Papa John's Announces First Quarter 2014 Results
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Papa John's Announces First Quarter 2014 Results

First Quarter Comparable Sales Increases of 9.6% for North America and 6.4% for International

LOUISVILLE, Ky. - May 7. 2014 - (BUSINESS WIRE) - Papa John's International, Inc. (NASDAQ: PZZA) today announced financial results for the first quarter ended March 30, 2014.


  • First quarter earnings per diluted share of $0.45 in 2014 compared to $0.42 in 2013
  • System-wide comparable sales increases of 9.6% for North America and 6.4% for international
  • 2014 guidance reaffirmed

 "I'd like to congratulate our operators on delivering another excellent quarter, especially considering the commodity headwinds we've seen thus far in 2014," said Papa John's founder, chairman and CEO, John Schnatter. "I'm extremely confident that we will continue to drive the business forward globally by building on the quality advantages we have established over the past 30 years. We will also continue to capitalize on digital expertise, with our industry-leading digital sales mix approaching 50% of total sales and almost 60% of all delivery sales."

First quarter 2014 revenues were $401.4 million, a 12.9% increase from first quarter 2013 revenues of $355.6 million. Net income was $19.3 million for both the first quarter of 2014 and 2013. First quarter 2014 diluted earnings per share were $0.45 compared to first quarter 2013 diluted earnings per share of $0.42.


Global Restaurant and Comparable Sales Information

    First Quarter

Mar. 30,



Mar. 31,


Global restaurant sales growth (a)   12.5 %   6.1 %

Global restaurant sales growth, excluding the impact of foreign currency (a)

  13.2 %   6.5 %
Comparable sales growth (b)        
Domestic company-owned restaurants   11.4 %   3.9 %
North America franchised restaurants   8.9 %   0.8 %
System-wide North America restaurants   9.6 %   1.6 %
System-wide international restaurants   6.4 %   8.2 %

(a) Includes both company-owned and franchised restaurant sales.

(b) Represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. Comparable 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.

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 States and in certain international markets. Global restaurant and comparable sales growth information is also useful in analyzing industry trends and the strength of our brand. Franchise restaurant sales are not included in company revenues.

Revenue and Operating Highlights

All revenue and operating highlights below are compared to the same period of the prior year, unless otherwise noted.

Revenue Highlights

Consolidated revenues were $401.4 million for the first quarter of 2014, an increase of $45.8 million, or 12.9%. This increase in revenues was primarily due to the following:

  • Domestic company-owned restaurant sales increased $20.3 million, or 12.9%, primarily due to an increase of 11.4% in comparable sales during the first quarter of 2014.
  • North America franchise royalty revenue increased $1.9 million, or 9.1%, primarily due to an increase of 8.9% in comparable sales during the first quarter of 2014.
  • Domestic commissary sales increased $20.2 million, or 14.0%, due to increases in the prices of certain commodities, primarily cheese, and an increase in sales volumes.
  • International revenues increased $3.7 million, or 18.6%, primarily due to an increase in the number of restaurants and an increase in comparable sales of 6.4%, calculated on a constant dollar basis.

Operating Highlights

The table below summarizes income before income taxes on a reporting segment basis:

      First Quarter
      Mar. 30,   Mar. 31,   Increase
(In thousands)   2014   2013   (Decrease)
Domestic company-owned restaurants   $ 13,285     $ 10,956     $ 2,329  
Domestic commissaries     10,431       10,163       268  
North America franchising     19,484       18,222       1,262  
International     732       341       391  
All others     590       659       (69 )
Unallocated corporate expenses     (12,461 )     (9,518 )     (2,943 )
Elimination of intersegment profits     (651 )     (526 )     (125 )
Total income before income taxes   $ 31,410     $ 30,297     $ 1,113  

First quarter 2014 income before income taxes increased approximately $1.1 million, or 3.7%. This increase was primarily due to the following:

