Papa Johns Announces Second Quarter 2022 Financial Results; Increases Cash Dividend By 20%
08/04/2022 - 07:00 AM
LOUISVILLE, Ky. --(BUSINESS WIRE)--
Papa John’s International, Inc. (NASDAQ: PZZA) (“Papa Johns® ”) today announced financial results for the second quarter ended June 26, 2022 .
Highlights
Total revenues increased 1.5% to $522.7 million 5.2% excluding the impact of refranchising 90 restaurants in the first quarter of 2022.
Comparable sales increased 0.9% in North America and decreased 8.0% Internationally, lapping prior year gains of 5.2% and 21.2% , respectively.
Global system-wide restaurant sales were $1.2 billion 2.6% 1 increase over the prior year second quarter.
47 net unit openings in the second quarter driven by International openings; expected net unit openings in 2022 remain 280 to 320 units.
Earnings per diluted share of $0.70 $0.74 $0.93
Announced 20% increase in annual dividend rate to $1.68 $0.42
“Papa Johns delivered a 12th consecutive quarter of positive North American comparable sales in the second quarter, building on gains of more than 30% over the two years prior,” said President and CEO Rob Lynch . “Our momentum over the past three years is the direct result of our differentiated brand, menu innovations and digital investments which focus on delivering premium value for our customers. The proven agility of our business model, our scale and our data advantage give us confidence in our ability to sustain positive North American comps in the second half of this year and into the future as we continue to navigate a dynamic macroeconomic environment.”
Lower year-over-year net income and earnings per diluted share in the second quarter primarily reflected further acceleration in commodity costs and labor inflation, in addition to lower international sales. The decrease in international sales was largely attributable to softening economic conditions in the UK .
“Like companies across our industry and the global economy, we are experiencing high inflation coupled with lapping economic stimulus a year ago,” continued Lynch. “While we expect these headwinds to persist into the second half of 2022, the targeted actions we are taking today are focused on optimizing results in the near term, while leaning into our differentiated strategy and securing our growing market share position for the long term. When current headwinds eventually normalize, we will be in a significantly better position for long-term growth and margin accretion.”
Based on its resilient cash flow profile and strong balance sheet, the Company announced a 20% increase in the annual dividend rate to $1.68 Papa Johns also repurchased approximately $42.8 million
“The foundation of our strategy and success remains in providing better value to our customers, our franchisees and our team members. We will continue driving long-term shareholder value through winning innovations, accelerating unit growth, increasing operations productivity, and making strategic capital investments,” concluded Lynch.
______________
1 Excludes the impact of foreign currency and previously disclosed franchisee suspended restaurants.
Financial Highlights
Three Months Ended
Six Months Ended
(In thousands, except per share amounts)
June 26 ,
2022
June 27 ,
2021
Increase (Decrease)
June 26 ,
2022
June 27 ,
2021
Increase (Decrease)
Revenue
$
522,665
$
515,008
$
7,657
$
1,065,357
$
1,026,754
$
38,603
Operating income
$
38,904
$
44,637
$
(5,733
)
$
53,339
$
91,499
$
(38,160
)
Adjusted operating income(a)
$
40,411
$
47,965
$
(7,554
)
$
85,642
$
98,710
$
(13,068
)
Net income
$
25,433
$
32,254
$
(6,821
)
$
35,927
$
66,137
$
(30,210
)
Diluted (loss) earnings per share
$
0.70
$
(2.30
)
$
3.00
$
0.99
$
(1.47
)
$
2.46
Adjusted diluted earnings per share(a)
$
0.74
$
0.93
$
(0.19
)
$
1.69
$
1.94
$
(0.25
)
(a) Adjusted operating income and adjusted diluted earnings per share are non-GAAP measures that exclude “Special items,” which impact comparability. Please see the “Reconciliation of Non-GAAP Financial Measures” below.
