Papa Johns Announces Fourth Quarter and Full Year 2021 Financial Results

Full year 2021 total company revenues of $2.1 billion, up 14.1% over 2020

Feb 24, 2022 - 13:35

Papa John’s International, Inc. (Nasdaq: PZZA) today announced financial results for the three months and full year ended December 26, 2021.

Fourth quarter 2021 highlights compared to prior year fourth quarter

  • Total company revenues of $528.9 million, up 12.6% over 2020
  • Comparable sales up 11.1% in North America and 2.4% Internationally; Global system-wide restaurant sales of $1.2 billion, up 13.1% from 2020 (excluding the impact of foreign currency)
  • Earnings per diluted share grew 139% to $0.67; Adjusted earnings per diluted share grew 88% to $0.75
  • Repurchased $52 million of common stock during the fourth quarter, completing the previous $75 million share repurchase authorization

Full year 2021 highlights compared to prior year

  • Total company revenues of $2.1 billion, up 14.1% over 2020
  • Comparable sales up by 11.8% in North America and 13.0% Internationally; Global system-wide restaurant sales of $4.8 billion, up 15.4% from 2020 (excluding the impact of foreign currency)
  • 250 net unit openings driven by continued domestic and international growth
  • Earnings per diluted share of $0.12, including Special items of $3.39 per share, largely related to repurchase and conversion of Series B Convertible Preferred Stock
  • Adjusted earnings per diluted share grew to $3.51 from $1.40 in 2020
  • Cash flow from operations of $184.7 million and free cash flow of $109.7 million for full year 2021

“In 2021 Papa Johns achieved strong comparable sales growth and industry outperformance for a second consecutive year, driving 15% system-wide sales gains and demonstrating our ability to sustain growth, even during one of the most uncertain and difficult business environments we have ever seen,” said President & CEO Rob Lynch. “On a two-year basis, comparable sales rose 29% in North America and 26% internationally last quarter, as our innovation culture continued to deliver high-value, premium products that customers love, such as Epic Stuffed Crust and New York Style pizza. With North America average annual unit sales exceeding $1.1 million and 2021 adjusted EPS of $3.51, a company record, I’m proud to say that we also delivered great value to our franchisees and shareholders.”

Mr. Lynch continued, “While the current labor and commodity environment presents great challenges across the restaurant industry and the economy as a whole, we have been able to continue growing and protect margins thanks to Papa Johns differentiated strategy, premium position and our dedicated franchisees and team members, especially in our restaurants and vertically integrated supply chain. In addition, Papa Johns development momentum is at an all-time high. In one of our best years, we opened 250 net new units in 2021 and since last summer we have signed multiple historic development deals for the brand, including most recently for 1,350 new stores in southern China. In short, Papa Johns long-term growth outlook has never been brighter.”

Financial Highlights

    Three Months Ended   Year Ended
In thousands, except per share amounts   Dec. 26,
2021
  Dec. 27,
2020
  Increase   Dec. 26,
2021
  Dec. 27,
2020
  Increase
(Decrease)
                         
Revenue  

$

528,885

 

$

469,811

 

$

59,074

 

$

2,068,421

 

$

1,813,234

 

$

255,187

Operating income  

38,165

 

19,698

 

18,467

 

168,241

 

90,253

 

77,988

Net income  

24,623

 

13,167

 

11,456

 

120,016

 

57,932

 

62,084

Diluted earnings per share  

0.67

 

0.28

 

0.39

 

0.12

 

1.28

 

(1.16

)

Adjusted diluted earnings per share (a)  

0.75

 

0.40

 

0.35

 

3.51

 

1.40

 

2.11

(a)

Adjusted diluted earnings per share is a non-GAAP measure that excludes “Special items,” which impact comparability. Special items include strategic corporate reorganization costs associated with the company’s new office in Atlanta, Georgia of $3.7 million and $13.1 million for the three months and year ended December 26, 2021, and $6.0 million for the three months and year ended December 27, 2020, respectively. For the year ended December 26, 2021, Special items also include $109.9 million of one-time charges associated with the repurchase and conversion of all shares of the company’s Series B Convertible Preferred Stock (“Series B Preferred Stock”) during the second quarter. The reconciliation of GAAP to non-GAAP financial results is included in “Reconciliation of Non-GAAP Financial Measures” below.

