Papa John's Announces Second Quarter 2013 Results
EPS Increased 30.5% on Strong Comparable Sales; Board Approves Quarterly Dividend
Highlights
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Second quarter diluted earnings per share of
$0.77 in 2013 compared to$0.59 in 2012 -
System-wide comparable sales increases of 3.4% for
North America and 6.8% for international during the quarter - 1,000th international restaurant opening; 55 worldwide net unit openings during the quarter
-
2013 earnings guidance updated to a range of
$2.92 to$3.00 per diluted share, from prior guidance of$2.90 to$3.00 per diluted share -
Board declares regular quarterly cash dividend of
$0.25 per share and increases share repurchase authorization
"Our commitment to delivering a quality product around the globe
continues to pay off, with excellent financial performance, a top
ranking by the prestigious American Customer Satisfaction Index for the
12th time in 14 years, and the milestone opening of the 1,000th
international Papa John's restaurant," said Papa John's Founder,
Chairman and Chief Executive Officer
Second quarter 2013 revenues were
Revenues were
Three Months Ended | Six Months Ended | |||||||||||
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Global restaurant sales growth (a) | 7.2 | % | 9.8 | % | 6.6 | % | 7.9 | % | ||||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
7.6 |
% |
10.4 | % |
7.0 |
% |
8.3 | % | ||||
Comparable sales growth (b) | ||||||||||||
Domestic company-owned restaurants | 6.0 | % | 7.4 | % | 4.9 | % | 5.1 | % | ||||
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2.6 | % | 5.1 | % | 1.7 | % | 2.7 | % | ||||
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3.4 | % | 5.7 | % | 2.5 | % | 3.3 | % | ||||
System-wide international restaurants | 6.8 | % | 6.1 | % | 7.5 | % | 7.2 | % | ||||
(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 fiscal periods. 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
Revenue and Operating Highlights
All revenues and operating highlights below are compared to the same period of the prior year, unless otherwise noted.
Revenues
Consolidated revenues increased
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Domestic company-owned restaurant sales increased
$11.6 million , or 8.1%, and$25.7 million , or 8.9%, for the three and six months, respectively, primarily due to increases in comparable sales of 6.0% and 4.9% and the net acquisition of 50 restaurants in theDenver andMinneapolis markets from a franchisee in the second quarter of 2012. -
North America franchise royalty revenue increased$1.1 million , or 5.9%, and$1.3 million , or 3.4%, for the three and six months, respectively, primarily due to increases in comparable sales of 2.6% and 1.7% and increases in net franchise units over the prior year. These increases were partially offset by reduced royalties attributable to the company's net acquisition of the 50 restaurants noted above. -
Domestic commissary sales increased
$13.4 million , or 10.6%, and$19.7 million , or 7.5%, for the three and six months, respectively, primarily due to increases in sales volumes as well as increases in the prices of commodities. -
International revenues increased
$3.8 million , or 21.6%, and$6.8 million , or 19.9%, for the three and six months, respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 6.8% and 7.5%, calculated on a constant dollar basis.
