Papa Johns International First Quarter 2022 Total Company Revenues Increased 6.0% to $542.7 Million

Papa Johns International Announces First Quarter 2022 Financial Results

May 5, 2022 - 10:28

Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the first quarter ended March 27, 2022.

First quarter 2022 highlights compared to first quarter of 2021

  • Total company revenues increased 6.0% to $542.7 million; global system-wide restaurant sales of $1.3 billion, up 5.3% (excluding the impact of foreign currency)
  • Comparable sales up 1.9% in North America and 0.8% Internationally, lapping prior year gains of 26.2% and 23.2%, respectively
  • 62 net unit openings driven by accelerating development activity and growing pipeline, especially Internationally
  • Earnings per diluted share of $0.29; excluding Special items, non-GAAP adjusted diluted earnings per share of $0.95, up from $0.91 a year ago
  • Fiscal 2022 restaurant growth outlook raised to 280 to 320 net new units; new multi-year outlook provided for global restaurant count to grow 6% to 8% annually for fiscal 2023 through 2025

“In the first quarter Papa Johns again delivered positive comparable sales growth in North America and international, as we lapped our biggest quarter in the company’s history a year ago,” said President & CEO Rob Lynch. “Incredible execution, winning innovation and our differentiated position underlie our sustained industry outperformance and prove the resilience of our team, franchisees and strategy during volatile and challenging business conditions. Our franchisees also continue to demonstrate their excitement about Papa Johns opportunity, as they ramp up their investments to grow our brand.”

Mr. Lynch continued, “Last quarter we maintained our development momentum with strong new restaurant openings and significantly expanded and strengthened our pipeline with major new deals. As a result, we are excited to raise our 2022 outlook for restaurant growth and to provide a new, multi-year development goal to open 1,400 to 1,800 net new Papa Johns restaurants worldwide by the end of 2025 – with vast development whitespace still remaining. With system-wide momentum, sustained comparable sales outperformance and accelerating unit growth, Papa Johns is well-positioned and executing, regardless of the short-term macroeconomic environment, to continue delivering on its long-term potential and growth goals.”

New Development Outlook

The Company announced that it has raised its outlook for fiscal 2022 net restaurant growth to 280 to 320 units, from 260 to 300 units previously, reflecting strong unit openings in the first quarter and expected further acceleration for remainder of year. In addition, based on its robust development pipeline and accelerating development activity, Papa Johns is now providing a new multi-year target of 6% to 8% annual net unit growth worldwide for fiscal 2023 through 2025.

Supporting its long-term outlook, during the first quarter Papa Johns announced major new and expanded development deals, including a historic agreement with FountainVest Partners to open over 1,350 new stores in China by 2040. The Company also announced the strategic refranchising of its majority-interest in a 90-restaurant joint venture, recording all related assets and liabilities as held for sale as of quarter-end, to existing franchisee Sun Holdings. This transaction provides significant operational scale to help accelerate Sun’s current 100-unit development agreement.

Financial Highlights

    Three Months Ended
In thousands, except per share amounts   Mar. 27,
2022
  Mar. 28,
2021
  Increase
(Decrease)
             
Revenue  

$

542,692

 

$

511,746

 

$

30,946

Operating income  

14,435

 

46,862

 

(32,427

)

Adjusted operating income (a)  

45,231

 

50,745

 

(5,514

)

Net income  

10,494

 

33,883

 

(23,389

)

Diluted earnings per share  

0.29

 

0.82

 

(0.53

)

Adjusted diluted earnings per share (a)  

0.95

 

0.91

 

0.04

(a) Adjusted operating income and adjusted diluted earnings per share are non-GAAP measures that exclude “Special items,” which impact comparability. The reconciliation of GAAP to non-GAAP financial results is included in “Reconciliation of Non-GAAP Financial Measures” below.

Revenues

Global system-wide restaurant sales grew to $1.3 billion, up 5.3% (excluding the impact of foreign currency). Consolidated revenues of $542.7 million increased $30.9 million, or 6.0%, in the first quarter of 2022 compared to the prior year, primarily resulting from positive comparable sales growth and higher unit counts, as well as higher commissary revenues tied to higher commodity costs. Positive comparable sales were driven by continuing menu innovation, including the successful launch of New York Style crust in North America, and strategic pricing actions taken to partly offset higher food and commodity costs. Unit growth contributed more than half of global system-wide restaurant sales gains in the quarter.