Quarterly Results

Consolidated revenues of $528.9 million in the fourth quarter of 2021 increased $59.1 million, or 12.6%, compared to the fourth quarter of the prior year primarily as a result of comparable sales increases of 11.1% and 2.4% for North America and International restaurants, respectively, which benefited from our menu innovation and growth strategies and higher customer retention from our customer rewards program which drove higher company-owned restaurant revenues, franchise royalties and commissary sales.

Consolidated operating income of $38.2 million for the fourth quarter of 2021 increased $18.5 million compared to the fourth quarter of 2020. The increase reflects stronger consolidated revenue from higher comparable sales and year-over-year restaurant unit growth internationally. These benefits more than offset an increase in expenses, including higher labor costs as a result of labor shortages in the market and higher commodity costs associated with our supply chain.

Diluted earnings per share was $0.67 for the fourth quarter of 2021 representing an increase of $0.39 over the fourth quarter of 2020. Excluding the impact of Special items, adjusted diluted earnings per share was $0.75 representing an increase of $0.35 over the fourth quarter of 2020.

Full Year Results

Consolidated revenues increased 14.1% to $2.1 billion for the year ended December 26, 2021, compared to the prior year, primarily due to higher comparable sales which benefited each of the company’s operating segments. Consolidated operating income increased $78.0 million for the year ended December 26, 2021 ($85.1 million excluding Special items), compared to the prior year, primarily due to double-digit comparable sales growth and strong net unit growth domestically and internationally.

For the year ended December 26, 2021, diluted earnings per share was $0.12 representing a decrease of $1.16 over the prior year period. Diluted earnings per share includes a $3.10 diluted impact from the repurchase and conversion of all shares of Series B Preferred Stock in the second quarter of 2021, which reflects the excess of the one-time cash payment over the carrying value of the Series B Preferred Stock. Excluding Special items, adjusted diluted earnings per share was $3.51 representing an increase of $2.11 over the prior year.

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 SEC for additional information concerning our operating results for the year ended December 26, 2021.

Global Restaurant Sales Information

Global restaurant and comparable sales information for the three months and full year ended December 26, 2021, compared to the three months and full year ended December 27, 2020 are as follows (See “Supplemental Information and Financial Statements” below for related definitions):

  Three Months Ended   Year Ended
  Dec. 26,
2021
  Dec. 27,
2020
  Dec. 26,
2021
  Dec. 27,
2020
Comparable sales growth:              
Domestic company-owned restaurants

10.2%

 

10.2%

 

11.3%

 

14.2%

North America franchised restaurants

11.3%

 

14.5%

 

12.0%

 

18.6%

North America restaurants

11.1%

 

13.5%

 

11.8%

 

17.6%

International restaurants

2.4%

 

21.4%

 

13.0%

 

12.6%

Total comparable sales growth

8.6%

 

15.6%

 

12.1%

 

16.3%

               
System-wide restaurant sales growth:              
(excluding the impact of foreign currency)              
Domestic company-owned restaurants

10.9%

 

8.0%

 

11.1%

 

7.5%

North America franchised restaurants

12.7%

 

13.7%

 

13.0%

 

18.7%

North America restaurants

12.3%

 

12.4%

 

12.6%

 

16.0%

International restaurants

15.2%

 

24.8%

 

24.4%

 

15.5%

Total global system-wide restaurant sales growth

13.1%

 

15.4%

 

15.4%

 

15.9%

Global Restaurant Unit Data

As of December 26, 2021, there were 5,650 Papa John’s restaurants operating in 50 countries and territories, as follows:

  Domestic
Company-
owned
Franchised
North
America
Total North
America
International System-wide
Fourth Quarter          
Beginning - September 26, 2021

591

2,732

3,323

2,246

5,569

Opened

9

17

26

94

120

Closed

-

(10

)

(10

)

(29

)

(39

)

