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Papa John’s Fourth Quarter 2011 Revenues Were $306.2 Million, a 6.8% Increase from Fourth Quarter 2010

2012-02-22

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Papa John’s Announces Fourth Quarter and Full-Year 2011 Results

Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the fourth quarter and fiscal year ended December 25, 2011.

“Papa John’s had an exceptional fourth quarter and full year 2011”

Highlights

Fourth quarter system-wide comparable sales increased 1.7% for North America and 5.2% for International; Full year comparable sales increased 3.4% for North America and 5.1% for International
Fourth quarter earnings per diluted share of $0.65 in 2011 vs. $0.55 in 2010 ($0.51 in 2010, or a 27.5% increase, excluding the impact of the consolidation of the franchisee-owned BIBP cheese purchasing entity)
Full year earnings per diluted share of $2.20 in 2011 vs. $1.96 in 2010 ($1.80 in 2010, or a 22.2% increase, excluding BIBP)
103 worldwide net restaurant openings during the fourth quarter and 237 for the full year

“Papa John’s had an exceptional fourth quarter and full year 2011,” commented Papa John’s Founder, Chairman and Chief Executive Officer, John Schnatter. “We achieved the highest net openings in ten years and delivered our eighth consecutive year for even or positive comparable sales growth. Our brand remains resilient even in the face of what continues to be a challenging competitive and cost environment.”

Fourth quarter 2011 revenues were $306.2 million, a 6.8% increase from fourth quarter 2010 revenues of $286.8 million. Fourth quarter 2011 net income was $16.0 million, compared to fourth quarter 2010 net income of $14.0 million ($13.2 million excluding BIBP, an increase of $2.8 million, or 21.2%). Fourth quarter 2011 diluted earnings per share were $0.65, compared to fourth quarter 2010 diluted earnings per share of $0.55 ($0.51 per diluted share excluding BIBP, an increase of $0.14 per diluted share, or 27.5%). See “Non-GAAP Measures” for additional information regarding BIBP.

Full year fiscal 2011 revenues were $1.22 billion, an 8.1% increase from full year fiscal 2010 revenues of $1.13 billion. Full year fiscal 2011 net income was $55.7 million, compared to full year fiscal 2010 net income of $51.9 million ($47.6 million excluding BIBP, an increase of $8.1 million, or 16.9%). Full year fiscal 2011 diluted earnings per share were $2.20, compared to full year fiscal 2010 diluted earnings per share of $1.96 ($1.80 per diluted share excluding BIBP, an increase of $0.40, or 22.2%).

Financial Highlights


Summary Financial Data:

	Three Months Ended				Year Ended
	Dec. 25,		Dec. 26,		Dec. 25,		Dec. 26,
(In thousands, except per share amounts)	2011		2010		2011		2010

Revenues	$	306,213	$	286,838	$	1,217,882	$	1,126,397

Income before income taxes	$	23,582	$	21,149	$	86,275	$	82,281

Net income	$	15,981	$	14,025	$	55,655	$	51,940

Diluted earnings per share	$	0.65	$	0.55	$	2.20	$	1.96

Diluted weighted average shares outstanding		24,581		25,687		25,310		26,468


Global Restaurant and Comparable Sales Information:

		Three Months Ended		Year Ended
		Dec. 25, 2011	Dec. 26, 2010	Dec. 25, 2011	Dec. 26, 2010

Global restaurant sales growth (a)		6.0%	4.9%	7.7%	3.0%

Global restaurant sales growth, excluding the impact of foreign currency (a)		6.0%	5.0%	7.3%	2.8%

Comparable sales growth (decline) (b)
	Domestic company-owned restaurants	1.2%	2.1%	4.1%	(0.6%)
	North America franchised restaurants	1.8%	0.2%	3.1%	0.3%
	System-wide North America restaurants	1.7%	0.7%	3.4%	0.0%

	System-wide international restaurants	5.2%	5.5%	5.1%	2.6%

(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.