  • Domestic company-owned restaurants increased approximately $2.3 million primarily due to the 11.4% increase in comparable sales, partially offset by lower profits from higher commodity costs. The market price for cheese averaged $2.21 per pound for the first quarter of 2014, compared to $1.66 per pound in the prior year.
  • Domestic commissaries income increased approximately $300,000 as the incremental profits from higher sales were partially offset by higher costs resulting from the transition to in-house distribution from a third party provider at certain of our commissaries. We manage commissary results on a full year basis and anticipate the 2014 full year profit margin will approximate 2013.
  • North America franchising increased approximately $1.3 million primarily due to higher royalties attributable to the strong 8.9% comparable sales.
  • International income increased approximately $400,000 primarily due to the increase in units and comparable sales of 6.4%, which resulted in both higher royalties and an increase in United Kingdom profits.

These increases were partially offset by higher unallocated corporate expenses of approximately $2.9 million in 2014 due to the following:

  • the prior year included an $800,000 benefit from a decrease in the redemption value of a mandatorily redeemable noncontrolling interest in a joint venture;
  • interest costs were approximately $400,000 higher due to both a higher average outstanding debt balance and a higher effective interest rate; and
  • an increase in general and administrative costs, including higher salaries, benefits and long-term performance-based incentive compensation.

The first quarter 2014 effective income tax rate was 34.6%, representing an increase of 1.7% from the prior year rate of 32.9%. Our effective income tax rate may fluctuate from quarter to quarter for various reasons. The higher tax rate in the first quarter of 2014 was primarily due to the prior year period including both the benefit of the reinstatement of certain 2012 tax credits under the American Taxpayer Relief Act of 2012 and favorable state tax settlements.

The company's free cash flow, a non-GAAP financial measure, for the first quarters of 2014 and 2013, was as follows (in thousands):

    First Quarter
    Mar. 30,   Mar. 31,
    2014   2013
Net cash provided by operating activities (a)   $ 26,678     $ 29,914  
Purchases of property and equipment     (11,137 )     (13,248 )
Free cash flow   $ 15,541     $ 16,666  

(a) The decrease of approximately $3.2 million includes higher inventory levels of equipment to support the rollout of our new proprietary point-of-sale technology system ("FOCUS") to our domestic system-wide restaurants.

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 measure because it is a 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.

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 three-month period ended March 30, 2014.

Global Restaurant Unit Data

At March 30, 2014, there were 4,440 Papa John's restaurants operating in all 50 states and in 34 countries, as follows:













  International   System-wide

First Quarter

Beginning - December 29, 2013   665     2,621     3,286     1,142     4,428  
Opened   2     21     23     23     46  
Closed   (1 )   (27 )   (28 )   (6 )   (34 )
Ending - March 30, 2014   666     2,615     3,281     1,159     4,440  
Unit growth (decline)   1     (6 )   (5 )   17     12  
% increase (decrease)   0.2 %   -0.2 %   -0.2 %   1.5 %   0.3 %

Our development pipeline as of March 30, 2014 included approximately 1,300 restaurants (200 units in North America and 1,100 units internationally), the majority of which are scheduled to open over the next six years.

Share Repurchase Activity

The following table reflects our repurchases for the first quarter of 2014 and subsequent repurchases through April 29, 2014 (in thousands):


Number of


First Quarter 2014   651   $ 32,800
March 31, 2014 through April 29, 2014   338   $ 16,988

There were 42.7 million diluted weighted average shares outstanding for the first quarter, representing a decrease of 6.4% over the prior year first quarter. Diluted earnings per share increased $0.03 for the first quarter of 2014 due to the reduction in shares outstanding, primarily resulting from the share repurchase program. Approximately 41.5 million actual shares of the company's common stock were outstanding as of March 30, 2014.

2014 Guidance Update

The company is reaffirming all 2014 guidance.

Conference Call

A conference call is scheduled for May 7, 2014 at 10:00 a.m. Eastern Time to review our first quarter 2014 earnings results. The call can be accessed from the company's web page at 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 The Conference ID is 17445556.