Ending - December 26, 2021

600

2,739

3,339

2,311

5,650

Net unit growth

9

7

16

65

81

           
Year-to-Date          
Beginning - December 27, 2020

588

2,701

3,289

2,111

5,400

Opened

11

74

85

304

389

Closed

-

(35

)

(35

)

(104

)

(139

)

Acquired

1

-

1

-

1

Sold

-

(1

)

(1

)

-

(1

)

Ending - December 26, 2021

600

2,739

3,339

2,311

5,650

Full year net store growth

12

38

50

200

250

Free Cash Flow

The company’s free cash flow (a non-GAAP financial measure defined as net cash provided by operating activities, less purchases of property and equipment and dividends paid to preferred shareholders) was as follows (in thousands):

   

Year Ended

   

Dec. 26,

Dec. 27,

   

2021

2020

         
Net cash provided by operating activities  

$

184,675

 

$

186,439

Purchases of property and equipment (1)  

(68,559

)

 

(35,652

)

Dividends paid to preferred shareholders (2)  

(6,394

)

 

(13,649

)

Free cash flow  

$

109,722

 

$

137,138

(1)

Increase of $32.9 million primarily driven by investment in growth, including technology and development initiatives.

(2)

Excludes cash consideration of $188.6 million paid for the repurchase and conversion of the Series B Preferred Stock in the second quarter of 2021.

2022 Outlook

Given on-going uncertainty surrounding the future impact of COVID-19, and especially the Omicron variant, we are not providing comprehensive outlook metrics for 2022 at this time.

   

Three Months Ended

Year Ended

   

Dec. 26,

Dec. 27,

Dec. 26,

Dec. 27,

(In thousands, except per share amounts)  

2021

2020

2021

2020

    (Note)       (Note)    
GAAP operating income  

$

38,165

 

$

19,698

 

$

168,241

 

$

90,253

Strategic corporate reorganization costs (1)  

3,730

 

5,985

 

13,094

 

5,985

Adjusted operating income  

$

41,895

 

$

25,683

 

$

181,335

 

$

96,238

                 
GAAP net income attributable to common shareholders  

$

24,389

 

$

9,319

 

$

4,073

 

$

41,737

Strategic corporate reorganization costs (1)  

3,730

 

5,985

 

13,094

 

5,985

Repurchase and conversion of Series B Preferred Stock (2)  

-

 

-

 

109,852

 

-

Tax effect of strategic corporate reorganization costs (3)  

(839

)

 

(1,346

)

 

(2,946

)

 

(1,346

)

Two-class impact for Non-GAAP adjustment to net income (4)  

-

 

(658

)

 

-

 

(662

)

Adjusted net income attributable to common shareholders  

$

27,280

 

$

13,300

 

$

124,073

 

$

45,714

                 
GAAP diluted earnings per common share  

$

0.67

 

$

0.28

 

$

0.12

 

$

1.28

Strategic corporate reorganization costs (1)  

0.10

 

0.18

 

0.37

 

0.18

Repurchase and conversion of Series B Preferred Stock (2)  

-

 

-

 

3.10

 

-

Tax effect of strategic corporate reorganization costs (3)  

(0.02

)

 

(0.04

)

 

(0.08

)

 

(0.04

)

Two-class impact for Non-GAAP adjustment to net income (4)  

-

 

(0.02

)

 

-

 

(0.02

)

Adjusted diluted earnings per common share  

$

0.75

 

$

0.40

 

$

3.51

 

$

1.40

(Note) The above table does not include the impact of the allocation of undistributed earnings to participating securities for Special items in 2021.

(1)

Represents strategic corporate reorganization costs associated with our new office in Atlanta, Georgia.

(2)

Represents the one-time charge related to the repurchase and conversion of all shares of Series B Preferred Stock and includes related professional fees incurred as part of the transaction.

(3)

The tax effect for strategic corporate reorganization costs was calculated by applying the marginal tax rate of 22.5%. There was no tax effect on the repurchase and conversion of the Series B Preferred Stock as the one-time charge was non-deductible for tax purposes.

