Pizza Pizza Royalty Corp. Announces First Quarter Financial Results
TORONTO, ONTARIO--(Marketwired - May 1, 2014) -
Attention Business Editors:
Pizza Pizza Royalty Corp. (PZA.TO) (the "Company"),which owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the first quarter ended March 31, 2014.
First Quarter highlights:
Royalty Pool of restaurants increased by 28
Dividends increased 2.6% in January
Same store sales increased 1.6%
Loan interest rate decreased 0.25%
Adjusted earnings per share increased 1.9%
Monthly dividend was 6.7% higher than the prior year quarter
SALES
In the first quarter ended March 31, 2014 ("Quarter"), System Sales from the 722 restaurants in the Royalty Pool increased 2.8% to $124.4 million from $121.1 million in the same quarter last year.
Same store sales growth ("SSSG"), the key driver of yield growth for shareholders of the Company, was 1.6% (3.5% - 2013) for the Quarter when compared to the same periods in 2013. The Company is reporting its fifteenth consecutive quarter of positive SSSG.
First Quarter | ||
Same Store Sales Growth | 2014 | 2013 |
Pizza Pizza | 0.4 | 3.1 |
Pizza 73 | 7.2 | 5.1 |
Combined | 1.6 | 3.5 |
SSSG is driven by growth in the average customer cheque and growth in customer traffic. Compared to the same quarter last year, the average customer cheque increased for the Quarter while the traffic counts decreased.
Paul Goddard, CEO, Pizza Pizza Limited ("PPL"), said: "The Company posted another solid sales growth quarter significantly bolstered by exceptional results at Pizza 73 in Alberta. This is our 15th consecutive quarter of reporting positive sales growth which has produced consistent dividend increases and a strong cash position over the period."
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
The Company declared shareholder dividends of $4.4 million ($0.2001 per share) for the Quarter compared to $4.1million ($0.1875 per share) for the prior year comparable quarter which equates to a 6.7% increase. The payout ratio was 100% for the Quarter compared to 96% in the first quarter of 2013.
In January 2014, the Company increased the monthly dividend by 2.6% to $0.0667 per Share. On an annualized basis, the dividend was increased by $0.02 to $0.80. The previous dividend increase was in June 2013 when the Company increased the monthly dividend by 4% to $0.065 ($0.78 annualized) from $0.0625 ($0.75 annualized). Prior to the June 2013 dividend increase, the Company had increased the dividend in January 2013 by 4.2% to $0.0625 per Share.
As announced in early 2014, in what was in effect a stock buy-back, the Company's board of directors agreed to pay PPL, for new Pizza 73 restaurants included in the Royalty Pool, a cash amount of $1.1 million in lieu of issuing 85,571 Class D Units to PPL. In deciding to pay cash in lieu of increasing PPL's equivalent shares, the Company's board of directors concluded that the transaction was accretive to shareholders and that the working capital reserve balance after the payment would be at an appropriate level. The Company's working capital reserve is $4.0 million at March 31, 2014, which is a decrease of $1.1 million for the Quarter.
The reserve is available to stabilize dividends and fund other expenditures in the event of short- to medium-term variability in System Sales and, thus, the Company's royalty income. With this reserve now in place, going forward the Company will target a payout ratio closer to 100%. The Company does not have capital expenditure requirements or employees.
EARNINGS PER SHARE
Fully-diluted earnings per share ("EPS") for the Quarter was $0.206 per share compared to $0.197 per share in the same quarter last year. However, the Company considers "adjusted" earnings to be a more meaningful indicator of the Company's operating performance and, thus, also presents fully-diluted adjusted EPS.
For the Quarter, adjusted EPS increased 1.9% to $0.212 per share compared to $0.208 per share in the same quarter last year.
Adjusted earnings and adjusted earnings per share are not recognized measures under International Financial Reporting Standards ("IFRS") and may be calculated in a manner that differs from that used by other issuers. For additional information about the calculation and use of these measures, please see "Reconciliation of Non-IFRS Measures" in the Company's Management's Discussion & Analysis ("MD&A").
