LOUISVILLE, Ky.–(hospitalitybusinessnews.com)– Papa John’s International, Inc. today announced financial results for the first quarter ended March 31, 2013.
- First quarter earnings per diluted share of $0.85 in 2013 compared to $0.69 in 2012 ($0.84 in 2013 and $0.79 in 2012, or an increase of 6.3%, excluding the impact of the 2012 Incentive Contribution)
- System-wide comparable sales increases of 1.6% for North America and 8.2% for international during the quarter
- 34 worldwide net unit openings during the quarter
- 2013 earnings guidance increased to a range of $2.90 to $3.00 per diluted share, from prior guidance of $2.85 to $2.95 per diluted share
- Borrowing capacity on the line of credit increased to $300 million from $175 million
“We are pleased to maintain our momentum in the first quarter, with solid increases in EPS, global comp sales, and unit builds,” said Papa John’s founder, chairman and chief executive officer, John Schnatter. “We are excited about both the health of the pizza category and the strength of the Papa John’s brand as we continue to grow around the world.”
First quarter 2013 revenues were $355.6 million, a 7.3% increase from first quarter 2012 revenues of $331.3 million. First quarter 2013 net income was $19.3 million, compared to first quarter 2012 net income of $17.0 million ($19.1 million and $19.4 million, for the first quarter of 2013 and 2012, respectively, excluding the impact of the previously disclosed 2012 Incentive Contribution discussed below). First quarter 2013 diluted earnings per share were $0.85 compared to first quarter 2012 diluted earnings per share of $0.69 ($0.84 for the first quarter of 2013 and $0.79 for the first quarter of 2012, excluding the impact of the 2012 Incentive Contribution).
Marketing Incentive Contribution
The following table reconciles our GAAP financial results to our results excluding the Incentive Contribution for the first quarter of 2013 versus the first quarter of 2012:
|Mar. 31,||Mar. 25,|
|(In thousands, except per share amounts)||2013||2012|
|Income before income taxes, as reported||$||30,297||$||27,520|
|Incentive Contribution (a)||(250||)||3,721|
|Income before income taxes, excluding Incentive Contribution||$||30,047||$||31,241|
|Net income, as reported||$||19,306||$||16,981|
|Incentive Contribution (a)||(165||)||2,439|
|Net income, excluding Incentive Contribution||$||19,141||$||19,420|
|Earnings per diluted share, as reported||$||0.85||$||0.69|
|Incentive Contribution (a)||(0.01||)||0.10|
|Earnings per diluted share, excluding Incentive Contribution||$||0.84||$||0.79|
(a) As previously disclosed, in connection with a 2012 multi-year supplier agreement, the Company received a $5.0 million supplier marketing payment in the first quarter of 2012. The Company is recognizing the supplier marketing payment evenly as income over the five-year term of the agreement ($250,000 per quarter). The Company then contributed the supplier marketing payment to the Papa John’s Marketing Fund (“PJMF”), an unconsolidated, non-profit corporation, for the benefit of domestic restaurants. The Company’s contribution to PJMF was fully expensed in the first quarter of 2012. PJMF elected to distribute the $5.0 million supplier marketing payment to the domestic system as advertising credits in the first quarter of 2012. Our domestic company-owned restaurants’ portion resulted in an increase in income before income taxes of approximately $1.0 million in the first quarter of 2012. These transactions together are referred to as the “Incentive Contribution.” The Incentive Contribution resulted in an increase in income before income taxes of $250,000 in the first quarter of 2013 and a reduction in income before income taxes of $3.7 million in the first quarter of 2012.
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 the United States (“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 results. 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, were based on financial measures that excluded the Incentive Contribution.
