Papa John's Announces Third Quarter Results
EPS Increased 37.5% over Prior Year Pro Forma Results on Strong
Comparable Sales of 5.3% for
Highlights
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Third quarter system-wide comparable sales increased 5.3% for
North America and 4.7% for International -
Third quarter earnings per diluted share of
$0.44 in 2011 vs.$0.30 in 2010 ($0.32 in 2010 excluding the impact of franchisee-owned BIBP cheese purchasing entity, a 37.5% increase) - 47 worldwide net unit openings during the quarter
- 2011 guidance increased for EPS, worldwide comparable sales, and worldwide net restaurant openings
"I congratulate our operators throughout the world on achieving one of
the best overall quarters in company history," commented Papa John's
Founder, Chairman and Chief Executive Officer,
Revenues were
Revenues were
Financial Highlights
Summary Financial Data:
Three Months Ended | Nine Months Ended | |||||||||||
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(In thousands, except per share amounts) | 2011 | 2010 | 2011 | 2010 | ||||||||
Revenues | $ |
305,668 |
$ | 273,126 | $ | 911,669 | $ | 839,559 | ||||
Income before income taxes, net of noncontrolling interests |
$ | 16,029 | $ | 11,868 | $ | 59,825 | $ | 58,460 | ||||
Net income | $ | 11,123 | $ | 7,848 | $ | 39,674 | $ | 37,915 | ||||
Earnings per share - assuming dilution | $ | 0.44 | $ | 0.30 | $ | 1.55 | $ | 1.42 | ||||
Diluted weighted average shares outstanding | 25,146 | 26,081 | 25,528 | 26,743 | ||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
Sept. 25, 2011 |
Sept. 26, 2010 |
Sept. 25, 2011 |
Sept. 26, 2010 |
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Global restaurant sales growth (a) | 8.3 | % | 2.8 | % | 8.3 | % | 2.3 | % | |||||
Global restaurant sales growth, excluding the impact of foreign currency conversion (a) |
7.6 | % | 2.8 | % | 7.7 | % | 2.1 | % | |||||
Comparable sales growth (decline) (b) | |||||||||||||
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6.3 | % | (1.6 | %) | 5.0 | % | (1.5 | %) | |||||
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4.9 | % | (0.3 | %) | 3.6 | % | 0.3 | % | |||||
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5.3 | % | (0.6 | %) | 3.9 | % | (0.2 | %) | |||||
System-wide international restaurants | 4.7 | % | 5.5 | % | 5.0 | % | 1.6 | % | |||||
(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 calendar period. 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
Revenues Highlights
Consolidated revenues increased
-
Domestic company-owned restaurant sales increased
$8.4 million , or 7.0%, and$20.4 million , or 5.5%, for the three and nine months endedSeptember 25, 2011 , respectively, primarily due to increases in comparable sales of 6.3% and 5.0%, respectively. -
North America franchise royalty revenues increased approximately$1.3 million , or 7.9%, and$3.7 million , or 7.0%, for the three and nine months endedSeptember 25, 2011 , respectively, due to increases in comparable sales of 4.9% and 3.6%, respectively, and increases in the number of franchise restaurants. -
Domestic commissary sales increased
$19.0 million , or 17.0%, and$41.1 million , or 12.1%, for the three and nine months endedSeptember 25, 2011 , respectively. The increases were primarily due to increases in the selling prices of certain commodities, most notably cheese, and increases in sales volumes. -
International revenues increased
$3.6 million , or 30.6%, and$8.4 million , or 24.5%, for the three and nine months endedSeptember 25, 2011 , respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 4.7% and 5.0%, respectively, calculated on a constant dollar basis. Through the first three quarters of 2010, the International segment included revenues from company-owned restaurants located in theUnited Kingdom , which were sold in the third quarter of 2010.