(4)

Represents an adjustment to the allocation of undistributed earnings to participating securities for the strategic corporate reorganization costs.

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

December 26,

December 27,

   

2021

2020

(In thousands)        
         
Assets        
Current assets:        
Cash and cash equivalents  

$

70,610

 

$

130,204

Accounts receivable, net  

81,370

 

90,135

Notes receivable, current portion  

12,352

 

11,318

Income tax receivable  

9,386

 

1,273

Inventories  

34,981

 

30,265

Prepaid expenses and other current assets  

46,310

 

43,212

Total current assets  

255,009

 

306,407

         
Property and equipment, net  

223,856

 

200,895

Finance lease right-of-use assets, net  

20,907

 

16,840

Operating lease right-of-use assets  

176,256

 

148,110

Notes receivable, less current portion, net  

35,504

 

36,538

Goodwill  

80,632

 

80,791

Deferred income taxes  

5,156

 

10,800

Other assets  

88,384

 

72,389

Total assets  

$

885,704

 

$

872,770

         
         
Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders' deficit        
Current liabilities:        
Accounts payable  

$

28,092

 

$

37,370

Income and other taxes payable  

19,996

 

10,263

Accrued expenses and other current liabilities  

190,116

 

174,563

Current deferred revenue  

21,700

 

19,590

Current finance lease liabilities  

4,977

 

3,545

Current operating lease liabilities  

22,543

 

23,538

Current portion of long-term debt  

-

 

20,000

Total current liabilities  

287,424

 

288,869

         
Deferred revenue  

13,846

 

13,664

Long-term finance lease liabilities  

16,580

 

13,531

Long-term operating lease liabilities  

160,672

 

124,666

Long-term debt, less current portion, net  

480,730

 

328,292

Deferred income taxes  

258

 

948

Other long-term liabilities  

93,154

 

111,364

Total liabilities  

1,052,664

 

881,334

         
Series B Convertible Preferred Stock  

 

251,901

Redeemable noncontrolling interests  

5,498

 

6,474

         
Total Stockholders' deficit  

(172,458

)

 

(266,939

)

Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders' deficit  

$

885,704

 

$

872,770

         
         
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
Condensed Consolidated Statements of Operations
 
                 
    Three Months Ended   Year Ended
    December 26,
2021
  December 27,
2020
  December 26,
2021
  December 27,
2020
(In thousands, except per share amounts)   (Unaudited)   (Unaudited)        
Revenues:                
Domestic company-owned restaurant sales  

$

193,381

 

$

174,440

 

$

778,323

 

$

700,757

North America franchise royalties and fees  

32,187

 

27,837

 

129,310

 

96,732

North America commissary revenues  

200,562

 

176,414

 

761,305

 

680,793

International revenues  

40,142

 

36,371

 

150,771

 

123,963

Other revenues  

62,613

 

54,749

 

248,712

 

210,989

Total revenues  

528,885

 

469,811

 

2,068,421

 

1,813,234

                 
Costs and expenses:                
Operating costs (excluding depreciation and amortization shown separately below):                
Domestic company-owned restaurant expenses  

156,213

 

144,717

 

621,871

 

563,799

North America commissary expenses  

185,312

 

164,261

 

703,622

 

630,937

International expenses  

24,495

 

21,219

 

87,286

 

73,994

Other expenses  

58,228

 

52,085

 

226,320

 

200,304

General and administrative expenses  

54,486

 

55,562

 

212,265

 

204,242

Depreciation and amortization  

11,986

 

12,269

 

48,816

 

49,705

Total costs and expenses  

490,720

 

450,113

 

1,900,180

 

1,722,981

Operating income  

38,165

 

19,698

 

168,241

 

90,253

Investment income  

530

 

436

 

1,912

 

2,131

Interest expense  

(6,548

)

 

(4,097

)

 

(19,205

)

 

(17,022

)

Income before income taxes  

32,147

 

16,037

 

150,948

 

75,362

Income tax expense  

6,606

 

2,764

 

25,993

 

14,748

Net income before attribution to noncontrolling interests  

25,541

 

13,273

 

