UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K
Current Report
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported):
May
2, 2017
Commission File Number: 0-21660
PAPA JOHN’S INTERNATIONAL, INC.
(Exact
name of registrant as specified in its charter)
Delaware |
61-1203323 |
(State or other jurisdiction of |
(I.R.S. Employer Identification |
incorporation or organization) |
Number) |
2002 Papa Johns Boulevard
Louisville,
Kentucky 40299-2367
(Address
of principal executive offices)
(502) 261-7272
(Registrant’s
telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ⃞
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ⃞
Section 2 – Financial Information
Item 2.02 Results of Operations and Financial Condition
On May 2, 2017, Papa John’s International, Inc. issued a press release announcing first quarter 2017 financial results.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit
Number Description
99.1 Papa John’s International, Inc. press release dated May 2, 2017.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PAPA JOHN’S INTERNATIONAL, INC. |
|
(Registrant) |
|
Date: May 2, 2017 |
/s/ Lance F. Tucker |
Lance F. Tucker | |
Senior Vice President, Chief Financial |
EXHIBIT INDEX
Exhibit |
Description of Exhibit | |
99.1 |
Papa John’s International, Inc. press release May 2, 2017. |
Exhibit 99.1
Papa John’s Announces First Quarter 2017 Results
LOUISVILLE, Ky.--(BUSINESS WIRE)--May 2, 2017--Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the first quarter ended March 26, 2017.
Highlights
“We’re pleased with our solid start to 2017, with good comparable sales and earnings growth despite a challenging environment for restaurants,” said Papa John’s founder, chairman and CEO John Schnatter. “With our digital sales percentage now over 60% and several initiatives that will build on our industry-leading quality advantage, we are leveraging our strengths to steadily grow the Papa John’s business globally for many years to come.”
Operating Highlights |
|||||||||||||
(In thousands, except per share amounts) | First Quarter | ||||||||||||
Mar. 26, |
Mar. 27, |
Increase |
|||||||||||
Total revenue | $ | 449,266 | $ | 428,595 | 4.8 | % | |||||||
Operating income | 43,681 | 42,898 | 1.8 | % | |||||||||
Net income | 28,428 | 26,182 | 8.6 | % | |||||||||
Diluted earnings per share | $ | 0.77 | $ | 0.69 | 11.6 | % | |||||||
All operating highlights are compared to the same period of the prior year, unless otherwise noted.
Consolidated revenues increased $20.7 million, or 4.8%, for the first quarter of 2017 on higher comparable sales for North America and International. In addition to the impact of higher volumes, North America commissary sales also increased primarily due to higher cheese prices charged to franchisees. The consolidated revenue increase is net of the unfavorable impact of foreign currency exchange rates of approximately $3.1 million, which was primarily attributable to the United Kingdom, and the impact of refranchising 42 restaurants in the fourth quarter of 2016.
On higher revenues, consolidated operating income increased $800,000, or 1.8%, for the first quarter of 2017. Operating income as a percentage of consolidated revenues decreased 0.3% to 9.7% for the first quarter. Significant changes in the operating income percentage are as follows:
The first quarter 2017 effective income tax rate was 28.6%, representing a decrease of 3.7% from the prior year comparable period rate of 32.3%. This decrease was primarily due to adopting new guidance for accounting for share-based compensation in the current quarter. This guidance requires excess tax benefits recognized on stock based awards to be recorded as a reduction of income tax expense rather than stockholders’ equity. The impact of this adoption decreased our effective tax rate by 3.2%.
Diluted earnings per share increased 11.6% to $0.77 for the first quarter of 2017. This increase was primarily due to an increase in net income and a decrease in shares outstanding. Diluted earnings per share was favorably impacted by approximately $0.03 due to the adoption of the new guidance for accounting for share-based compensation. Excluding the impact of this adoption, diluted earnings per share would have increased 7.2% compared to first quarter 2016.