Operating Highlights
Our income before income taxes, net of noncontrolling interests, for the
third quarter of 2011 was
Income before income taxes, net of noncontrolling interests, is summarized in the following table on a reporting segment basis:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
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Increase |
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Increase | |||||||||||||||||||
2011 | 2010 | (Decrease) | 2011 | 2010 | (Decrease) | |||||||||||||||||||
Domestic company-owned restaurants | $ | 4,273 | $ | 5,503 | $ | (1,230 | ) | $ | 22,577 | $ | 25,604 | $ | (3,027 | ) | ||||||||||
Domestic commissaries | 7,237 | 5,393 | 1,844 | 21,112 | 20,577 | 535 | ||||||||||||||||||
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15,941 | 14,663 | 1,278 | 50,190 | 46,713 | 3,477 | ||||||||||||||||||
International | 249 | (1,309 | ) | 1,558 | (817 | ) | (4,162 | ) | 3,345 | |||||||||||||||
All others | (66 | ) | 60 | (126 | ) | (742 | ) | 1,187 | (1,929 | ) | ||||||||||||||
Unallocated corporate expenses | (11,085 | ) | (11,004 | ) | (81 | ) | (29,371 | ) | (33,963 | ) | 4,592 | |||||||||||||
Elimination of intersegment losses (profits) |
297 | (108 | ) | 405 | (256 | ) | (329 | ) | 73 | |||||||||||||||
Income attributable to noncontrolling interests |
(817 | ) | (672 | ) | (145 | ) | (2,868 | ) | (2,672 | ) | (196 | ) | ||||||||||||
Total income before income taxes and BIBP, net of noncontrolling interests |
16,029 | 12,526 | 3,503 | 59,825 | 52,955 | 6,870 | ||||||||||||||||||
BIBP, a variable interest entity | - | (658 | ) | 658 | - | 5,505 | (5,505 | ) | ||||||||||||||||
Total income before income taxes, net of noncontrolling interests |
$ | 16,029 | $ | 11,868 | $ | 4,161 | $ | 59,825 | $ | 58,460 | $ | 1,365 | ||||||||||||
The increase in income before income taxes, net of noncontrolling
interests, of
-
Domestic commissaries and
North America franchising operating income both increased due to strong comparable sales results and an increase in the number of restaurants. -
International operating income improved due to increased royalties
attributable to strong comparable sales and net unit growth in
addition to improved commissary results in the
United Kingdom .
These increases in the quarter were partially offset by the following:
- Domestic company-owned restaurants operating income declined due to higher commodity prices, primarily cheese, partially offset by incremental profits from strong comparable sales results.
-
Unallocated corporate expenses increased slightly, due to increases in
franchise incentives and initiatives and a charge of approximately
$800,000 related to lease obligations associated with our former Perfect Pizza operations in theUnited Kingdom , which were partially offset by a significant decrease in interest expense due to lower debt levels and a lower effective interest rate on borrowings.
The increase in income before income taxes, net of noncontrolling
interests, of
- "All others" operating results declined primarily due to lower online ordering fees and an increase in infrastructure and support costs at our "eCommerce" business.
- Unallocated corporate expenses decreased due to reduced franchise incentives and initiatives, lower short- and long-term incentive compensation costs, and lower sponsorship fees, partially offset by an increase in travel costs.
Our effective income tax rates, excluding BIBP, were 29.1% and 32.1% for
the three and nine months ended
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
The company's free cash flow for the first nine months of 2011 and 2010 was as follows (in thousands):
Nine Months Ended | |||||||||
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Sept. 26, | ||||||||
2011 | 2010 | ||||||||
Net cash provided by operating activities | $ | 84,348 | $ | 62,159 | |||||
Pre-tax income from BIBP cheese purchasing entity | - | (5,505 | ) | ||||||
Purchase of property and equipment | (20,647 | ) | (23,608 | ) | |||||
Free cash flow * | $ | 63,701 | $ | 33,046 | |||||
* |
The increase in free cash flow is due to higher net income, favorable changes in working capital, primarily due to timing of payments, and lower purchases of property and equipment. |