124,955

 

60,614

Net income attributable to noncontrolling interests  

(918

)

 

(106

)

 

(4,939

)

 

(2,682

)

Net income attributable to the company  

$

24,623

 

$

13,167

 

$

120,016

 

$

57,932

                 
Calculation of net income for earnings per share:                
Net income attributable to the company  

$

24,623

 

$

13,167

 

$

120,016

 

$

57,932

Dividends on redemption of Series B Convertible Preferred Stock  

 

 

(109,852

)

 

Dividends paid to participating securities  

(127

)

 

(3,513

)

 

(6,091

)

 

(14,059

)

Net income attributable to participating securities  

(107

)

 

(335

)

 

 

(2,136

)

Net income attributable to common shareholders  

$

24,389

 

$

9,319

 

$

4,073

 

$

41,737

                 
Basic earnings per common share  

$

0.67

 

$

0.29

 

$

0.12

 

$

1.29

Diluted earnings per common share  

$

0.67

 

$

0.28

 

$

0.12

 

$

1.28

                 
Basic weighted average common shares outstanding  

36,171

 

32,698

 

35,007

 

32,421

Diluted weighted average common shares outstanding  

36,513

 

32,981

 

35,337

 

32,717

                 
Dividends declared per common share  

$

0.350

 

$

0.225

 

$

1.150

 

$

0.900

Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 
         
    Year Ended
(In thousands)   December 26,
2021
  December 27,
2020
         
Operating activities        
Net income before attribution to noncontrolling interests  

$

124,955

 

$

60,614

Adjustments to reconcile net income to net cash provided by operating activities:        
Benefit for allowance for credit losses on accounts and notes receivable  

(852

)

 

(4,734

)

Depreciation and amortization  

48,816

 

49,705

Deferred income taxes  

3,753

 

(9,268

)

Stock-based compensation expense  

16,919

 

16,310

Other  

581

 

2,257

Changes in operating assets and liabilities, net of acquisitions:        
Accounts receivable  

4,023

 

(22,420

)

Income tax receivable  

(8,113

)

 

3,760

Inventories  

(4,708

)

 

(2,736

)

Prepaid expenses and other current assets  

2,866

 

2,884

Other assets and liabilities  

(20,077

)

 

20,879

Accounts payable  

(9,278

)

 

8,229

Income and other taxes payable  

9,733

 

2,664

Accrued expenses and other current liabilities  

15,875

 

59,353

Deferred revenue  

182

 

(1,058

)

Net cash provided by operating activities  

184,675

 

186,439

         
Investing activities        
Purchases of property and equipment  

(68,559

)

 

(35,652

)

Notes issued  

(16,132

)

 

(16,589

)

Repayments of notes issued  

18,555

 

11,154

Acquisitions, net of cash acquired  

(699

)

 

Other  

3,323

 

16

Net cash used in investing activities  

(63,512

)

 

(41,071

)

         
Financing activities        
Proceeds from issuance of senior notes  

400,000

 

Repayments of term loan  

(340,000

)

 

(20,000

)

Net proceeds of revolving credit facilities  

80,000

 

Debt issuance costs  

(9,179

)

 

Repurchase of Series B Convertible Preferred Stock  

(188,647

)

 

Acquisition of Company common stock  

(72,499

)

 

(2,701

)

Proceeds from exercise of stock options  

11,969

 

30,622

Dividends paid to common stockholders  

(40,356

)

 

(29,362

)

Dividends paid to preferred stockholders  

(6,394

)

 

(13,649

)

Tax payments for equity award issuances  

(5,847

)

 

(3,974

)

Distributions to noncontrolling interests  

(5,942

)

 

(2,420

)

Other  

(3,631

)

 

(1,977

)

Net cash used in financing activities  

(180,526

)

 

(43,461

)

         
Effect of exchange rate changes on cash and cash equivalents  

(231

)

 

386

Change in cash and cash equivalents  

(59,594

)

 

102,293

Cash and cash equivalents at beginning of period  

130,204

 

27,911

         
Cash and cash equivalents at end of period  

$

70,610

 

$

130,204