Papa John's Announces Second Quarter 2012 Results
EPS Increased 29.8% on Strong Comparable Sales of 5.7% for
Highlights
-
Second quarter earnings per diluted share of
$0.61 in 2012, or an increase of 29.8% over earnings per diluted share of$0.47 in 2011 -
System-wide comparable sales increased 5.7% for
North America and increased 6.1% for international during the quarter - 40 worldwide net unit openings during the quarter
-
2012 earnings guidance raised to a range of
$2.45 to $2.55 ; comparable sales guidance raised for bothNorth America (updated guidance range of +2% to +3%) and International (updated guidance range of +4.0% to +5.5%)
"We had an outstanding second quarter as our system continued its strong
sales momentum with significant comparable sales increases for our North
American and International operations," said Papa John's founder,
chairman, and chief executive officer,
Second quarter 2012 revenues were
Revenues were
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Three Months Ended | Six Months Ended | |||||||||||
June 24, 2012 |
June 26, 2011 |
June 24, 2012 |
June 26, 2011 |
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Global restaurant sales growth (a) | 9.8 | % | 5.6 | % | 7.9 | % | 8.3 | % | ||||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
10.4 | % | 4.8 | % | 8.3 | % | 7.8 | % | ||||
Comparable sales growth (b) | ||||||||||||
Domestic company-owned restaurants | 7.4 | % | 2.1 | % | 5.1 | % | 4.4 | % | ||||
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5.1 | % | (0.1 | %) | 2.7 | % | 2.9 | % | ||||
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5.7 | % | 0.4 | % | 3.3 | % | 3.3 | % | ||||
System-wide international restaurants | 6.1 | % | 4.8 | % | 7.2 | % | 5.2 | % | ||||
(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 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
Revenues
Consolidated revenues increased
-
Domestic company-owned restaurant sales increased
$15.9 million , or 12.4%, and$21.0 million , or 7.9%, for the three and six months endedJune 24, 2012 , respectively, due to increases in comparable sales of 7.4% and 5.1% and the net acquisition of 50 restaurants inDenver andMinneapolis from a franchisee in the second quarter of 2012. -
North America franchise royalty revenue increased approximately$1.0 million , or 5.5%, and$1.8 million , or 4.7%, for the three and six months endedJune 24, 2012 , respectively, primarily due to increases in comparable sales of 5.1% and 2.7% and increases in net franchise units over the prior year. -
Domestic commissary sales increased
$5.6 million , or 4.6%, and$15.5 million , or 6.2%, for the three and six months endedJune 24, 2012 , respectively, primarily due to an increase in the volume of restaurant sales. -
International revenues increased
$3.1 million , or 21.8%, and increased$7.2 million , or 26.7%, for the three and six months endedJune 24, 2012 , respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 6.1% and 7.2%, calculated on a constant dollar basis.
Operating Highlights
All comparisons are versus the same period of the prior year and exclude the Incentive Contribution. See "Marketing Incentive Contribution" below for further information.
