Papa John's Announces Key Operating Assumptions and Earnings Guidance for 2011
Company Reaffirms 2010 Earnings Guidance; Year-end BIBP Deficit to
be Retired by Company as part of
Highlights
-
Projected 2011 earnings per share of
$2.00 to $2.12 , an increase of over 16% as compared to the reaffirmed 2010 earnings range of$1.74 to$1.80 per share at the mid-point, excluding the impact of the franchisee-owned cheese purchasing company,BIBP Commodities, Inc. (BIBP) -
The company will retire the BIBP deficit at 2010 year-end, projected
to be approximately
$14 million , as part of a multi-yearNational Marketing Fund agreement with franchisees - Projected 2011 North America system-wide comparable sales increase ranging from 1.5% to 2.5%
- Projected 2011 International comparable sales increase ranging from 1% to 3% and International total system-wide sales increase ranging from 25% to 30%
-
Projected 2011 worldwide net unit openings ranging from 190 to 220 (85
to 100 net openings for
North America and 105 to 120 net openings for International) - The 2011 guidance includes a scheduled increase in the domestic royalty rate from 4.75% to 5.0% effective at the beginning of 2011, with franchisees having the ability to earn quarterly rebates of a portion of the royalty by achieving certain sales growth targets and by making specified re-image investments in their restaurants
Realignment of Segment Reporting Structure
The company is realigning management responsibility for
Multi-Year National Marketing Fund Agreement
The company and its domestic franchisees have reached an agreement to a
multi-year
Reporting Change for the BIBP Cheese Purchasing Entity
In connection with the company's retirement of the BIBP deficit at 2010
year-end, and as a condition to participating in the royalty rebate
incentive program under the
Significant 2011 Operational Assumptions
North America Restaurant Sales —
International Restaurant Sales — The company will initiate the reporting of comparable sales for International restaurants beginning in the first quarter of 2011. Comparable sales will be presented on a constant-dollar basis, eliminating the impact of currency exchange rates. International comparable sales are expected to increase from 1% to 3% in 2011. International comparable sales can be negatively impacted by the existence of a substantial number of emerging markets where second year sales for any given restaurant may be comparing against an unusually high "grand opening" level of first year sales. International comparable sales can also be positively or negatively impacted by significant levels of currency inflation or deflation within a given country. Total sales growth for international restaurants is expected to range from 25% to 30% in 2011, due to new unit growth, in addition to the expected comparable sales increase.
Worldwide Net Unit Growth — Worldwide net unit growth in 2011 is
expected to be in the range of 190 to 220 units, consisting of a range
of 85 to 100 net units for
Revenues — Total consolidated revenues are expected to increase
4% to 5% in 2011, due primarily to projected
Pre-tax Income Margin — Consolidated pre-tax income margin in 2011 is expected to be approximately 0.75% to 1.00% higher than 2010 results. The expected increase is primarily due to:
- An increase in the domestic royalty rate from 4.75% to 5.00% effective the first day of 2011, coupled with net unit growth, comparable sales growth and revisions to certain franchise support initiatives, producing an expected increase in the consolidated pre-tax income margin of approximately 50 to 55 basis points.
- An increase in commissary profitability due to increased sales volumes from domestic new unit growth and comparable sales growth, resulting in an increase in consolidated pre-tax income margin of approximately 10 to 15 basis points
- A reduction in International operating losses due to leveraging comparable sales and unit growth increases, reflecting approximately 20 to 25 basis points of consolidated pre-tax income margin improvement.
-
A reduction in general and administrative costs reflecting the
July 2010 reduction in force and other cost saving measures, collectively expected to generate approximately 15 to 20 basis points of consolidated pre-tax income margin improvement. - A reduction in interest expense equating to approximately 20 to 25 basis points of consolidated pre-tax income margin improvement, primarily due to a substantial decrease in the effective interest rate when the existing interest rate swap agreements expire in January.
These favorable factors are partially offset by an expected increase in losses for the online business unit in 2011 due to a reduction in the percentage fee charged to restaurants, coupled with increased operating costs related to online site enhancements implemented in late 2010. The company considers these operating losses as an investment in driving increases in online sales, which the company believes provides numerous ongoing benefits. The company has the right to recoup these operating losses over time from the domestic system via future increases in the fee percentage or as the level of online sales increases. The increase in online operating losses is expected to reduce consolidated pre-tax income margin by approximately 40 basis points in 2011.
Capital Expenditures — Capital expenditures for 2011 are expected
to be approximately
Share Repurchase Activity
During 2010 through
2010 Earnings Guidance Reaffirmed
The company reaffirmed its guidance that earnings for 2010 would be in
the range of
A complete discussion of our use of Non-GAAP Measures and a
reconciliation of the financial results we present excluding the impact
of BIBP to our GAAP financial measures for the three- and nine-months
ended
Annual Meeting Date Scheduled
Papa John's today announced that its 2011 Annual Meeting of Stockholders
will be held on
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 revenue, earnings, 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 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 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 the recently passed federal health care legislation); the
ability of the company to pass along increases in or sustained high
costs to franchisees or consumers; the company's contingent liability
for the payment of certain lease arrangements, approximating
Headquartered in
Papa John's
SVP
and Chief Financial Officer
Source: Papa John's
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