6,484 | ) | ||||||||
Deferred revenue | (326 | ) | 1,411 | |||||||||
Net cash provided by operating activities | 114,917 | 121,456 | ||||||||||
Investing activities | ||||||||||||
Purchases of property and equipment | (43,195 | ) | (38,954 | ) | ||||||||
Loans issued | (2,376 | ) | (2,216 | ) | ||||||||
Repayments of loans issued | 3,151 | 6,449 | ||||||||||
Acquisitions, net of cash acquired | (21 | ) | (11,202 | ) | ||||||||
Other | 25 | 193 | ||||||||||
Net cash used in investing activities | (42,416 | ) | (45,730 | ) | ||||||||
Financing activities | ||||||||||||
Proceeds from issuance of term loan | 400,000 | - | ||||||||||
Net (repayments) proceeds of revolving credit facility | (300,575 | ) | 56,375 | |||||||||
Debt issuance costs |
(3,181 | ) | - | |||||||||
Cash dividends paid | (22,886 | ) | (20,523 | ) | ||||||||
Tax payments for equity award issuances | (2,411 | ) | (5,999 | ) | ||||||||
Proceeds from exercise of stock options | 5,974 | 5,377 | ||||||||||
Acquisition of Company common stock | (121,705 | ) | (109,407 | ) | ||||||||
Distributions to noncontrolling interest holders | (4,606 | ) | (3,830 | ) | ||||||||
Other | 580 | 481 | ||||||||||
Net cash used in financing activities | (48,810 | ) | (77,526 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 289 | (99 | ) | |||||||||
Change in cash and cash equivalents | 23,980 | (1,899 | ) | |||||||||
Cash and cash equivalents at beginning of period | 15,563 | 21,006 | ||||||||||
Cash and cash equivalents at end of period | $ | 39,543 | $ | 19,107 | ||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20171031006274/en/
Papa John's
Chief
Financial Officer
Source: Papa John's
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