Second quarter 2012 income before income taxes was
Income before income taxes is summarized in the following table on a reporting segment basis (in thousands):
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||
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Increase |
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Increase | ||||||||||||||||||||
2012 | 2011 | (Decrease) | 2012 | 2011 | (Decrease) | ||||||||||||||||||||
Domestic company-owned restaurants (a) |
$ | 9,358 | $ | 7,421 | $ | 1,937 | $ | 21,679 | $ | 18,304 | $ | 3,375 | |||||||||||||
Domestic commissaries | 7,978 | 4,321 | 3,657 | 19,144 | 13,875 | 5,269 | |||||||||||||||||||
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16,619 | 16,240 | 379 | 34,759 | 34,249 | 510 | |||||||||||||||||||
International | 320 | (250 | ) | 570 | 592 | (1,066 | ) | 1,658 | |||||||||||||||||
All others | 471 | (298 | ) | 769 | 866 | (676 | ) | 1,542 | |||||||||||||||||
Unallocated corporate expenses (b) | (10,025 | ) | (8,517 | ) | (1,508 | ) | (25,191 | ) | (18,286 | ) | (6,905 | ) | |||||||||||||
Elimination of intersegment losses (profits) |
(481 | ) | 150 | (631 | ) | (471 | ) | (553 | ) | 82 | |||||||||||||||
Income before income taxes | 24,240 | 19,067 | 5,173 | 51,378 | 45,847 | 5,531 | |||||||||||||||||||
Incentive Contribution (income) expense |
(250 | ) | - | (250 | ) | 3,471 | - | 3,471 | |||||||||||||||||
Income before income taxes, excluding Incentive Contribution |
$ | 23,990 | $ | 19,067 | $ | 4,923 | $ | 54,849 | $ | 45,847 | $ | 9,002 | |||||||||||||
(a) The six months ended |
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(b) Includes the impact of the Incentive Contribution in
2012 ( |
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The increase in income before income taxes for the three months ended
-
Domestic company-owned restaurants operating income improved
approximately
$1.9 million primarily due to comparable sales increases as well as favorable commodity costs. -
Domestic commissaries income improved approximately
$3.7 million primarily due to the increase in net units and comparable sales. - North America Franchising and International improved due to the increase in net units and strong comparable sales results.
-
These increases were slightly offset by higher unallocated corporate
expenses of
$1.5 million primarily due to an increase in short-term management incentive costs.
The increase in income before income taxes for the six months ended
The effective tax rates were 34.2% and 33.8% for the three and six
months ended
The company's free cash flow for the first six months of 2012 and 2011 was as follows (in thousands):
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June 26, | |||||||
2012 | 2011 | |||||||
Net cash provided by operating activities | $ | 65,162 | $ | 52,925 | ||||
Purchase of property and equipment | (15,046 | ) | (12,422 | ) | ||||
Free cash flow * | $ | 50,116 | $ | 40,503 | ||||
*The increase in free cash flow is due to higher operating income and favorable changes in working capital. |
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 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
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 - |
597 | 2,498 | 3,095 | 838 | 3,933 | ||||||||||
Opened | - | 35 | 35 | 32 | 67 | ||||||||||
Closed | (2 | ) | (10 | ) | (12 | ) | (15 | ) | (27 | ) | |||||
Acquired | 56 | 8 | 64 | - | 64 | ||||||||||
Divested | (8 | ) | (56 | ) | (64 | ) | - | (64 | ) | ||||||
Ending - |
643 | 2,475 | 3,118 | 855 | 3,973 | ||||||||||
Year-to-date |
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Beginning - |
598 | 2,463 | 3,061 | 822 | 3,883 | ||||||||||
Opened | - | 82 | 82 | 55 | 137 | ||||||||||
Closed | (3 | ) | (22 | ) | (25 | ) | (22 | ) | (47 | ) | |||||
Acquired | 56 | 8 | 64 | - | 64 | ||||||||||
Divested | (8 | ) | (56 | ) | (64 | ) | - | (64 | ) | ||||||
Ending - |
643 | 2,475 | 3,118 | 855 | 3,973 | ||||||||||
Restaurants at |
595 | 2,393 | 2,988 | 745 | 3,733 | ||||||||||
Restaurant unit growth | 48 | 82 | 130 | 110 | 240 | ||||||||||
% increase | 8.1 | % | 3.4 | % | 4.4 | % | 14.8 | % | 6.4 | % | |||||
Our development pipeline as of
Acquisitions
As previously announced, effective
Marketing Incentive Contribution
As previously announced, in connection with a new multi-year supplier
agreement, the company received a
PJMF elected to distribute the
The overall impact of these transactions, defined as the "Incentive
Contribution," increased income before income taxes
Three Months Ended | Six Months Ended | |||||||||||||
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(In thousands, except per share amounts) | 2012 | 2011 | 2012 | 2011 | ||||||||||
Income before income taxes, as reported | $ | 24,240 | $ | 19,067 | $ | 51,378 | $ | 45,847 | ||||||
Incentive Contribution | (250 | ) | - | 3,471 | - | |||||||||
Income before income taxes, excluding Incentive Contribution |
$ | 23,990 | $ | 19,067 | $ | 54,849 | $ | 45,847 | ||||||
Net income, as reported | $ | 14,769 | $ | 12,124 | $ | 31,513 | $ | 28,551 | ||||||
Incentive Contribution | (164 | ) | - | 2,275 | - | |||||||||
Net income, excluding Incentive Contribution | $ | 14,605 | $ | 12,124 | $ | 33,788 | $ | 28,551 | ||||||
Earnings per diluted share, as reported | $ | 0.61 | $ | 0.47 | $ | 1.30 | $ | 1.11 | ||||||
Incentive Contribution | - | - | 0.09 | - | ||||||||||
Earnings per diluted share, excluding Incentive Contribution |
$ | 0.61 | $ | 0.47 | $ | 1.39 | $ | 1.11 | ||||||
The non-GAAP measures shown above, which exclude the Incentive Contribution, 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 financial information excluding the impact of the Incentive Contribution is important for purposes of comparison to prior year results. In addition, management uses these non-GAAP measures to allocate resources, and analyze trends and underlying operating performance. Annual cash bonuses, and certain long-term incentive programs for various levels of management, are based on financial measures that exclude the Incentive Contribution.
Share Repurchase Activity
The company repurchased 585,000 shares of its common stock for
On
There were 24.1 million and 24.3 million diluted weighted average shares
outstanding for the three- and six-month periods, representing decreases
of 6.1% and 5.6% over the prior year comparable periods. Diluted
earnings per share increased
2012 Earnings Guidance Update
The company raised its 2012 guidance for diluted earnings per share and
Updated Guidance | Previous Guidance | |||
Diluted earnings per share (a) |
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+2.0% to +3.0% |
+1.5% to +2.5% |
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International comparable sales | +4.0% to +5.5% | +2.5% to +4.5% | ||
(a) The 2012 fiscal year will consist of 53 weeks. The impact of
the 53rd week of operations is expected to increase
earnings per share by approximately |
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The company is changing its policy for providing guidance related to key operating assumptions and earnings. Effective at the end of 2012, the company no longer plans to issue a separate press release in December to announce key operating assumptions and earnings guidance for the following year. Instead, the company now plans to include such guidance with the fourth quarter and full year earnings press release, generally issued in late February. Please visit the "Investor Relations" section of our website for a list of upcoming earnings press release and earnings conference call dates for fiscal 2012 results.
