Papa John’s International, Inc. (NASDAQ: PZZA)
Highlights
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First quarter earnings per diluted share of $0.30 in 2008 vs. $0.43
in 2007
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Comparable first quarter results, excluding the consolidation of
BIBP, were $0.48 in 2008 vs. $0.44 in 2007, an increase of 9.1%
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Domestic system-wide comparable sales increase of 1.7% for the
quarter
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30 net Papa John’s worldwide unit
openings during the quarter
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Earnings guidance for 2008 reaffirmed at a range of $1.68 to $1.76
per diluted share, excluding the impact of consolidating BIBP
Papa John’s International, Inc. (NASDAQ: PZZA)
today announced revenues of $289.0 million for the first quarter of
2008, representing an increase of 10.9% from revenues of $260.6 million
for the same period in 2007. Net income for the first quarter of 2008
was $8.6 million, or $0.30 per diluted share (including an after-tax
loss of $5.2 million, or $0.18 per diluted share, from the consolidation
of the results of the franchisee-owned cheese purchasing company, BIBP
Commodities, Inc. (“BIBP”),
a variable interest entity), compared to 2007 first quarter net income
of $13.2 million, or $0.43 per diluted share (including an after-tax
loss of approximately $300,000, or $0.01 per diluted share, from the
consolidation of BIBP).
“We had an outstanding first quarter in
arguably the toughest operating environment in our company’s
history,” said Papa John’s
president and chief executive officer, Nigel Travis. “To
run positive comp sales and grow EPS on a comparable basis 9.1% over the
same quarter last year is a real testament to the strength of our brand
and outstanding execution by our restaurant operators. We are also
pleased with our international operating results which improved over the
prior year’s results as we remain on target
with our international growth plans.”
Revenues Comparison
Consolidated revenues were $289.0 million for the first quarter of 2008,
an increase of $28.4 million or 10.9%, over the corresponding 2007
period. The increase in revenues for the first quarter of 2008 was
principally due to the following:
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Domestic company-owned restaurant revenues increased $16.8 million or
13.8%, reflecting an increase in comparable sales results of 2.6% and
an 11.2% increase in equivalent units due to the acquisition of 55
domestic restaurants during the last nine months of 2007.
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Franchise royalties increased $1.0 million, primarily due to the
increase in royalty rate from 4.0% to 4.25% for the majority of
domestic franchise restaurants effective at the beginning of 2008.
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Domestic commissaries revenues increased $5.8 million due to increases
in the price of certain commodities, primarily cheese. The commissary
charges a fixed dollar mark-up on its cost of cheese, and cheese cost
is based upon the 40 lb. cheddar block price, which increased from
$1.34 per pound in the first quarter of 2007 to $1.61 per pound in the
first quarter of 2008, or a 20.1% increase.
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Other sales increased $2.4 million, primarily from expanded commercial
volumes at our print and promotions subsidiary, Preferred Marketing
Solutions, Inc.
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International revenues increased $1.9 million reflecting the increase
in both the number and average unit volumes of our company-owned and
franchised restaurants over the past year.
Operating Results and Cash Flow
Operating Results
Our pre-tax income for the first quarter of 2008 was $13.6 million,
compared to $20.7 million for the corresponding period in 2007.
Excluding the impact of the consolidation of BIBP, pre-tax income for
2008 was $21.6 million, or a $400,000 increase over the 2007 comparable
results. An analysis of the changes in pre-tax income for the first
quarter (excluding the consolidation of BIBP), is summarized as follows
(analyzed on a segment basis -- see the Summary Financial Data table
that follows for the reconciliation of segment income to consolidated
income below):
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Domestic Company-owned Restaurant Segment. Domestic
company-owned restaurants’ operating income
was $7.8 million for the three-month period ended March 30, 2008, as
compared to $8.2 million for the same period in 2007. The 2008
operating results include a $1.2 million charge for the loss on the
anticipated sale of 27 restaurants in two markets and the costs
associated with the closing of five restaurants during the quarter,
compared to a charge of approximately $100,000 in the prior year.
Excluding the incremental $1.1 million charge, domestic company-owned
restaurants’ operating income improved
approximately $700,000 in 2008 as compared to 2007. The improvement in
operating results occurred primarily due to the operating income
earned from the 55 restaurants acquired during the last nine months of
2007. Restaurant operating margin as a percent of sales slightly
decreased primarily due to increased commodity costs.
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Domestic Commissary Segment. Domestic commissaries’
operating income decreased approximately $1.6 million for the three
months ended March 30, 2008, as compared to the corresponding period
in 2007, primarily due to a 1.9% reduction in gross margin resulting
from increases in the cost of certain commodities that were not passed
along via price increases to domestic restaurants, and an increase in
other operating expenses of $500,000, as compared to the corresponding
2007 period, reflecting an increase in distribution costs due to
higher fuel prices.
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Domestic Franchising Segment. Domestic system-wide franchise
sales for the first quarter of 2008 increased 1.5% to $381.9 million
from $376.3 million for the same period in 2007, primarily resulting
from a 1.4% increase in comparable sales. Domestic franchising
operating income increased $1.5 million, to $14.5 million, for the
three months ended March 30, 2008, from $13.0 million in the prior
comparable period. The increase was primarily the result of the 0.25%
increase in our royalty rate implemented at the beginning of 2008 (the
royalty rate for the majority of domestic franchisees is 4.25% in 2008
as compared to 4.0% in 2007). The increase in the royalty rate was a
part of the franchise agreement renewal program announced in the
fourth quarter of 2007, which was completed during the first quarter
of 2008 with over 95% of our domestic franchisees renewing under the
new form of agreement. Our equivalent franchise units were relatively
consistent with the corresponding 2007 quarter as net unit openings
offset the previously mentioned acquisition of 55 restaurants by the
company during the last nine months of 2007.
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International Segment. The international segment reported an
operating loss of $1.7 million for the three months ended March 30,
2008, which was a $600,000 improvement as compared to the prior year
loss of $2.3 million. The improvement reflects leverage on the
international organizational structure from increased revenues due to
growth in number of units and unit volumes.
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All Others Segment. The operating income for the “All
others” reporting segment increased
approximately $1.5 million for the three months ended March 30, 2008,
as compared to the corresponding 2007 period. The increase is
primarily due to an improvement in operating results of our print and
promotions subsidiary, Preferred Marketing Solutions, Inc., resulting
from increased commercial sales and related margin improvement.
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Unallocated Corporate Segment. Unallocated corporate expenses
increased $924,000 for the three months ended March 30, 2008, as
compared to the first quarter of 2007. The components of the
unallocated corporate expenses were as follows:
