LOUISVILLE, Ky.--(BUSINESS WIRE)--Aug. 8, 2024-- Papa John’s International, Inc. (Nasdaq: PZZA) (“Papa Johns®”) (the “Company”) today announced financial results for the second quarter ended June 30, 2024.
“I am honored and excited to join the Papa Johns team and look forward to building a strong and collaborative partnership with our franchisees,” said Todd Penegor, President and Chief Executive Officer. “As we move forward together, our number one priority will be to create great experiences for our customers and team members, while also ensuring the restaurant economic model is strong. We will move quickly to build on our strengths and execute today as we evolve to be even better tomorrow.”
Commenting on second quarter results, Ravi Thanawala, Chief Financial Officer, stated, “Papa Johns’ commitment to maintaining the quality of our product and brand as well as managing our costs drove continued improvement in restaurant-level margins and Adjusted operating income, helping to offset our softer sales in the second quarter. During the quarter, demand for our core product — pizza, remained solid despite facing a highly promotional QSR environment and a more value-conscious consumer.
“We recognize there is work to do to achieve our full potential. We are committed to doing what is necessary to become the pizza brand of choice for consumers and franchisees around the world,” continued Thanawala. “We are actively pursuing opportunities that sharpen our focus, improve unit economics, drive unit development and provide an excellent consumer experience. We are evolving our marketing to meet consumers’ value expectations, investing in our digital experience to streamline our ordering journey and enhancing our loyalty experience to drive consumer engagement.
“We are confident that our approach will drive long-term increased franchisee profitability and sustainable, profitable growth for all stakeholders,” concluded Thanawala.
View Original for Full Data Table
Financial Highlights
View Original for Full Data Table
Results for the first six months of 2024 are not directly comparable with the first six months of 2023, as year-over-year comparisons are impacted by the UK franchisee acquisitions that occurred during the second and third quarters of 2023 and the UK restaurant closures and refranchising transactions in the second quarter of 2024.
Total revenues of $507.9 million decreased $6.6 million, or 1.3%, in the second quarter of 2024 compared with the prior year period. The lower revenues were largely attributable to an $8.8 million decrease in North America commissary revenues reflecting a combination of lower transaction volumes and commodity prices. Revenues from Domestic Company-owned restaurants also declined $2.6 million, reflecting lower transaction volumes partially offset by higher average ticket. Somewhat offsetting these declines was higher International revenues primarily driven by the net impact of the UK Company-owned restaurants versus the prior year period.
For the second quarter of 2024, Global system-wide restaurant sales were $1.20 billion, down 0.7% from the prior year quarter (excluding the impact of foreign currency). The decrease was primarily due to lower North America comparable sales, partially offset by 1.9% global net unit growth on a trailing twelve-month basis.
Second quarter Operating income was $28.2 million, a $6.7 million, or a 19.2% decrease compared with the prior year second quarter. Adjusted operating income(a) was $38.4 million, a $1.5 million, or 4.0%, increase from the same period a year ago. The variance between Operating income and Adjusted operating income was due to $6.1 million of International restructuring costs in the UK and a $4.0 million non-cash impairment charge related to fixed and intangible assets related to certain Domestic restaurants.
The increase in Adjusted operating income in the second quarter of 2024 was primarily due to improved margins at our Domestic Company-owned restaurants and local marketing savings. These increases were partially offset by an approximate $3 million operating loss related to the operations of the UK franchisee acquisition and higher depreciation costs related to Company-owned restaurants and our investments in technology platforms.
Diluted earnings per common share was $0.37 for the second quarter of 2024 compared with $0.54 in the second quarter of 2023. Adjusted diluted earnings per common share(a) was $0.61 for the second quarter of 2024 compared with $0.59 in the second 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 lower interest expense and a higher effective tax rate compared with the second quarter of 2023. Interest expense decreased largely due to lower average outstanding debt, partially offset by slightly higher average interest rates compared with the prior year second quarter.
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 and six months ended June 30, 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 Sales Information
Global restaurant and comparable sales information for the second quarter ended June 30, 2024, compared with the second quarter ended June 25, 2023 are as follows (See “Supplemental Information and Financial Statements” below for related definitions):
View Original for Full Data Table
Global Restaurant Unit Data
As of June 30, 2024, there were 5,883 Papa Johns restaurants operating in 49 countries and territories, as follows:
View Original for Full Data Table
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, was $12.8 million for the six months ended June 30, 2024, compared with $59.0 million in the prior year period. The year over year change primarily reflects unfavorable working capital changes and timing of cash payments for income taxes, partially offset by a $5.6 million decrease in capital expenditures.
View Original for Full Data Table
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 second quarter of 2024. On July 31, 2024, our Board of Directors declared a third quarter dividend of $0.46 per common share. The dividend will be paid on August 30, 2024 to stockholders of record as of the close of business on August 19, 2024.
Papa Johns will host a call with analysts today, August 8, 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 approximately 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, changes in management, 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 in 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, changes in 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.
Definitions
“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.
View Original for Full Data Table
Refer to footnotes on following page.
Footnotes to Non-GAAP Financial Measures
View Original for Full Data Table
View Original for Full Data Table
View Original for Full Data Table
View Original for Full Data Table
SOURCE Papa John’s International, Inc.
Searching for a franchisee ownership opportunity with a proven, streamlined operating system? Franchise with Papa Johns today.