LOUISVILLE, Ky.--(BUSINESS WIRE)--May 9, 2024-- Papa John’s International, Inc. (Nasdaq: PZZA) (“Papa Johns®”) (the “Company”) today announced financial results for the first quarter ended March 31, 2024.
“Our teams are taking a disciplined approach to running the business, improving restaurant-level margins and increasing operating profits despite a challenging environment in the first quarter,” said Ravi Thanawala, Papa Johns Interim Chief Executive Officer and Chief Financial Officer. “More importantly, we’re making meaningful progress on our Back to Better 2.0 and International Transformation initiatives. The foundational improvements we are implementing in our restaurant operations, digital solutions, and marketing platforms are designed to drive sustainable, profitable growth around the globe. We are confident that our consumer-centric focus and drive to increase franchisee profitability will contribute to our long-term success.”
“The Board of Directors has great confidence in the work that is taking place under Ravi and the Papa Johns leadership team,” said Christopher Coleman, Chair of the Board. “This team, which has significant restaurant, digital, and international experience, is executing on our strategy and evolving our business model for the next chapter of growth. Importantly, their strategic execution is driven by their passion and vision for the Papa Johns brand and an unwavering focus on the consumer and our franchisees. Concurrent with the team’s efforts, the Board is conducting a thorough search process for our next Papa Johns CEO to lead this work into the future.”
(a)North America and International comparable sales are reported on a 13-week basis comparing January 1, 2024 through March 31, 2024 with January 2, 2023 through April 2, 2023.
(b)Excludes the impact of foreign currency.
(c)Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation to the most comparable US GAAP measure.
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Results for the first quarter of 2024 are not directly comparable with the first quarter of 2023, as year-over-year comparisons are impacted by the UK franchisee acquisitions that occurred during the second and third quarters of 2023.
Total revenues of $513.9 million decreased $13.1 million, or 2.5%, in the first quarter of 2024 compared with the prior year period. The lower revenues were largely attributable to a $9.3 million decrease in North America commissary revenues reflecting decreased commodity prices in the quarter and, to a lesser extent, lower transaction volumes, and a $9.1 million decrease in Other revenues, which includes $5 million resulting from the sale of Preferred Marketing, our formerly wholly-owned print and promotions company, in the fourth quarter of 2023. Revenues from Domestic Company-owned restaurants also declined $3.6 million, reflecting lower transaction volumes partially offset by higher average ticket.
Somewhat offsetting these declines was a net increase of approximately $10 million of revenues attributable to the stores comprising the UK franchisee acquisitions.
For the first quarter of 2024, global system-wide restaurant sales were $1.23 billion, down 0.9% from the prior year quarter (excluding the impact of foreign currency). The decrease was due to the prior year first quarter having an approximate $9.9 million benefit from the high-volume week between Christmas and New Years, which occurs in the fiscal fourth quarter in 2024. This decline was partially offset by 3.3% net unit growth on a trailing twelve-month basis.
First quarter Operating income was $33.7 million, a $4.1 million, or a 10.8% decrease compared with the prior year first quarter. Adjusted operating income (a) was $43.2 million, a $4.1 million, or 10.4%, increase from the same period a year ago. The variance between Operating income and Adjusted operating income was due to $9.5 million of International restructuring costs primarily reflecting $7.6 million of non-cash leased and fixed asset impairment charges related to upcoming restaurant closures in the UK.
Adjusted operating income in the first quarter of 2024 improved $4.1 million, primarily attributable to approximately $7 million related to equity forfeitures and local marketing savings. Additionally, improved margins in our Domestic Company-owned restaurants and North America commissary segments contributed to the current year growth. These increases were largely offset by: (1) an approximate $4 million year-over-year impact related to the operations of the UK franchisee acquisition when taking into consideration a first quarter 2024 operating loss and first quarter 2023 franchise royalty fees; (2) higher depreciation costs related to the UK franchisee acquisitions and our investments in technology platforms; and, (3) lower North America comparable sales.
Diluted earnings per common share was $0.44 for the first quarter of 2024 compared with $0.65 in the first quarter of 2023. Adjusted diluted earnings per common share (a) was $0.67 for the first quarter of 2024 compared with $0.68 in the first quarter of 2023. These changes were driven by the same factors impacting Operating income and Adjusted operating income as discussed above. In addition, diluted earnings per common share and adjusted diluted earnings per common share reflected higher interest expense and a higher effective tax rate compared with the first quarter of 2023. Interest expense increased largely due to higher borrowings used to fund share repurchases towards the end of the first quarter of 2023 and higher average interest rates compared with the prior year first quarter. The higher income taxes in the first quarter of 2024 reflect the impairment charges related to the International Restructuring program as well as the shortfall from the vesting of long-term equity awards, resulting in an additional tax expense when compared with the prior year period.
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 31, 2024.
(a) Represents a Non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation to the most comparable US GAAP measures.
Global restaurant and comparable sales information for the first quarter ended March 31, 2024, compared with the first quarter ended March 26, 2023 are as follows (See “Supplemental Information and Financial Statements” below for related definitions):
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As of March 31, 2024, there were 5,914 Papa Johns restaurants operating in 49 countries and territories, as follows:
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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, was an outflow of $1.1 million for the three months ended March 31, 2024, compared with inflows of $22.4 million in the prior year period. The year over year change primarily reflects unfavorable working capital changes driven by the timing of payments.
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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.