Revenues
Consolidated total revenues of $522.7 million $7.7 million 1.5% , in the second quarter of 2022 compared with the prior year. Excluding the impact of refranchising 90 restaurants in the first quarter of 2022, consolidated total revenues increased $25.6 million 5.2% . The higher total revenues is primarily the result of a 17.5% increase in commissary sales tied to accelerating commodity inflation.
For the second quarter of 2022, global system-wide restaurant sales were $1.2 billion 2.6% (excluding the impact of foreign currency and previously disclosed franchisee suspended restaurants) from a year ago.
Operating Results
Consolidated operating income of $38.9 million $5.7 million $40.4 million $7.6 million
Diluted earnings per share was $0.70 $2.30 $0.74 $0.19 UK , somewhat offset by net unit growth, positive North America comparable sales and lower general and administrative expenses.
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 and six months ended June 26, 2022 .
Global Restaurant Sales Information
Global restaurant and comparable sales information for the second quarter and six months ended June 26, 2022 , compared with the second quarter and six months ended June 27, 2021 are as follows (See “Supplemental Information and Financial Statements” below for related definitions):
Three Months Ended
Six Months Ended
June 26 ,
2022
June 27 ,
2021
June 26 ,
2022
June 27 ,
2021
Comparable sales growth (decline):
Domestic Company -owned restaurants
(1.5) %
5.6 %
(1.3) %
13.8 %
North America franchised restaurants
1.4 %
5.2 %
2.1 %
15.1 %
North America restaurants
0.9 %
5.2 %
1.4 %
14.8 %
International restaurants
(8.0) %
21.2 %
(3.6) %
22.2 %
Total comparable sales growth(a)
(1.4) %
9.0 %
0.1 %
16.6 %
System-wide restaurant sales growth:
(excluding the impact of foreign currency)
Domestic Company -owned restaurants
1.2 %
5.2 %
8.9 %
13.1 %
North America franchised restaurants
2.7 %
6.4 %
1.4 %
15.8 %
North America restaurants
2.4 %
6.2 %
2.8 %
15.2 %
International restaurants
3.4 %
35.7 %
8.3 %
32.2 %
Total global system-wide restaurant sales growth(a)
2.6 %
12.2 %
4.2 %
19.0 %
(a) The three and six months periods ended June 26, 2022 excludes the impact of franchisee suspended restaurants.
Global Restaurant Unit Data
As of June 26, 2022 , there were 5,571 Papa Johns restaurants operating in 49 countries and territories, as follows:
Second Quarter
Domestic Company Owned
Franchised North America
Total North America
International(a)
System-wide
Beginning - March 27, 2022
608
2,746
3,354
2,170
5,524
Opened
1
17
18
72
90
Closed
—
(16
)
(16
)
(27
)
(43
)
Refranchised
(90
)
90
—
—
—
Ending - June 26, 2022
519
2,837
3,356
2,215
5,571
Net Unit Growth
(89
)
91
2
45
47
Trailing four quarters net store growth/(decline)
(70
)
117
47
189
236
(a) Excludes franchisee suspended restaurants.
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 and dividends paid to preferred shareholders, was $14.8 million June 26, 2022 , compared with $100.1 million
Six Months Ended
June 26 ,
2022
June 27 ,
2021
Net cash provided by operating activities
$
45,585
$
128,030
Purchases of property and equipment
(30,744
)
(21,543
)
Dividends paid to preferred shareholders (1)
—
(6,394
)
Free cash flow
$
14,841
$
100,093
(1) This does not include the cash consideration paid for the repurchase and conversion of the Series B Preferred Stock. See “Repurchase and Conversion of Series B Preferred Stock” below for additional information.
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 and Share Repurchases
The Company paid cash dividends of $12.5 million $0.35 August 2, 2022 , our Board of Directors declared a second quarter dividend of $0.42 20% increase from the previous dividend. The dividend will be paid on August 26, 2022 to stockholders of record as of the close of business on August 15, 2022 .
