Industry News | November 2, 2016

Papa John’s on Pace for 'Outstanding Year'

System-wide comparable sales increased 5.5 percent for North America and 7.6 percent for International in the third quarter. Papa John’s

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Papa John’s International, Inc. announced financial results for the three and nine months ended September 25.

Highlights were:

System-wide comparable sales increased 5.5 percent for North America and 7.6 percent for International in the third quarter.

Thirty-six worldwide net unit openings in the third quarter.

“We are pleased that our strong performance continued in the third quarter, with excellent comp sales, earnings, and unit growth,” says Papa John’s founder, chairman and CEO John Schnatter. “With continued enhancements to our digital platforms, expansion of our international footprint, and the introduction of our new pan pizza, 2016 is shaping up to be another outstanding year for Papa John’s.”

Third quarter 2016 revenues were $422.4 million, an 8.5 percent increase from third quarter 2015 revenues of $389.3 million. Third quarter 2016 net income was $21.5 million, a 19.5 percent increase from third quarter 2015 net income of $18 million.

Revenues were $1.27 billion for the nine months ended September 25, a 4.4 percent increase from revenues of $1.22 billion for the same period in 2015. Net income was $70.2 million for the first nine months of 2016, compared to $51 million for the same period in 2015. Net income for the first nine months of 2016 increased 19 percent, compared to 2015 adjusted net income of $59.0 million, which excludes the prior year legal settlement.

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 increased $33.2 million, or 8.5 percent, for the third quarter of 2016 and increased $53.4 million, or 4.4 percent, for the nine months ended September 25. The increases in revenues were primarily due to the following:

Domestic company-owned restaurant sales increased $19 million, or 10.5 percent, and $45.7 million, or 8.1 percent, for the three and nine months, respectively, primarily due to increases of 6.3 percent and 4.2 percent in comparable sales and increases of 5.1 percent and 4.8 percent in equivalent units, including 20 restaurants acquired from franchisees during the first quarter of 2016.

Domestic franchise royalties and fees increased approximately $2.5 million, or 11.2 percent, and $5.4 million, or 7.5 percent, for the three and nine months, respectively, primarily due to increases of 5.1 percent and 3 percent in comparable sales and reduced levels of royalty incentives in 2016.

Domestic commissary and other sales increased $9.7 million, or 6.1 percent, and decreased $3.7 million, or 0.7 percent, for the three and nine months, respectively. The increase of $9.7 million for the three-month period was primarily due to higher commissary sales from an increase in volumes. The decrease of $3.7 million for the nine-month period was primarily due to the prior year inclusion of approximately $9.8 million of point of sale equipment sales to franchisees, which had no significant impact on 2015 operating results. This decrease was partially offset by higher domestic commissary sales volumes.

International revenues increased approximately $1.9 million, or 7.2 percent, and $6.1 million, or 7.7 percent, for the three and nine months, respectively, primarily due to the following:

International revenues for 2016 include sublease rental revenue in the U.K. of approximately $2.2 million and $5.6 million for the three- and nine-months, respectively, which were shown net of the rental expenses in the prior year.

Royalties were higher due to an increase in the number of restaurants and increases in comparable sales of 7.6 percent and 6.2 percent for the three- and nine-month periods, respectively, calculated on a constant dollar basis. Commissary revenues were also higher for the nine-month period due to an increase in the number of restaurants and increases in comparable sales.

China company-owned restaurant revenues were $1.4 million and $4 million lower than the prior year three- and nine-month periods, respectively, primarily due to negative comparable sales and fewer restaurants in 2016.

Foreign currency exchange rates reduced International revenues by approximately $3.7 million and $7.7 million for the three- and nine-months periods, respectively.

 

Operating Highlights

Third quarter 2016 income before income taxes increased approximately $5.4 million, or 20.5 percent, compared to the prior year period. The increase of $5.4 million was primarily due to the following:

Domestic company-owned restaurants increased approximately $3.5 million primarily due to a 6.3 percent increase in comparable sales, a 5.1 percent increase in equivalent units, and lower commodity costs.

Domestic commissaries income increased approximately $1.1 million primarily due to higher sales volumes.

North America franchising income increased approximately $2.7 million primarily due to higher royalties attributable to the 5.1 percent increase in comparable sales and lower sales and development incentives.

International income decreased approximately $100,000 primarily due to a non-recurring charge of approximately $800,000 to record a U.K. lease arrangements on a straight-line basis. This decrease was substantially offset by higher royalties from an increase in the number of restaurants and an increase in comparable sales. Foreign currency exchange rates also had a negative impact of approximately $400,000, which was primarily attributable to the U.K.

All others income increased approximately $900,000 primarily due to improved operating results in our online and mobile ordering business and our print and promotions subsidiary.

Unallocated corporate expenses increased approximately $2.9 million primarily due to increases in management incentive costs from higher annual operating results and higher interest costs due to an increase in outstanding debt.

Income before income taxes increased $28.0 million for the nine-month period ended September 25, 2016, compared to the prior year period and increased $15.7 million, or 17 percent, compared to the adjusted 2015 income before income taxes. The increase of $15.7 million was primarily due to the same reasons noted for the three-month period, except as follows:

International income increased approximately $2.2 million primarily due to higher royalties and commissary revenues primarily due to an increase in units and higher comparable sales and lower advertising spending. These increases were partially offset by the previously mentioned charge of $800,000 for the U.K. lease arrangements. Foreign currency exchange rates had a negative impact of approximately $1.7 million.

The effective income tax rates were 28.4 percent and 30.9 percent for the three and nine months ended September 25, representing increases of 0.7 percent and 0.3 percent for the three- and nine-month periods, respectively. Our effective income tax rates may fluctuate from quarter to quarter for various reasons, including the timing of various deductions and credits.

Global Restaurant Unit Data

At September 25, there were 4,971 Papa John’s restaurants operating in all 50 states and in 44 international countries and territories.

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.

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