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Free cash flow is defined as net cash provided by operating activities
(from the consolidated statements of cash flows) excluding the impact of
BIBP, 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
Our net debt position, defined as total debt less cash and cash
equivalents, was
Global Restaurant Unit Data
At
Company- owned North America |
Franchised North America |
Total North America |
International | Systemwide | |||||||||||
Third Quarter |
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Beginning - |
595 | 2,393 | 2,988 | 745 | 3,733 | ||||||||||
Opened | 2 | 36 | 38 | 36 | 74 | ||||||||||
Closed | - | (16 | ) | (16 | ) | (11 | ) | (27 | ) | ||||||
Ending - |
597 | 2,413 | 3,010 | 770 | 3,780 | ||||||||||
Year-to-date |
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Beginning - |
591 | 2,346 | 2,937 | 709 | 3,646 | ||||||||||
Opened | 6 | 103 | 109 | 87 | 196 | ||||||||||
Closed | - | (36 | ) | (36 | ) | (26 | ) | (62 | ) | ||||||
Ending - |
597 | 2,413 | 3,010 | 770 | 3,780 | ||||||||||
Restaurants at |
590 | 2,321 | 2,911 | 672 | 3,583 | ||||||||||
Restaurant unit growth | 7 | 92 | 99 | 98 | 197 | ||||||||||
% increase | 1.2 | % | 4.0 | % | 3.4 | % | 14.6 | % | 5.5 | % | |||||
Our development pipeline as of
Share Repurchase Activity
The company repurchased 798,000 shares of its common stock at an average
price of
There were 25.1 million and 25.5 million diluted weighted average shares
outstanding for the three- and nine-month periods, respectively,
representing decreases of 3.6% and 4.5%, respectively, over the prior
year comparable periods. Diluted earnings per share increased
2011 Guidance Update
The following is an update to our 2011 guidance based on our solid year-to-date results:
Updated Guidance | Previous Guidance | ||||
Diluted earnings per share |
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+3% to +4% | +2% to +3% | |||
International comparable sales | +3% to +5% | +2% to +4% | |||
Worldwide net restaurant openings | +210 to +235 | +190 to +220 | |||
Conference Call
A conference call is scheduled for
Non-GAAP Measures
Certain financial measures we present in this press release exclude the
impact of the consolidation of BIBP, which is not a measure that is
defined in accordance with GAAP. These non-GAAP measures 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 2010 financial information excluding the impact of BIBP
is important for purposes of comparison to current year results. As
previously announced, we terminated our cheese purchasing arrangement
with BIBP in
The company has provided the following table to reconcile the pro forma
financial results we present in this press release excluding the impact
in 2010 of BIBP to our GAAP financial measures for the three- and
nine-month periods ended
Three Months Ended | Nine Months Ended | ||||||||||||
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(In thousands, except per share amounts) | 2011 | 2010 | 2011 | 2010 | |||||||||
Pre-tax income, net of noncontrolling interests, as reported |
$ | 16,029 | $ | 11,868 | $ | 59,825 | $ | 58,460 | |||||
Pre-tax loss (income) from BIBP cheese purchasing entity | - | 658 | - | (5,505 | ) | ||||||||
Pre-tax income, net of noncontrolling interests, excluding BIBP |
$ | 16,029 | $ | 12,526 | $ | 59,825 | $ | 52,955 | |||||
Net income, as reported | $ | 11,123 | $ | 7,848 | $ | 39,674 | $ | 37,915 | |||||
Net loss (income) from BIBP cheese purchasing entity | - | 417 | - | (3,496 | ) | ||||||||
Net income, excluding BIBP | $ | 11,123 | $ | 8,265 | $ | 39,674 | $ | 34,419 | |||||
Earnings per diluted share, as reported | $ | 0.44 | $ | 0.30 | $ | 1.55 | $ | 1.42 | |||||
Loss (earnings) from BIBP cheese purchasing entity | - | 0.02 | - | (0.13 | ) | ||||||||
Earnings per diluted share, excluding BIBP | $ | 0.44 | $ | 0.32 | $ | 1.55 | $ | 1.29 | |||||
Cash flow from operations, as reported | $ | 84,348 | $ | 62,159 | |||||||||
Cash flow from BIBP cheese purchasing entity | - | (5,505 | ) | ||||||||||
Cash flow from operations, excluding BIBP | $ | 84,348 | $ | 56,654 | |||||||||
See the free cash flow discussion for more information about our use of free cash flow, which is a non-GAAP measure.