Global Restaurant and Comparable Sales Information
|Mar. 31, 2013||Mar. 25, 2012|
|Global restaurant sales growth (a)||6.1%||6.1%|
|Global restaurant sales growth, excluding the|
|impact of foreign currency (a)||6.5%||6.3%|
|Comparable sales growth (b)|
|Domestic company-owned restaurants||3.9%||3.0%|
|North America franchised restaurants||0.8%||0.5%|
|System-wide North America restaurants||1.6%||1.1%|
|System-wide international restaurants||8.2%||8.4%|
(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 the United States are reported on a constant dollar basis, which excludes the impact of foreign currency conversion.
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 the United States and in certain international markets. Global restaurant and comparable sales growth information is also useful in analyzing industry trends and the strength of our brand. Franchise restaurant sales are not included in company revenues.
Consolidated revenues were $355.6 million for the first quarter of 2013, an increase of $24.3 million, or 7.3% over the corresponding 2012 period. This increase in revenues for the first quarter of 2013 was primarily due to the following:
- Domestic company-owned restaurant sales increased $14.1 million, or 9.8%, primarily due to an increase of 3.9% in comparable sales during the first quarter of 2013 and the net acquisition of 50 restaurants in the Denver and Minneapolis markets from a franchisee in the second quarter of 2012.
- North America franchise royalty revenue increased $215,000, or 1.0%, as the increase in net franchise units over the prior year and positive comparable sales of 0.8% were substantially offset by reduced royalties attributable to the company’s net acquisition of the 50 restaurants noted above.
- Domestic commissary sales increased $6.3 million, or 4.6%, due to an increase in the volume of sales as well as increases in the prices of certain commodities.
- International revenues increased $3.1 million, or 18.2%, primarily due to an increase in the number of restaurants and an increase in comparable sales of 8.2%, calculated on a constant dollar basis.
First quarter 2013 income before income taxes was $30.3 million ($30.0 million excluding the Incentive Contribution) compared to first quarter 2012 income before income taxes of $27.5 million ($31.2 million excluding the Incentive Contribution). The table below summarizes income before income taxes on a reporting segment basis excluding the Incentive Contribution, as previously discussed:
|Mar. 31,||Mar. 25,||Increase|
|Domestic company-owned restaurants||$||10,956||$||12,321||$||(1,365||)|
|Less: Incentive Contribution (a)||–||1,029||(1,029||)|
|Domestic company-owned restaurants,excluding|
|North America franchising||18,222||18,140||82|
|Unallocated corporate expenses||(9,518||)||(14,784||)||5,266|
|Less: Incentive Contribution (a)||250||(4,750||)||5,000|
|Unallocated corporate expenses, excluding|
|Elimination of intersegment (profit) loss||(526||)||10||(536||)|
|Total income before income taxes, excluding|
|Incentive Contribution (a)||$||30,047||$||31,241||$||(1,194||)|
(a) See Marketing Incentive Contribution table above for additional details and GAAP reconciliation.
First quarter 2013 income before income taxes decreased approximately $1.2 million, or 3.8%, excluding the Incentive Contribution. This was primarily attributable to the following:
- Domestic company-owned restaurants operating income decreased approximately $300,000 primarily due to an increase in commodity costs. In addition, the first quarter of 2012 included significant supplier incentives. These decreases were substantially offset by incremental profits associated with higher comparable sales of 3.9%.
- Domestic commissaries operating income decreased $1.0 million. The decrease was primarily driven by a higher than usual profit margin in the first quarter of 2012. The 2013 profit margin was in line with the Company’s expectations. We manage commissary results on a full year basis and anticipate the 2013 full year profit margin will approximate 2012.
These decreases were partially offset by improvements in all remaining segments, as outlined in the table above. This includes our International segment, which reported operating income of $341,000 in the first quarter of 2013. This was an improvement of $69,000 over the first quarter of 2012. The increased profits were primarily due to higher royalties attributable to the strong 8.2% comparable sales and net unit growth, including improvement in overall United Kingdom results. These improvements were substantially offset by higher operating expenses in China associated with new company-owned restaurants.