Conference Call
A conference call is scheduled for
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: aggressive
changes in pricing or other marketing or promotional strategies by
competitors which may adversely affect sales, including an increase in
or continuation of the 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, which could
be impacted by challenges securing financing, finding suitable store
locations or securing required domestic or foreign government permits
and approvals; our ability to successfully integrate the operations of
franchised restaurants we acquire; the credit performance of our
franchise loan program; adverse macroeconomic or business conditions;
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 and fuel, including increases related to drought conditions;
increased employee compensation, benefits, insurance and similar costs
(including the implementation 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; risks
associated with security breaches, including theft of company and
customer information; and 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. 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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(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Revenues: | ||||||||||||||||||
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$ | 143,527 | $ | 127,641 | $ | 287,342 | $ | 266,312 | ||||||||||
Franchise royalties | 19,101 | 18,103 | 39,619 | 37,834 | ||||||||||||||
Franchise and development fees | 206 | 124 | 428 | 309 | ||||||||||||||
Domestic commissary sales | 126,593 | 121,027 | 264,203 | 248,699 | ||||||||||||||
Other sales | 11,771 | 12,370 | 24,029 | 25,817 | ||||||||||||||
International: | ||||||||||||||||||
Royalties and franchise and development fees | 4,701 | 4,049 | 9,187 | 7,811 | ||||||||||||||
Restaurant and commissary sales | 12,680 | 10,220 | 25,047 | 19,219 | ||||||||||||||
Total revenues | 318,579 | 293,534 | 649,855 | 606,001 | ||||||||||||||
Costs and expenses: | ||||||||||||||||||
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Cost of sales | 32,881 | 30,162 | 65,337 | 62,262 | ||||||||||||||
Salaries and benefits | 39,839 | 34,367 | 78,652 | 72,016 | ||||||||||||||
Advertising and related costs | 13,278 | 11,898 | 25,977 | 24,687 | ||||||||||||||
Occupancy costs | 8,619 | 7,939 | 16,517 | 15,808 | ||||||||||||||
Other operating expenses | 20,830 | 18,492 | 41,248 | 38,407 | ||||||||||||||
Total domestic Company-owned restaurant expenses | 115,447 | 102,858 | 227,731 | 213,180 | ||||||||||||||
Domestic commissary and other expenses: | ||||||||||||||||||
Cost of sales | 104,412 | 103,529 | 217,250 | 209,972 | ||||||||||||||
Salaries and benefits | 9,218 | 8,651 | 18,221 | 17,662 | ||||||||||||||
Other operating expenses | 13,498 | 13,084 | 27,804 | 26,669 | ||||||||||||||
Total domestic commissary and other expenses | 127,128 | 125,264 | 263,275 | 254,303 | ||||||||||||||
International operating expenses | 10,975 | 8,756 | 21,367 | 16,484 | ||||||||||||||
General and administrative expenses | 31,463 | 27,617 | 63,059 | 56,691 | ||||||||||||||
Other general expenses | 1,135 | 1,459 | 6,809 | 2,240 | ||||||||||||||
Depreciation and amortization | 8,104 | 8,425 | 16,031 | 16,737 | ||||||||||||||
Total costs and expenses | 294,252 | 274,379 | 598,272 | 559,635 | ||||||||||||||
Operating income | 24,327 | 19,155 | 51,583 | 46,366 | ||||||||||||||
Net interest expense | (87 | ) | (88 | ) | (205 | ) | (519 | ) | ||||||||||
Income before income taxes | 24,240 | 19,067 | 51,378 | 45,847 | ||||||||||||||
Income tax expense | 8,299 | 6,014 | 17,367 | 15,245 | ||||||||||||||
Net income, including noncontrolling interests | 15,941 | 13,053 | 34,011 | 30,602 | ||||||||||||||
Net income attributable to noncontrolling interests | (1,172 | ) | (929 | ) | (2,498 | ) | (2,051 | ) | ||||||||||
Net income, net of noncontrolling interests | $ | 14,769 | $ | 12,124 | $ | 31,513 | $ | 28,551 | ||||||||||
Basic earnings per common share | $ | 0.62 | $ | 0.48 | $ | 1.32 | $ | 1.12 | ||||||||||
Earnings per common share - assuming dilution | $ | 0.61 | $ | 0.47 | $ | 1.30 | $ | 1.11 | ||||||||||