During the second quarter of 2022, the Company repurchased 452,206 shares of common stock for $42.8 million July 29, 2022 , the Company had $329.8 million
Conference Call
Papa Johns will host a call with analysts today, August 4, 2022 , 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 5,500 restaurants in 49 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 economic environment, the financial impact of the temporary business opportunities, disruptions and temporary changes in demand we are experiencing related to the current outbreak of the coronavirus pandemic and the related restrictions, commodity and labor costs, currency fluctuations, profit margins, unit growth, unit level performance, capital expenditures, restaurant and franchise development, the duration of changes in consumer behavior caused by the pandemic, labor shortages and price increases, inflation, royalty relief, the effectiveness of our menu innovations and other business initiatives, marketing efforts, liquidity, compliance with debt covenants, impairments, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, 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.
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: our ability to manage difficulties and opportunities associated with or related to the coronavirus pandemic, including governmental restrictions, changes in consumer demand or behavior, vaccine mandates and changing governmental programs and regulations relating to the pandemic; labor shortages at company and/or franchised stores and our quality control centers; increases in labor costs, food costs 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; the increased risk of phishing, ransomware and other cyber-attacks; and risks to the global economy and our business related to the conflict in Ukraine . 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 26, 2021 as updated by those included in our Quarterly Report on Form 10-Q for the quarter ended June 26, 2022 . 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
Definition
“Comparable sales” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. “Global system-wide restaurant sales” represents total restaurant sales for all company-owned and franchised stores open during the comparable periods, and “Global system-wide restaurant sales growth” represents the change in such sales year-over-year. We believe North America , international and global restaurant and comparable sales growth 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. Franchise restaurant and comparable sales growth information is also useful for comparison to industry trends and evaluating the strength of our brand. Management believes the presentation of franchise 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.
Reconciliation of Non-GAAP Financial Measures
The table below reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures. The non-GAAP adjusted results shown below and within this press release, which exclude the items in the table below (collectively defined as “Special items”), should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP results. Management believes presenting certain financial information excluding the Special items is important for purposes of comparison to current year results. In addition, management uses these metrics to evaluate the Company’s underlying operating performance and to analyze trends.
Three Months Ended
Six Months Ended
(In thousands, except per share amounts)
June 26 ,
2022
June 27 ,
2021
June 26 ,
2022
June 27 ,
2021
GAAP operating income
$
38,904
$
44,637
$
53,339
$
91,499
Refranchising and impairment loss (1)
—
—
25,796
—
Legal settlement (2)
—
—
5,000
—
Strategic corporate reorganization costs (3)
—
3,328
—
7,211
Other costs (4)
1,507
—
1,507
—
Adjusted operating income
$
40,411
$
47,965
$
85,642
$
98,710
GAAP net income attributable to common shareholders
$
25,240
$
(79,898
)
$
35,693
$
(49,542
)
Refranchising and impairment loss (1)
—
—
25,796
—
Legal settlement (2)
—
—
5,000
—
Strategic corporate reorganization costs (3)
—
3,328
—
7,211
Other costs (4)
1,507
—
1,507
—
Repurchase and conversion of Series B Preferred Stock
—
109,852
—
109,852
Tax effect of Non-GAAP adjustment on special items (4)
(339
)
(745
)
(7,269
)
(1,615
)
Adjusted net income attributable to common shareholders
$
26,408
$
32,537
$
60,727
$
65,906
GAAP diluted earnings per common share
$
0.70
$
(2.30
)
$
0.99
$
(1.47
)
Refranchising and impairment loss (1)
—
—
0.72
—
Legal settlement (2)
—
—
0.14
—
Strategic corporate reorganization costs (3)
—
0.10
—
0.22
Other costs (4)
0.05
—
0.04
—
Repurchase and conversion of Series B Preferred Stock
—
3.15
—
3.23
Tax effect of Non-GAAP adjustment on special items (5)
(0.01
)
(0.02
)
(0.20
)
(0.04
)
Adjusted diluted earnings per common share
$
0.74
$
0.93
$
1.69
$
1.94
(Note) The above table does not include the impact of allocation of undistributed earnings to participating securities for Special items.
