Papa John's Announces First Quarter 2016 Results
First Quarter EPS Growth of 25.5%
Highlights
-
First quarter earnings per diluted share of
$0.69 in 2016 compared to$0.55 in 2015, an increase of 25.5% -
System-wide comparable sales increases of 0.1% for
North America and 5.7% for international - 2016 guidance reaffirmed
"We're pleased to have delivered another solid quarter, with excellent
profitability growth in spite of a competitive promotional environment,"
said Papa John's founder, chairman and CEO
First quarter 2016 revenues were
First Quarter | ||||||
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2016 | 2015 | |||||
Global restaurant sales growth (a) | 2.3 | % | 7.4 | % | ||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
4.2 | % | 9.6 | % | ||
Comparable sales growth (b) | ||||||
Domestic company-owned restaurants | 1.0 | % | 8.1 | % | ||
|
(0.2 | %) | 6.0 | % | ||
|
0.1 | % | 6.5 | % | ||
System-wide international restaurants | 5.7 | % | 7.7 | % | ||
(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
Revenue and Operating Highlights
All revenue and operating highlights below are compared to the same period of the prior year, unless otherwise noted.
We have streamlined our income statement presentation by combining certain income statement captions in the condensed income statement. We have summarized 2015 by quarter in this same format in a supplemental schedule included in this press release.
Revenue Highlights
Consolidated revenues were
-
Domestic company-owned restaurant sales increased
$8.4 million , or 4.3%, primarily due to an increase in equivalent units, including 20 restaurants acquired from franchisees during the first quarter, and a 1.0% increase in comparable sales. -
Domestic franchise royalties and fees increased approximately
$850,000 , or 3.3%, primarily due to reduced levels of royalty incentives in the first quarter of 2016. -
Domestic commissary and other sales decreased
$15.0 million , or 8.1%. The decrease was due to the prior year inclusion of approximately$8.5 million of FOCUS equipment sales to franchisees. The higher levels of 2015 FOCUS equipment sales had no significant impact on 2015 operating results. Additionally, domestic commissary sales decreased by approximately$6.4 million as revenues associated with lower pricing for certain commodities, including meats and dough, were somewhat offset by an increase in sales volumes. -
International revenues increased approximately
$2.0 million , or 8.0%, primarily due to the first quarter of 2016 including sublease rental revenue in theUnited Kingdom of approximately$1.6 million , which was shown net of the rental expenses in the prior year. The change in presentation had no impact on income before income taxes. Additionally, royalties and commissary revenues were higher due to an increase in the number of restaurants and an increase in comparable sales of 5.7%, calculated on a constant dollar basis. These increases were somewhat offset by lowerChina Company -owned restaurant revenues. The negative impact of foreign currency exchange rates was approximately$1.9 million .
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) | 2016 | 2015 | (Decrease) | ||||||||||
Domestic company-owned restaurants | $ | 20,187 | $ | 18,480 | $ | 1,707 | |||||||
Domestic commissaries | 11,546 | 11,800 | (254 | ) | |||||||||
|
23,580 | 22,319 | 1,261 | ||||||||||
International | 3,038 | 1,344 | 1,694 | ||||||||||
All others | 51 | 443 | (392 | ) | |||||||||
Unallocated corporate expenses | (16,332 | ) | (17,205 | ) | 873 | ||||||||
Elimination of intersegment profits | (661 | ) | (745 | ) | 84 | ||||||||
Total income before income taxes | $ | 41,409 | $ | 36,436 | $ | 4,973 | |||||||
First quarter 2016 income before income taxes increased approximately
-
Domestic company-owned restaurants increased approximately
$1.7 million primarily due to lower commodity costs, including meats and dough. -
North America franchising increased approximately$1.3 million primarily due to reduced royalty and development incentives. -
International income increased approximately
$1.7 million primarily due to higher royalties and an increase inUnited Kingdom profits. This was somewhat offset by the impact of negative foreign currency exchange rates of approximately$700,000 . -
Unallocated corporate expenses were approximately
$900,000 lower primarily due to lower legal costs and lower expenses for our annual operators' conference due to the later timing of the event in the second quarter of 2016.
These increases were partially offset by lower domestic commissaries
income of approximately
The first quarter 2016 effective income tax rate was 32.3%, representing a decrease of 1.2% from the prior year rate of 33.5%. Our effective income tax rate may fluctuate from quarter to quarter for various reasons, including the timing of various deductions and credits.
