Papa John’s Announces Third Quarter 2013 Results Earnings Guidance Increased; Two-for-One Stock Split Declared Business Wire LOUISVILLE, Ky. -- November 5, 2013 Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the three and nine months ended September 29, 2013. Highlights *Third quarter diluted earnings per share of $0.65 in 2013 compared to $0.55 in 2012, an increase of 18% *System-wide comparable sales increases of 1.8% for North America and 8.1% for international during the quarter *2013 diluted earnings per share guidance increased to a range of $3.02 to $3.10 *2013 guidance increased for North America comparable sales, international comparable sales, and worldwide net unit openings “I’d like to congratulate our operators on yet another solid quarter,” said Papa John's Founder, Chairman and Chief Executive Officer, John Schnatter. “Papa John's brand promise of delivering Better Ingredients, Better Pizza is resonating with customers around the world reflected by our strong international comp sales and unit growth. Having just initiated a regular cash dividend, today’s announcement of a two-for-one stock split demonstrates our Company’s sustained commitment to building value for our shareholders and our confidence in the fundamentals and growth potential of our business.” Third quarter 2013 revenues were $346.3 million, a 6.4% increase from third quarter 2012 revenues of $325.5 million. Third quarter 2013 net income was $14.3 million, compared to third quarter 2012 net income of $13.0 million. Third quarter 2013 diluted earnings per share were $0.65 compared to third quarter 2012 diluted earnings per share of $0.55. Revenues were $1.05 billion for the nine months ended September 29, 2013, a 7.8% increase from revenues of $975.4 million for the same period in 2012. Net income was $50.7 million for the nine months ended September 29, 2013, compared to $44.3 million for the same period in 2012 ($50.2 million and $46.4 million, for the nine-month periods in 2013 and 2012, respectively, excluding the impact of the previously disclosed 2012 Incentive Contribution). Diluted earnings per share were $2.27 for the nine months ended September 29, 2013, compared to $1.84 for the same period in 2012 ($2.24 and $1.93, for the nine-month periods in 2013 and 2012, respectively, excluding the impact of the 2012 Incentive Contribution). Global Restaurant and Comparable Sales Information Three Months Ended Nine Months Ended Sept. Sept. Sept. Sept. 29, 23, 29, 23, 2013 2012 2013 2012 Global restaurant 6.9 % 7.1 % 6.7 % 7.6 % sales growth (a) Global restaurant sales growth, excluding the 7.5 % 7.4 % 7.2 % 8.0 % impact of foreign currency (a) Comparable sales growth (b) Domestic company-owned 5.1 % 5.0 % 5.0 % 5.1 % restaurants North America franchised 0.6 % 1.7 % 1.3 % 2.4 % restaurants System-wide North America 1.8 % 2.5 % 2.3 % 3.0 % restaurants System-wide international 8.1 % 6.9 % 7.7 % 7.1 % restaurants (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 and exclude the Incentive Contribution, unless otherwise noted. Revenues Consolidated revenues increased $20.8 million, or 6.4%, for the third quarter of 2013 and increased $75.8 million, or 7.8%, for the nine months ended September 29, 2013. The increases in revenues were primarily due to the following: *Domestic company-owned restaurant sales increased $9.4 million, or 6.5%, and $35.1 million, or 8.1%, for the three and nine months, respectively, primarily due to increases in comparable sales of 5.1% and 5.0%. The increase for the nine-month period was also due to 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 approximately $600,000, or 3.4%, and $2.0 million, or 3.4%, for the three and nine months, respectively, primarily due to increases in net franchise units over the prior year and increases in comparable sales of 0.6% and 1.3%, partially offset by royalty incentives offered to franchisees for meeting certain sales targets. The increase for the nine-month period was partially offset by reduced royalties attributable to the company’s net acquisition of the 50 restaurants noted above. *Domestic commissary sales increased $5.4 million, or 4.1%, and $25.1 million, or 6.3%, for the three and nine months, respectively, primarily due to increases in sales volumes as well as increases in the prices of commodities. *International revenues increased $4.4 million, or 24.2%, and $11.2 million, or 21.4%, for the three and nine months, respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 8.1% and 7.7%, 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 Nine Months Ended Sept. 29, Sept. 23, Increase Sept. 29, Sept. 23, Increase (In 2013 2012 (Decrease) 2013 2012 (Decrease) thousands) Domestic company-owned $ 5,535 $ 5,549 $ (14 ) $ 24,666 $ 27,228 $ (2,562 ) restaurants Less: Incentive - - - - 1,029 (1,029 ) Contribution (a) Domestic company-owned restaurants, 5,535 5,549 (14 ) 24,666 26,199 (1,533 ) excluding Incentive Contribution Domestic 6,473 6,846 (373 ) 26,278 25,990 288 commissaries North America 16,516 16,070 446 52,134 50,829 1,305 franchising International 945 625 320 2,152 1,217 935 All others 590 732 (142 ) 2,402 1,598 804 Unallocated corporate (8,544 ) (9,201 ) 657 (28,475 ) (34,784 ) 6,309 expenses Less: Incentive 250 250 - 750 (4,250 ) 5,000 Contribution (a) Unallocated corporate expenses, (8,794 ) (9,451 ) 657 (29,225 ) (30,534 ) 1,309 excluding Incentive Contribution Elimination of intersegment (252 ) 242 (494 ) (989 ) (229 ) (760 ) losses (profits) Total income before income taxes, excluding $ 21,013 $ 20,613 $ 400 $ 77,418 $ 75,070 $ 2,348 Incentive Contribution (a) (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. Third quarter 2013 income before income taxes increased approximately $400,000, or 1.9%, primarily due to the following: *North America franchising increased primarily due to the increase in net restaurants and comparable sales, partially offset by royalty incentives offered to franchisees for meeting certain sales targets. *International increased primarily due to the increase in net restaurants and comparable sales results and an improvement in our United Kingdom results, partially offset by higher operating losses in our company-owned China market. *Unallocated corporate expenses decreased primarily due to lower settlement costs than originally estimated for the previously disclosed Agne text messaging class action lawsuit. These increases were partially offset by the following decrease: *Domestic commissaries decreased as higher distribution costs more than offset the incremental profits associated with higher sales. We manage commissary results on a full year basis and anticipate the 2013 full year pre-tax income margin will approximate the 2012 margin. Domestic company-owned restaurants income before income taxes approximated the prior year as the incremental profits associated with higher comparable sales of 5.1% were offset by a lower gross margin. The increase in income before income taxes for the nine months ended September 29, 2013 of $2.3 million, or 3.1%, was primarily due to the same reasons as the increases noted above for the three month period. In addition, All others increased primarily 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 5.0%. The effective income tax rates were 30.0% and 31.9% for the three and nine months ended September 29, 2013, respectively, representing decreases of 3.7% and 1.9% from the prior year rates. The lower tax rates were due to various credits earned and the settlement or resolution of specific tax issues in 2013. The company’s free cash flow for the first nine months of 2013 and 2012 was as follows (in thousands): Nine Months Ended Sept. 29, Sept. 23, 2013 2012 Net cash provided by operating $ 74,833 $ 94,773 activities (a) Purchase of property and (38,537 ) (26,425 ) equipment (b) Free cash flow $ 36,296 $ 68,348 (a) The decrease of approximately $19.9 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 nine-month periods ended September 29, 2013. Global Restaurant Unit Data At September 29, 2013, there were 4,296 Papa John’s restaurants operating in all 50 states and in 35 countries, as follows: Domestic Franchised Total Company- North North International System-wide owned America America Third Quarter Beginning - June 30, 654 2,588 3,242 1,010 4,252 2013 Opened 2 48 50 40 90 Closed - (41 ) (41 ) (5 ) (46 ) Ending - September 656 2,595 3,251 1,045 4,296 29, 2013 Year-to-date Beginning - December 30, 648 2,556 3,204 959 4,163 2012 Opened 8 111 119 112 231 Closed - (72 ) (72 ) (26 ) (98 ) Ending - September 656 2,595 3,251 1,045 4,296 29, 2013 Restaurant 8 39 47 86 133 unit growth % increase 1.2 % 1.5 % 1.5 % 9.0 % 3.2 % Our development pipeline as of September 29, 2013 included approximately 1,300 restaurants (250 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 nine months ended September 29, 2013 versus the same periods in 2012: Three Months Ended Nine Months Ended Sept. 29, Sept. 23, Sept. 29, Sept. 23, (In thousands, except per 2013 2012 2013 2012 share amounts) Income before income taxes, $ 21,263 $ 20,863 $ 78,168 $ 71,849 as reported Incentive Contribution (250 ) (250 ) (750 ) 3,221 (a) Income before income taxes, excluding $ 21,013 $ 20,613 $ 77,418 $ 75,070 Incentive Contribution Net income, $ 14,276 $ 13,031 $ 50,732 $ 44,301 as reported Incentive Contribution (165 ) (159 ) (494 ) 2,116 (a) Net income, excluding $ 14,111 $ 12,872 $ 50,238 $ 46,417 Incentive Contribution Earnings per diluted $ 0.65 $ 0.55 $ 2.27 $ 1.84 share, as reported Incentive Contribution (0.01 ) (0.01 ) (0.03 ) 0.09 (a) Earnings per diluted share, $ 0.64 $ 0.54 $ 2.24 $ 1.93 excluding Incentive Contribution (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). In 2012, the Company 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 results shown in the table 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. Share Repurchase Activity The following table reflects our repurchases for the three and nine months ended September 29, 2013 and subsequent repurchases through October 28, 2013 (in thousands): Period Number of Cost Shares Three Months Ended September 29, 2013 150 $ 10,331 Nine Months Ended September 29, 2013 1,128 $ 69,137 September 30, 2013 through October 28, 2013 74 $ 5,260 There were 22.1 million and 22.4 million diluted weighted average shares outstanding for the three and nine months ended September 29, 2013, representing decreases of 6.9% and 7.2% over the prior year comparable periods. Diluted earnings per share increased $0.05 and $0.17 for the three and nine months ended September 29, 2013 due to the reduction in shares outstanding resulting from the share repurchase program. Approximately 21.5 million actual shares of the company’s common stock were outstanding as of September 29, 2013. Regular Quarterly Dividend and Two-for-One Stock Split As previously announced, the Board of Directors declared a regular quarterly cash dividend of $0.25 per share; the dividend will be paid on November 22, 2013 to shareholders of record as of the close of business on November 11, 2013. The Board of Directors also declared a two-for-one split of the company’s outstanding shares of common stock, which will be effected in the form of a stock dividend. The stock dividend entitles each shareholder of record at the close of business on December 12, 2013 to receive one additional share for every outstanding share of common stock held on such record date. The stock dividend will be distributed on December 27, 2013. 2013 Guidance Update The company provided the following 2013 guidance updates: Updated Previous Guidance Guidance Diluted earnings per share $3.02 to $3.10 $2.92 to $3.00 North America comparables sales +2.5% to +3.5% +1.5% to +2.5% International comparable sales +7.0% to +8.0% +5.0% to +7.0% Worldwide net unit growth 245 to 275 230 to 260 North America 85 to 95 110 to 125 International 160 to 180 120 to 135 Conference Call A conference call is scheduled for November 6, 2013 at 10:00 a.m. Eastern Time to review our third quarter 2013 earnings results. The call can be accessed from the company’s web page at www.papajohns.com in a listen-only mode, or dial 877-312-8816 (U.S. and Canada) or 253-237-1189 (international). The conference call will be available for replay, including by downloadable podcast, from the company’s web site at www.papajohns.com. The Conference ID is 63215634. 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 to operate new and existing restaurants profitably; *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 December 30, 2012. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. For more information about the Company, please visit www.papajohns.com. Papa John's International, Inc. and Subsidiaries Consolidated Statements of Income Three Months Ended Nine Months Ended September September September 29, September 29, 2013 23, 2012 2013 23, 2012 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (In thousands, except per share amounts) Revenues: North America: Domestic Company-owned $ 152,662 $ 143,299 $ 465,713 $ 430,641 restaurant sales Franchise 19,419 18,777 60,382 58,396 royalties Franchise and development 263 160 1,028 588 fees Domestic commissary 138,044 132,666 421,941 396,869 sales Other sales 13,566 12,581 38,617 36,610 International: Royalties and franchise and 5,454 4,582 15,912 13,769 development fees Restaurant and commissary 16,934 13,449 47,539 38,496 sales Total revenues 346,342 325,514 1,051,132 975,369 Costs and expenses: Domestic Company-owned restaurant expenses: Cost of sales 38,233 34,054 113,131 99,391 Salaries and 41,701 39,587 127,026 118,239 benefits Advertising and related 14,424 13,920 43,894 39,897 costs Occupancy 9,583 9,185 27,233 25,702 costs Other operating 23,061 21,490 68,237 62,738 expenses Total domestic Company-owned 127,002 118,236 379,521 345,967 restaurant expenses Domestic commissary and other expenses: Cost of sales 115,563 111,114 347,386 328,364 Salaries and 10,347 9,654 30,678 27,875 benefits Other operating 15,965 14,082 47,740 41,886 expenses Total