Operating Results

Consolidated operating income of $14.4 million for the first quarter of 2022 decreased $32.4 million compared to the first quarter of 2021. Excluding certain Special items discussed in “Reconciliation of Non-GAAP Financial Measures” below, adjusted operating income was $45.2 million, down modestly from the prior year comparable period, primarily in the domestic company-owned restaurant segment, where long-term, strategic pricing actions mostly mitigated the impact of the accelerating inflationary environment and short-term commodity volatility experienced during the quarter.

Diluted earnings per share was $0.29 for the first quarter of 2022 representing a decrease of $0.53 over the first quarter of 2021. Excluding the impact of Special items in both periods, adjusted diluted earnings per share was $0.95 representing an increase of $0.04 over the first quarter of 2021.

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 SEC for additional information concerning our operating results for the three months ended March 27, 2022.

Global Restaurant Sales Information

Global restaurant and comparable sales information for the first quarter ended March 27, 2022, compared to the first quarter ended March 28, 2021 are as follows (See “Supplemental Information and Financial Statements” below for related definitions):

    Three Months Ended
    Mar. 27,
2022
Mar. 28,
2021
Comparable sales growth (decline):      
Domestic company-owned restaurants  

(1.2

%)

23.3

%

North America franchised restaurants  

2.8

%

27.1

%

North America restaurants  

1.9

%

26.2

%

International restaurants (a)  

0.8

%

23.2

%

Total comparable sales growth (a)  

1.6

%

25.4

%

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

0.8

%

22.2

%

North America franchised restaurants  

4.0

%

27.0

%

North America restaurants   3.3

%

25.9

%

International restaurants   11.6

%

28.9

%

Total global system-wide restaurant sales growth   5.3

%

26.6

%

(a) Comparable sales growth calculation excludes suspended restaurants for the third month of the quarter ended March 27, 2022.

Global Restaurant Unit Data

As of March 27, 2022, there were 5,524 Papa Johns restaurants operating in 49 countries and territories, as follows:

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

600

2,739

3,339

2,311

5,650

Opened  

7

15

22

55

77

Closed  

-

(7

)

(7

)

(8

)

(15

)

Suspended (a)  

-

-

-

(188

)

(188

)

Acquired  

1

-

1

-

1

Sold  

-

(1

)

(1

)

-

(1

)

Ending - March 27, 2022  

608

2,746

3,354

2,170

5,524

Net unit growth (b)  

8

7

15

47

62

Trailing four quarters net store growth (b)  

19

37

56

188

244

(a) Represents all franchised restaurants located in Russia, for which the Company has suspended corporate support.
(b) Excludes suspended restaurants.

Free Cash Flow

Free cash flow, a non-GAAP financial measure which the Company defines as net cash provided by operating activities, less purchases of property and equipment and dividends paid to preferred shareholders, was $15.2 million, compared to $52.7 million in the prior year period. The year over year change primarily reflects lower cash flow from operating activities as a result of unfavorable working capital changes, primarily due to timing of interest payments and franchise royalties.

    First Quarter
    Mar. 27,   Mar. 28,
   

2022

 

2021

         
Net cash provided by operating activities  

$

25,394

 

$

63,217

Purchases of property and equipment  

(10,233

)

 

(7,076

)

Dividends paid to preferred shareholders  

-

 

(3,412

)

Free cash flow  

$

15,161

 

$

52,729

We view free cash flow as an important financial 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.

Cash Dividend and Share Repurchases

The company paid cash dividends of $12.6 million ($0.35 per common share) in the first quarter of 2022. On April 26, 2022, our Board of Directors declared a second quarter dividend of $0.35 per common share, which will be paid on May 27, 2022 to stockholders of record as of the close of business on May 16, 2022. The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

As previously announced, in October 2021, our Board of Directors approved a new share repurchase program with an indefinite duration for up to $425.0 million of the company’s common stock. In the first quarter of 2022, a total of approximately 301,000 shares with an aggregate cost of $32.7 million and an average price of $108.76 per share were repurchased under these programs. Subsequent to the first quarter, we acquired an additional 223,000 shares at an aggregate cost of $23.0 million. Approximately $369.1 million remained available under the Company’s share repurchase program as of April 29, 2022.

