Papa John’s Q2 Revenues Up 4.6%

Net income was $12.1 million for second quarter 2011, or $0.47 per diluted share, compared to $13.2 million for second quarter 2010, or $0.49 per diluted share ($11.5 million, or $0.43 per diluted share, excluding the consolidation of BIBP Commodities, Inc. (“BIBP”), a variable interest entity). See “Non-GAAP Measures” for additional information regarding BIBP.

“Part I. Item 1A. - Risk Factors”

Revenues were $606.0 million for the six months ended June 26, 2011, a 7.0% increase from revenues of $566.4 million for the same period in 2010. Net income was $28.6 million for the six months ended June 26, 2011, or $1.11 per diluted share, compared to net income of $30.1 million for the same period in 2010, or $1.11 per diluted share ($26.2 million, or $0.97 per diluted share, excluding BIBP, an increase of $2.4 million).

“We are pleased with our solid second quarter results,” commented Papa John’s Founder, Chairman and Chief Executive Officer, John Schnatter. “Even in the face of what continues to be a challenging commodity cost and competitive environment, the Papa John’s system ran positive comp sales in both North America and our international business while adding 46 net new restaurants during the quarter. These results are a testament to the strength of our brand and our operators.”

Financial Highlights
Summary Financial Data:
			Three Months Ended								Six Months Ended
			June 26,				June 27,				June 26,				June 27,
(In thousands, except per share amounts)			2011				2010				2011				2010
Revenues			$	293,534			$	280,647			$	606,001			$	566,433
Income before income taxes, net of noncontrolling interests			$	18,138			$	20,752			$	43,796			$	46,592
Net income			$	12,124			$	13,192			$	28,551			$	30,067
Earnings per share - assuming dilution			$	0.47			$	0.49			$	1.11			$	1.11
Weighted average shares outstanding - assuming dilution				25,685				26,971				25,713				27,036

Global Restaurant Sales Information:
			Three Months Ended								Six Months Ended
			June 26, 2011				June 27, 2010				June 26, 2011				June 27, 2010
Global restaurant sales growth (a)			5.6	%			2.4	%			8.3	%			2.1	%
Global restaurant sales growth, excluding the impact of foreign currency conversion (a)			4.8	%			2.3	%			7.8	%			1.7	%
Comparable sales growth (decline) (b)
North America company-owned restaurants			2.1	%			(1.1	%)			4.4	%			(1.5	%)
North America franchised restaurants			(0.1	%)			0.9	%			2.9	%			0.5	%
System-wide North America restaurants			0.4	%			0.4	%			3.3	%			-
System-wide international restaurants			4.8	%			0.2	%			5.2	%			(0.3	%)

(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 calendar period. 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.

Revenues Highlights

Consolidated revenues increased $12.9 million, or 4.6%, for the second quarter of 2011 and increased $39.6 million, or 7.0%, for the six months ended June 26, 2011, compared to the same periods in the prior year. The increases in revenues were due to the following:

• Domestic company-owned restaurant sales increased $3.0 million, or 2.4%, and $12.1 million, or 4.7%, for the three and six months ended June 26, 2011, respectively, due to increases in comparable sales of 2.1% and 4.4%.
• North America franchise royalty revenues increased approximately $700,000, or 3.8%, and $2.3 million, or 6.6%, for the three and six months ended June 26, 2011, respectively, due to net increases in franchise units over the prior year. The year-to-date increase was also favorably impacted by an increase of 2.9% in comparable sales (comparable sales decreased 0.1% for the second quarter of 2011).
• Domestic commissary sales increased $7.1 million, or 6.2%, and $22.1 million, or 9.8%, for the three and six months ended June 26, 2011, respectively. The increases were primarily due to increases in the selling prices of certain commodities. Sales volumes were lower for the three-month period and higher for the six-month period, compared to the prior year results.
• International revenues increased $2.7 million, or 23.6%, and $4.7 million, or 21.3%, for the three and six months ended June 26, 2011, respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 4.8% and 5.2%, calculated on a constant dollar basis. These increases were partially offset by the prior year’s inclusion of revenues from company-owned restaurants located in the United Kingdom, which were sold in the third quarter of 2010.