Operating Highlights
The table below summarizes income before income taxes on a reporting segment basis, excluding the Incentive Contribution:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
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Increase |
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Increase | |||||||||||||||||||
(In thousands) | 2013 | 2012 | (Decrease) | 2013 | 2012 | (Decrease) | ||||||||||||||||||
Domestic company-owned restaurants | $ | 8,175 | $ | 9,358 | $ | (1,183 | ) | $ | 19,131 | $ | 21,679 | $ | (2,548 | ) | ||||||||||
Less: Incentive Contribution (a) | - | - | - | - | 1,029 | (1,029 | ) | |||||||||||||||||
Domestic company-owned restaurants, excluding Incentive Contribution |
8,175 | 9,358 | (1,183 | ) | 19,131 | 20,650 | (1,519 | ) | ||||||||||||||||
Domestic commissaries | 9,642 | 7,978 | 1,664 | 19,805 | 19,144 | 661 | ||||||||||||||||||
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17,396 | 16,619 | 777 | 35,618 | 34,759 | 859 | ||||||||||||||||||
International | 866 | 320 | 546 | 1,207 | 592 | 615 | ||||||||||||||||||
All others | 1,153 | 471 | 682 | 1,812 | 866 | 946 | ||||||||||||||||||
Unallocated corporate expenses | (10,413 | ) | (10,799 | ) | 386 | (19,931 | ) | (25,583 | ) | 5,652 | ||||||||||||||
Less: Incentive Contribution (a) | 250 | 250 | - | 500 | (4,500 | ) | 5,000 | |||||||||||||||||
Unallocated corporate expenses, excluding Incentive Contribution |
(10,663 | ) | (11,049 | ) | 386 | (20,431 | ) | (21,083 | ) | 652 | ||||||||||||||
Elimination of intersegment profits | (211 | ) | (481 | ) | 270 | (737 | ) | (471 | ) | (266 | ) | |||||||||||||
Total income before income taxes, excluding Incentive Contribution (a) |
$ | 26,358 | $ | 23,216 | $ | 3,142 | $ | 56,405 | $ | 54,457 | $ | 1,948 | ||||||||||||
(a) Income before income taxes and other financial measures excluding the Incentive Contribution are non-GAAP financial measures. See Marketing Incentive Contribution table below for additional details and a reconciliation to our GAAP financial measures. |
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Second quarter 2013 income before income taxes increased approximately
- Domestic commissaries increased primarily due to the increase in net restaurants and comparable sales as well as a higher gross margin. We manage commissary results on a full year basis and anticipate the 2013 full year margin will approximate 2012.
-
North America franchising increased primarily due to the increase in net restaurants and comparable sales. -
International increased primarily due to the increase in net
restaurants and comparable sales results and an improvement in our
United Kingdom results. - All others increased due to an improvement in our online operating results due to higher online sales volumes.
These increases were partially offset by a decrease in income before income taxes at our domestic company-owned restaurants primarily due to higher commodity costs, somewhat offset by incremental profits associated with higher comparable sales of 6.0%.
The increase in income before income taxes for the six months ended
The effective income tax rates were 32.2% and 32.6% for the three and
six months ended
The company's free cash flow, a non-GAAP financial measure, for the first six months of 2013 and 2012 was as follows (in thousands):
Six Months Ended | ||||||||
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2013 | 2012 | |||||||
Net cash provided by operating activities (a) | $ | 47,232 | $ | 65,162 | ||||
Purchase of property and equipment (b) | (25,493 | ) | (15,046 | ) | ||||
Free cash flow | $ | 21,739 | $ | 50,116 | ||||
(a) The decrease of approximately |
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(b) The increased purchases of property and equipment primarily
relate to expenditures on equipment for the |
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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 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 Company- owned |
Franchised North America |
Total North America |
International | System-wide | |||||||||||
Second Quarter |
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Beginning - |
649 | 2,572 | 3,221 | 976 | 4,197 | ||||||||||
Opened | 5 | 32 | 37 | 44 | 81 | ||||||||||
Closed | - | (16 | ) | (16 | ) | (10 | ) | (26 | ) | ||||||
Ending - |
654 | 2,588 | 3,242 | 1,010 | 4,252 | ||||||||||
Year-to-date |
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Beginning - |
648 | 2,556 | 3,204 | 959 | 4,163 | ||||||||||
Opened | 6 | 63 | 69 | 72 | 141 | ||||||||||
Closed | - | (31 | ) | (31 | ) | (21 | ) | (52 | ) | ||||||
Ending - |
654 | 2,588 | 3,242 | 1,010 | 4,252 | ||||||||||
Restaurant unit growth | 6 | 32 | 38 | 51 | 89 | ||||||||||