The timing and volume of share repurchases under the new share repurchase program may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements. Repurchases under the new program may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the company’s share repurchase program may be commenced or suspended from time to time at the company’s discretion without prior notice.

    Three Months Ended
    Mar. 27,   Mar. 28,
(In thousands, except per share amounts)  

2022

 

2021

         
GAAP operating income  

$

14,435

 

$

46,862

Refranchising and impairment loss (1)  

25,796

 

-

Legal settlement (2)  

5,000

 

-

Strategic corporate reorganization costs (3)  

-

 

3,883

Adjusted operating income  

$

45,231

 

$

50,745

         
GAAP net income attributable to common shareholders  

$

10,434

 

$

27,113

Refranchising and impairment loss (1)  

25,796

 

-

Legal settlement (2)  

5,000

 

-

Strategic corporate reorganization costs (3)  

-

 

3,883

Tax effect of Non-GAAP adjustment on special charges (4)  

(6,929

)

 

(874

)

Adjusted net income attributable to common shareholders  

$

34,301

 

$

30,122

         
GAAP diluted earnings per common share  

$

0.29

 

$

0.82

Refranchising and impairment loss (1)  

0.71

 

-

Legal settlement (2)  

0.14

 

-

Strategic corporate reorganization costs (3)  

-

 

0.12

Tax effect of Non-GAAP adjustment on special charges (4)  

(0.19

)

 

(0.03

)

Adjusted diluted earnings per common share  

$

0.95

 

$

0.91

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

(1) Includes on a pre-tax basis (a) a one-time, non-cash charge of $8.4 million ($0.23 loss per diluted share) associated with the refranchising of the Company’s controlling interests in a 90-restaurant joint venture, recorded as Refranchising and impairment loss; and (b) $17.4 million ($0.48 loss per diluted share) in one-time, non-cash expense related to the reserve of certain loans and impairment of reacquired franchised rights related to the conflict in Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million.
(2) Represents an accrual for a legal settlement, recorded in General and administrative expenses.
(3) Represents strategic corporate reorganization costs associated with our new office in Atlanta, Georgia.
(4) The tax effect for Special items included in the Reconciliation of Non-GAAP Financial Measures was calculated by applying the marginal tax rate of 22.5% for the three months ended March 27, 2022 and March 28, 2021.

Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
         
         
    March 27,   December 26,
   

2022

 

2021

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

$

80,669

 

$

70,610

Accounts receivable, net  

81,229

 

81,370

Notes receivable, current portion  

9,108

 

12,352

Income tax receivable  

10,537

 

9,386

Inventories  

38,992

 

34,981

Prepaid expenses and other current assets  

46,461

 

46,310

Assets held for sale  

19,273

 

-

Total current assets  

286,269

 

255,009

         
Property and equipment, net  

216,253

 

223,856

Finance lease right-of-use assets, net  

20,159

 

20,907

Operating lease right-of-use assets  

177,767

 

176,256

Notes receivable, less current portion, net  

22,634

 

35,504

Goodwill  

71,593

 

80,632

Deferred income taxes  

6,535

 

5,156

Other assets  

84,416

 

88,384

Total assets  

$

885,626

 

$

885,704

         
         
Liabilities, Redeemable noncontrolling interests and Stockholders' deficit        
Current liabilities:        
Accounts payable  

$

35,434

 

$

28,092

Income and other taxes payable  

27,973

 

19,996

Accrued expenses and other current liabilities  

156,203

 

190,116

Current deferred revenue  

19,649

 

21,700

Current finance lease liabilities  

5,190

 

4,977

Current operating lease liabilities  

20,938

 

22,543

Liabilities held for sale  

13,247

 

-

Total current liabilities  

278,634

 

287,424

         
Deferred revenue  

12,381

 

13,846

Long-term finance lease liabilities  

15,696

 

16,580

Long-term operating lease liabilities  

164,738

 

160,672

Long-term debt, less current portion, net  

528,088

 

480,730

Deferred income taxes  

-

 

258

Other long-term liabilities  

89,210

 

93,154

Total liabilities  

1,088,747

 

1,052,664

         
Redeemable noncontrolling interests  

5,323

 