Operating Highlights

Our pre-tax income, net of noncontrolling interests, for the second quarter of 2011 was $18.1 million, compared to $20.8 million for the corresponding quarter in 2010 ($18.1 million, excluding the impact of BIBP—see Non-GAAP Measures discussion for additional information). For the six months ended June 26, 2011, pre-tax income, net of noncontrolling interests, was $43.8 million, compared to $46.6 million for the corresponding period in 2010 ($40.4 million excluding the impact of BIBP, an increase of $3.4 million).

Pre-tax income was flat for the three months ended June 26, 2011 compared to the same period in 2010, excluding the impact of BIBP, primarily due to the following:

• North America franchising operating income increased approximately $500,000 primarily due to the previously mentioned royalty revenue increases. International operating income results improved by $1.1 million primarily due to the previously mentioned international royalty revenue increases. Unallocated corporate expenses decreased due to the elimination of discretionary contributions to the national marketing fund (replaced in 2011 with a sales incentive program reflected in royalties); lower short and long-term incentive compensation costs as a result of lower expected payouts in 2011; and lower interest expense than in the prior year due to lower debt levels.
• The favorable differences noted above were offset by a reduction in domestic company-owned restaurants’ operating income of $1.2 million primarily due to higher commodity costs; a reduction in domestic commissary operating income of $3.7 million due to a lower gross margin, reduced sales volumes, and an increase in distribution costs resulting from higher fuel prices; and a decline in the operating results of our online ordering (“eCommerce”) business due to a reduction in online ordering fees and an increase in infrastructure and support costs.

The increase in pre-tax income of $3.4 million, or 8.3%, for the six months ended June 26, 2011, excluding the impact of BIBP, was due primarily to our strong full year North America comparable sales of 3.3%, an improvement in our international segment of $1.8 million, and increases in our year-to-date commissary sales volumes, partially offset by higher commodity costs.

Our effective income tax rates were 31.5% and 33.3% for the three and six months ended June 26, 2011, representing decreases of 3.2% and 0.3%, from the prior year rates, excluding BIBP. The lower effective rates were primarily due to a tax refund associated with the resolution of prior years’ tax matters. 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.

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, including segment and cash flow information, for the three- and six-month periods ended June 26, 2011.

Cash Flow

The company’s free cash flow for the first six months of 2011 and 2010 was as follows (in thousands):

			Six Months Ended
			June 26,					June 27,
			2011					2010
Net cash provided by operating activities			$	50,076				$	45,686
Pre-tax income from BIBP cheese purchasing entity				-					(6,163	)
Purchase of property and equipment				(12,422	)				(16,871	)
Free cash flow			$	37,654				$	22,652

Free cash flow is defined as net cash provided by operating activities (from the consolidated statements of cash flows) excluding the impact of BIBP, 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 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.

Our net debt position, defined as total debt less cash and cash equivalents, was $27.9 million at June 26, 2011, compared to $52.8 million at December 26, 2010.

Global Restaurant Unit Data

At June 26, 2011, there were 3,733 Papa John’s restaurants operating in all 50 states and in 32 countries, as follows:

			Company- owned North America				Franchised North America				Total North America				International				Systemwide
Second Quarter
Beginning - March 27, 2011			592				2,371				2,963				724				3,687
Opened			3				35				38				28				66
Closed			-				(13	)			(13	)			(7	)			(20	)
Ending - June 26, 2011			595				2,393				2,988				745				3,733
Year-to-date
Beginning - December 26, 2010			591				2,346				2,937				709				3,646
Opened			4				67				71				51				122
Closed			-				(20	)			(20	)			(15	)			(35	)
Ending - June 26, 2011			595				2,393				2,988				745				3,733
Restaurants at June 27, 2010			590				2,283				2,873				643				3,516
Restaurant unit growth			5				110				115				102				217
% increase			0.8	%			4.8	%			4.0	%			15.9	%			6.2	%

Our development pipeline as of June 26, 2011 included approximately 1,700 restaurants (440 units in North America and 1,260 units internationally), the majority of which are scheduled to open over the next six years.

Share Repurchase Activity

The company repurchased 674,000 shares of its common stock at an average price of $32.69 per share, or a total of $22.0 million, during the three months ended June 26, 2011 and repurchased 817,000 shares at an average price of $32.02 per share, or a total of $26.2 million during the six months ended June 26, 2011. Subsequent to quarter-end through July 27, 2011, the company repurchased 114,000 shares at a total cost of $3.7 million, or $31.92 per share average cost. Approximately $57.0 million remains available under the company’s share repurchase program.