The company's free cash flow, a non-GAAP financial measure, for the first quarters of 2016 and 2015, was as follows (in thousands):
First Quarter | ||||||||
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2016 | 2015 | |||||||
Net cash provided by operating activities (a) | $ | 29,969 | $ | 40,249 | ||||
Purchases of property and equipment | (10,249 | ) | (7,558 | ) | ||||
Free cash flow | $ | 19,720 | $ | 32,691 | ||||
(a) |
The decrease of approximately |
|
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
Global Restaurant Unit Data
At
Domestic | Franchised | ||||||||||||||
Company- | North | Total North | |||||||||||||
owned | America | America | International | System-wide | |||||||||||
First Quarter |
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Beginning - |
707 | 2,681 | 3,388 | 1,505 | 4,893 | ||||||||||
Opened | 2 | 18 | 20 | 24 | 44 | ||||||||||
Closed | - | (18 | ) | (18 | ) | (16 | ) | (34 | ) | ||||||
Acquired (divested) | 20 | (20 | ) | - | - | - | |||||||||
Ending - |
729 | 2,661 | 3,390 | 1,513 | 4,903 | ||||||||||
Unit growth (decline) | 22 | (20 | ) | 2 | 8 | 10 | |||||||||
% increase (decrease) | 3.1 | % | -0.7 | % | 0.1 | % | 0.5 | % | 0.2 | % | |||||
Our development pipeline as of
Share Repurchase Activity
The following table reflects our repurchases for the first quarter of
2016 and subsequent repurchases through
Number | |||||
Period |
of Shares |
Cost | |||
First Quarter 2016 | 1,286 | $ | 66,033 | ||
|
262 | $ | 14,625 | ||
There were 38.3 million diluted weighted average shares outstanding for
the first quarter of 2016, representing a decrease of 5.5% over the
prior year first quarter. Approximately 37.5 million actual shares of
the company's common stock were outstanding as of
2016 Guidance
The company is reaffirming its previously issued 2016 guidance.
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," "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, 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 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;
- 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, geopolitical or other disruptions beyond our control;
- increased risks associated with our international operations, including economic and political conditions, instability in our international markets, especially emerging markets, fluctuations in currency exchange rates, and 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 or proposed legislation impacting 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; and
- 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.
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: | ||||||||||
Domestic company-owned restaurant sales | $ | 205,679 | $ | 197,287 | ||||||
Domestic franchise royalties and fees | 26,476 | 25,624 | ||||||||
Domestic commissary and other sales | 168,985 | 183,947 | ||||||||
International | 27,455 | 25,426 | ||||||||
Total revenues | 428,595 | 432,284 | ||||||||
Costs and expenses: | ||||||||||
Operating costs (excluding depreciation and amortization | ||||||||||
shown separately below): | ||||||||||
Domestic company-owned restaurant expenses | 161,310 | 155,032 | ||||||||
Domestic commissary and other expenses | 156,806 | 170,339 | ||||||||
International expenses | 17,590 | 15,478 | ||||||||
General and administrative expenses | 40,247 | 43,749 | ||||||||
Depreciation and amortization | 9,744 | 10,041 | ||||||||
Total costs and expenses | 385,697 | 394,639 | ||||||||
Operating income | 42,898 | 37,645 | ||||||||
Net interest (expense) income | (1,489 | ) | (1,209 | ) | ||||||
Income before income taxes | 41,409 | 36,436 | ||||||||
Income tax expense | 13,358 | 12,197 | ||||||||
Net income before attribution to noncontrolling interests | 28,051 | 24,239 | ||||||||
Income attributable to noncontrolling interests | (1,869 | ) | (2,003 | ) | ||||||
Net income attributable to the company | $ | 26,182 | $ | 22,236 | ||||||
Calculation of income for earnings per share: | ||||||||||
Net income attributable to the company | $ | 26,182 | $ | 22,236 | ||||||
Change in noncontrolling interest redemption value | 220 | 70 | ||||||||
Net income attributable to participating securities | (110 | ) | (100 | ) | ||||||
Net income attributable to common shareholders | $ | 26,292 | $ | 22,206 | ||||||
Basic earnings per common share | $ | 0.69 | $ | 0.56 | ||||||
Diluted earnings per common share | $ | 0.69 | $ | 0.55 | ||||||