% increase | 0.9 | % | 1.3 | % | 1.2 | % | 5.3 | % | 2.1 | % |
Our development pipeline as of
Marketing Incentive Contribution
The following table reconciles our GAAP financial results to our results
excluding the Incentive Contribution for the three and six months ended
Three Months Ended | Six Months Ended | ||||||||||
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(In thousands, except per share amounts) | 2013 | 2012 | 2013 | 2012 | |||||||
Income before income taxes, as reported |
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Incentive Contribution (a) | (250 | ) | (250 | ) | (500 | ) | 3,471 | ||||
Income before income taxes, excluding Incentive Contribution |
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Net income, as reported |
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Incentive Contribution (a) | (164 | ) | (164 | ) | (329 | ) | 2,275 | ||||
Net income, excluding Incentive Contribution |
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Earnings per diluted share, as reported |
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Incentive Contribution (a) | (0.01 | ) | - | (0.02 | ) | 0.09 | |||||
Earnings per diluted share, excluding Incentive Contribution |
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(a) As previously disclosed, in connection with a 2012 multi-year
supplier agreement, the Company received a |
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The results shown in the table above and elsewhere in this press
release, which exclude the Incentive Contribution, are not measures
defined by accounting principles generally accepted in
Share Repurchase Activity
The Company's Board of Directors approved a
The following table reflects our repurchases for the three and six
months ended
Period |
Number of Shares |
Cost |
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Three Months Ended |
429 |
$ |
26,684 |
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Six Months Ended |
978 |
$ |
58,806 |
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23 |
$ |
1,503 |
There were 22.3 million and 22.5 million diluted weighted average shares
outstanding for the three and six months ended
Quarterly Regular Dividend Announced
The company announced that its Board of Directors approved the
initiation of quarterly cash dividends to its shareholders. A quarterly
dividend of
2013 Guidance Update
The company updated its 2013 guidance as follows: |
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Updated Guidance | Previous Guidance | |||
Diluted earnings per share |
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Capital expenditures |
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The company reaffirmed all other guidance. |
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Conference Call
A conference call is scheduled for
Forward-Looking Statements
Certain matters discussed in this press release 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 and adverse general economic and political conditions, including increasing tax rates, and their resulting impact on consumer buying habits;
- the impact that product recalls, food quality or safety issues, and general public health concerns could have on our restaurants;
- failure to maintain our brand strength and quality reputation;
- the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, which could be impacted by challenges securing financing, finding suitable store locations or securing required domestic or foreign government permits and approvals;
- increases in or sustained high costs of food ingredients and other commodities;
- disruption of our supply chain or our commissary operations due to sole or limited source of suppliers or weather, drought, disease or other disruption beyond our control;
- increased risks associated with our international operations, including economic and political conditions in our international markets and difficulty in meeting planned sales targets and new store growth for our international operations;
- increased employee compensation, benefits, insurance, regulatory compliance and similar costs, including increased costs resulting from federal health care legislation;
- the credit performance of our franchise loan program;
- the impact of the resolution of current or future claims and litigation, and current or proposed legislation impacting our business;
- currency exchange or interest rates;
- failure to effectively execute succession planning, and our reliance on the services of our Founder and CEO who also serves as our brand spokesperson; and
- disruption of critical business or information technology systems, and risks associated with security breaches, including theft of company and customer information.