Basic weighted average shares outstanding | 23,733 | 25,464 | 23,893 | 25,474 | ||||||||||||||
Diluted weighted average shares outstanding | 24,112 | 25,685 | 24,270 | 25,713 |
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Condensed Consolidated Balance Sheets | ||||||
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December 25, | |||||
2012 | 2011 | |||||
(In thousands) | (Unaudited) | (Note) | ||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 33,625 | $ | 18,942 | ||
Accounts receivable, net | 27,693 | 28,169 | ||||
Notes receivable, net | 4,447 | 4,221 | ||||
Inventories | 19,695 | 20,091 | ||||
Prepaid expenses and other current assets | 13,428 | 13,732 | ||||
Deferred income taxes | 6,240 | 7,636 | ||||
Total current assets | 105,128 | 92,791 | ||||
Property and equipment, net | 186,567 | 185,132 | ||||
Notes receivable, less current portion, net | 10,572 | 11,502 | ||||
Goodwill | 78,342 | 75,085 | ||||
Other assets | 26,828 | 25,872 | ||||
Total assets | $ | 407,437 | $ | 390,382 | ||
Liabilities and stockholders' equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 32,379 | $ | 32,966 | ||
Income and other taxes payable | 4,044 | 3,969 | ||||
Accrued expenses and other current liabilities | 49,666 | 44,198 | ||||
Total current liabilities | 86,089 | 81,133 | ||||
Deferred revenue | 8,592 | 4,780 | ||||
Long-term debt | 50,000 | 51,489 | ||||
Other long-term liabilities | 23,638 | 22,014 | ||||
Long-term accrued income taxes | 3,924 | 3,597 | ||||
Deferred income taxes | 9,648 | 9,147 | ||||
Total liabilities | 181,891 | 172,160 | ||||
Total stockholders' equity | 225,546 | 218,222 | ||||
Total liabilities and stockholders' equity | $ | 407,437 | $ | 390,382 | ||
Note: The balance sheet at |
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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 noncontrolling interests | $ | 34,011 | $ | 30,602 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision for uncollectible accounts and notes receivable | 719 | (7 | ) | |||||
Depreciation and amortization | 16,031 | 16,737 | ||||||
Deferred income taxes | 1,946 | 4,332 | ||||||
Stock-based compensation expense | 3,218 | 3,903 | ||||||
Excess tax benefit on equity awards | (1,471 | ) | (403 | ) | ||||
Other | 2,480 | 316 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (75 | ) | (1,167 | ) | ||||
Inventories | 533 | 1,819 | ||||||
Prepaid expenses and other current assets | 417 | (246 | ) | |||||
Other assets and liabilities | 429 | 816 | ||||||
Accounts payable | (587 | ) | (1,970 | ) | ||||
Income and other taxes payable | 75 | 325 | ||||||
Accrued expenses and other current liabilities | 3,297 | (1,611 | ) | |||||
Long-term accrued income taxes | 327 | 403 | ||||||
Deferred revenue | 3,812 | (924 | ) | |||||
Net cash provided by operating activities | 65,162 | 52,925 | ||||||
Investing activities | ||||||||
Purchase of property and equipment | (15,046 | ) | (12,422 | ) | ||||
Loans issued | (1,206 | ) | (1,684 | ) | ||||
Repayments of loans issued | 1,730 | 3,920 | ||||||
Acquisitions, net of cash acquired | (5,908 | ) | - | |||||
Proceeds from divestitures of restaurants | 948 | - | ||||||
Other | (4 | ) | 51 | |||||
Net cash used in investing activities | (19,486 | ) | (10,135 | ) | ||||
Financing activities | ||||||||
Net repayments on line of credit facility | (1,489 | ) | (51,000 | ) | ||||
Excess tax benefit on equity awards | 1,471 | 403 | ||||||
Tax payments for restricted stock | (822 | ) | (798 | ) | ||||
Proceeds from exercise of stock options | 10,400 | 10,663 | ||||||
Acquisition of Company common stock | (38,728 | ) | (26,162 | ) | ||||
Distributions to noncontrolling interests | (1,930 | ) | (2,029 | ) | ||||
Other | 125 | 42 | ||||||
Net cash used in financing activities | (30,973 | ) | (68,881 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (20 | ) | 82 | |||||
Change in cash and cash equivalents | 14,683 | (26,009 | ) | |||||
Cash and cash equivalents at beginning of period | 18,942 | 47,829 | ||||||
Cash and cash equivalents at end of period | $ | 33,625 | $ | 21,820 | ||||
Papa John's
Source: Papa John's
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