5,498

         
Total Stockholders' deficit  

(208,444

)

 

(172,458

)

Total liabilities, Redeemable noncontrolling interests and Stockholders' deficit  

$

885,626

 

$

885,704

         
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
  March 27, 2022   March 28, 2021
(In thousands, except per share amounts) (Unaudited)   (Unaudited)
Revenues:      
Domestic company-owned restaurant sales

$

198,765

 

$

197,234

North America franchise royalties and fees

34,268

 

32,715

North America commissary revenues

209,679

 

184,878

International revenues

34,617

 

34,607

Other revenues

65,363

 

62,312

Total revenues

542,692

 

511,746

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

161,661

 

155,888

North America commissary expenses

197,090

 

170,684

International expenses

19,914

 

19,618

Other expenses

60,555

 

55,807

General and administrative expenses

65,937

 

50,011

Depreciation and amortization

11,940

 

12,876

Total costs and expenses

517,097

 

464,884

Refranchising and impairment loss

(11,160

)

 

-

Operating income

14,435

 

46,862

Net interest expense

(4,264

)

 

(3,647

)

Income before income taxes

10,171

 

43,215

Income tax (benefit) expense

(1,256

)

 

7,932

Net income before attribution to noncontrolling interests

11,427

 

35,283

Net income attributable to noncontrolling interests

(933

)

 

(1,400

)

Net income attributable to the company

$

10,494

 

$

33,883

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

$

10,494

 

$

33,883

Dividends paid to participating securities

(60

)

 

(3,527

)

Net income attributable to participating securities

-

 

(3,243

)

Net income attributable to common shareholders

$

10,434

 

$

27,113

       
Basic earnings per common share

$

0.29

 

$

0.83

Diluted earnings per common share

$

0.29

 

$

0.82

       
Basic weighted average common shares outstanding

35,927

 

32,756

Diluted weighted average common shares outstanding

36,236

 

33,090

       
Dividends declared per common share

$

0.350

 

$

0.225

Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 
       
  Three Months Ended
(In thousands) March 27, 2022   March 28, 2021
  (Unaudited)   (Unaudited)
Operating activities      
Net income before attribution to noncontrolling interests

$

11,427

 

$

35,283

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

15,167

 

(1,098

)

Depreciation and amortization

11,940

 

12,876

Refranchising and impairment loss

11,160

   
Deferred income taxes

(1,817

)

 

2,586

Stock-based compensation expense

4,176

 

4,113

Other

(2,135

)

 

325

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

(2,503

)

 

13,349

Income tax receivable

(1,151

)

 

566

Inventories

(4,731

)

 

2,721

Prepaid expenses and other current assets

77

 

711

Other assets and liabilities

(654

)

 

(7,901

)

Accounts payable

7,359

 

(5,350

)

Income and other taxes payable

8,013

 

15,045

Accrued expenses and other current liabilities

(29,469

)

 

(9,736

)

Deferred revenue

(1,465

)

 

(273

)

Net cash provided by operating activities

25,394

 

63,217

       
Investing activities      
Purchases of property and equipment

(10,233

)

 

(7,076

)

Notes issued

(272

)

 

(3,417

)

Repayments of notes issued

3,432

 

4,864

Acquisitions, net of cash acquired

(1,250

)

 

(699

)

Other

8

 

29

Net cash used in investing activities

(8,315

)

 

(6,299

)

       
Financing activities      
Net proceeds of revolving credit facilities

47,000

 

5,000

Proceeds from exercise of stock options

741

 

2,298

Acquisition of Company common stock

(32,709

)

 

(1,267

)

Dividends paid to common stockholders

(12,608

)

 

(7,404

)

Dividends paid to preferred stockholders

 

(3,412

)

Tax payments for equity award issuances

(7,461

)

 

(3,834

)

Distributions to noncontrolling interests

(685

)

 

(1,705

)

Repayments of term loan

 

(5,000

)

Other

(1,065

)

 

(756

)

Net cash used in financing activities

(6,787

)

 

(16,080

)

       
Effect of exchange rate changes on cash and cash equivalents

(233

)

 

230

Change in cash and cash equivalents

10,059

 

41,068

Cash and cash equivalents at beginning of period

70,610

 

130,204

       
Cash and cash equivalents at end of period

$

80,669

 

$

171,272