domestic commissary and 141,875 134,850 425,804 398,125 other expenses International restaurant and 14,372 11,394 40,008 32,761 commissary expenses General and administrative 31,780 30,426 98,064 93,485 expenses Other general 1,260 1,211 4,042 8,020 expenses Depreciation and 8,605 8,192 25,672 24,223 amortization Total costs 324,894 304,309 973,111 902,581 and expenses Operating 21,448 21,205 78,021 72,788 income Net interest (expense) (185 ) (342 ) 147 (939 ) income Income before 21,263 20,863 78,168 71,849 income taxes Income tax 6,385 7,038 24,926 24,256 expense Net income, including redeemable 14,878 13,825 53,242 47,593 noncontrolling interests Income attributable to redeemable (602 ) (794 ) (2,510 ) (3,292 ) noncontrolling interests Net income, net of redeemable $ 14,276 $ 13,031 $ 50,732 $ 44,301 noncontrolling interests Basic earnings per common $ 0.66 $ 0.56 $ 2.32 $ 1.87 share Earnings per common share - $ 0.65 $ 0.55 $ 2.27 $ 1.84 assuming dilution Basic weighted average shares 21,591 23,268 21,855 23,685 outstanding Diluted weighted 22,084 23,721 22,381 24,107 average shares outstanding Dividends declared per $ 0.25 $ - $ 0.25 $ - common share Papa John's International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets September 29, December 30, 2013 2012 (In thousands) (Unaudited) (Note) Assets Current assets: Cash and cash $ 13,689 $ 16,396 equivalents Accounts receivable, net 47,642 44,647 Notes receivable 5,506 4,577 Inventories 22,918 22,178 Deferred income taxes 9,263 10,279 Prepaid expenses and 20,269 20,549 other current assets Total current assets 119,287 118,626 Property and equipment, 207,415 196,661 net Notes receivable, less 12,305 12,536 current portion, net Goodwill 79,024 78,958 Other assets 33,408 31,627 Total assets $ 451,439 $ 438,408 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 34,081 $ 32,624 Income and other taxes 5,918 10,429 payable Accrued expenses and other current 55,192 60,528 liabilities Total current 95,191 103,581 liabilities Deferred revenue 6,215 7,329 Long-term debt 120,000 88,258 Deferred income taxes 12,471 10,672 Other long-term 41,118 40,674 liabilities Total liabilities 274,995 250,514 Redeemable 6,948 6,380 noncontrolling interests Total stockholders' 169,496 181,514 equity Total liabilities, redeemable $ 451,439 $ 438,408 noncontrolling interests and stockholders' equity 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 Nine Months Ended (In thousands) September 29, 2013 September 23, 2012 (Unaudited) (Unaudited) Operating activities Net income, including redeemable noncontrolling $ 53,242 $ 47,593 interests Adjustments to reconcile net income to net cash provided by operating activities: Provision for uncollectible 1,130 1,250 accounts and notes receivable Depreciation and amortization 25,672 24,223 Deferred income taxes 6,994 424 Stock-based compensation 5,642 4,932 expense Excess tax benefit on equity (4,108 ) (1,717 ) awards Other 1,260 4,375 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (4,666 ) (6,018 ) Inventories (740 ) (1,188 ) Prepaid expenses and other 281 3,138 current assets Other assets and liabilities (3,254 ) (840 ) Accounts payable 1,457 1,106 Income and other taxes payable (4,511 ) 6,248 Accrued expenses and other (3,217 ) 7,258 current liabilities Deferred revenue (349 ) 3,989 Net cash provided by operating 74,833 94,773 activities Investing activities Purchases of property and (38,537 ) (26,425 ) equipment Loans issued (3,830 ) (3,951 ) Repayments of loans issued 3,687 2,620 Acquisitions, net of cash - (6,175 ) acquired Proceeds from divestitures of - 1,068 restaurants Other 324 4 Net cash used in investing (38,356 ) (32,859 ) activities Financing activities Net proceeds (repayments) on 31,742 (1,489 ) line of credit facility Cash dividends paid on common (5,414 ) - stock Excess tax benefit on equity 4,108 1,717 awards Tax payments for restricted (1,862 ) (846 ) stock issuances Proceeds from exercise of 4,193 11,399 stock options Acquisition of Company common (69,137 ) (64,146 ) stock Contributions from redeemable noncontrolling interest 850 - holders Distributions to redeemable noncontrolling interest (3,200 ) (2,431 ) holders Other (501 ) 174 Net cash used in financing (39,221 ) (55,622 ) activities Effect of exchange rate changes on cash and cash 37 119 equivalents Change in cash and cash (2,707 ) 6,411 equivalents Cash and cash equivalents at 16,396 18,942 beginning of period Cash and cash equivalents at $ 13,689 $ 25,353 end of period Contact: Papa John’s International, Inc. Lance Tucker, 502-261-4218 Chief Financial Officer
Papa John’s Announces Third Quarter 2013 Results
Press spacebar to pause and continue. Press esc to stop.