Basic weighted average common shares outstanding | 37,931 | 39,827 | ||||||||
Diluted weighted average common shares outstanding | 38,297 | 40,510 | ||||||||
Dividends declared per common share | $ | 0.175 | $ | 0.14 | ||||||
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Condensed Consolidated Balance Sheets | ||||||||
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2016 | 2015 | |||||||
(In thousands) | (Unaudited) | (Note) | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 17,272 | $ | 21,006 | ||||
Accounts receivable, net | 56,683 | 63,320 | ||||||
Notes receivable, net | 7,049 | 7,816 | ||||||
Income taxes receivable | 48 | 272 | ||||||
Inventories | 22,267 | 21,564 | ||||||
Prepaid expenses and other current assets | 27,910 | 29,313 | ||||||
Assets held for sale | 9,094 | 9,299 | ||||||
Total current assets | 140,323 | 152,590 | ||||||
Property and equipment, net | 213,296 | 214,044 | ||||||
Notes receivable, less current portion, net | 11,126 | 11,105 | ||||||
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87,740 | 79,657 | ||||||
Deferred income taxes | 2,041 | 2,415 | ||||||
Other assets | 36,453 | 34,247 | ||||||
Total assets | $ | 490,979 | $ | 494,058 | ||||
Liabilities and stockholders' equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 33,582 | $ | 43,492 | ||||
Income and other taxes payable | 8,805 | 8,527 | ||||||
Accrued expenses and other current liabilities | 62,579 | 80,918 | ||||||
Total current liabilities | 104,966 | 132,937 | ||||||
Deferred revenue | 3,847 | 3,190 | ||||||
Long-term debt | 316,717 | 255,146 | ||||||
Deferred income taxes | 9,394 | 4,610 | ||||||
Other long-term liabilities | 52,862 | 47,606 | ||||||
Total liabilities | 487,786 | 443,489 | ||||||
Redeemable noncontrolling interests | 8,887 | 8,363 | ||||||
Total stockholders' equity | (5,694 | ) | 42,206 | |||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | 490,979 | $ | 494,058 | ||||
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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 | $ | 28,051 | $ | 24,239 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for uncollectible accounts and notes receivable | 216 | 659 | ||||||
Depreciation and amortization | 9,744 | 10,041 | ||||||
Deferred income taxes | 7,141 | (36 | ) | |||||
Stock-based compensation expense | 2,172 | 2,264 | ||||||
Other | 1,101 | 1,180 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | 6,457 | (1,312 | ) | |||||
Income taxes receivable | 223 | 5,899 | ||||||
Inventories | (612 | ) | 1,043 | |||||
Prepaid expenses and other current assets | 1,624 | 2,452 | ||||||
Other assets and liabilities | (614 | ) | (154 | ) | ||||
Accounts payable | (10,007 | ) | (3,828 | ) | ||||
Income and other taxes payable | 277 | 167 | ||||||
Accrued expenses and other current liabilities | (16,738 | ) | (2,291 | ) | ||||
Deferred revenue | 934 | (74 | ) | |||||
Net cash provided by operating activities | 29,969 | 40,249 | ||||||
Investing activities | ||||||||
Purchases of property and equipment | (10,249 | ) | (7,558 | ) | ||||
Loans issued | (917 | ) | (506 | ) | ||||
Repayments of loans issued | 1,275 | 1,083 | ||||||
Acquisitions, net of cash acquired | (11,202 | ) | (341 | ) | ||||
Other | 159 | 20 | ||||||
Net cash used in investing activities | (20,934 | ) | (7,302 | ) | ||||
Financing activities | ||||||||
Net proceeds on line of credit facility | 61,500 | 549 | ||||||
Cash dividends paid | (6,628 | ) | (5,545 | ) | ||||
Excess tax benefit on equity awards | 3,884 | 5,091 | ||||||
Tax payments for equity award issuances | (5,670 | ) | (5,557 | ) | ||||
Proceeds from exercise of stock options | 922 | 2,210 | ||||||
Acquisition of Company common stock | (66,033 | ) | (24,765 | ) | ||||
Contributions from noncontrolling interest holders | 120 | - | ||||||
Distributions to noncontrolling interest holders | (1,100 | ) | (1,705 | ) | ||||
Other | 294 | 253 | ||||||
Net cash used in financing activities | (12,711 | ) | (29,469 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (58 | ) | (76 | ) | ||||
Change in cash and cash equivalents | (3,734 | ) | 3,402 | |||||
Cash and cash equivalents at beginning of period | 21,006 | 20,122 | ||||||
Cash and cash equivalents at end of period | $ | 17,272 | $ | 23,524 | ||||
The following schedule provides the condensed consolidated statements of income by quarter and for the full year 2015 in the new format.