Revenues Highlights

Consolidated revenues increased $19.4 million, or 6.8%, for the fourth quarter of 2011 and increased $91.5 million, or 8.1%, for the year ended December 25, 2011, compared to the same periods in the prior year. The increases in revenues were primarily due to the following:

Domestic company-owned restaurant sales increased $2.1 million, or 1.6%, and $22.6 million, or 4.5%, for the three months and year ended December 25, 2011, respectively, primarily due to increases in comparable sales of 1.2% and 4.1%, respectively.
North America franchise royalty revenues increased approximately $400,000, or 2.3%, and $4.1 million, or 5.8%, for the three months and year ended December 25, 2011, respectively, due to increases in comparable sales of 1.8% and 3.1%, respectively, and increases in the number of franchise restaurants.
Domestic commissary sales increased $12.5 million, or 10.8%, and $53.6 million, or 11.8%, for the three months and year ended December 25, 2011, respectively. The increases were primarily due to increases in the prices of certain commodities, most notably cheese, and increases in sales volumes.
International revenues increased $3.8 million, or 30.6%, and $12.1 million, or 26.1%, for the three months and year ended December 25, 2011, respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 5.2% and 5.1%, respectively, calculated on a constant dollar basis. Through the first three quarters of 2010, the International segment included revenues from company-owned restaurants located in the United Kingdom, which were sold in the third quarter of 2010.

Operating Highlights

Fourth quarter 2011 income before income taxes was $23.6 million, compared to fourth quarter 2010 income before income taxes of $21.1 million ($19.9 million in 2010, excluding the impact of BIBP, an increase of $3.7 million, or 18.8%). Full year fiscal 2011 income before income taxes was $86.3 million, compared to full year fiscal 2010 income before income taxes of $82.3 million ($75.5 million in 2010 excluding the impact of BIBP, an increase of $10.8 million, or 14.3%).

Income before income taxes is summarized in the following table on a reporting segment basis:


		Three Months Ended									Year Ended
		Dec. 25,			Dec. 26,			Increase			Dec. 25,			Dec. 26,			Increase
		2011			2010			(Decrease)			2011			2010			(Decrease)

	Domestic company-owned restaurants	$	6,403		$	6,015		$	388		$	28,980		$	31,619		$	(2,639	)
	Domestic commissaries (a)		9,420			(6,389	)		15,809			30,532			14,188			16,344
	North America franchising		16,032			15,516			516			66,222			62,229			3,993
	International		652			(609	)		1,261			(165	)		(4,771	)		4,606
	All others		301			660			(359	)		(441	)		1,847			(2,288	)
	Unallocated corporate expenses		(8,872	)		(9,303	)		431			(38,243	)		(43,266	)		5,023
	Elimination of intersegment profits		(354	)		(190	)		(164	)		(610	)		(519	)		(91	)
	Income before income taxes, excluding BIBP (a)		23,582			5,700			17,882			86,275			61,327			24,948
	BIBP, a variable interest entity (a)		-			15,449			(15,449	)		-			20,954			(20,954	)
	Total income before income taxes	$	23,582		$	21,149		$	2,433		$	86,275		$	82,281		$	3,994

(a)	PJ Food Service, Inc. (“PJFS”) agreed to pay to BIBP the amount equal to its accumulated deficit at December 26, 2010. Accordingly, BIBP recorded a decrease in cost of sales of $14.2 million and PJFS recorded a corresponding increase in cost of sales. This transaction did not have any impact on the company’s 2010 consolidated income statement results since both PJFS and BIBP are fully consolidated. Income before income taxes, excluding BIBP, was $19.9 million for the fourth quarter of 2010 and $75.5 million for the full year of 2010.

Fourth quarter 2011 income before income taxes increased $3.7 million, or 18.8%, (excluding the reduction in BIBP’s cost of sales of $14.2 million). The increase was primarily due to the following:

Domestic company-owned restaurants, Domestic commissaries, and North America franchising operating income increased due to comparable sales growth and the increase in the number of North American restaurants.
International operating income improved due to increased royalties attributable to strong comparable sales and net unit growth. In addition, our United Kingdom results improved due to restaurant openings and our company-owned restaurant results improved in Beijing, China.

