2007 Earnings Guidance Updated
Highlights
-- Second quarter earnings per diluted share of $0.23 in 2007 vs.
$0.46 in 2006 ($0.40 in 2007 vs. $0.34 in 2006, excluding the
consolidation of the company's franchisee-owned cheese
purchasing entity, BIBP Commodities, Inc. (BIBP))
-- 46 net Papa John's restaurant openings worldwide during the
quarter
-- Domestic system-wide comparable sales decrease of 1.1% for the
quarter
-- Worldwide system sales increase of 2.1% for the quarter
-- Earnings guidance for 2007 increased to a range of $1.56 to
$1.60 per diluted share, excluding the impact of consolidating
BIBP's results
-- Domestic Company-owned Restaurant Segment. Domestic
company-owned restaurants' operating income decreased $614,000
and $1.7 million for the three- and six-month periods ended
July 1, 2007, respectively, primarily due to the impact of
negative comparable sales, an increase in salaries for our
general and assistant managers and the impact of minimum wage
increases in certain states, partially offset by a $594,000
pre-tax gain associated with the termination of a lease
agreement in the second quarter of 2007.
-- Domestic Commissary Segment. Domestic commissaries' operating
income decreased approximately $595,000 for the second quarter
of 2007 principally due to an increase in delivery, utility
and labor costs. Operating income increased $2.1 million for
the six-month period ended July 1, 2007 due to increased
volumes of higher-margin fresh dough products and improved
margin from other commodities during the first quarter of
2007, partially offset by an increase in delivery, utility and
labor costs.
-- Domestic Franchising Segment. Domestic franchising operating
income decreased $672,000 and $643,000 for the three- and
six-month periods ended July 1, 2007, respectively,
principally due to a decline in royalties as a result of our
previously mentioned acquisition of franchised restaurants
during the last five months of 2006 and the first half of
2007.
-- International Segment. The international operating results,
which excludes the Perfect Pizza operations in the United
Kingdom that were sold in March 2006, reported losses of $2.0
million and $4.4 million for the three- and six-month periods
of 2007, respectively, compared to losses of $2.4 million and
$4.8 million, respectively, in the same periods of the prior
year. The improvements in operating results were due to the
prior year results including a $470,000 charge incurred in the
second quarter related to costs associated with management
reorganization with one of our international operating units.
Increased current year revenues due to growth in number of
units and unit volumes were substantially offset by increased
personnel and infrastructure investment costs.
-- All Others Segment. The operating income for the "All others"
reporting segment increased approximately $461,000 to $1.7
million for the second quarter of 2007 and was $2.7 million
for the first six months of 2007, which was substantially the
same as the comparable period in the prior year. The increase
in the second quarter operating income was primarily due to an
improvement in the operating results of our print and
promotions operations reflecting an increase in our sales to
commercial customers, and reversing a comparable shortfall in
sales and operating income for this business in the first
quarter.
-- Unallocated Corporate Segment. Unallocated corporate expenses
decreased approximately $2.5 million and $3.0 million for the
three- and six-month periods ended July 1, 2007, respectively,
as compared to the corresponding periods of 2006. The
decreases are primarily due to lower general and
administrative costs, including management incentives (as more
fully discussed below), health insurance and legal costs. In
addition, the company collected $650,000, which had previously
been reserved, from Papa Card, Inc., a nonstock, nonprofit
corporation, which administers the Papa John's gift card
program. These decreases were partially offset by increased
marketing efforts, including our previously disclosed
multi-year deals with Six Flags, Inc. and Live Nation.