Global Restaurant and Comparable Sales Information |
|||||||||
First Quarter | |||||||||
Mar. 26, |
Mar. 27, |
||||||||
Global restaurant sales growth (a) | 4.9 | % | 2.3 | % | |||||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
5.5 | % | 4.2 | % | |||||
Comparable sales growth (b) | |||||||||
Domestic company-owned restaurants | 3.0 | % | 1.0 | % | |||||
North America franchised restaurants | 1.7 | % | -0.2 | % | |||||
System-wide North America restaurants | 2.0 | % | 0.1 | % | |||||
System-wide international restaurants | 6.0 | % | 5.7 | % | |||||
(a) Includes both company-owned and franchised restaurant sales.
(b) Represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. Comparable 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.
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. Management believes the presentation of global restaurant sales growth excluding the impact of foreign currency provides investors with useful information regarding underlying sales trends by presenting sales growth excluding the external factor of foreign currency exchange. Franchise restaurant sales are not included in company revenues.
Free Cash Flow
The company’s free cash flow, a non-GAAP financial measure, for the first quarter of 2017 and 2016 was as follows (in thousands):
First Quarter | |||||||||||
Mar. 26, | Mar. 27, | ||||||||||
2017 | 2016 | ||||||||||
Net cash provided by operating activities (a) | $ | 47,329 | $ | 33,853 | |||||||
Purchases of property and equipment (b) | (15,064 | ) | (10,249 | ) | |||||||
Free cash flow | $ | 32,265 | $ | 23,604 | |||||||
(a) The increase of $13.5 million was primarily due to the inclusion in the first quarter of 2016 of a legal settlement of approximately $12.5 million and higher net income.
(b) The increase of $4.8 million was primarily due to construction costs for our new domestic commissary in Georgia, which will open in mid-2017.
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 liquidity or 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 months ended March 26, 2017.
Global Restaurant Unit Data
At March 26, 2017, there were 5,082 Papa John’s restaurants operating in all 50 states and in 45 international countries and territories, as follows:
Domestic |
Franchised |
Total North |
International | System-wide | |||||||||||||||||
First Quarter |
|||||||||||||||||||||
Beginning - December 25, 2016 | 702 | 2,739 | 3,441 | 1,656 | 5,097 | ||||||||||||||||
Opened |
2 |
15 |
17 |
38 |
55 |
||||||||||||||||
Closed | - |
(30 |
) |
(30 |
) |
(40 |
) |
(70 |
) |
||||||||||||
Acquired |
1 |
- |
1 |
- |
1 |
||||||||||||||||
Sold | - |
(1 |
) |
(1 |
) |
- |
(1 |
) |
|||||||||||||
Ending - March 26, 2017 |
705 |
2,723 |
3,428 |
1,654 |
5,082 |
||||||||||||||||
Unit growth (decline) |
3 |
(16 |
) |
(13 |
) |
(2 |
) |
(15 |
) |
||||||||||||
% increase (decrease) |
0.4 |
% |
(0.6 |
%) |
(0.4 |
%) |
(0.1 |
%) |
(0.3 |
%) |
|||||||||||
The company has added 179 net worldwide units over the trailing four quarters. Our development pipeline as of March 26, 2017 included approximately 1,300 restaurants (200 units in North America and 1,100 units internationally), the majority of which are scheduled to open over the next six years.
Share Repurchase Activity
The following table reflects our repurchases for the first quarter 2017 and subsequent repurchases through April 25, 2017 (in thousands):
Period |
Number |
Cost | |||||||
First Quarter 2017 | 159 | $ | 13,075 | ||||||
March 27, 2017 through April 25, 2017 |
49 |
$ |
3,887 |
||||||
There were 37.4 million diluted weighted average shares outstanding for the first quarter ended March 26, 2017, representing a decrease of 2.5% over the prior year comparable period. Approximately 36.8 million actual shares of the company’s common stock were outstanding as of March 26, 2017.
2017 Outlook
The company is reaffirming its previously issued 2017 outlook.
Conference Call and Website Information
A conference call is scheduled for May 3, 2017 at 10:00 a.m. Eastern Time to review our first quarter 2017 earnings results. The call can be accessed from the company’s web page at www.papajohns.com 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 www.papajohns.com. The Conference ID is 91077730.