There were 25.7 million diluted weighted average shares outstanding for both the three- and six-month periods, representing decreases of 4.8% and 4.9%, respectively, over the prior year comparable periods. Diluted earnings per share increased $0.02 and $0.05 for the three- and six-month periods, respectively, due to the reductions in shares outstanding. Approximately 25.2 million actual shares of the company’s common stock were outstanding as of June 26, 2011.

2011 Earnings Guidance

The company reaffirmed its previously issued diluted earnings per share guidance range of $2.02 to $2.12 for 2011. The company expects the current competitive pricing and promotional environment in the pizza category and the unfavorable impact of projected commodity cost increases, most notably cheese, to continue throughout the remainder of the year. The company reaffirmed its previously issued comparable sales guidance range of +2% to +3% for North America and increased the International comp sales guidance to +2% to +4%, from +1% to +3%. The company also reaffirmed projected worldwide net restaurant openings of 190 to 220 restaurants for 2011.

			Three Months Ended									Six Months Ended
			June 26,				June 27,					June 26,				June 27,
(In thousands, except per share amounts)			2011				2010					2011				2010
Pre-tax income, net of noncontrolling interests, as reported			$	18,138			$	20,752				$	43,796			$	46,592
Pre-tax income from BIBP cheese purchasing entity				-				(2,678	)				-				(6,163	)
Pre-tax income, net of noncontrolling interests, excluding BIBP			$	18,138			$	18,074				$	43,796			$	40,429
Net income, as reported			$	12,124			$	13,192				$	28,551			$	30,067
Net income from BIBP cheese purchasing entity				-				(1,700	)				-				(3,913	)
Net income, excluding BIBP			$	12,124			$	11,492				$	28,551			$	26,154
Earnings per diluted share, as reported			$	0.47			$	0.49				$	1.11			$	1.11
Earnings from BIBP cheese purchasing entity				-				(0.06	)				-				(0.14	)
Earnings per diluted share, excluding BIBP			$	0.47			$	0.43				$	1.11			$	0.97
Cash flow from operations, as reported												$	50,076			$	45,686
Cash flows from BIBP cheese purchasing entity													-				(6,163	)
Cash flow from operations, excluding BIBP												$	50,076			$	39,523

Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Income
			Three Months Ended										Six Months Ended
			June 26, 2011					June 27, 2010					June 26, 2011					June 27, 2010
(In thousands, except per share amounts)			(Unaudited)					(Unaudited)					(Unaudited)					(Unaudited)
Revenues:
North America:
Domestic Company-owned restaurant sales			$	127,641				$	124,594				$	266,312				$	254,238
Franchise royalties				18,103					17,440					37,834					35,485
Franchise and development fees				124					106					309					311
Domestic commissary sales				121,027					113,936					248,699					226,576
Other sales				12,370					13,023					25,817					27,536
International:
Royalties and franchise and development fees				4,049					3,153					7,811					6,319
Restaurant and commissary sales				10,220					8,395					19,219					15,968
Total revenues				293,534					280,647					606,001					566,433
Costs and expenses:
Domestic Company-owned restaurant expenses:
Cost of sales				30,162					27,020					62,262					54,306
Salaries and benefits				34,367					34,192					72,016					69,595
Advertising and related costs				11,898					11,149					24,687					22,553
Occupancy costs				7,939					7,930					15,808					15,770
Other operating expenses				18,492					17,844					38,407					36,034
Total domestic Company-owned restaurant expenses				102,858					98,135					213,180					198,258
Domestic commissary and other expenses:
Cost of sales				103,529					95,195					209,972					190,487
Salaries and benefits				8,651					8,568					17,662					17,300
Other operating expenses				13,084					11,841					26,669					23,541
Total domestic commissary and other expenses				125,264					115,604					254,303					231,328
Income from the franchise cheese-purchasing program, net of noncontrolling interest				-					(2,173	)				-					(4,982	)
International operating expenses				8,756					7,430					16,484					14,206
General and administrative expenses				27,617					28,990					56,691					56,850
Other general expenses				1,459					1,687					2,240					3,977
Depreciation and amortization				8,425					8,175					16,737					16,055
Total costs and expenses				274,379					257,848					559,635					515,692
Operating income				19,155					22,799					46,366					50,741
Net interest expense				(88	)				(1,136	)				(519	)				(2,149	)
Income before income taxes				19,067					21,663					45,847					48,592
Income tax expense				6,014					7,560					15,245					16,525
Net income, including noncontrolling interests				13,053					14,103					30,602					32,067
Less: income attributable to noncontrolling interests				(929	)				(911	)				(2,051	)				(2,000	)
Net income, net of noncontrolling interests			$	12,124				$	13,192				$	28,551				$	30,067
Basic earnings per common share			$	0.48				$	0.49				$	1.12				$	1.12
Earnings per common share - assuming dilution			$	0.47				$	0.49				$	1.11				$	1.11
Basic weighted average shares outstanding				25,464					26,760					25,474					26,901
Diluted weighted average shares outstanding				25,685					26,971					25,713					27,036