The first quarter 2013 effective income tax rate was 32.9%, representing a decrease of 0.6% from the prior year rate of 33.5%. The lower tax rate in the first quarter of 2013 was primarily due to the reinstatement of certain 2012 tax credits under the American Taxpayer Relief Act of 2012. Our effective income tax rate may fluctuate from quarter to quarter for various reasons, including the settlement or resolution of specific federal and state issues.
The company’s free cash flow, a non-GAAP financial measure, for the first quarters of 2013 and 2012 was as follows (in thousands):
|Mar. 31||Mar. 25,|
|Net cash provided by operating activities (a)||$||29,914||$||44,093|
|Purchase of property and equipment (b)||(13,248||)||(6,403||)|
|Free cash flow||$||16,666||$||37,690|
(a) The decrease of approximately $14.2 million was primarily due to unfavorable changes in working capital including the timing of income tax and other payments in the first quarter of 2013.
(b) The increased purchases of property and equipment primarily relate to spend on equipment for the planned New Jersey dough production and technology investments.
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 Securities and Exchange Commission for additional information concerning our operating results and cash flow for the three-month period ended March 31, 2013.
Global Restaurant Unit Data
At March 31, 2013, there were 4,197 Papa John’s restaurants operating in all 50 states and in 34 countries, as follows:
|Beginning – December 30, 2012||648||2,556||3,204||959||4,163|
|Ending – March 31, 2013||649||2,572||3,221||976||4,197|
|Restaurant unit growth||1||16||17||17||34|
Our development pipeline as of March 31, 2013 included approximately 1,400 restaurants (300 units in North America and 1,100 units internationally), the majority of which are scheduled to open over the next six years.
Share Repurchase Activity
The following table reflects our repurchases for the first quarter of 2013 and subsequent repurchases through April 30, 2013 (in thousands):
|First Quarter 2013||549||$||32,122|
|April 1, 2013 through April 30, 2013||290||$||17,733|
There were 22.8 million diluted weighted average shares outstanding for the first quarter, representing a decrease of 6.7% over the prior year comparable period. Diluted earnings per share increased $0.06 for the first quarter of 2013 due to the reduction in shares outstanding resulting from the share repurchase program. Approximately 21.9 million actual shares of the company’s common stock were outstanding as of March 31, 2013.
2013 Earnings Guidance Update
The company raised its 2013 guidance for diluted earnings per share and reaffirmed all other guidance. The update is as follows:
|Updated Guidance||Previous Guidance|
|Diluted earnings per share||$2.90 – $3.00||$2.85 – $2.95|
Line of Credit Increased to $300 Million
As announced on May 6, 2013, we have increased the borrowing capacity under our line of credit to $300 million from $175 million. The amendment to our line of credit also extended the maturity date to April 2018 and has very similar terms as our previous line of credit. We are pleased to have this increased borrowing capacity to provide us greater flexibility in supporting future growth and driving long term shareholder value.