The following table summarizes our recorded expense associated with our management incentive programs:
Three Months Six Months
Ended Ended
------------- --------------
Jun-07 Jun-06 Jun-07 Jun-06
----------------------------
Stock option expense $ 889 $1,184 $1,855 $1,882
Restricted stock 185 48 248 48
Performance unit plan (652) 565 (150) 1,353
Management incentive bonus plan 125 1,966 1,750 3,952
----------------------------
Total expense $ 547 $3,763 $3,703 $7,235
============================
Three Months Ended
----------------------------
Percentage
July 1, June 25, Increase
2007 2006 (Decrease)
----------------------------
Domestic:
Company-owned $119,633 $105,424 13.5%
Franchised 364,127 378,142 (3.7%)
----------------------------
Total Domestic 483,760 483,566 0.0%
International 43,360 32,795 32.2%
----------------------------
Total System-wide Sales $527,120 $516,361 2.1%
============================
Six Months Ended
--------------------------------
Percentage
July 1, June 25, Increase
2007 2006 (Decrease)
--------------------------------
Domestic:
Company-owned $241,677 $212,164 13.9%
Franchised 740,475 757,209 (2.2%)
--------------------------------
Total Domestic 982,152 969,373 1.3%
International 83,507 63,754 31.0%
--------------------------------
Total System-wide Sales $1,065,659 $1,033,127 3.1%
================================
Actual
Results Original Updated
through 2007 2007
July 1, 2007 Guidance Guidance
------------- -------------------- --------------------
Domestic
system-wide
comparable
sales -0.40% 1.5% to 2.5% -1.0% to 1.0%
Worldwide net
unit growth 75 units 225 to 250 units 210 to 230 units
General and
administrative
expenses $50.6 million $118 to $119 million $102 to $104 million
International
operating
losses $4.4 million $8.5 to $9.0 million $8.5 to $9.0 million
Consolidated
operating
income 8.3% 7.7% to 8.0% 8.0% to 8.2%
Net interest
expense (a) $2.5 million $2.0 to $3.0 million $4.8 to $5.2 million
Capital
expenditures $16.4 million $50 million $40 to $45 million
Average number
of diluted
shares (a) 30.6 million 31.6 to 31.9 million 30.2 to 30.5 million
(a) Updated 2007 guidance is the result of increased share repurchase
activity as compared to original projections.
Our determination of our updated earnings guidance for 2007 also includes consideration of the following factors:
-- The negative impact on our domestic company-owned restaurant
operations from recently enacted federal and state legislation
for minimum wage, which is estimated to reduce pre-tax
earnings approximately $2.7 million for the last six months of
2007 (representing a 1.0% decrease in margin for the domestic
company-owned restaurant business segment and a 0.5% decrease
in consolidated margin).
-- The impact from the continued upward pressure on commodity
prices, including the BIBP formula price for cheese, is
estimated to reduce company-owned restaurant operating income
approximately $1.3 million for the last six months of 2007
(representing a 0.5% decrease in margin for the domestic
company-owned restaurant business segment and a 0.25% decrease
in consolidated margin).
-- A number of other factors that are expected to negatively
impact the pizza category, including macroeconomic issues
potentially impacting consumer confidence such as increased
fuel and energy costs, and increased mortgage interest rates
and the related downward trend in housing prices.
Summary Financial Data
Papa John's International, Inc.
(Unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
(In thousands, except per
share amounts) July 1, June 25, July 1, June 25,
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues $256,256 $241,593 $516,880 $483,942
========= ========= ========= =========
Income from continuing
operations before income
taxes (1) $ 11,110 $ 24,232 $ 31,823 $ 49,015
========= ========= ========= =========
Net income $ 7,009 $ 15,266 $ 20,164 $ 31,268
========= ========= ========= =========
Earnings per share - assuming
dilution $ 0.23 $ 0.46 $ 0.66 $ 0.93
========= ========= ========= =========
Weighted average shares
outstanding - assuming
dilution 30,600 33,309 30,623 33,632
========= ========= ========= =========
EBITDA (A) $ 20,037 $ 31,102 $ 49,818 $ 62,871
========= ========= ========= =========
(1) See information below on a reporting unit basis that separately
identifies the impact of consolidating VIEs on income from continuing
operations before income taxes.
