Papa John’s International, Inc. (Nasdaq: PZZA) (“Papa Johns®”)
(the “Company”) today announced financial results for the first
quarter ended March 31, 2024.
Highlights
- North America comparable sales(a) were down 2% from a year ago
as Domestic Company-owned restaurants were down 3% and North
America franchised restaurants were down 2%; International
comparable sales(a) were down 3% from the prior year period.
- 8 net unit openings in the first quarter driven by North
America growth; on track to achieve North America net unit growth
of more than 20% relative to 2023 net unit openings and
International gross openings between 100 and 140 new
restaurants.
- Global system-wide restaurant sales were $1.23 billion, a 1%(b)
decrease compared with the prior year first quarter due entirely to
the 53rd week in 2023 which shifted the week between Christmas and
New Years into the fourth quarter.
- Total revenues of $514 million were down 2% compared with a
year ago largely driven by lower revenues in our North America
commissary segment due to commodity price declines.
- Operating income of $34 million decreased 11% compared with the
first quarter of 2023, while Adjusted operating income(c) of $43
million increased 10% on improved restaurant-level margins and
continued focus on cost discipline.
- Diluted earnings per common share of $0.44 compared with $0.65
for the first quarter of 2023; Adjusted diluted earnings per common
share(c) was $0.67 compared with $0.68 for the first quarter a year
ago.
“Our teams are taking a disciplined approach to running the
business, improving restaurant-level margins and increasing
operating profits despite a challenging environment in the first
quarter,” said Ravi Thanawala, Papa Johns Interim Chief Executive
Officer and Chief Financial Officer. “More importantly, we’re
making meaningful progress on our Back to Better 2.0 and
International Transformation initiatives. The foundational
improvements we are implementing in our restaurant operations,
digital solutions, and marketing platforms are designed to drive
sustainable, profitable growth around the globe. We are confident
that our consumer-centric focus and drive to increase franchisee
profitability will contribute to our long-term success.”
“The Board of Directors has great confidence in the work that is
taking place under Ravi and the Papa Johns leadership team,” said
Christopher Coleman, Chair of the Board. “This team, which has
significant restaurant, digital, and international experience, is
executing on our strategy and evolving our business model for the
next chapter of growth. Importantly, their strategic execution is
driven by their passion and vision for the Papa Johns brand and an
unwavering focus on the consumer and our franchisees. Concurrent
with the team’s efforts, the Board is conducting a thorough search
process for our next Papa Johns CEO to lead this work into the
future.”
_______________________________________________________
(a)
North America and International comparable
sales are reported on a 13-week basis comparing January 1, 2024
through March 31, 2024 with January 2, 2023 through April 2,
2023.
(b)
Excludes the impact of foreign
currency.
(c)
Represents a non-GAAP financial measure.
See “Non-GAAP Financial Measures” for a reconciliation to the most
comparable US GAAP measure.
Financial Highlights
Three Months Ended
(In thousands, except per share
amounts)
March 31, 2024
March 26, 2023
Increase (Decrease)
Total revenues
$
513,916
$
527,049
$
(13,133
)
Operating income
$
33,718
$
37,796
$
(4,078
)
Adjusted operating income (a)
$
43,241
$
39,152
$
4,089
Net income attributable to the Company
$
14,636
$
22,376
$
(7,740
)
Diluted earnings per common share
$
0.44
$
0.65
$
(0.21
)
Adjusted diluted earnings per common share
(a)
$
0.67
$
0.68
$
(0.01
)
Results for the first quarter of 2024 are not directly
comparable with the first quarter of 2023, as year-over-year
comparisons are impacted by the UK franchisee acquisitions that
occurred during the second and third quarters of 2023.
Quarterly Results
Total revenues of $513.9 million decreased $13.1 million, or
2.5%, in the first quarter of 2024 compared with the prior year
period. The lower revenues were largely attributable to a $9.3
million decrease in North America commissary revenues reflecting
decreased commodity prices in the quarter and, to a lesser extent,
lower transaction volumes, and a $9.1 million decrease in Other
revenues, which includes $5 million resulting from the sale of
Preferred Marketing, our formerly wholly-owned print and promotions
company, in the fourth quarter of 2023. Revenues from Domestic
Company-owned restaurants also declined $3.6 million, reflecting
lower transaction volumes partially offset by higher average
ticket.