 

Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
			June 26,				December 26,
			2011				2010
			(Unaudited)				(Note)
(In thousands)
Assets
Current assets:
Cash and cash equivalents			$	20,106			$	46,225
Accounts receivable, net				26,471				25,357
Inventories				15,583				17,402
Prepaid expenses				10,277				10,009
Other current assets				3,710				3,732
Deferred income taxes				7,626				9,647
Total current assets				83,773				112,372
Investments				1,714				1,604
Net property and equipment				182,788				186,594
Notes receivable, net				15,281				17,354
Goodwill				74,746				74,697
Other assets				22,393				23,320
Total assets			$	380,695			$	415,941
Liabilities and stockholders' equity
Current liabilities:
Accounts payable			$	29,599			$	31,569
Income and other taxes payable				6,868				6,140
Accrued expenses				49,813				52,978
Total current liabilities				86,280				90,687
Unearned franchise and development fees				6,651				6,596
Long-term debt				48,000				99,017
Other long-term liabilities				12,478				12,100
Deferred income taxes				3,485				341
Total liabilities				156,894				208,741
Total stockholders' equity				223,801				207,200
Total liabilities and stockholders' equity			$	380,695			$	415,941

 

Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
			Six Months Ended
(In thousands)			June 26, 2011					June 27, 2010
			(Unaudited)					(Unaudited)
Operating activities
Net income, net of noncontrolling interests			$	28,551				$	30,067
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for uncollectible accounts and notes receivable				(7	)				713
Depreciation and amortization				16,737					16,055
Deferred income taxes				4,332					(250	)
Stock-based compensation expense				3,903					3,549
Excess tax benefit related to exercise of non-qualified stock options				(403	)				(242	)
Other				316					368
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable				(1,965	)				(1,764	)
Inventories				1,819					298
Prepaid expenses				(268	)				(1,559	)
Other current assets				22					106
Other assets and liabilities				1,258					(329	)
Accounts payable				(1,970	)				(851	)
Income and other taxes				728					4,529
Accrued expenses				(3,032	)				(5,432	)
Unearned franchise and development fees				55					428
Net cash provided by operating activities				50,076					45,686
Investing activities
Purchase of property and equipment				(12,422	)				(16,871	)
Purchase of investments				(205	)				(548	)
Proceeds from sale or maturity of investments				95					240
Loans issued				(1,684	)				(460	)
Loan repayments				3,920					1,943
Proceeds from divestitures of restaurants				-					36
Other				51					11
Net cash used in investing activities				(10,245	)				(15,649	)
Financing activities
Net repayments on line of credit facility				(51,000	)				-
Excess tax benefit related to exercise of non-qualified stock options				403					242
Proceeds from exercise of stock options				10,663					5,125
Acquisition of Company common stock				(26,162	)				(24,417	)
Noncontrolling interests, net of contributions and distributions				22					1,130
Other				42					114
Net cash used in financing activities				(66,032	)				(17,806	)
Effect of exchange rate changes on cash and cash equivalents				82					22
Change in cash and cash equivalents				(26,119	)				12,253
Cash and cash equivalents at beginning of period				46,225					25,457
Cash and cash equivalents at end of period			$	20,106				$	37,710

 

Logos, product and company names mentioned are the property of their respective owners.

Reader Comments:

Be the first to leave a comment for this article

Tweet