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We intend to use our investor relations website as a means of disclosing information about our business, our financial condition and results of operations and other matters and for complying with our disclosure obligations under Regulation FD. The information we post on our investor relations website, including information contained in investor presentations, may be deemed material. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts. We encourage investors and others to sign up for email alerts at our investor relations page under Shareholder Tools at the bottom right side of the page. These email alerts are intended to help investors and others to monitor our investor relations website by notifying them when new information is posted on the site.
Forward-Looking Statements
Certain matters discussed in this press release and other company communications 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,” “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 may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, contingent liabilities, resolution of litigation, commodity costs, profit margins, unit growth, unit level performance, capital expenditures, 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. The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:
These and other risk factors 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 25, 2016. 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.
Papa John's International, Inc. and Subsidiaries | |||||||||||
Condensed Consolidated Statements of Income | |||||||||||
|
|||||||||||
Three Months Ended |
|||||||||||
March 26, 2017 | March 27, 2016 | ||||||||||
(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | |||||||||
Revenues: | |||||||||||
Domestic company-owned restaurant sales | $ | 206,896 | $ | 205,679 | |||||||
North America franchise royalties and fees | 27,607 | 26,476 | |||||||||
North America commissary and other sales | 186,245 | 168,985 | |||||||||
International | 28,518 | 27,455 | |||||||||
Total revenues | 449,266 | 428,595 | |||||||||
Costs and expenses: | |||||||||||
Operating costs (excluding depreciation and amortization shown separately below): |
|||||||||||
Domestic company-owned restaurant expenses | 165,419 | 161,310 | |||||||||
North America commissary and other expenses | 173,712 | 156,806 | |||||||||
International expenses | 17,990 | 17,590 | |||||||||
General and administrative expenses | 38,007 | 40,247 | |||||||||
Depreciation and amortization | 10,457 | 9,744 | |||||||||
Total costs and expenses | 405,585 | 385,697 | |||||||||
Operating income | 43,681 | 42,898 | |||||||||
Net interest expense | (1,810 | ) | (1,489 | ) | |||||||
Income before income taxes | 41,871 | 41,409 | |||||||||
Income tax expense | 11,972 | 13,358 | |||||||||
Net income before attribution to noncontrolling interests | 29,899 | 28,051 | |||||||||
Income attributable to noncontrolling interests | (1,471 | ) | (1,869 | ) | |||||||
Net income attributable to the company | $ | 28,428 | $ | 26,182 | |||||||
Calculation of income for earnings per share: | |||||||||||
Net income attributable to the company | $ | 28,428 | $ | 26,182 | |||||||
Change in noncontrolling interest redemption value | 520 | 220 | |||||||||
Net income attributable to participating securities | (117 | ) | (110 | ) | |||||||
Net income attributable to common shareholders | $ | 28,831 | $ | 26,292 | |||||||
Basic earnings per common share | $ | 0.78 | $ | 0.69 | |||||||
Diluted earnings per common share | $ | 0.77 | $ | 0.69 | |||||||
Basic weighted average common shares outstanding | 36,810 | 37,931 | |||||||||
Diluted weighted average common shares outstanding | 37,350 | 38,297 | |||||||||
Dividends declared per common share | $ | 0.20 | $ | 0.175 | |||||||
Papa John's International, Inc. and Subsidiaries | |||||||||
Condensed Consolidated Balance Sheets | |||||||||
March 26, | December 25, | ||||||||
2017 | 2016 | ||||||||
(In thousands) | (Unaudited) | (Note) | |||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 22,715 | $ | 15,563 | |||||
Accounts receivable, net | 60,586 | 59,691 | |||||||
Notes receivable, net | 3,626 | 3,417 | |||||||
Income taxes receivable | - | 2,372 | |||||||
Inventories | 22,711 | 25,132 | |||||||
Prepaid expenses and other current assets | 29,899 | 33,143 | |||||||
Assets held for sale | 6,031 | 6,257 | |||||||
Total current assets | 145,568 | 145,575 | |||||||
Property and equipment, net | 230,765 | 230,473 | |||||||
Notes receivable, less current portion, net | 10,443 | 10,141 | |||||||
Goodwill | 85,787 | 85,529 | |||||||
Deferred income taxes | 212 | 769 | |||||||
Other assets | 43,674 | 40,078 | |||||||
Total assets | $ | 516,449 | $ | 512,565 | |||||
Liabilities and stockholders' equity | |||||||||
Current liabilities: | |||||||||
Accounts payable | $ | 37,362 | $ | 42,701 | |||||
Income and other taxes payable | 16,357 | 8,540 | |||||||
Accrued expenses and other current liabilities | 66,705 | 76,789 | |||||||
Total current liabilities | 120,424 | 128,030 | |||||||
Deferred revenue | 3,157 | 3,313 | |||||||
Long-term debt, net | 294,332 | 299,820 | |||||||
Deferred income taxes | 10,559 | 10,047 | |||||||
Other long-term liabilities | 56,704 | 53,093 | |||||||
Total liabilities | 485,176 | 494,303 | |||||||
Redeemable noncontrolling interests | 8,735 | 8,461 | |||||||
Total stockholders' equity | 22,538 | 9,801 | |||||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | 516,449 | $ | 512,565 | |||||
Note: The Condensed Consolidated Balance Sheets have been derived from the audited consolidated financial statements, but do not include all information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements.
