Papa John's reports Q1 net earnings of US$19.3M, flat from year-ago period as revenues rise 12.9% to US$401.4M

LOUISVILLE, Kentucky , May 6, 2014 (press release) – First Quarter Comparable Sales Increases of 9.6% for North America and 6.4% for International

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

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

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.

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.

Share Repurchase Activity

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.

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