The Company paid cash dividends of $15.1 million ($0.46 per common share) in the first quarter of 2024. On May 2, 2024, our Board of Directors declared a second quarter dividend of $0.46 per common share. The dividend will be paid on May 31, 2024 to stockholders of record as of the close of business on May 20, 2024.
Papa Johns will host a call with analysts today, May 9, 2024, at 8:00 a.m. Eastern Time. To access the conference call or webcast, please register online at: ir.papajohns.com/events-presentations. A replay of the webcast will be available two hours after the call and archived on the same web page.
Papa John’s International, Inc. (Nasdaq: PZZA) opened its doors in 1984 with one goal in mind: BETTER INGREDIENTS. BETTER PIZZA.® Papa Johns believes that using high-quality ingredients leads to superior quality pizzas. Its original dough is made of only six ingredients and is fresh, never frozen. Papa Johns tops its pizzas with real cheese made from mozzarella, pizza sauce made with vine-ripened tomatoes that go from vine to can in the same day and meat free of fillers. It was the first national pizza delivery chain to announce the removal of artificial flavors and synthetic colors from its entire food menu. Papa Johns is co-headquartered in Atlanta, Ga. and Louisville, Ky. and is the world’s third-largest pizza delivery company with more than 5,900 restaurants in approximately 50 countries and territories. For more information about the Company or to order pizza online, visit www.papajohns.com or download the Papa Johns mobile app for iOS or Android.
Certain matters discussed in this press release and other Company communications that are not statements of historical fact 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,” “outlook”, “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 include or may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, share repurchases, the current economic environment, commodity and labor costs, currency fluctuations, profit margins, supply chain operating margin, net unit growth, unit level performance, capital expenditures, restaurant and franchise development, restaurant acquisitions, restaurant closures, labor shortages, labor cost increases, inflation, royalty relief, franchisee support and incentives, the effectiveness of our menu innovations and other business initiatives, investments in product and digital innovation, marketing efforts and investments, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, changes to our national marketing fund, changes to our commissary model, dividends, effective tax rates, regulatory changes and impacts, investments and repositioning of the UK market, International restructuring plans, timing and costs, International consumer demand, adoption of new accounting standards, and 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.
Our forward-looking statements are based on our assumptions which are based on currently available information. Actual outcomes and results may differ materially from those matters expressed or implied in our forward-looking statements as a result of various factors, including but not limited to risks related to: deteriorating economic conditions in the U.S. and international markets, including the United Kingdom; labor shortages at Company and/or franchised stores and our quality control centers; increases in labor costs, commodity costs, supply chain incentive-based rebates, or sustained higher other operating costs, including as a result of supply chain disruption, inflation or climate change; the potential for delayed new store openings, both domestically and internationally, or lower net unit development due to changing circumstances outside of our control; the increased risk of phishing, ransomware and other cyber-attacks; risks and disruptions to the global economy and our business related to the conflicts in Ukraine and the Middle East and other international conflicts and risks related to a possible economic recession or downturn that could reduce consumer spending or demand. These and other risks, uncertainties and assumptions that are involved in our forward-looking statements 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 31, 2023. 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.
For more information about the company, please visit www.papajohns.com.
“Comparable sales” represents sales for the same base of restaurants for the same fiscal periods. “Comparable sales growth (decline)” represents the change in year-over-year comparable sales. “Global system-wide restaurant sales” represents total restaurant sales for all Company-owned and franchised restaurants open during the comparable periods, and “Global system-wide restaurant sales growth (decline)” represents the change in global system-wide restaurant sales year-over-year. Comparable sales, Comparable sales growth (decline), Global system-wide restaurant sales and Global system-wide sales growth (decline) exclude franchisees for which we suspended corporate support.
“Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis.
We believe Domestic Company-owned, North America franchised, and International Comparable sales growth (decline) and Global system-wide restaurant sales information is useful in analyzing our results since our franchisees pay royalties and marketing fund contributions that are based on a percentage of franchise sales. Comparable sales and Global system-wide restaurant sales results for restaurants operating outside of the United States are reported on a constant dollar basis, which excludes the impact of foreign currency translation. Franchise sales also generate commissary revenue in the United States and in certain international markets. Comparable sales growth (decline) and Global system-wide restaurant sales information is also useful for comparison to industry trends and evaluating the strength of our brand. Management believes the presentation of Global system-wide restaurant sales growth, excluding the impact of foreign currency, provides investors with useful information regarding underlying sales trends and the impact of new unit growth without being impacted by swings in the external factor of foreign currency. Franchise restaurant sales are not included in the Company’s revenues.
In addition to the results provided in accordance with U.S. GAAP, we provide certain non-GAAP measures, which present results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: adjusted operating income, adjusted net income attributable to common shareholders and adjusted diluted earnings per common share. We believe that our non-GAAP financial measures enable investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies. We believe that the disclosure of these non-GAAP measures is useful to investors as they reflect metrics that our management team and Board utilize to evaluate our operating performance, allocate resources and administer employee incentive plans. The most directly comparable U.S. GAAP measures to adjusted operating income, adjusted net income attributable to common shareholders and adjusted diluted earnings per common share are operating income, net income attributable to common shareholders and diluted earnings per common share, respectively. 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 U.S. GAAP results. The table that follows reconciles our GAAP financial results to our non-GAAP financial measures.
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Refer to footnotes on following page.
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SOURCE Papa John’s International, Inc.
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