Papa John's International Inc. (PZZA), the recognized quality leader in the pizza category, posted excellent quarterly results including an 8.52% increase in total revenues. Total revenues for the first nine months increased 4.1%.
Papa John's is the world's third-largest pizza delivery company and offers different pizza styles, topping choices and side items including chicken preparations, desserts and beverages. During the third quarter, the company had 4,971 Papa John's restaurants operating in all 50 states and in 44 international countries and territories.
On Nov. 1, 2016, the Louisville, Kentucky-based company reported its financial results for the third quarter ended Sept. 25. The company's total revenues increased 8.52% to $422.44 million, compared to $389.28 million for the comparable prior-year period. Revenues from domestic company-owned restaurant sales increased 10.54%.
Papa John's operating income increased 21.65% to $33.38 million, compared to $27.44 million in the year-ago quarter. Operating income as a percentage of total revenues increased to 7.9% from 7.05% in the same period last year. Net income increased 19.48% to $21.47 million, or 57 cents per diluted share. Net income as a percentage of total revenues increased to 5.08% from 4.62% in the prior-year period. The company's Ebitda increased 16.07% to $42.82 million, compared to $36.89 million for the comparable prior-year period.
The company's total costs and expenses increased 7.52% to $389.06 million. On the other hand, total costs and expenses as a percentage of total revenues decreased to 92.1% compared to 92.95% in the prior-year period. General and administrative expenses increased 7.67% to $40.55 million compared to $37.66 million in the same period last year.
Papa John's ended the quarter with cash and cash equivalents of $19.11 million, a decrease of 9% from the year-ago quarter. Inventories and net long-term debt for the reported quarter increased 12.85% to $24.33 million and 22.11% to $311.57 million.
Attributes of the quarter
Domestic company-owned restaurant sales increased primarily due to increase in comparable sales and equivalent units. Domestic franchise royalties and fees increased mainly due to increase in comparable sales and reduced levels of royalty incentives in 2016.
First nine months results overview
The following chart shows Papa John's financial results for first nine months of 2016.
Metrics
Nine months ended September 2016
Nine months ended September 2015
% change
Total revenue
$1.27 billion
$1.22 billion
4.1%
Operating income
$113.11 million
$96.08 million
17.72%
Net income
$70.19 million
$50.99 million
19.03%
Adjusted net income
$70.19 million
$58.97 million
19.03%
EBITDA
$138.88 million
$109.75 million
26.54%
Total costs and expenses
$1.16 billion
$1.12 billion
3.57%
General and administrative expenses
$123.42 million
$124.46 million
(0.83)%
Net interest expense
$4.88 million
$3.58 million
36.31%
Net cash provided by operating activities
$115.98 million
$119.74 million
(3.14)%
Share repurchase
For the reported quarter, Papa John's purchased $13.05 million worth of shares.
Projections
Papa John's has updated its guidance and for fiscal 2016, the company expects an increase in total revenue and international same store sales in the range of 4% to 6% and 5% to 7%. Additionally, the company expects its North America same store sales in the range of 3% to 5%.
The company expects its EPS in the range of $2.46 to $2.52 and share repurchases in the range of $100 million to $150 million. Further, the company expects its capital expenditures in the range of $55 million to $65 million and plans to open 180 to 210 net new stores worldwide.
Growth and development
Papa John's has significant white space opportunity in the international market and expects to increase its store count by 130 to 200 net units per year for the next several years. Recently, the company has announced its franchise expansion in Russia, Mexico and Egypt. Further, Papa John's is pursuing refranchising of its company-owned China market by early 2017.
Papa John's has introduced development initiatives for domestic openings in its pipeline. This initiative includes zero franchise fees, credit towards first food order and royalty reduction over several years. Recently, Papa John's has signed a restaurant development agreement with 1630 Pizza Company LLC for the growth of the Papa John's brand in the Boston, Massachusetts market.
On a concluding note
Overall, Papa John's is a rock-solid company with a strong cash flow and conservative balance sheet, remarkable white space opportunity and experienced management team. Since 1999, the company has used 100% of free cash flow for share repurchase and payment of dividend.
From 2013 to 2015, Papa John's total revenues, operating income, net income and EPS grew at a CAGR of 4.40%, 8.57%, 6.39% and 10.48%. For 15 of the past 17 years, consumers have rated Papa John's No. 1 in customer satisfaction among all national pizza chains in the American Customer Satisfaction Index. Further, Papa John's has provided 12 consecutive years of positive or flat North America same store sales and six consecutive years of positive international same store sales. Finally, with the recent quarterly release, the company is aiming for a better future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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