Full year 2011 income before income taxes increased $10.8 million, or 14.3%, (excluding the reduction in BIBP’s cost of sales of $14.2 million). The increase was primarily due to the following:

Domestic commissaries and North America franchising operating income increased due to strong comparable sales results and an increase in the number of North American franchised restaurants.
International operating income improved due to increased royalties attributable to strong comparable sales and net unit growth. In addition, our United Kingdom results improved due to restaurant openings and our company-owned restaurant results improved in Beijing, China.
Unallocated corporate expenses decreased primarily due to the following:
- Lower incentives earned by or paid to franchisees
- Lower short and long-term compensation costs
- Reduced sponsorship fees
- Reduced debt levels and lower effective interest rates
These reductions were partially offset by a charge of approximately $850,000 related to lease obligations associated with our former Perfect Pizza operations in the United Kingdom.

These improvements for the full year 2011 were partially offset by the following:

Domestic company-owned restaurants operating income declined due to higher commodity prices, primarily cheese, partially offset by incremental profits from strong comparable sales results.
The “All others” operating results declined primarily due to lower online ordering fees charged to company-owned and franchised restaurants and an increase in infrastructure and support costs at our “eCommerce” business.

The fourth quarter 2011 effective income tax rate was 28.6%, representing a decrease of 0.9% from the fourth quarter of 2010 and was 31.2% for the full year of 2011, representing a decrease of 1.1% from the prior year rate. The effective rates were impacted by the finalization of certain income tax issues which resulted in income tax benefits of $300,000 and $1.9 million for the fourth quarter and full year 2011, respectively, compared to income tax benefits of $550,000 for both the fourth quarter and full year of 2010. 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 tax rate comparisons above exclude the impact of BIBP in 2010.

See the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for additional information concerning our operating results, including segment and cash flow information, for the fiscal year ended December 25, 2011.

The company’s free cash flow for the fiscal years ended 2011 and 2010 was as follows (in thousands):


	Year Ended
	Dec. 25,			Dec. 26,
	2011			2010

Net cash provided by operating activities	$	101,008		$	92,581
BIBP income before income taxes		-			(6,804	)
Purchase of property and equipment		(29,319	)		(31,125	)
Free cash flow *	$	71,689		$	54,652

*The increase in free cash flow is due to higher net income, favorable working capital changes, including income taxes, and lower purchases of property and equipment.

We define free cash flow as net cash provided by operating activities (from the consolidated statements of cash flows) excluding BIBP income before income taxes, 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 accounting principles generally accepted in the United States (“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 $34.3 million at December 25, 2011, compared to $52.8 million at December 26, 2010.

Global Restaurant Unit Data

At December 25, 2011, there were 3,883 Papa John’s restaurants operating in all 50 states and in 33 countries, as follows:


		Domestic Company- owned		Franchised North America		Total North America		International		Systemwide
	Fourth Quarter
	Beginning - September 25, 2011	597		2,413		3,010		770		3,780
	Opened	2		63		65		60		125
	Closed	(1	)	(13	)	(14	)	(8	)	(22	)
	Ending - December 25, 2011	598		2,463		3,061		822		3,883

	Year-to-date
	Beginning - December 26, 2010 (a)	591		2,346		2,937		709		3,646
	Opened	8		166		174		147		321
	Closed	(1	)	(49	)	(50	)	(34	)	(84	)
	Ending - December 25, 2011	598		2,463		3,061		822		3,883

	Restaurant unit growth	7		117		124		113		237

	% increase	1.2	%	5.0	%	4.2	%	15.9	%	6.5	%


(a)	Franchised restaurants located in Hawaii, Alaska and Canada have been reclassified from International to Franchised North America (66 restaurants at December 26, 2010) due to a realignment in management responsibility and financial reporting.

Our development pipeline as of December 25, 2011 included approximately 1,550 restaurants (350 units in North America and 1,200 units internationally), the majority of which are scheduled to open over the next six years.

Share Repurchase Activity

The company repurchased 470,000 shares of its common stock at an average price of $33.53 per share, or a total of $15.7 million, during the three months ended December 25, 2011 and repurchased 2.1 million shares at an average price of $31.35 per share, or a total of $65.3 million during the full year ended December 25, 2011. Subsequent to quarter-end through February 14, 2012, the company repurchased 60,000 shares at a total cost of $2.2 million, or $37.72 per share average cost. Approximately $69.3 million remains available under the company’s share repurchase program.

There were 24.6 million and 25.3 million diluted weighted average shares outstanding for the three-month period and full year, respectively, representing decreases of 4.3% and 4.4%, respectively, over the prior year comparable periods. Diluted earnings per share increased $0.03 and $0.10 for the three-month period and full year, respectively, due to the reductions in shares outstanding. Approximately 24.1 million actual shares of the company’s common stock were outstanding as of December 25, 2011.