|Papa John’s International, Inc. and Subsidiaries|
|Consolidated Statements of Income|
|Three Months Ended|
|March 31, 2013||March 25, 2012|
|(In thousands, except per share amounts)|
|Domestic Company-owned restaurant sales||$||157,898||$||143,815|
|Franchise and development fees||546||222|
|Domestic commissary sales||143,894||137,610|
|Royalties and franchise and development fees||5,067||4,486|
|Restaurant and commissary sales||14,859||12,367|
|Costs and expenses:|
|Domestic Company-owned restaurant expenses:|
|Cost of sales||37,073||32,456|
|Salaries and benefits||43,272||38,813|
|Advertising and related costs||14,793||12,699|
|Other operating expenses||22,745||20,418|
|Total domestic Company-owned restaurant expenses||126,594||112,284|
|Domestic commissary and other expenses:|
|Cost of sales||117,778||112,838|
|Salaries and benefits||10,067||9,003|
|Other operating expenses||16,007||14,306|
|Total domestic commissary and other expenses||143,852||136,147|
|International operating expenses||12,653||10,392|
|General and administrative expenses||33,158||31,596|
|Other general expenses||1,185||5,674|
|Depreciation and amortization||8,537||7,927|
|Total costs and expenses||325,979||304,020|
|Net interest income||672||264|
|Income before income taxes||30,297||27,520|
|Income tax expense||9,978||9,213|
|Net income, including redeemable noncontrolling interests||20,319||18,307|
|Income attributable to redeemable noncontrolling interests||(1,013||)||(1,326||)|
|Net income, net of redeemable noncontrolling interests||$||19,306||$||16,981|
|Basic earnings per common share||$||0.87||$||0.71|
|Earnings per common share – assuming dilution||$||0.85||$||0.69|
|Basic weighted average shares outstanding||22,256||24,053|
|Diluted weighted average shares outstanding||22,806||24,438|
|Papa John’s International, Inc. and Subsidiaries|
|Condensed Consolidated Balance Sheets|
|March 31,||December 30,|
|Cash and cash equivalents||$||24,551||$||16,396|
|Accounts receivable, net||44,792||44,647|
|Notes receivable, net||3,181||4,577|
|Deferred income taxes||7,575||10,279|
|Prepaid expenses and other current assets||17,169||20,549|
|Total current assets||121,190||118,626|
|Property and equipment, net||198,559||196,661|
|Notes receivable, less current portion, net||13,764||12,536|
|Liabilities and stockholders’ equity|
|Income and other taxes payable||11,672||10,429|
|Accrued expenses and other current liabilities||53,577||60,528|
|Total current liabilities||97,467||103,581|
|Deferred income taxes||9,689||10,672|
|Other long-term liabilities||41,326||40,674|
|Redeemable noncontrolling interests||6,294||6,380|
|Total stockholders’ equity||172,706||181,514|
|Total liabilities, redeemable noncontrolling interests and stockholders’ equity||$||443,285||$||438,408|
|Note: The Condensed Consolidated Balance Sheets have been derived from the audited consolidated financial statements, but do not include all information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements.|
|Papa John’s International, Inc. and Subsidiaries|
|Consolidated Statements of Cash Flows|
|Three Months Ended|
|(In thousands)||March 31, 2013||March 25, 2012|
|Net income, including redeemable noncontrolling interests||$||20,319||$||18,307|
|Adjustments to reconcile net income to net cash provided by|
|Provision for uncollectible accounts and notes receivable||314||547|
|Depreciation and amortization||8,537||7,927|
|Deferred income taxes||3,325||(912||)|
|Stock-based compensation expense||1,681||1,694|
|Excess tax benefit on equity awards||(1,142||)||(129||)|
|Changes in operating assets and liabilities, net of acquisitions:|
|Prepaid expenses and other current assets||3,380||(5||)|
|Other assets and liabilities||38||1,160|
|Income and other taxes payable||1,243||9,850|
|Accrued expenses and other current liabilities||(4,641||)||1,221|
|Net cash provided by operating activities||29,914||44,093|
|Purchases of property and equipment||(13,248||)||(6,403||)|
|Repayments of loans issued||1,916||703|
|Net cash used in investing activities||(12,761||)||(6,382||)|
|Net proceeds (repayments) on line of credit facility||20,652||(1,489||)|
|Excess tax benefit on equity awards||1,142||129|
|Tax payments for restricted stock issuances||(843||)||(303||)|
|Proceeds from exercise of stock options||2,704||3,728|
|Acquisition of Company common stock||(32,122||)||(13,820||)|
|Contributions from redeemable noncontrolling interest holders||350||–|
|Distributions to redeemable noncontrolling interest holders||(1,000||)||–|
|Net cash used in financing activities||(9,005||)||(11,673||)|
|Effect of exchange rate changes on cash and cash equivalents||7||132|
|Change in cash and cash equivalents||8,155||26,170|
|Cash and cash equivalents at beginning of period||16,396||18,942|
|Cash and cash equivalents at end of period||$||24,551||$||45,112|