Includes on a pre-tax basis (a) a one-time, non-cash charge of $8.4 million $0.23 $17.4 million $0.48 Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million $14.6 million
Represents an accrual for a legal settlement, recorded in General and administrative expenses.
Represents strategic corporate reorganization costs associated with our new office in Atlanta, Georgia .
Other costs of $1.5 million
The tax effect for Special items was calculated by applying the marginal tax rate of 22.5% and 22.4% for the three months ended June 26, 2022 and June 27, 2021 .
Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
June 26 ,
2022
December 26 ,
2021
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
52,124
$
70,610
Accounts receivable, net
87,495
81,370
Notes receivable, current portion
8,333
12,352
Income tax receivable
4,017
9,386
Inventories
38,076
34,981
Prepaid expenses and other current assets
49,743
46,310
Total current assets
239,788
255,009
Property and equipment, net
225,382
223,856
Finance lease right-of-use assets, net
18,642
20,907
Operating lease right-of-use assets
176,719
176,256
Notes receivable, less current portion, net
19,703
35,504
Goodwill
70,731
80,632
Deferred income taxes
8,657
5,156
Other assets
76,650
88,384
Total assets
$
836,272
$
885,704
Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit
Current liabilities:
Accounts payable
$
40,845
$
28,092
Income and other taxes payable
16,785
19,996
Accrued expenses and other current liabilities
146,213
190,116
Current deferred revenue
19,925
21,700
Current finance lease liabilities
5,224
4,977
Current operating lease liabilities
21,485
22,543
Total current liabilities
250,477
287,424
Deferred revenue
23,633
13,846
Long-term finance lease liabilities
14,252
16,580
Long-term operating lease liabilities
164,336
160,672
Long-term debt, less current portion, net
536,446
480,730
Deferred income taxes
236
258
Other long-term liabilities
79,516
93,154
Total liabilities
1,068,896
1,052,664
Redeemable noncontrolling interests
1,174
5,498
Stockholders’ deficit:
Common stock ($0.01 June 26, 2022 and 49,002 at December 26, 2021 )
491
490
Additional paid-in capital
442,255
445,126
Accumulated other comprehensive loss
(11,034
)
(9,971
)
Retained earnings
193,934
183,157
Treasury stock (13,848 shares at June 26, 2022 and 13,205 shares at December 26, 2021 , at cost)
(875,205
)
(806,472
)
Total stockholders’ deficit
(249,559
)
(187,670
)
Noncontrolling interests in subsidiaries
15,761
15,212
Total Stockholders’ deficit
(233,798
)
(172,458
)
Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit
$
836,272
$
885,704
Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
Six Months Ended
(In thousands, except per share amounts)
June 26 ,
2022
June 27 ,
2021
June 26 ,
2022
June 27 ,
2021
Revenues:
Domestic Company -owned restaurant sales
$
171,411
$
196,124
$
370,176
$
393,358
North America franchise royalties and fees
34,917
32,475
69,185
65,190
North America commissary revenues
219,383
186,641
429,062
371,519
International revenues
31,958
37,614
66,575
72,221
Other revenues
64,996
62,154
130,359
124,466
Total revenues
522,665
515,008
1,065,357
1,026,754
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company -owned restaurant expenses
142,026
154,293
303,687
310,181
North America commissary expenses
204,470
172,227
401,560
342,911
International expenses
19,236
21,430
39,150
41,048
Other expenses
60,648
56,246
121,203
112,053
General and administrative expenses
44,646
53,698
110,584
103,709
Depreciation and amortization
12,735
12,477
24,674
25,353
Total costs and expenses
483,761
470,371
1,000,858
935,255
Refranchising and impairment loss