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2015 Condensed Consolidated Statements of Income | ||||||||||||||||||||||
Full Year | ||||||||||||||||||||||
Quarter Ended (Unaudited) | Ended | |||||||||||||||||||||
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2015 | 2015 | 2015 | 2015 | 2015 | ||||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Domestic company-owned restaurant sales | $ | 197,287 | $ | 185,962 | $ | 180,059 | $ | 192,999 | $ | 756,307 | ||||||||||||
Domestic franchise royalties and fees | 25,624 | 23,276 | 22,285 | 24,871 | 96,056 | |||||||||||||||||
Domestic commissary and other sales | 183,947 | 163,427 | 159,939 | 173,008 | 680,321 | |||||||||||||||||
International | 25,426 | 26,326 | 27,001 | 25,938 | 104,691 | |||||||||||||||||
Total revenues | 432,284 | 398,991 | 389,284 | 416,816 | 1,637,375 | |||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||
Operating costs (excluding depreciation and amortization shown separately below): |
||||||||||||||||||||||
Domestic company-owned restaurant expenses | 155,032 | 147,356 | 148,536 | 153,282 | 604,206 | |||||||||||||||||
Domestic commissary and other expenses | 170,339 | 151,206 | 148,709 | 159,169 | 629,423 | |||||||||||||||||
International expenses | 15,478 | 16,250 | 16,481 | 15,297 | 63,506 | |||||||||||||||||
General and administrative expenses | 43,749 | 43,047 | 37,660 | 39,170 | 163,626 | |||||||||||||||||
Depreciation and amortization | 10,041 | 10,136 | 10,461 | 9,669 | 40,307 | |||||||||||||||||
Total costs and expenses | 394,639 | 367,995 | 361,847 | 376,587 | 1,501,068 | |||||||||||||||||
Operating income | 37,645 | 30,996 | 27,437 | 40,229 | 136,307 | |||||||||||||||||
Legal settlement expense | - | (12,278 | ) | - | - | (12,278 | ) | |||||||||||||||
Net interest (expense) income | (1,209 | ) | (1,187 | ) | (1,180 | ) | (1,306 | ) | (4,882 | ) | ||||||||||||
Income before income taxes | 36,436 | 17,531 | 26,257 | 38,923 | 119,147 | |||||||||||||||||
Income tax expense | 12,197 | 5,063 | 7,281 | 12,642 | 37,183 | |||||||||||||||||
Net income before attribution to noncontrolling interests | 24,239 | 12,468 | 18,976 | 26,281 | 81,964 | |||||||||||||||||
Income attributable to noncontrolling interests | (2,003 | ) | (1,688 | ) | (1,005 | ) | (1,586 | ) | (6,282 | ) | ||||||||||||
Net income attributable to the company | $ | 22,236 | $ | 10,780 | $ | 17,971 | $ | 24,695 | $ | 75,682 | ||||||||||||
Calculation of income for earnings per share: | ||||||||||||||||||||||
Net income attributable to the company | $ | 22,236 | $ | 10,780 | $ | 17,971 | $ | 24,695 | $ | 75,682 | ||||||||||||
Change in noncontrolling interest redemption value | 70 | 73 | 49 | (127 | ) | 65 | ||||||||||||||||
Net income attributable to participating securities | (100 | ) | (50 | ) | (73 | ) | (102 | ) | (325 | ) | ||||||||||||
Net income attributable to common shareholders | $ | 22,206 | $ | 10,803 | $ | 17,947 | $ | 24,466 | $ | 75,422 | ||||||||||||
Basic earnings per common share | $ | 0.56 | $ | 0.27 | $ | 0.46 | $ | 0.63 | $ | 1.91 | ||||||||||||
Diluted earnings per common share | $ | 0.55 | $ | 0.27 | $ | 0.45 | $ | 0.62 | $ | 1.89 | ||||||||||||
Basic weighted average common shares outstanding | 39,827 | 39,692 | 39,394 | 38,909 | 39,458 | |||||||||||||||||
Diluted weighted average common shares outstanding | 40,510 | 40,217 | 39,895 | 39,367 | 40,000 | |||||||||||||||||
Dividends declared per common share | $ | 0.14 | $ | 0.14 | $ | 0.175 | $ | 0.175 | $ | 0.63 | ||||||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160503007109/en/
Papa John's
Chief
Financial Officer
Source: Papa John's
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