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 | Six Months Ended | |||||||||||||||||
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(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||
Revenues: | ||||||||||||||||||
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$ | 155,153 | $ | 143,527 | $ | 313,051 | $ | 287,342 | ||||||||||
Franchise royalties | 20,230 | 19,101 | 40,963 | 39,619 | ||||||||||||||
Franchise and development fees | 219 | 206 | 765 | 428 | ||||||||||||||
Domestic commissary sales | 140,003 | 126,593 | 283,897 | 264,203 | ||||||||||||||
Other sales | 12,444 | 11,771 | 25,051 | 24,029 | ||||||||||||||
International: | ||||||||||||||||||
Royalties and franchise and development fees | 5,391 | 4,701 | 10,458 | 9,187 | ||||||||||||||
Restaurant and commissary sales | 15,746 | 12,680 | 30,605 | 25,047 | ||||||||||||||
Total revenues | 349,186 | 318,579 | 704,790 | 649,855 | ||||||||||||||
Costs and expenses: | ||||||||||||||||||
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Cost of sales | 37,825 | 32,881 | 74,898 | 65,337 | ||||||||||||||
Salaries and benefits | 42,053 | 39,839 | 85,325 | 78,652 | ||||||||||||||
Advertising and related costs | 14,677 | 13,278 | 29,470 | 25,977 | ||||||||||||||
Occupancy costs | 8,939 | 8,619 | 17,650 | 16,517 | ||||||||||||||
Other operating expenses | 22,431 | 20,830 | 45,176 | 41,248 | ||||||||||||||
Total domestic Company-owned restaurant expenses | 125,925 | 115,447 | 252,519 | 227,731 | ||||||||||||||
Domestic commissary and other expenses: | ||||||||||||||||||
Cost of sales | 114,045 | 104,412 | 231,823 | 217,250 | ||||||||||||||
Salaries and benefits | 10,264 | 9,218 | 20,331 | 18,221 | ||||||||||||||
Other operating expenses | 15,768 | 13,498 | 31,775 | 27,804 | ||||||||||||||
Total domestic commissary and other expenses | 140,077 | 127,128 | 283,929 | 263,275 | ||||||||||||||
International operating expenses | 12,983 | 10,975 | 25,636 | 21,367 | ||||||||||||||
General and administrative expenses | 33,126 | 31,463 | 66,284 | 63,059 | ||||||||||||||
Other general expenses | 1,597 | 1,135 | 2,782 | 6,809 | ||||||||||||||
Depreciation and amortization | 8,530 | 8,104 | 17,067 | 16,031 | ||||||||||||||
Total costs and expenses | 322,238 | 294,252 | 648,217 | 598,272 | ||||||||||||||
Operating income | 26,948 | 24,327 | 56,573 | 51,583 | ||||||||||||||
Net interest (expense) income | (340 | ) | (861 | ) | 332 | (597 | ) | |||||||||||
Income before income taxes | 26,608 | 23,466 | 56,905 | 50,986 | ||||||||||||||
Income tax expense | 8,563 | 8,005 | 18,541 | 17,218 | ||||||||||||||
Net income, including redeemable noncontrolling interests | 18,045 | 15,461 | 38,364 | 33,768 | ||||||||||||||
Income attributable to redeemable noncontrolling interests | (895 | ) | (1,172 | ) | (1,908 | ) | (2,498 | ) | ||||||||||
Net income, net of redeemable noncontrolling interests | $ | 17,150 | $ | 14,289 | $ | 36,456 | $ | 31,270 | ||||||||||
Basic earnings per common share | $ | 0.79 | $ | 0.60 | $ | 1.66 | $ | 1.31 | ||||||||||
Earnings per common share - assuming dilution | $ | 0.77 | $ | 0.59 | $ | 1.62 | $ | 1.29 | ||||||||||
Basic weighted average shares outstanding | 21,742 | 23,733 | 21,998 | 23,893 | ||||||||||||||
Diluted weighted average shares outstanding | 22,250 | 24,112 | 22,543 | 24,270 |
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Condensed Consolidated Balance Sheets | ||||||
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2013 | 2012 | |||||
(In thousands) | (Unaudited) | (Note) | ||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 28,236 | $ | 16,396 | ||
Accounts receivable, net | 43,235 | 44,647 | ||||
Notes receivable | 3,440 | 4,577 | ||||
Inventories | 21,722 | 22,178 | ||||
