Papa John's Announces Second Quarter 2013 Results

Papa John's Announces Second Quarter 2013 Results

EPS Increased 30.5% on Strong Comparable Sales; Board Approves Quarterly Dividend


LOUISVILLE, Ky.--(BUSINESS WIRE)-- Papa John's International, Inc. (NAS: PZZA) today announced financial results for the three and six months ended June 30, 2013.

Highlights

  • 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 John Schnatter. "I am also pleased to announce a quarterly dividend. The combination of share repurchases and quarterly dividends reflects the strength of our brand and our long term commitment to deliver increasing shareholder value."

Second quarter 2013 revenues were $349.2 million, a 9.6% increase from second quarter 2012 revenues of $318.6 million. Second quarter 2013 net income was $17.2 million, compared to second quarter 2012 net income of $14.3 million ($17.0 million and $14.1 million, for the second quarter of 2013 and 2012, respectively, excluding the impact of the previously disclosed 2012 Incentive Contribution). Second quarter 2013 diluted earnings per share were $0.77 compared to second quarter 2012 diluted earnings per share of $0.59 ($0.76 for the second quarter of 2013 and $0.59 for the second quarter of 2012, excluding the impact of the 2012 Incentive Contribution).

Revenues were $704.8 million for the six months ended June 30, 2013, an 8.5% increase from revenues of $649.9 million for the same period in 2012. Net income was $36.5 million for the six months ended June 30, 2013, compared to $31.3 million for the same period in 2012 ($36.1 million and $33.5 million, for the six-month periods in 2013 and 2012, respectively, excluding the impact of the previously disclosed 2012 Incentive Contribution). Diluted earnings per share were $1.62 for the six months ended June 30, 2013, compared to $1.29 for the same period in 2012 ($1.60 and $1.38, for the six-month periods in 2013 and 2012, respectively, excluding the impact of the 2012 Incentive Contribution).

Global Restaurant and Comparable Sales Information

 Three Months Ended Six Months Ended
June 30, 2013 June 24, 2012June 30, 2013 June 24, 2012
 
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 restaurants6.0%7.4%4.9%5.1%
North America franchised restaurants2.6%5.1%1.7%2.7%
System-wide North America restaurants3.4%5.7%2.5%3.3%
 
System-wide international restaurants6.8%6.1%7.5%7.2%
 

(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.

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 $30.6 million, or 9.6%, for the second quarter of 2013 and increased $54.9 million, or 8.5%, for the six months ended June 30, 2013. The increases in revenues were primarily due to the following:

  • 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 the Denver and Minneapolis 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
 June 30, June 24, Increase June 30, June 24, 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

8,1759,358(1,183)19,13120,650(1,519)
 
Domestic commissaries9,6427,9781,66419,80519,144661
North America franchising17,39616,61977735,61834,759859
International8663205461,207592615
All others1,1534716821,812866946
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.

 

Second quarter 2013 income before income taxes increased approximately $3.1 million, or 13.5%, excluding the Incentive Contribution, primarily due to the following:

  • 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 June 30, 2013 of $1.9 million, or 3.6%, excluding the Incentive Contribution, was primarily due to the same reasons noted above.

The effective income tax rates were 32.2% and 32.6% for the three and six months ended June 30, 2013, representing decreases of 1.9% and 1.2% from the prior year rates. The lower tax rates were due to the settlement or resolution of specific state issues in 2013. Additionally, the rate for the six months ended June 30, 2013 reflected the reinstatement of certain 2012 tax credits under the American Taxpayer Relief Act of 2012.

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
June 30, June 24,
20132012
 
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 $17.9 million was primarily due to unfavorable changes in working capital, including the timing of income tax and other payments, partially offset by an increase in net income.

(b) The increased purchases of property and equipment primarily relate to expenditures on equipment for the New Jersey dough production as well as 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- and six-month periods ended June 30, 2013.

Global Restaurant Unit Data

At June 30, 2013, there were 4,252 Papa John's restaurants operating in all 50 states and in 34 countries, as follows:

 

Domestic

Company-

owned

 

Franchised

North

America

 

Total

North

America

 International System-wide

Second Quarter

    
Beginning - March 31, 20136492,5723,2219764,197
Opened532374481
Closed-  (16) (16) (10) (26)
Ending - June 30, 2013654  2,588  3,242  1,010  4,252 
 

Year-to-date

Beginning - December 30, 20126482,5563,2049594,163
Opened6636972141
Closed-  (31) (31) (21) (52)
Ending - June 30, 2013654  2,588  3,242  1,010  4,252 
 
Restaurant unit growth6  32  38  51  89 
 
% increase0.9% 1.3% 1.2% 5.3% 2.1%

Our development pipeline as of June 30, 2013 included approximately 1,350 restaurants (300 units in North America and 1,050 units internationally), the majority of which are scheduled to open over the next six years.

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 June 30, 2013 versus the same periods in 2012:

  
Three Months EndedSix Months Ended
June 30, June 24,June 30, June 24,
(In thousands, except per share amounts)2013201220132012
 
Income before income taxes, as reported$ 26,608$ 23,466$ 56,905$ 50,986
Incentive Contribution (a)(250)(250)(500)3,471
Income before income taxes, excluding Incentive Contribution$ 26,358 $ 23,216 $ 56,405 $ 54,457
 
Net income, as reported$ 17,150$ 14,289$ 36,456$ 31,270
Incentive Contribution (a)(164)(164)(329)2,275
Net income, excluding Incentive Contribution$ 16,986 $ 14,125 $ 36,127 Read Full Story

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