CURRENT INCOME TAX EXPENSE
Current income tax expense for the Quarter was $1.1 million and was $1.0 million for the prior year comparable quarter. The increase is due to increased taxable income and a decline in the tax amortization.
Of particular note is that the Company's earnings from operations before income taxes differs significantly from its taxable income due largely to the tax amortization of the Pizza Pizza and Pizza 73 Rights and Marks. The amount of the tax amortization deducted is based on a declining basis and will decrease yearly.
CREDIT FACILITY INTEREST RATE DECREASE
The Company's $47,000,000 credit facility agreement contains a financial covenant which is customary for agreements of this nature. In particular, the Company has agreed to a financial covenant using a four quarter rolling basis in which the loan amount is divided by earnings before interest expense, taxes depreciation and amortization. For the four quarter period ended March 31, 2014, the Company achieved a certain threshold at which the interest rate decreased by 0.25% effective April 22, 2014. The covenant will continue to be tested going forward.
RESTAURANT DEVELOPMENT
As previously announced, the number of restaurants in the Company's Royalty Pool increased to 722 on the January 1, 2014 Adjustment Date from 694 in 2013. The number of restaurants in the Royalty Pool will remain unchanged for the year.
During the Quarter, Pizza Pizza Limited ("PPL") opened two additional restaurants and closed five restaurants, decreasing the overall number of restaurants to 720. By brand, for the Quarter, Pizza Pizza opened one traditional restaurant and one non-traditional location; four non-traditional Pizza Pizza restaurants and one non-traditional Pizza 73 restaurant were closed.
SELECTED FINANCIAL HIGHLIGHTS
The following tables set out selected financial information and other data of the Company, formerly Pizza Pizza Royalty Income Fund (the "Fund"), and should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company. Readers should note that the 2014 results are not directly comparable to the 2013 results because there are 722 restaurants in the 2014 Royalty Pool compared to 694 restaurants in the 2013 Royalty Pool.
(in thousands of dollars, except number of restaurants and per Share amounts) | 3 months ended March 31, 2014 | 3 months ended March 31, 2013 | ||||
Restaurants in Royalty Pool | 722 | 694 | ||||
Same store sales growth(1) | 1.6 | % | 3.5 | % | ||
Days in Period | 90 | 90 | ||||
System Sales reported by Pizza Pizza restaurants in the Royalty Pool(5) | $ | 102,412 | $ | 100,616 | ||
System Sales reported by Pizza 73 restaurants in the Royalty Pool(5) | 22,021 | 20,466 | ||||
Total System Sales | $ | 124,433 | $ | 121,082 | ||
Royalty - 6% on Pizza Pizza System Sales | $ | 6,145 | $ | 6,037 | ||
Royalty - 9% on Pizza 73 System Sales | 1,982 | 1,842 | ||||
Royalty income | $ | 8,127 | $ | 7,879 | ||
Interest paid on borrowings(2) | (514 | ) | (514 | ) | ||
Administrative expenses | (124 | ) | (128 | ) | ||
Adjusted earnings available for distribution to the Company and Pizza Pizza Limited | $ | 7,489 | $ | 7,237 | ||
Pizza Pizza Limited's distribution(3) | (2,073 | ) | (1,976 | ) | ||
Adjusted earnings available for distribution to the Company | $ | 5,416 | $ | 5,261 | ||
Current income tax expense | (1,066 | ) | (1,006 | ) | ||
$ | 4,350 | $ | 4,255 | |||
Add back: | ||||||
Pizza Pizza Limited's distribution on Class B and Class D Exchangeable Shares | 2,073 | 1,976 | ||||
Adjusted earnings from operations(4) | $ | 6,423 | $ | 6,231 | ||
Adjusted earnings per share(4) | $ | 0.212 | $ | 0.208 | ||
Basic earnings per share | $ | 0.206 | $ | 0.197 | ||
Dividends/distributions declared by the Company | $ | 4,366 | $ | 4,091 | ||
Dividend/distributions per share | $ | 0.2001 | $ | 0.1875 | ||
Payout ratio | 100 | % | 96 | % | ||
March 31, 2014 | March 31, 2013 | |||||
Working capital | $ | 3,953 | $ | 4,735 | ||
Total assets | $ | 334,377 | $ | 328,062 | ||
Total liabilities | $ | 59,907 | $ | 57,949 | ||
(1) Same store sales growth ("SSSG") means the change in annual gross revenue of a particular Pizza Pizza or Pizza 73 restaurant as compared to sales in the previous period, where the restaurant has been open at least 13 months. Additionally, for a Pizza 73 restaurant whose restaurant territory was adjusted due to an additional restaurant, a Step-Out Payment may be added to sales to arrive at SSSG.