The following is a summary of our income (loss) from continuing
operations before income taxes:
Domestic company-owned
restaurants $ 7,535 $ 8,149 $ 15,750 $ 17,450
Domestic commissaries 7,917 8,512 17,931 15,865
Domestic franchising 12,065 12,737 25,108 25,751
International (2,032) (2,418) (4,352) (4,759)
VIEs, primarily BIBP (8,257) 6,303 (8,663) 11,692
All others 1,679 1,218 2,724 2,717
Unallocated corporate expenses (7,486) (9,936) (15,781) (18,818)
Elimination of intersegment
profits (311) (333) (894) (883)
--------- --------- --------- ---------
Income from continuing
operations before income
taxes $ 11,110 $ 24,232 $ 31,823 $ 49,015
========= ========= ========= =========
The following is a reconciliation of EBITDA to net income:
EBITDA (A) $ 20,037 $ 31,102 $ 49,818 $ 62,871
Income tax expense (4,101) (8,966) (11,659) (18,136)
Net interest (1,338) (267) (2,511) (692)
Depreciation and amortization (7,589) (6,603) (15,484) (13,164)
Income from discontinued
operations, net of tax - - - 389
--------- --------- --------- ---------
Net income $ 7,009 $ 15,266 $ 20,164 $ 31,268
========= ========= ========= =========
(A) Management considers EBITDA to be a meaningful indicator of
operating performance from continuing operations before depreciation,
amortization, net interest and income taxes. EBITDA provides us with
an understanding of one aspect of earnings before the impact of
investing and financing transactions and income taxes. While EBITDA
should not be construed as a substitute for net income or a better
indicator of liquidity than cash flows from operating activities,
which are determined in accordance with accounting principles
generally accepted in the United States (GAAP), it is included herein
to provide additional information with respect to the ability of the
company to meet its future debt service, capital expenditure and
working capital requirements. EBITDA is not necessarily a measure of
the company's ability to fund its cash needs and it excludes
components that are significant in understanding and assessing our
results of operations and cash flows. In addition, EBITDA is not a
term defined by GAAP and as a result our measure of EBITDA might not
be comparable to similarly titled measures used by other companies.
The above EBITDA calculation includes the operating results of BIBP
Commodities, Inc., a variable interest entity.
Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended Six Months Ended
----------------------- -----------------------
July 1, June 25, July 1, June 25,
2007 2006 2007 2006
----------------------- -----------------------
(In thousands, except (Unaudited) (Unaudited) (Unaudited) (Unaudited)
per share amounts)
Revenues:
Domestic:
Company-owned
restaurant sales $119,633 $105,424 $241,677 $212,164
Variable interest
entities
restaurant sales 1,602 2,691 3,289 5,137
Franchise
royalties 13,746 13,964 28,198 28,202
Franchise and
development fees 541 593 1,303 1,181
Commissary sales 96,224 100,968 196,423 203,660
Other sales 17,355 12,202 31,846 23,072
International:
Royalties and
franchise and
development fees 2,223 1,839 4,671 3,296
Restaurant and
commissary sales 4,932 3,912 9,473 7,230
----------------------- -----------------------
Total revenues 256,256 241,593 516,880 483,942
Costs and expenses:
Domestic Company-
owned restaurant
expenses:
Cost of sales 25,829 19,650 50,917 40,528
Salaries and
benefits 35,928 31,252 72,872 62,753
Advertising and
related costs 11,159 9,821 22,062 19,013
Occupancy costs 7,520 6,364 14,809 12,526
Other operating
expenses 16,411 13,774 32,804 27,577
----------------------- -----------------------
Total domestic
Company-owned
restaurant expenses 96,847 80,861 193,464 162,397
Variable interest
entities restaurant
expenses 1,352 2,224 2,731 4,331
Domestic commissary
and other expenses:
Cost of sales 80,944 81,866 162,719 165,409
Salaries and
benefits 9,006 7,851 17,804 15,316
Other operating
expenses 11,147 11,282 22,145 22,422
----------------------- -----------------------
Total domestic
commissary and
other expenses 101,097 100,999 202,668 203,147
Loss (income) from the
franchise cheese-