2012 Earnings Guidance Reaffirmed

The company reaffirmed its previously issued guidance for 2012 (a 53 week year), including earnings per diluted share in a range of $2.33 to $2.43. This range includes a reduction of $0.11 due to a one-time marketing incentive contribution. Other 2012 guidance includes:

North America system-wide comparable sales increase of 1.5% to 2.5%
International system-wide comparable sales increase of 1.5% to 3.5%
Worldwide net unit openings ranging from 240 to 280 (110 to 130 net openings for North America and 130 to 150 net openings for International)
Consolidated revenues increase of 6% to 7%, including 2% resulting from the 53^rd week of operations in 2012
Consolidated pre-tax margin is expected to approximate or slightly exceed 2011, including the negative impact of the above-mentioned one-time marketing incentive contribution
Capital expenditures of $47 to $52 million

Conference Call

A conference call is scheduled for February 22, 2012 at 10:00 a.m. Eastern Time to review our fourth quarter and full-year 2011 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, through February 28, 2012. The replay can be accessed from the company’s web site at www.papajohns.com or by dialing 800-642-1687 (U.S. and Canada) or 706-645-9291 (international). The Conference ID is 70015775.

Non-GAAP Measures

Certain financial measures we present in this press release exclude the impact of the consolidation of BIBP, which is not a measure that is defined in accordance with 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 measures. Management believes presenting the 2010 financial information excluding the impact of BIBP is important for purposes of comparison to current year results. As previously announced, we terminated our cheese purchasing arrangement with BIBP in February 2011 and BIBP operated at breakeven during the first two months of 2011. The presentation of the non-GAAP measures in this press release is made alongside the most directly comparable GAAP measures.

The company has provided the following table to reconcile the pro forma financial results we present in this press release excluding the impact in 2010 of BIBP to our GAAP financial measures for the three months and years ended December 25, 2011 and December 26, 2010:


		Three Months Ended					Year Ended
		Dec. 25,		Dec. 26,			Dec. 25,		Dec. 26,
	(In thousands, except per share amounts)	2011		2010			2011		2010

	Income before income taxes, as reported	$	23,582	$	21,149		$	86,275	$	82,281
	Income from BIBP cheese purchasing entity (1)		-		(1,299	)		-		(6,804	)
	Income before income taxes, excluding BIBP (1)	$	23,582	$	19,850		$	86,275	$	75,477

	Net income, as reported	$	15,981	$	14,025		$	55,655	$	51,940
	Net income from BIBP cheese purchasing entity (1)		-		(843	)		-		(4,339	)
	Net income, excluding BIBP (1)	$	15,981	$	13,182		$	55,655	$	47,601

	Earnings per diluted share, as reported	$	0.65	$	0.55		$	2.20	$	1.96
	Earnings from BIBP cheese purchasing entity (1)		-		(0.04	)		-		(0.16	)
	Earnings per diluted share, excluding BIBP (1)	$	0.65	$	0.51		$	2.20	$	1.80

	Cash flow from operations, as reported						$	101,008	$	92,581
	Cash flow from BIBP cheese purchasing entity (1)							-		(6,804	)
	Cash flow from operations, excluding BIBP						$	101,008	$	85,777


(1)	The fourth quarter and full-year 2010 results exclude the reduction in BIBP’s cost of sales of $14.2 million ($9.2 million after-tax or $0.36 per diluted share for the fourth quarter and $0.35 per diluted share for the year) associated with PJFS’s agreement to pay to BIBP for past cheese purchases an amount equal to its accumulated deficit, which is eliminated in consolidation.

See the free cash flow discussion for more information about our use of free cash, which is a non-GAAP measure.


