LOUISVILLE, Ky. - October 31, 2017 - (BUSINESS WIRE) - Papa John's International, Inc. (NASDAQ: PZZA) today announced financial results for the three and nine months ended September 24, 2017.
Highlights
"Our global operators delivered another quarter of positive comp sales, with International leading the way, posting the 30th consecutive quarter of International positive comps," said Papa John's founder, chairman and CEO, John Schnatter.
"We will continue to drive the long-term growth of the Papa John's brand by investing in our better quality product and technology platforms."
Operating Highlights
(In thousands except per share amounts)
All operating highlights are compared to the same period of the prior year, unless otherwise noted.
Consolidated revenues increased $9.3 million, or 2.2%, for the third quarter of 2017 and increased $41.8 million, or 3.3%, for the nine months ended September 24, 2017. These increases were primarily due to increased North America commissary sales due to higher volumes. The nine months ended September 24, 2017 also include higher North America commissary sales from commodity price increases. North America franchise revenues also increased primarily due to the impact of refranchising 42 Domestic company-owned restaurants in the fourth quarter of 2016; this increase was more than offset by a related decrease in Domestic company-owned restaurant sales. The increased revenues from International were somewhat offset by the impact of unfavorable foreign currency exchange rates. The unfavorable impact of foreign currency exchange rates was approximately $300,000 and $5.9 million for the three and nine month periods, respectively, which was primarily attributable to our operations in the United Kingdom.
Consolidated operating income increased $132,000, or 0.4%, for the third quarter of 2017. Operating income as a percentage of consolidated revenues decreased 0.1% to 7.8% for the third quarter. Significant changes in the operating income percentage are as follows:
On higher revenues, consolidated operating income increased $1.3 million, or 1.2%, for the nine months ended September 24, 2017. Operating income as a percentage of consolidated revenues decreased 0.2% to 8.7% for the nine month period. This decrease was primarily attributable to the same reasons noted for the three month period.
The effective income tax rates were 26.8% and 28.4% for the three and nine months ended September 24, 2017, respectively, representing decreases of 1.6% and 2.5% from the prior year comparable periods. For the quarter, this decrease was primarily attributable to a reduction in required state and local income tax reserves. 2017 also includes the favorable impact of adopting new guidance for accounting for share-based compensation. This guidance requires excess tax benefits recognized on stock based awards to be recorded as a reduction of income tax expense rather than stockholders' equity. The impact of this adoption decreased our effective tax rates by 0.5% and 1.8% for the three and nine month periods, respectively.
Diluted earnings per share increased 5.3% to $0.60 for the third quarter of 2017 and increased 8.6% to $2.02 for the nine months ended September 24, 2017. These increases were primarily due to an increase in net income attributable to common shareholders and a decrease in shares outstanding from share repurchases. Diluted earnings per share for the nine month period was also favorably impacted by approximately $0.05 due to the adoption of the new guidance for accounting for share-based compensation; the impact for the three month period was not significant. Excluding the impact of this adoption, diluted earnings per share would have increased 5.9% for the nine month period.
Global Restaurant and Comparable Sales Information
We believe 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 Statesand in certain international markets. Global restaurant and comparable sales growth information is also useful in analyzing industry trends and the strength of our brand. Management believes the presentation of global restaurant sales growth excluding the impact of foreign currency provides investors with useful information regarding underlying sales trends by presenting sales growth excluding the external factor of foreign currency exchange. Franchise restaurant sales are not included in company revenues.
Free Cash Flow
The company's free cash flow, a non-GAAP financial measure, was as follows for the first nine months of 2017 and 2016 (in thousands):
We define free cash flow as net cash provided by operating activities (from the consolidated statements of cash flows) less the amounts spent on the purchase of property and equipment. We view free cash flow as an important liquidity measure because it is one factor that management uses in determining the amount of cash available for investment; however, it does not represent residual cash flows available for discretionary expenditures. 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 liquidity than the company's GAAP measures.
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(SEC) for additional information concerning our operating results and cash flow for the nine months ended September 24, 2017.
Global Restaurant Unit Data
At September 24, 2017, there were 5,101 Papa John's restaurants operating in all 50 states and in 43 international countries and territories, as follows:
The 2017 International franchise closures include 33 India closures in the third quarter and 66 India closures for the nine months ended. As of the end of the third quarter, the India market was closed. There was no significant impact on our 2017 operating results.
The company has added 130 net worldwide units over the trailing four quarters. Our development pipeline as of September 24, 2017 includes over 1,000 restaurants (over 200 units in North Americaand 800 units internationally), the majority of which are scheduled to open over the next six years.
Share Repurchase Activity
The following table reflects our share repurchases for the three and nine months ended September 24, 2017 and subsequent repurchases through October 24, 2017 (in thousands):
There were 36.6 million and 37.0 million diluted weighted average shares outstanding for the three and nine months ended September 24, 2017, respectively, representing decreases of 2.1% and 1.8% over the prior year comparable periods. Approximately 35.5 million actual shares of the company's common stock were outstanding as of September 24, 2017. Approximately $485.9 million of the Company's share repurchase authorization was remaining as of October 24, 2017.
The Company expects to repurchase the remaining authorization by early to mid-2019. The timing and volume of share repurchases may be executed at the discretion of management on an opportunistic basis, or pursuant to trading plans or other arrangements. Any share repurchase under this program may be made in the open market, in privately negotiated transactions, or otherwise, and may depend upon prevailing market conditions and other factors. The Company expects to implement an accelerated share repurchase program in the fourth quarter of 2017 for a portion of the share repurchase authorization. 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.
Cash Dividend
We paid a cash dividend of approximately $8.2 million ($0.225 per common share) during the third quarter of 2017. Subsequent to the third quarter, on October 27, 2017, our Board of Directors declared a fourth quarter dividend of $0.225 per common share (approximately $7.9 million based on the current number of shares outstanding). The dividend will be paid on November 17, 2017 to shareholders of record as of the close of business on November 7, 2017. The declaration and payment of any future dividends will be at the discretion of our Board of Directors, subject to the company's financial results, cash requirements, and other factors deemed relevant by our Board of Directors.
2017 Revised Outlook
The company provided the following 2017 outlook update and reaffirmed all of our remaining 2017 outlook items:
Conference Call and Website Information
A conference call is scheduled for November 1, 2017 at 10:00 a.m. Eastern Time to review our third quarter 2017 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, from the company's web site at www.papajohns.com. The Conference ID is 23356013.
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We intend to use our investor relations website as a means of disclosing information about our business, our financial condition and results of operations and other matters and for complying with our disclosure obligations under Regulation FD. The information we post on our investor relations website, including information contained in investor presentations, may be deemed material. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts. We encourage investors and others to sign up for email alerts at our investor relations page under Shareholder Tools at the bottom right side of the page. These email alerts are intended to help investors and others to monitor our investor relations website by notifying them when new information is posted on the site.
Forward-Looking Statements
Certain matters discussed in this press release and other company communications constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as "expect," "intend," "estimate," "believe," "anticipate," "will," "forecast," "plan," "project," or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such forward-looking statements may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, contingent liabilities, resolution of litigation, commodity costs, profit margins, unit growth, unit level performance, capital expenditures, other financial and operational measures. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:
These and other risk factors are discussed in detail in "Part I. Item 1A. - Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 25, 2016. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.
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For more information about the company, please visit www.papajohns.com.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171031006274/en/
Lance Tucker
Papa John's International, Inc.
502-261-7272
Chief Financial Officer
SOURCE Papa John's International, Inc.
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