purchasing program,
net of minority
interest 6,277 (5,189) 6,178 (9,765)
International
operating expenses 4,426 3,883 8,464 7,306
General and
administrative
expenses 25,221 26,386 50,621 50,630
Minority interests and
other general
expenses 999 1,327 2,936 3,025
Depreciation and
amortization 7,589 6,603 15,484 13,164
----------------------- -----------------------
Total costs and
expenses 243,808 217,094 482,546 434,235
----------------------- -----------------------
Operating income from
continuing operations 12,448 24,499 34,334 49,707
Net interest (1,338) (267) (2,511) (692)
----------------------- -----------------------
Income from continuing
operations before
income taxes 11,110 24,232 31,823 49,015
Income tax expense 4,101 8,966 11,659 18,136
----------------------- -----------------------
Income from continuing
operations 7,009 15,266 20,164 30,879
Income from
discontinued
operations, net of
tax - - - 389
----------------------- -----------------------
Net income $ 7,009 $ 15,266 $ 20,164 $ 31,268
======================= =======================
Basic earnings per
common share:
Income from
continuing
operations $ 0.23 $ 0.47 $ 0.67 $ 0.94
Income from
discontinued
operations, net of
tax - - - 0.01
----------------------- -----------------------
Basic earnings per
common share $ 0.23 $ 0.47 $ 0.67 $ 0.95
======================= =======================
Earnings per common
share - assuming
dilution:
Income from
continuing
operations $ 0.23 $ 0.46 $ 0.66 $ 0.92
Income from
discontinued
operations, net of
tax - - - 0.01
----------------------- -----------------------
Earnings per common
share - assuming
dilution $ 0.23 $ 0.46 $ 0.66 $ 0.93
======================= =======================
Basic weighted average
shares outstanding 30,054 32,589 30,059 32,855
======================= =======================
Diluted weighted
average shares
outstanding 30,600 33,309 30,623 33,632
======================= =======================
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
July 1, December 31,
2007 2006
(Unaudited) (Note)
----------- ------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 19,933 $ 12,979
Accounts receivable 21,495 23,326
Inventories 24,936 26,729
Prepaid expenses 9,407 7,779
Other current assets 6,557 7,368
Deferred income taxes 7,507 6,362
----------- ------------
Total current assets 89,835 84,543
Investments 583 1,254
Net property and equipment 199,723 197,722
Notes receivable 14,287 12,104
Deferred income taxes 5,997 1,643
Goodwill 74,580 67,357
Other assets 17,577 15,016
----------- ------------
Total assets $402,582 $379,639
=========== ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 26,804 $ 29,202
Income and other taxes 13,294 15,136
Accrued expenses 53,246 57,233
Current portion of debt 10,775 525
----------- ------------
Total current liabilities 104,119 102,096
Unearned franchise and development fees 7,211 7,562
Long-term debt, net of current portion 116,009 96,511
Other long-term liabilities 28,238 27,302
----------- ------------
Total liabilities 255,577 233,471
Total stockholders' equity 147,005 146,168
----------- ------------
Total liabilities and stockholders' equity $402,582 $379,639
=========== ============
Note: The balance sheet at December 31, 2006 has been derived from the
audited consolidated financial statements at that date, but does 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
Six Months Ended
-----------------------
(In thousands) July 1, June 25,
2007 2006
-----------------------
(Unaudited) (Unaudited)
Operating activities
Net income $ 20,164 $ 31,268
Results from discontinued operations (net of
income taxes) - (389)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for uncollectible accounts and
notes receivable 1,034 1,887
Depreciation and amortization 15,484 13,164
Deferred income taxes (5,709) 212
Stock-based compensation expense 1,855 1,882
Excess tax benefit related to exercise of
non-qualified stock options (3,025) (4,500)
Other 3,260 3,556
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable 1,048 (2,274)
Inventories 1,785 1,586
Prepaid expenses (1,723) 1,156
