Industry News | February 22, 2017

Papa John’s Reports 'Another Excellent Year in 2016'

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Papa John’s International, Inc. announced financial results for the three months and full year ended December 25, 2016.

  • System-wide North America comparable sales increases of 3.8 percent for the fourth quarter and 3.5 percent for the full year
  • International comparable sales increases of 5.6 percent for the fourth quarter and 6 percent for the full year
  • 126 worldwide net unit openings in the fourth quarter and 204 for the full year, of which 151 were International and 53 were in North America

“We are pleased to have delivered another excellent year in 2016,” says Papa John’s founder, chairman and CEO, John Schnatter. “Thanks to the efforts of the entire Papa John’s family, we opened our 5,000th global unit and increased our digital mix to over 55 percent—all while delivering on our clear label promises and generating strong comp sales and another year of record earnings.”

Fourth quarter 2016 revenues were $439.6 million, a 5.5 percent increase from fourth quarter 2015 revenues of $416.8 million. Full year 2016 revenues were $1.71 billion, a 4.7 percent increase from full year 2015 revenues of $1.64 billion.

Consolidated revenues increased $22.8 million, or 5.5 percent, for the fourth quarter of 2016 and increased $76.2 million, or 4.7 percent, for the year ended December 25, 2016.

Domestic company-owned restaurant sales increased $14 million, or 7.2 percent, and $59.6 million, or 7.9 percent, for the fourth quarter and full year 2016, respectively, primarily due to increases of 4.8 percent and 4.4 percent in comparable sales and increases of 3.2 percent and 4.4 percent in equivalent units.

North America franchise royalties and fees increased approximately $1.6 million, or 6.3 percent, and $6.9 million, or 7.2 percent, for the fourth quarter and full year 2016, respectively, primarily due to increases of 3.4 percent and 3.1 percent in comparable sales and reduced levels of royalty incentives in 2016.

North America commissary and other sales increased $5 million, or 2.9 percent, and $1.3 million, or 0.2 percent, for the fourth quarter and full year 2016, respectively. The increases were primarily due to higher commissary sales from an increase in volumes that were partially offset by lower commodity costs. The increase for the full year was significantly offset by the prior year’s inclusion of approximately $9.8 million of point of sale equipment sales to franchisees, which had no significant impact on 2015 operating results.

International revenues increased approximately $2.3 million, or 8.9 percent, and $8.4 million, or 8 percent, for the fourth quarter and full year 2016, respectively. These increases were net of the unfavorable impact of foreign currency exchange rates of $4.5 million and $12.2 million for the fourth quarter and full year 2016, respectively. These increases were primarily due to the following:

International revenues for 2016 include sublease rental revenue in the United Kingdom of approximately $1.7 million and $7.3 million for the fourth quarter and full year 2016, respectively, which were shown net of the rental expenses in the prior year.

Royalties and commissary revenues were higher due to an increase in the number of restaurants and increases in comparable sales of 5.6 percent and 6 percent for the fourth quarter and full year 2016, respectively, calculated on a constant dollar basis.

China company-owned restaurant revenues were $900,000 and $4.9 million lower for the fourth quarter and full year 2016, respectively, primarily due to negative comparable sales and fewer restaurants in 2016.

Fourth quarter 2016 income before income taxes increased approximately $11.6 million, or 29.9 percent. When excluding the impact of the Special Items in the fourth quarter of 2016, adjusted income before income taxes increased approximately $500,000, or 1.4 percent. This adjusted increase was primarily due to the following:

Domestic company-owned restaurants increased approximately $1.2 million primarily due to a 4.8 percent increase in comparable sales, a 3.2 percent increase in equivalent units, and lower commodity costs. This increase was partially offset by increased labor costs and higher non-owned automobile claims costs.

North America commissaries income decreased approximately $200,000 primarily due to a planned lower margin, partially offset by higher sales volumes. We manage commissary results on a full year basis and income can vary somewhat by quarter.

North America franchising income increased approximately $2.0 million primarily due to higher royalties attributable to the 3.4 percent increase in comparable sales and lower sales and development incentives.

International income decreased approximately $300,000 primarily due to the negative impact of foreign currency exchange rates and the timing of marketing spend in the U.K. Foreign currency exchange rates had a negative impact of approximately $800,000, which was primarily attributable to the United Kingdom. These decreases were substantially offset by higher royalties from an increase in units and an increase in comparable sales.

Unallocated corporate expenses increased approximately $700,000 primarily due to higher salaries and benefits and higher interest costs due to an increase in outstanding debt. These increases were partially offset by a decrease in medical claims costs.

Full year 2016 income before income taxes increased approximately $39.7 million, or 33.3 percent. When excluding the impact of Special Items in both years, full year 2016 adjusted income before income taxes increased approximately $16.3 million, or 12.4 percent. This adjusted increase was primarily due to the following:

Domestic company-owned restaurants increased approximately $7.1 million primarily due to a 4.4 percent increase in comparable sales, a 4.4 percent increase in equivalent units, and lower commodity costs. These increases were partially offset by higher non-owned automobile claim costs and increased labor costs.

North America commissaries income increased approximately $1.6 million primarily due to higher sales volumes.

North America franchising income increased approximately $8.4 million primarily due to higher royalties attributable to the 3.1 percent increase in comparable sales and lower sales and development incentives.

International income increased approximately $1.9 million primarily due to higher royalties from an increase in units and an increase in comparable sales. This was significantly offset by the negative impact of foreign currency exchange rates of approximately $2.3 million and a non-recurring charge of $800,000 to record our U.K. lease arrangements on a straight-line basis.

Unallocated corporate expenses increased approximately $2.1 million primarily due to higher salaries and benefits, higher interest costs due to an increase in outstanding debt, and increases in management incentive costs from higher annual operating results. These increases were partially offset by a decrease in medical claims costs.

The effective income tax rates were 32.2 percent and 31.3 percent for the fourth quarter and full year ended December 25, 2016, respectively. These rates approximated the effective rates for the fourth quarter and full year ended December 27, 2015, respectively.

At December 25, 2016, there were 5,097 Papa John’s restaurants operating in all 50 states and in 45 international countries and territories.

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