—
—
(11,160
)
—
Operating income
38,904
44,637
53,339
91,499
Net interest expense
(6,081
)
(3,649
)
(10,344
)
(7,296
)
Income before income taxes
32,823
40,988
42,995
84,203
Income tax expense (benefit)
7,093
7,398
5,838
15,330
Net income before attribution to noncontrolling interests
25,730
33,590
37,157
68,873
Net income attributable to noncontrolling interests
(297
)
(1,336
)
(1,230
)
(2,736
)
Net income attributable to the Company
$
25,433
$
32,254
$
35,927
$
66,137
Calculation of net income for earnings per share:
Net income attributable to the Company
$
25,433
$
32,254
$
35,927
$
66,137
Dividends on redemption of Series B Convertible Preferred Stock
—
(109,852
)
—
(109,852
)
Dividends paid to participating securities
(82
)
(2,300
)
(141
)
(5,827
)
Net income attributable to participating securities
(111
)
—
(93
)
—
Net income attributable to common shareholders
$
25,240
$
(79,898
)
$
35,693
$
(49,542
)
Basic earnings per common share
$
0.71
$
(2.30
)
$
1.00
$
(1.47
)
Diluted earnings per common share
$
0.70
$
(2.30
)
$
0.99
$
(1.47
)
Basic weighted average common shares outstanding
35,624
34,729
35,775
33,739
Diluted weighted average common shares outstanding
35,824
34,729
36,032
33,739
Dividends declared per common share
$
0.350
$
0.225
$
0.700
$
0.450
Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
(In thousands)
June 26 ,
2022
June 27 ,
2021
Operating activities
Net income before attribution to noncontrolling interests
$
37,157
$
68,873
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for allowance for credit losses on accounts and notes receivable
15,558
(1,200
)
Depreciation and amortization
24,674
25,353
Refranchising and impairment loss
11,160
—
Deferred income taxes
(2,993
)
(1,397
)
Stock-based compensation expense
9,100
8,202
Other
(2,071
)
467
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(9,177
)
13,299
Income tax receivable
5,369
189
Inventories
(3,815
)
430
Prepaid expenses and other current assets
(3,901
)
1,092
Other assets and liabilities
(5,379
)
(11,380
)
Accounts payable
12,742
(5,874
)
Income and other taxes payable
(3,175
)
18,500
Accrued expenses and other current liabilities
(37,456
)
12,123
Deferred revenue
(2,208
)
(647
)
Net cash provided by operating activities
45,585
128,030
Investing activities
Purchases of property and equipment
(30,744
)
(21,543
)
Notes issued
(1,098
)
(5,263
)
Repayments of notes issued
6,743
7,922
Acquisitions, net of cash acquired
(1,250
)
(699
)
Proceeds from refranchising, net of cash transferred
13,588
—
Other
238
116
Net cash used in investing activities
(12,523
)
(19,467
)
Financing activities
Net proceeds of revolving credit facilities
55,000
85,000
Proceeds from exercise of stock options
1,908
8,100
Repurchase of Series B Convertible Preferred Stock
—
(188,647
)
Acquisition of Company common stock
(75,471
)
(8,188
)
Dividends paid to common stockholders
(25,101
)
(14,844
)
Dividends paid to preferred stockholders
—
(6,394
)
Tax payments for equity award issuances
(7,526
)
(3,887
)
Distributions to noncontrolling interests
(835
)
(2,320
)
Repayments of term loan
—
(10,000
)
Other
1,348
(1,691
)
Net cash used in financing activities
(50,677
)
(142,871
)
Effect of exchange rate changes on cash and cash equivalents
(871
)
317
Change in cash and cash equivalents
(18,486
)
(33,991
)
Cash and cash equivalents at beginning of period
70,610
130,204
Cash and cash equivalents at end of period
$
52,124
$
96,213
View source version on businesswire.com : https://www.businesswire.com/news/home/20220802006218/en/
Papa Johns Investor Relations
investor_relations@papajohns.com
Source: Papa John’s International, Inc.