Somewhat offsetting these declines was a net increase of
approximately $10 million of revenues attributable to the stores
comprising the UK franchisee acquisitions.
For the first quarter of 2024, global system-wide restaurant
sales were $1.23 billion, down 0.9% from the prior year quarter
(excluding the impact of foreign currency). The decrease was due to
the prior year first quarter having an approximate $9.9 million
benefit from the high-volume week between Christmas and New Years,
which occurs in the fiscal fourth quarter in 2024. This decline was
partially offset by 3.3% net unit growth on a trailing twelve-month
basis.
First quarter Operating income was $33.7 million, a $4.1
million, or a 10.8% decrease compared with the prior year first
quarter. Adjusted operating income(a) was $43.2 million, a $4.1
million, or 10.4%, increase from the same period a year ago. The
variance between Operating income and Adjusted operating income was
due to $9.5 million of International restructuring costs primarily
reflecting $7.6 million of non-cash leased and fixed asset
impairment charges related to upcoming restaurant closures in the
UK.
Adjusted operating income in the first quarter of 2024 improved
$4.1 million, primarily attributable to approximately $7 million
related to equity forfeitures and local marketing savings.
Additionally, improved margins in our Domestic Company-owned
restaurants and North America commissary segments contributed to
the current year growth. These increases were largely offset by:
(1) an approximate $4 million year-over-year impact related to the
operations of the UK franchisee acquisition when taking into
consideration a first quarter 2024 operating loss and first quarter
2023 franchise royalty fees; (2) higher depreciation costs related
to the UK franchisee acquisitions and our investments in technology
platforms; and, (3) lower North America comparable sales.
Diluted earnings per common share was $0.44 for the first
quarter of 2024 compared with $0.65 in the first quarter of 2023.
Adjusted diluted earnings per common share(a) was $0.67 for the
first quarter of 2024 compared with $0.68 in the first 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 higher interest expense and a
higher effective tax rate compared with the first quarter of 2023.
Interest expense increased largely due to higher borrowings used to
fund share repurchases towards the end of the first quarter of 2023
and higher average interest rates compared with the prior year
first quarter. The higher income taxes in the first quarter of 2024
reflect the impairment charges related to the International
Restructuring program as well as the shortfall from the vesting of
long-term equity awards, resulting in an additional tax expense
when compared with the prior year period.
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 months ended March
31, 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 first
quarter ended March 31, 2024, compared with the first quarter ended
March 26, 2023 are as follows (See “Supplemental Information and
Financial Statements” below for related definitions):
Three Months Ended
Amounts below exclude the impact of
foreign currency
March 31, 2024
March 26, 2023
Comparable sales growth
(decline):
Domestic Company-owned restaurants
(3.0
)%
3.4
%
North America franchised restaurants
(1.5
)%
(0.8
)%
North America restaurants
(1.8
)%
—
%
International restaurants
(2.6
)%
(5.8
)%
Total comparable sales growth
(decline)
(2.0
)%
(1.3
)%
System-wide restaurant sales growth
(decline):
Domestic Company-owned restaurants
(2.0
)%
4.9
%
North America franchised restaurants
(1.6
)%
0.8
%
North America restaurants
(1.7
)%
1.6
%
International restaurants
1.4
%
3.3
%
Total global system-wide restaurant sales
growth (decline)
(0.9
)%
2.0
%
Global Restaurant Unit
Data
As of March 31, 2024, there were 5,914 Papa Johns restaurants
operating in 49 countries and territories, as follows:
First Quarter
Domestic Company Owned
Franchised North
America
Total North America
International Company
Owned
International
Franchised
Total International
System-wide
Beginning - December 31, 2023
531
2,902
3,433
117
2,356
2,473
5,906
Opened
5
16
21
—
23
23
44
Closed
—
(7
)
(7
)
—
(29
)
(29
)
(36
)
Ending - March 31, 2024
536
2,911
3,447
117
2,350
2,467
5,914
Net unit growth/(decline)
5
9
14
—
(6
)
(6
)
8
Trailing four quarters net store
growth
16
47
63
117
9
126
189
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 an outflow of $1.1 million
for the three months ended March 31, 2024, compared with inflows of
$22.4 million in the prior year period. The year over year change
primarily reflects unfavorable working capital changes driven by
the timing of payments.