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: changes in
pricing or other marketing or promotional strategies by competitors
which may adversely affect sales, including an increase in or
continuation of the current 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; 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, fuel, employee compensation and 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; 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 | Nine Months Ended | ||||||||||||||||
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(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenues: | |||||||||||||||||
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$ | 128,787 | $ | 120,414 | $ | 395,099 | $ | 374,652 | |||||||||
Franchise royalties | 17,967 | 16,653 | 55,801 | 52,138 | |||||||||||||
Franchise and development fees | 155 | 149 | 464 | 460 | |||||||||||||
Domestic commissary sales | 130,870 | 111,884 | 379,569 | 338,460 | |||||||||||||
Other sales | 12,368 | 12,138 | 38,185 | 39,674 | |||||||||||||
International: | |||||||||||||||||
Royalties and franchise and development fees | 4,054 | 3,316 | 11,865 | 9,635 | |||||||||||||
Restaurant and commissary sales | 11,467 | 8,572 | 30,686 | 24,540 | |||||||||||||
Total revenues | 305,668 | 273,126 | 911,669 | 839,559 | |||||||||||||
Costs and expenses: | |||||||||||||||||
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Cost of sales | 32,229 | 27,245 | 94,491 | 81,551 | |||||||||||||
Salaries and benefits | 35,012 | 33,320 | 107,028 | 102,915 | |||||||||||||
Advertising and related costs | 11,790 | 11,264 | 36,477 | 33,817 | |||||||||||||
Occupancy costs | 8,496 | 8,494 | 24,304 | 24,264 | |||||||||||||
Other operating expenses | 18,858 | 18,184 | 57,265 | 54,218 | |||||||||||||
Total domestic Company-owned restaurant expenses | 106,385 | 98,507 | 319,565 | 296,765 | |||||||||||||
Domestic commissary and other expenses: | |||||||||||||||||
Cost of sales | 110,387 | 94,422 | 320,359 | 284,909 | |||||||||||||
Salaries and benefits | 8,840 | 8,533 | 26,502 | 25,833 | |||||||||||||
Other operating expenses | 13,381 | 12,002 | 40,050 | 35,543 | |||||||||||||
Total domestic commissary and other expenses | 132,608 | 114,957 | 386,911 | 346,285 | |||||||||||||
Loss (income) from the franchise cheese-purchasing program, net of noncontrolling interest |
- | 409 | - | (4,573 | ) | ||||||||||||
International operating expenses | 9,634 | 7,627 | 26,118 | 21,833 | |||||||||||||
General and administrative expenses | 27,332 | 27,133 | 84,023 | 83,983 | |||||||||||||
Other general expenses | 4,777 | 2,643 | 7,017 | 6,620 | |||||||||||||
Depreciation and amortization | 7,974 | 8,067 | 24,711 | 24,122 | |||||||||||||
Total costs and expenses | 288,710 | 259,343 | 848,345 | 775,035 | |||||||||||||
Operating income | 16,958 | 13,783 | 63,324 | 64,524 | |||||||||||||
Net interest expense | (112 | ) | (1,243 | ) | (631 | ) | (3,392 | ) | |||||||||
Income before income taxes | 16,846 | 12,540 | 62,693 | 61,132 | |||||||||||||
Income tax expense | 4,906 | 4,020 | 20,151 | 20,545 | |||||||||||||
Net income, including noncontrolling interests | 11,940 | 8,520 | 42,542 | 40,587 | |||||||||||||
Less: income attributable to noncontrolling interests | (817 | ) | (672 | ) | (2,868 | ) | (2,672 | ) | |||||||||
Net income, net of noncontrolling interests | $ | 11,123 | $ | 7,848 | $ | 39,674 | $ | 37,915 | |||||||||
Basic earnings per common share | $ | 0.45 | $ | 0.30 | $ | 1.57 | $ | 1.43 | |||||||||
Earnings per common share - assuming dilution | $ | 0.44 | $ | 0.30 | $ | 1.55 | $ | 1.42 | |||||||||
Basic weighted average shares outstanding | 24,964 | 25,951 | 25,302 | 26,586 | |||||||||||||
Diluted weighted average shares outstanding | 25,146 | 26,081 | 25,528 | 26,743 | |||||||||||||
Note: |
Beginning in the first quarter of 2011, we realigned financial
reporting for the franchised restaurants operating in |
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Condensed Consolidated Balance Sheets | |||||||