Papa John's International, Inc. and Subsidiaries | |||||||||||
Consolidated Statements of Cash Flows | |||||||||||
Three Months Ended |
|||||||||||
(In thousands) | March 26, 2017 | March 27, 2016 | |||||||||
(Unaudited) | (Unaudited) | ||||||||||
Operating activities | |||||||||||
Net income before attribution to noncontrolling interests | $ | 29,899 | $ | 28,051 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||||
Provision for uncollectible accounts and notes receivable | (417 | ) | 216 | ||||||||
Depreciation and amortization | 10,457 | 9,744 | |||||||||
Deferred income taxes | 1,015 | 7,141 | |||||||||
Stock-based compensation expense | 2,736 | 2,172 | |||||||||
Other | 769 | 1,101 | |||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
Accounts receivable | (1,048 | ) | 6,457 | ||||||||
Income taxes receivable | 2,372 | 4,107 | |||||||||
Inventories | 2,425 | (612 | ) | ||||||||
Prepaid expenses and other current assets | 3,440 | 1,624 | |||||||||
Other assets and liabilities | (1,577 | ) | (614 | ) | |||||||
Accounts payable | (5,239 | ) | (10,007 | ) | |||||||
Income and other taxes payable | 7,817 | 277 | |||||||||
Accrued expenses and other current liabilities | (5,164 | ) | (16,738 | ) | |||||||
Deferred revenue | (156 | ) | 934 | ||||||||
Net cash provided by operating activities | 47,329 | 33,853 | |||||||||
Investing activities | |||||||||||
Purchases of property and equipment | (15,064 | ) | (10,249 | ) | |||||||
Loans issued | (715 | ) | (917 | ) | |||||||
Repayments of loans issued | 863 | 1,275 | |||||||||
Acquisitions, net of cash acquired | (21 | ) | (11,202 | ) | |||||||
Other | 7 | 159 | |||||||||
Net cash used in investing activities | (14,930 | ) | (20,934 | ) | |||||||
Financing activities | |||||||||||
Net (repayments) proceeds on line of credit facility | (5,575 | ) | 61,500 | ||||||||
Cash dividends paid | (7,354 | ) | (6,628 | ) | |||||||
Tax payments for equity award issuances | (2,259 | ) | (5,670 | ) | |||||||
Proceeds from exercise of stock options | 3,248 | 922 | |||||||||
Acquisition of Company common stock | (13,075 | ) | (66,033 | ) | |||||||
Distributions to noncontrolling interest holders | (702 | ) | (980 | ) | |||||||
Other | 396 | 294 | |||||||||
Net cash used in financing activities | (25,321 | ) | (16,595 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 74 | (58 | ) | ||||||||
Change in cash and cash equivalents | 7,152 | (3,734 | ) | ||||||||
Cash and cash equivalents at beginning of period | 15,563 | 21,006 | |||||||||
Cash and cash equivalents at end of period | $ | 22,715 | $ | 17,272 | |||||||
CONTACT:
Papa John’s International, Inc.
Lance Tucker,
502-261-7272
Chief Financial Officer