	Papa John's International, Inc. and Subsidiaries
	Consolidated Statements of Income


				Three Months Ended						Year Ended
				December 25, 2011			December 26, 2010			December 25, 2011			December 26, 2010
	(In thousands, except per share amounts)			(Unaudited)			(Unaudited)
	Revenues:
		North America:
			Domestic Company-owned restaurant sales	$	130,742		$	128,620		$	525,841		$	503,272
			Franchise royalties		17,893			17,493			73,694			69,631
			Franchise and development fees		258			150			722			610
			Domestic commissary sales		128,586			116,046			508,155			454,506
			Other sales		12,727			12,277			50,912			51,951
		International:
			Royalties and franchise and development fees		4,462			3,630			16,327			13,265
			Restaurant and commissary sales		11,545			8,622			42,231			33,162
	Total revenues				306,213			286,838			1,217,882			1,126,397

	Costs and expenses:
		Domestic Company-owned restaurant expenses:
			Cost of sales		32,396			29,459			126,887			111,010
			Salaries and benefits		35,065			34,925			142,093			137,840
			Advertising and related costs		12,558			13,357			49,035			47,174
			Occupancy costs		7,974			8,079			32,278			32,343
			Other operating expenses		18,293			18,779			75,558			72,997
		Total domestic Company-owned restaurant expenses			106,286			104,599			425,851			401,364

		Domestic commissary and other expenses:
			Cost of sales		106,596			97,241			426,955			382,150
			Salaries and benefits		8,639			8,230			35,141			34,063
			Other operating expenses		13,138			11,347			53,188			46,890
		Total domestic commissary and other expenses			128,373			116,818			515,284			463,103

	Income from the franchise cheese-purchasing program, net of noncontrolling interest				-			(1,061	)		-			(5,634	)
	International operating expenses				9,556			7,596			35,674			29,429
	General and administrative expenses				27,585			25,971			111,608			109,954
	Other general expenses				2,750			2,410			9,767			9,030
	Depreciation and amortization				7,970			8,285			32,681			32,407
	Total costs and expenses				282,520			264,618			1,130,865			1,039,653

	Operating income				23,693			22,220			87,017			86,744
	Net interest expense				(111	)		(1,071	)		(742	)		(4,463	)
	Income before income taxes				23,582			21,149			86,275			82,281
	Income tax expense				6,737			6,311			26,888			26,856
	Net income, including noncontrolling interests				16,845			14,838			59,387			55,425
	Less: income attributable to noncontrolling interests				(864	)		(813	)		(3,732	)		(3,485	)
	Net income, net of noncontrolling interests			$	15,981		$	14,025		$	55,655		$	51,940

	Basic earnings per common share			$	0.66		$	0.55		$	2.22		$	1.97
	Earnings per common share - assuming dilution			$	0.65		$	0.55		$	2.20		$	1.96

	Basic weighted average shares outstanding				24,260			25,543			25,043			26,328
	Diluted weighted average shares outstanding				24,581			25,687			25,310			26,468

Note:	Beginning in the first quarter of 2011, we realigned management responsibility and financial reporting for the franchised restaurants operating in Hawaii, Alaska, and Canada from our International business segment to North America Franchising. Certain prior year amounts have been reclassified to conform with the current year presentation.


	Papa John's International, Inc. and Subsidiaries
	Condensed Consolidated Balance Sheets


		December 25,		December 26,
		2011		2010
		(Note)		(Note)
	(In thousands)

	Assets
	Current assets:
	Cash and cash equivalents	$	17,238	$	46,225
	Accounts receivable, net		28,169		25,357
	Notes receivable, net		4,221		4,735
	Inventories		20,091		17,402
	Prepaid expenses and other current assets		16,045		13,741
	Deferred income taxes		7,636		9,647
	Total current assets		93,400		117,107

	Other assets and investments		25,263		24,924
	Net property and equipment		185,132		186,594
	Notes receivable, net		11,502		12,619
	Goodwill		75,085		74,697
	Total assets	$	390,382	$	415,941


	Liabilities and stockholders' equity
	Current liabilities:
	Accounts payable	$	32,966	$	31,569
	Income and other taxes payable		3,969		1,789
	Accrued expenses		42,808		42,825
	Total current liabilities		79,743		76,183

	Unearned franchise and development fees		6,170		6,596
	Long-term debt		51,489		99,017
	Other long-term liabilities		25,611		26,604
	Deferred income taxes		9,147		341
	Total liabilities		172,160		208,741

	Total stockholders' equity		218,222		207,200
	Total liabilities and stockholders' equity	$	390,382	$	415,941

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 complete financial statements. Certain prior year amounts have been reclassified to conform with the current year presentation.