Deferred income taxes | 7,715 | 10,279 | ||||
Prepaid expenses and other current assets | 18,586 | 20,549 | ||||
Total current assets | 122,934 | 118,626 | ||||
Property and equipment, net | 201,942 | 196,661 | ||||
Notes receivable, less current portion, net | 13,839 | 12,536 | ||||
Goodwill | 78,088 | 78,958 | ||||
Other assets | 32,675 | 31,627 | ||||
Total assets | $ | 449,478 | $ | 438,408 | ||
Liabilities and stockholders' equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 28,728 | $ | 32,624 | ||
Income and other taxes payable | 1,407 | 10,429 | ||||
Accrued expenses and other current liabilities | 51,950 | 60,528 | ||||
Total current liabilities | 82,085 | 103,581 | ||||
Deferred revenue | 6,736 | 7,329 | ||||
Long-term debt | 133,241 | 88,258 | ||||
Deferred income taxes | 11,955 | 10,672 | ||||
Other long-term liabilities | 40,858 | 40,674 | ||||
Total liabilities | 274,875 | 250,514 | ||||
Redeemable noncontrolling interests | 6,846 | 6,380 | ||||
Total stockholders' equity | 167,757 | 181,514 | ||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | 449,478 | $ | 438,408 | ||
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 | ||||||||
Six Months Ended | ||||||||
(In thousands) |
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(Unaudited) | (Unaudited) | |||||||
Operating activities | ||||||||
Net income, including redeemable noncontrolling interests | $ | 38,364 | $ | 33,768 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for uncollectible accounts and notes receivable | 780 | 719 | ||||||
Depreciation and amortization | 17,067 | 16,031 | ||||||
Deferred income taxes | 8,256 | 1,797 | ||||||
Stock-based compensation expense | 3,784 | 3,218 | ||||||
Excess tax benefit on equity awards | (3,803 | ) | (1,471 | ) | ||||
Other | 694 | 2,872 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | 496 | (75 | ) | |||||
Inventories | 456 | 533 | ||||||
Prepaid expenses and other current assets | 1,963 | 417 | ||||||
Other assets and liabilities | (1,954 | ) | 756 | |||||
Accounts payable | (3,896 | ) | (587 | ) | ||||
Income and other taxes payable | (9,022 | ) | 75 | |||||
Accrued expenses and other current liabilities | (5,870 | ) | 3,297 | |||||
Deferred revenue | (83 | ) | 3,812 | |||||
Net cash provided by operating activities | 47,232 | 65,162 | ||||||
Investing activities | ||||||||
Purchases of property and equipment | (25,493 | ) | (15,046 | ) | ||||
Loans issued | (3,103 | ) | (1,206 | ) | ||||
Repayments of loans issued | 2,908 | 1,730 | ||||||
Acquisitions, net of cash acquired | - | (5,908 | ) | |||||
Proceeds from divestitures of restaurants | - | 948 | ||||||
Other | 319 | (4 | ) | |||||
Net cash used in investing activities | (25,369 | ) | (19,486 | ) | ||||
Financing activities | ||||||||
Net proceeds (repayments) on line of credit facility | 44,983 | (1,489 | ) | |||||
Excess tax benefit on equity awards | 3,803 | 1,471 | ||||||
Tax payments for restricted stock issuances | (1,841 | ) | (822 | ) | ||||
Proceeds from exercise of stock options | 3,696 | 10,400 | ||||||
Acquisition of Company common stock | (58,806 | ) | (38,728 | ) | ||||
Contributions from redeemable noncontrolling interest holders | 450 | - | ||||||
Distributions to redeemable noncontrolling interest holders | (1,750 | ) | (1,930 | ) | ||||
Other | (468 | ) | 125 | |||||
Net cash used in financing activities | (9,933 | ) | (30,973 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (90 | ) | (20 | ) | ||||
Change in cash and cash equivalents | 11,840 | 14,683 | ||||||
Cash and cash equivalents at beginning of period | 16,396 | 18,942 | ||||||
Cash and cash equivalents at end of period | $ | 28,236 | $ | 33,625 |
Papa John's
Source: Papa John's
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