Other current assets 908 (218)
Other assets and liabilities (892) (4,885)
Accounts payable (2,437) (3,709)
Income and other taxes (1,228) (430)
Accrued expenses (3,929) (354)
Unearned franchise and development
fees (351) (747)
----------- -----------
Net cash provided by operating activities from
continuing operations 26,244 37,205
Operating cash flows from discontinued
operations - 414
----------- -----------
Net cash provided by operating activities 26,244 37,619
Investing activities
Purchase of property and equipment (16,433) (14,068)
Proceeds from sale of property and equipment 27 26
Purchase of investments - (2,014)
Proceeds from sale or maturity of investments 671 4,472
Loans issued (4,263) (4,616)
Loan repayments 2,029 6,410
Acquisitions (8,615) (1,200)
Proceeds from divestiture of restaurants 632 -
----------- -----------
Net cash from continuing operations used in
investing activities (25,952) (10,990)
Proceeds from divestiture of discontinued
operations - 8,020
----------- -----------
Net cash used in investing activities (25,952) (2,970)
Financing activities
Net proceeds (repayments) from line of credit
facility 19,500 (13,500)
Net proceeds from short-term debt - variable
interest entities 10,250 3,800
Excess tax benefit related to exercise of non-
qualified stock options 3,025 4,500
Proceeds from exercise of stock options 10,323 10,450
Acquisition of Company common stock (35,827) (51,728)
Other (675) 172
----------- -----------
Net cash provided by (used in) financing
activities 6,596 (46,306)
Effect of exchange rate changes on cash and
cash equivalents 66 53
----------- -----------
Change in cash and cash equivalents 6,954 (11,604)
Cash and cash equivalents at beginning of
period 12,979 22,098
----------- -----------
Cash and cash equivalents at end of period $ 19,933 $ 10,494
=========== ===========
Restaurant Progression
Papa John's International, Inc.
Second Quarter Ended July 1, 2007
---------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
---------------------------------------
Papa John's restaurants
Beginning of period 586 8 2,086 364 3,044
Opened 9 - 38 18 65
Closed (2) - (15) (2) (19)
Acquired 13 - - - 13
Sold - - (13) - (13)
---------------------------------------
End of Period 606 8 2,096 380 3,090
=======================================
Second Quarter Ended June 25, 2006
---------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
---------------------------------------
Papa John's restaurants
Beginning of period 506 3 2,101 314 2,924
Opened 4 - 36 28 68
Closed - - (12) (20) (32)
Acquired - 3 - - 3
Sold - - - (3) (3)
---------------------------------------
End of Period 510 6 2,125 319 2,960
=======================================
Restaurant Progression
Papa John's International, Inc.
Six Months Ended July 1, 2007
---------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
---------------------------------------
Papa John's restaurants
Beginning of period 577 11 2,080 347 3,015
Opened 13 - 60 36 109
Closed (2) - (26) (6) (34)
Acquired 19 - 1 3 23
Sold (1) (3) (19) - (23)
---------------------------------------
End of Period 606 8 2,096 380 3,090
=======================================
Six Months Ended June 25, 2006
---------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
---------------------------------------
Papa John's restaurants
Beginning of period 502 2 2,097 325 2,926
Opened 6 1 56 40 103
Closed (1) - (25) (43) (69)
Acquired 3 3 - - 6
Sold - - (3) (3) (6)
---------------------------------------
End of Period 510 6 2,125 319 2,960
=======================================
---------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
---------------------------------------
Perfect Pizza restaurants
Beginning of period - - - 112 112
Closed - - - (3) (3)
Sold - - - (109) (109)
---------------------------------------
End of Period - - - - -
=======================================
Note: The PJUK Perfect Pizza operations were sold in March 2006.
CONTACT: Papa John's International, Inc.
David Flanery, Chief Financial Officer
502-261-4753
SOURCE: Papa John's International, Inc.
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