Louisville, Kentucky-based Papa John’s International, Inc (PZZA) reported first quarter 2012 adjusted earnings of 79 cents per share, comprehensively beating the Zacks Consensus Estimate of 55 cents and year-ago earnings of 64 cents per share. On a reported basis, Papa John’s quarterly earnings upped 7.8% year over year to 69 cents per share.
In the first quarter of 2012, Papa John’s reported a 6.0% year-over-year increase in total revenue to $331.3 million. The revenue increase was driven by higher comparable restaurant revenues in both domestic and international markets and increase in number of units. Comparable restaurant revenue rose 1.1% and 8.4% in North America and in the international markets respectively.
Quarter Highlights
In the first quarter 2012, Domestic company-owned restaurant revenue improved 3.7%, signifying an increase of 3.0% in comparable sales. Hike in net franchise units resulted in a 4.0% rise in North America franchise royalty revenue. Domestic commissaries revenue escalated 7.8%, primarily due to a hike in sales volume and prices of some commodities. However, the upside in revenue was partially offset by a dip of 8.8% in other sales. International revenues surged 32.4%, due to higher number of restaurants opened and comparable sales growth of 8.4% on constant dollar basis.
In the quarter under review, Papa John’s saw a spike in overall cost structure. Company-owned restaurant expenses and General and administrative (G&A) expenses rose 1.8% and 8.7%, respectively. Hence, operating income remained flat year over year at $27.3 million.
Unit Growth
Consistent with its unit growth momentum, Papa John’s opened 70 restaurants and closed 20 restaurants, representing a 1.3% increase on worldwide basis. By the next six years, the company expects to open approximately 1500 restaurants, including 300 in North America and 1200 in the international market.
Acquisition and Disposition Activity
Papa John’s acquired 56 franchised restaurants in the Denver and Minneapolis markets for $5.1 million. Subsequent to the acquisitions, the company refranchised six restaurants.
Financials
At quarter end, Papa John’s had cash and cash equivalents of $45.1 million with long-term debt of $50 million and shareholder equity of $227.8 million. During the quarter, the company also repurchased 0.4 million shares for $13.8 million.
Outlook
Papa John’s expects full-year 2012 diluted earnings per share in the range of $2.40-$2.50 up from previous projection of $2.33-$2.43. One extra week of operation in fiscal 2012, will benefit earnings by 8 cents to 10 cents per share. The international comparable sales growth expectation has also been raised from the range of 1.5%-3.5% to 2.5%- 4.5%. However, the company reiterated its revenue growth outlook of 6% to 7% and North America system-wide comparable sales growth of 1.5% to 2.5%.
Our Take
We remain encouraged by the company’s long and successful track record, viable business strategy and strong balance sheet. The company provides ample growth opportunities given its plan of opening 300 restaurants in the North America and 1200 in the international markets by the next six years.
One of Papa John’s peer company Yum! Brands Inc. (YUM) recently reported first-quarter 2012 earnings of 76 cents per share, surpassing the Zacks Consensus Estimate of 73 cents.
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