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," "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, contingent liabilities, resolution of litigation, commodity costs, profit margins, unit growth, capital expenditures, 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. The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:

  • aggressive changes in pricing or other marketing or promotional strategies by competitors, which may adversely affect sales; and new product and concept developments by food industry competitors;
  • changes in consumer preferences or consumer buying habits, including the impact of adverse general economic conditions, such as increasing tax rates;
  • the impact that product recalls, food quality or safety issues, incidences of foodborne illness and other general public health concerns could have system-wide on our restaurants or our results;
  • failure to maintain our brand strength and quality reputation;
  • the ability of the company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably;
  • increases in or sustained high costs of food ingredients or other restaurant costs. This could include increased employee compensation, benefits, insurance, tax rates, regulatory compliance and similar costs, including increased costs resulting from federal health care legislation;
  • disruption of our supply chain or our commissary operations which could be caused by sole or limited source of suppliers or weather, drought, disease or other disruptions beyond our control;
  • increased risks associated with our international operations, including economic and political conditions and instability in our international markets and difficulty in meeting planned sales targets and new store growth. This could include our expansion into emerging or underpenetrated markets, such as China, where we have a company-owned presence. Based on prior experience in underpenetrated markets, operating losses are likely to occur as the market is being established;
  • the credit performance of our franchise loan program;
  • the impact of the resolution of current or future claims and litigation;
  • current or proposed legislation impacting our business;
  • the impact of changes in currency exchange and interest rates;
  • failure to effectively execute succession planning, and our reliance on the services of our Founder and Chief Executive Officer, who also serves as our brand spokesperson;
  • disruption of critical business or information technology systems, and risks associated with data privacy and security breaches, including theft of company and customer information. This would include the increased risk associated with the planned rollout of our new domestic point-of-sale system. If prolonged and widespread technological problems are experienced during the rollout, our domestic corporate and franchise operations could be disrupted, which could adversely impact sales.

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 endedDecember 29, 2013. 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


Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
        Three Months Ended
        March 30, 2014   March 31, 2013
(In thousands, except per share amounts)   (Unaudited)   (Unaudited)
  North America:        
    Domestic company-owned restaurant sales   $ 178,193     $ 157,898  
    Franchise royalties     22,614       20,733  
    Franchise and development fees     144       546  
    Domestic commissary sales     164,047       143,894  
    Other sales     12,750       12,607  
    Royalties and franchise and development fees     5,779       5,067  
    Restaurant and commissary sales     17,850       14,859  
Total revenues     401,377       355,604  
Costs and expenses:        
  Domestic company-owned restaurant expenses:        
    Cost of sales     45,156       37,073  
    Salaries and benefits     47,583       43,272  
    Advertising and related costs     16,256       14,793  
    Occupancy costs     9,311       8,711  
    Other restaurant operating expenses     25,287       22,745  
  Total domestic company-owned restaurant expenses     143,593       126,594  
  Domestic commissary expenses:        
    Cost of sales     128,924       110,923  
    Salaries and benefits     7,024       6,016  
    Other commissary operating expenses     15,855       15,461  
  Total domestic commissary expenses     151,803       132,400  
  Other operating expenses     11,431       11,452  
  International restaurant and commissary expenses     14,885       12,653  
  General and administrative expenses     36,966       33,158  
  Other general expenses     1,533       1,185  
  Depreciation and amortization     9,164       8,537  
Total costs and expenses     369,375       325,979  
Operating income     32,002       29,625  
  Net interest (expense) income     (592 )     672  
Income before income taxes     31,410       30,297  
  Income tax expense     10,869       9,978  
Net income before attribution to noncontrolling interests     20,541       20,319  
  Income attributable to noncontrolling interests     (1,230 )     (1,013 )
Net income attributable to the company   $ 19,311     $ 19,306  
Calculation of income for earnings per share:        
Net income attributable to the company   $ 19,311     $ 19,306  
Increase in noncontrolling interest redemption value     (8 )     -  
Net income attributable to participating securities     (137 )     -  
Net income attributable to common shareholders   $ 19,166     $ 19,306  
Basic earnings per common share   $ 0.46     $ 0.43  
Diluted earnings per common share   $ 0.45     $ 0.42  
Basic weighted average common shares outstanding     41,778       44,512  
Diluted weighted average common shares outstanding     42,696       45,612  
Dividends declared per common share   $ 0.125     $ -  


Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
      March 30,   December 29,
      2014   2013
(In thousands)     (Unaudited)   (Note)
Current assets:          
Cash and cash equivalents     $ 14,388   $ 13,670
Accounts receivable, net       53,682     53,203
Notes receivable, net       5,825     3,566
Inventories       27,767     23,035
Deferred income taxes       5,830     8,004
Prepaid expenses and other current assets       21,847     23,562
Total current assets       129,339     125,040
Property and equipment, net       213,427     212,097
Notes receivable, less current portion, net       11,852     13,239
Goodwill       79,430     79,391
Other assets       34,551     34,524
Total assets     $ 468,599   $ 464,291
Liabilities and stockholders' equity          
Current liabilities:          
Accounts payable     $ 34,342   $ 35,653
Income and other taxes payable       7,669     4,401
Accrued expenses and other current liabilities       51,876     57,807
Total current liabilities       93,887     97,861
Deferred revenue       5,953     5,827
Long-term debt       177,167     157,900
Deferred income taxes       13,729     14,660
Other long-term liabilities       43,589     42,835
Total liabilities       334,325     319,083
Redeemable noncontrolling interests       7,789     7,024
Total stockholders' equity       126,485     138,184
Total liabilities, redeemable noncontrolling interests and stockholders' equity     $ 468,599   $ 464,291
Note: The Condensed Consolidated Balance Sheet has been derived from the audited consolidated financial statements, 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
    Three Months Ended
(In thousands)   March 30, 2014   March 31, 2013
    (Unaudited)   (Unaudited)
Operating activities        
Net income before attribution to noncontrolling interests   $ 20,541     $ 20,319  

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for uncollectible accounts and notes receivable     145       314  
Depreciation and amortization     9,164       8,537  
Deferred income taxes     6,170       3,325  
Stock-based compensation expense     2,190       1,681  
Excess tax benefit on equity awards     (4,900 )     (1,142 )
Other     1,110       (180 )
Changes in operating assets and liabilities, net of acquisitions:        
Accounts receivable     (854 )     (627 )
Inventories     (3,210 )     (1,744 )
Prepaid expenses and other current assets     1,715       3,380  
Other assets and liabilities     (795 )     38  
Accounts payable     (1,311 )     (406 )
Income and other taxes payable     3,268       1,243  
Accrued expenses and other current liabilities     (6,958 )     (4,641 )
Deferred revenue     403       (183 )
Net cash provided by operating activities     26,678       29,914  
Investing activities        
Purchases of property and equipment     (11,137 )     (13,248 )
Loans issued     (1,758 )     (1,748 )
Repayments of loans issued     1,164       1,916  
Other     7       319  
Net cash used in investing activities     (11,724 )     (12,761 )
Financing activities        
Net proceeds on line of credit facility     19,267       20,652  
Cash dividends paid     (5,240 )     -  
Excess tax benefit on equity awards     4,900       1,142  
Tax payments for equity award issuances     (3,233 )     (843 )
Proceeds from exercise of stock options     2,989       2,704  
Acquisition of Company common stock     (32,800 )     (32,122 )
Contributions from noncontrolling interest holders     -       350  
Distributions to noncontrolling interest holders     (300 )     (1,000 )
Other     223       112  
Net cash used in financing activities     (14,194 )     (9,005 )
Effect of exchange rate changes on cash and cash equivalents     (42 )     7  
Change in cash and cash equivalents     718       8,155  
Cash and cash equivalents at beginning of period     13,670       16,396  
Cash and cash equivalents at end of period   $ 14,388     $ 24,551  


Lance Tucker
Papa John's International, Inc.
Chief Financial Officer

SOURCE Papa John's International, Inc.

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