(2) The Company, indirectly through the Pizza Pizza Royalty Limited Partnership (the "Partnership"), incurs interest expense on the $47,000 outstanding bank loan. Interest paid on the bank loan for the three months ended March 31, 2014 was $514 (March 31, 2013 - $514). Interest expense also includes amortization of loan fees. See "Interest Expense" in the Company's MD&A.
(3) Represents the distribution to PPL from the Partnership on Class B and Class D Units of the Partnership. The Class B and D Units are exchangeable into common shares of the Company based on the value of the Class B Exchange Multiplier and the Class D Exchange Multiplier at the time of exchange as defined in the amended and restated Pizza Pizza license and royalty agreement (the "Pizza Pizza License and Royalty Agreement") and the amended and restated Pizza 73 license and royalty agreement (the "Pizza 73 License and Royalty Agreement"), respectively, and represents 28% of the fully diluted Shares at March 31, 2014 (March 31, 2013 - 27.1%). During the quarter ended March 31, 2014, as a result of the final calculation of the equivalent Class B and Class D Share entitlements related to the January 1, 2013 Adjustment to the Royalty Pool, PPL returned a distribution on additional equivalent Shares as if such Shares were outstanding as of January 1, 2013. Included in the three months ended March 31, 2014, is the return of a dividend amount of $41 pursuant to the true-up calculation (2013 - PPL received $57).
(4) "Adjusted earnings from operations" and "Adjusted earnings per Share" do not have any standardized meaning under International Financial Reporting Standards ("IFRS"). Therefore, these figures are unlikely to be comparable to similar figures presented by other companies. See "Reconciliation of Non-IFRS Measures" in the Company's MD&A.
(5) System Sales (as defined in the License and Royalty Agreements) reported by Pizza Pizza and Pizza 73 restaurants include the gross sales of Pizza Pizza company-owned, jointly-controlled and franchised restaurants, excluding sales and goods and service tax or similar amounts levied by any governmental or administrative authority. System Sales do not represent the consolidated operating results of the Company but are used to calculate the royalties payable to the Partnership as presented above.
A copy of the Company's interim consolidated financial statements and related MD&A will be available at www.sedar.com and www.pizzapizza.ca after the market closes on May 1, 2014.
As previously announced, the Company will host a conference call to discuss the results. The details of the conference call are as follows:
Date: | Thursday, May 1, 2014 |
Time: | 5:30 p.m. ET |
Call-in number: | 416-340-2216 / 866-223-7781 / 800-6578-9898 |
Conference ID: | 4189978 |
Recording call in number: | 905-694-9451 / 800-408-3053 / 800-3366-3052 |
Available until midnight, May 15, 2014 | |
Passcode: 7042112 |
Forward Looking Statements
Certain statements in this report, including under the heading "Restaurant Development", may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this report, such statements include such words as "may", "will", "expect", "believe", "plan", and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this report. These forward-looking statements involve a number of risks and uncertainties. The following are some factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: competition; changes in demographic trends; changing consumer preferences and discretionary spending patterns; changes in national and local business and economic conditions; legislation and governmental regulation; accounting policies and practices; changes in the Company's distribution policy, tax position and availability and use of deductions and related structuring decisions; and the results of operations and financial condition of the Company. The foregoing list of factors is not exhaustive and should be considered in conjunction with the other risks and uncertainties described in the Company's Annual Information Form. The Company assumes no obligation to update these forward looking statements, except as required by applicable securities laws.
