Industry News | November 9, 2017

Papa Murphy’s Plans to Ramp Up Refranchising Initiative

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Papa Murphy’s Holdings, Inc. announced financial results for its third quarter ended October 2.

Key financial highlights for the third quarter of 2017 include the following:

  • Revenue was $26.8 million compared to $28.5 million in the third quarter of 2016.
  • Domestic system comparable store sales decreased 4.1 percent compared to the third quarter of 2016, including a 2.7 percent decline at company-owned stores.
  • Selling, general and administrative expense was $5.6 million, including approximately $0.7 million of non-recurring costs and a credit of $1.7 million related to a partial recovery of the advertising fund (ADF) deficit. The company expects to recover about $2.9 million of the remaining $5.4 million deficit in the fourth quarter of this year.
  • The company recorded a non-cash charge of $4.4 million pre-tax related to the impairment of fixed assets in four company store markets.   
  • Reported Net Loss was $1.9 million, or $0.11 per diluted share, compared to Net Loss of $421,000, or $0.03 per diluted share in the prior year third quarter.

Weldon Spangler, chief executive officer of Papa Murphy’s Holdings, Inc., says, “We are committed to serving our franchise owners and returning the system to profitable growth. Our immediate priority is the stability of our comparable store sales, and while third quarter results were below our expectations, company-owned stores did show a marked improvement in trend compared to recent quarters. We also saw improving sales trends intra-quarter across the system, driven in large part by expanded digital marketing tests and a renewed focus on value. As a company, we continue to be focused on generating positive cash flow and continue to expect to use excess cash to further reduce leverage, which we believe is prudent in the current sales environment.”

Spangler adds, “We are committed to returning to a 95 percent franchise system with a sense of urgency and are supplementing our internal refranchising initiative with a proven third-party service provider that will market our company stores through a structured process set to launch next week. As the system focuses on top-line growth and absorbing the refranchising of over 100 company stores, we don’t believe near term new unit openings will be significant. As such, subsequent to the quarter end we took the opportunity to reduce capacity in the franchise sales and development functions, an action that will reduce SG&A expenses in 2018 by over $1 million.”

As of the end of the third quarter of 2017 and 2016, Papa Murphy’s had 1,448 and 1,418 domestic comparable stores, respectively.

2017 Financial Outlook

Based on current information, Papa Murphy’s Holdings, Inc. is updating its full-year outlook for fiscal 2017, which ends on January 1, 2018, as follows:

Domestic system-wide comparable store sales decline in the mid-to-low single digits, consistent with previous guidance;

Domestic franchise new store openings of between 30 and 35 units, compared to previous guidance of approximately 40 units;

Full-year refranchising of up to 35 company-owned units, consistent with previous guidance;

Selling, general and administrative expenses of approximately $30.7 million, including non-recurring costs totaling $5.1 million, compared with previous guidance of approximately $30 million, including non-recurring costs totaling $4.0 million;

Adjusted EBITDA of at least $19 million, compared with previous guidance of at least $20 million;

Cash Used in Investing Activities of no more than $2 million, consistent with previous guidance;

Cash Flow from Operations less Cash Used in Investing Activities of around $14 million, exclusive of any additional refranchising, compared to previous guidance of at least $15 million;

Full-year effective book tax rate of approximately 34.3%, consistent with previous guidance; and

Diluted share-count of approximately 16.8 million, consistent with previous guidance.

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