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December 26, | ||||||
2011 | 2010 | ||||||
(Unaudited) | (Note) | ||||||
(In thousands) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 23,695 | $ | 46,225 | |||
Accounts receivable, net | 27,492 | 25,357 | |||||
Inventories | 17,201 | 17,402 | |||||
Prepaid expenses | 6,503 | 10,009 | |||||
Other current assets | 3,839 | 3,732 | |||||
Deferred income taxes | 10,343 | 9,647 | |||||
Total current assets | 89,073 | 112,372 | |||||
Investments | 1,681 | 1,604 | |||||
Net property and equipment | 183,184 | 186,594 | |||||
Notes receivable, net | 15,516 | 17,354 | |||||
Goodwill | 74,871 | 74,697 | |||||
Other assets | 21,930 | 23,320 | |||||
Total assets | $ | 386,255 | $ | 415,941 | |||
Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 35,465 | $ | 31,569 | |||
Income and other taxes payable | 9,218 | 6,140 | |||||
Accrued expenses | 53,864 | 52,978 | |||||
Total current liabilities | 98,547 | 90,687 | |||||
Unearned franchise and development fees | 6,502 | 6,596 | |||||
Long-term debt | 50,000 | 99,017 | |||||
Other long-term liabilities | 11,542 | 12,100 | |||||
Deferred income taxes | 7,110 | 341 | |||||
Total liabilities | 173,701 | 208,741 | |||||
Total stockholders' equity | 212,554 | 207,200 | |||||
Total liabilities and stockholders' equity | $ | 386,255 | $ | 415,941 | |||
Note: |
The Condensed Consolidated Balance Sheet at |
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Consolidated Statements of Cash Flows | ||||||||
Nine Months Ended | ||||||||
(In thousands) |
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(Unaudited) | (Unaudited) | |||||||
Operating activities | ||||||||
Net income, net of noncontrolling interests | $ | 39,674 | $ | 37,915 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for uncollectible accounts and notes receivable | 882 | 1,257 | ||||||
Depreciation and amortization | 24,711 | 24,122 | ||||||
Deferred income taxes | 5,219 | (850 | ) | |||||
Stock-based compensation expense | 5,266 | 4,491 | ||||||
Excess tax benefit related to exercise of non-qualified stock options | (576 | ) | (242 | ) | ||||
Other | 1,272 | 303 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (3,071 | ) | (4,094 | ) | ||||
Inventories | 201 | (525 | ) | |||||
Prepaid expenses | 3,506 | 1,309 | ||||||
Other current assets | (107 | ) | 381 | |||||
Other assets and liabilities | 491 | (397 | ) | |||||
Accounts payable | 3,896 | (2,119 | ) | |||||
Income and other taxes | 3,078 | 5,499 | ||||||
Accrued expenses | - | (5,701 | ) | |||||
Unearned franchise and development fees | (94 | ) | 810 | |||||
Net cash provided by operating activities | 84,348 | 62,159 | ||||||
Investing activities | ||||||||
Purchase of property and equipment | (20,647 | ) | (23,608 | ) | ||||
Purchase of investments | (205 | ) | (548 | ) | ||||
Proceeds from sale or maturity of investments | 128 | 301 | ||||||
Loans issued | (2,598 | ) | (1,736 | ) | ||||
Loan repayments | 4,542 | 2,444 | ||||||
Proceeds from divestitures of restaurants | - | 1,423 | ||||||
Other | 62 | 10 | ||||||
Net cash used in investing activities | (18,718 | ) | (21,714 | ) | ||||
Financing activities | ||||||||
Net repayments on line of credit facility | (49,000 | ) | - | |||||
Excess tax benefit on equity awards | 576 | 242 | ||||||
Tax payments for restricted stock | (1,041 | ) | - | |||||
Proceeds from exercise of stock options | 10,981 | 5,304 | ||||||
Acquisition of Company common stock | (49,579 | ) | (43,215 | ) | ||||
Noncontrolling interests, net of contributions and distributions | (261 | ) | (235 | ) | ||||
Other | 97 | 104 | ||||||
Net cash used in financing activities | (88,227 | ) | (37,800 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 67 | 78 | ||||||
Change in cash and cash equivalents | (22,530 | ) | 2,723 | |||||
Cash and cash equivalents at beginning of period | 46,225 | 25,457 | ||||||
Cash and cash equivalents at end of period | $ | 23,695 | $ | 28,180 |
Papa John's
Chief
Financial Officer
Source: Papa John's
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