Three Months Ended
(in thousands)
March 31, 2024
March 26, 2023
Net cash provided by operating
activities
$
11,987
$
40,788
Purchases of property and equipment
(13,058
)
(18,410
)
Free cash flow
$
(1,071
)
$
22,378
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.
Cash Dividend
The Company paid cash dividends of $15.1 million ($0.46 per
common share) in the first quarter of 2024. On May 2, 2024, our
Board of Directors declared a second quarter dividend of $0.46 per
common share. The dividend will be paid on May 31, 2024 to
stockholders of record as of the close of business on May 20,
2024.
Conference Call
Papa Johns will host a call with analysts today, May 9, 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.
About Papa Johns
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 more than 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.
Forward-Looking
Statements
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,
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 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, 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.
Supplemental
Information and Financial Statements
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.
Non-GAAP Financial
Measures
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.
Three Months Ended
(In thousands, except per share
amounts)
March 31, 2024
March 26, 2023
Operating income
$
33,718
$
37,796
International restructuring costs (a)
9,523
—
Other costs (b)
—
1,356
Adjusted operating income
$
43,241
$
39,152
Net income attributable to common
shareholders
$
14,636
$
22,376
International restructuring costs (a)
9,523
—
Other costs (b)
—
1,356
Tax effect of adjustments (c)
(2,152
)
(309
)
Adjusted net income attributable to
common shareholders
$
22,007
$
23,423
Diluted earnings per common
share
$
0.44
$
0.65
International restructuring costs (a)
0.29
—
Other costs (b)
—
0.04
Tax effect of adjustments (c)
(0.06
)
(0.01
)
Adjusted diluted earnings per common
share
$
0.67
$
0.68
Refer to footnotes on following page.
Footnotes to Non-GAAP Financial Measures
(a)
Represents costs associated with the Company’s International
Restructuring plan. For the three months ended March 31, 2024,
these costs are comprised primarily of leased and fixed asset
impairment charges related to planned store closures in the UK,
combined with severance and other related costs.
(b)
Represents severance and related costs associated with the
transition of certain executives, recorded in General and
administrative expenses.
(c)
The tax effect on non-GAAP adjustments was calculated by
applying the marginal tax rates of 22.6% and 22.8% for the
three-month periods ended March 31, 2024 and March 26, 2023,
respectively.
Papa John’s International,
Inc. and Subsidiaries
Condensed Consolidated Balance
Sheets
(In $ thousands, except per share
amounts)
March 31, 2024
December 31,
2023
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
27,768
$
40,587
Accounts receivable, net
94,506
104,244
Notes receivable, current portion
5,802
5,199
Income tax receivable
1,906
2,577
Inventories
38,073
36,126
Prepaid expenses and other current
assets
57,872
42,285
Total current assets
225,927
231,018
Property and equipment, net
273,303
282,812
Finance lease right-of-use assets, net
30,747
31,740
Operating lease right-of-use assets
153,880
164,158
Notes receivable, less current portion,
net
11,010
12,346
Goodwill
75,975
76,206
Other assets
76,325
76,725
Total assets
$
847,167
$
875,005
Liabilities, Redeemable noncontrolling
interests and Stockholders’ deficit
Current liabilities:
Accounts payable
$
61,014
$
74,949
Income and other taxes payable
22,487
17,948
Accrued expenses and other current
liabilities
143,401
158,167
Current deferred revenue
20,727
20,427
Current finance lease liabilities
8,495
9,029
Current operating lease liabilities
24,710
24,076
Current portion of long-term debt
1,800
—
Total current liabilities
282,634
304,596
Deferred revenue
18,780
20,366
Long-term finance lease liabilities
23,726
24,144
Long-term operating lease liabilities
143,797
151,050
Long-term debt, less current portion,
net
761,317
757,422
Other long-term liabilities
62,395
60,192
Total liabilities
1,292,649
1,317,770
Redeemable noncontrolling
interests
941
851
Stockholders’ deficit:
Common stock ($0.01 par value per share;
issued 49,278 at March 31, 2024 and 49,235 at December 31,
2023)
493
492
Additional paid-in capital
444,793
452,290
Accumulated other comprehensive loss
(7,554
)
(7,803
)
Retained earnings
218,608
219,027
Treasury stock (16,674 shares at March 31,
2024 and 16,747 shares at December 31, 2023, at cost)
(1,118,196
)
(1,123,098
)
Total stockholders’ deficit
(461,856
)
(459,092
)
Noncontrolling interests in
subsidiaries
15,433
15,476
Total Stockholders’ deficit
(446,423
)
(443,616
)
Total Liabilities, Redeemable
noncontrolling interests and Stockholders’ deficit
$
847,167
$
875,005
Papa John’s International,
Inc. and Subsidiaries
Condensed Consolidated
Statements of Operations
(Unaudited)
Three Months Ended
(In $ thousands, except per share
amounts)
March 31, 2024
March 26, 2023
Revenues:
Domestic Company-owned restaurant
sales
$
176,224
$
179,866
North America franchise royalties and
fees
35,697
36,072
North America commissary revenues
203,287
212,566
International revenues
40,708
31,463
Other revenues
58,000
67,082
Total revenues
513,916
527,049
Costs and expenses:
Operating costs (excluding depreciation
and amortization shown separately below):
Domestic Company-owned restaurant
expenses
138,753
147,784
North America commissary expenses
185,199
196,415
International expenses
28,346
17,311
Other expenses
51,767
61,078
General and administrative expenses
58,459
51,944
Depreciation and amortization
17,674
14,721
Total costs and expenses
480,198
489,253
Operating income
33,718
37,796
Net interest expense
(11,063
)
(9,021
)
Income before income taxes
22,655
28,775
Income tax expense
7,741
6,229
Net income before attribution to
noncontrolling interests
14,914
22,546
Net income attributable to noncontrolling
interests
(278
)
(170
)
Net income attributable to the
Company
$
14,636
$
22,376
Basic earnings per common share
$
0.45
$
0.66
Diluted earnings per common share
$
0.44
$
0.65
Basic weighted average common shares
outstanding
32,644
34,155
Diluted weighted average common shares
outstanding
32,909
34,324
Dividends declared per common share
$
0.46
$
0.42
Papa John’s International,
Inc. and Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
Three Months Ended
(In $ thousands)
March 31, 2024
March 26, 2023
Operating activities
Net income before attribution to
noncontrolling interests
$
14,914
$
22,546
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for allowance for credit losses
on accounts and notes receivable
604
513
Depreciation and amortization
17,674
14,721
Deferred income taxes
532
2,031
Stock-based compensation expense
(370
)
3,898
Impairment loss
7,554
—
Loss on disposal of property and
equipment
688
—
Other
315
496
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
9,084
2,182
Income tax receivable
660
2,822
Inventories
(1,981
)
4,330
Prepaid expenses and other current
assets
(4,137
)
(4,351
)
Other assets and liabilities
1,873
71
Accounts payable
(14,406
)
(310
)
Income and other taxes payable
4,718
(512
)
Accrued expenses and other current
liabilities
(24,451
)
(5,413
)
Deferred revenue
(1,284
)
(2,236
)
Net cash provided by operating
activities
11,987
40,788
Investing activities
Purchases of property and equipment
(13,058
)
(18,410
)
Notes issued
(154
)
(976
)
Repayments of notes issued
886
1,069
Other
2,174
42
Net cash used in investing activities
(10,152
)
(18,275
)
Financing activities
Net proceeds of revolving credit
facilities
5,300
208,200
Proceeds from exercise of stock
options
840
614
Acquisition of Company common stock
—
(209,640
)
Dividends paid to common stockholders
(15,068
)
(14,603
)
Tax payments for equity award
issuances
(3,192
)
(5,999
)
Distributions to noncontrolling
interests
(231
)
(23
)
Principal payments on finance leases
(2,433
)
(1,743
)
Other
182
(18
)
Net cash used in financing activities
(14,602
)
(23,212
)
Effect of exchange rate changes on cash
and cash equivalents
(52
)
34
Change in cash and cash equivalents
(12,819
)
(665
)
Cash and cash equivalents at beginning of
period
40,587
47,373
Cash and cash equivalents at end of
period
$
27,768
$
46,708
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