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Papa Murphy's Is Worth Considering

- By Mrinalini Chaudhuri

Papa Murphy's Holdings Inc. (FRSH), the well-known operator of the take-and-bake pizza chain, posted fourth-quarter and full-year 2016 results, including a 5% increase in total revenues. During the quarter, this pizza player opened 28 new stores, of which 27 were in the U.S.

Papa Murphy's currently operates more than 1,575 franchised and corporate-owned pizza stores in 38 states, Canada and the United Arab Emirates. Its menu offers customers a range of original, thin and stuffed crust pizzas with a wide variety of toppings. Apart from scratch-made pizzas, Papa Murphy's offers a growing menu of salads, sides and desserts.

Fourth-quarter performance

On Feb. 21, the Vancouver, Washington-based company reported financial results for its fourth quarter and full fiscal year 2016. The company's total revenues increased 5% to $35.48 million from $33.79 million in the comparable prior-year period. Revenues from franchise royalties and company-owned stores increased 2.71% to $10.98 million and 8.70% to $23.23 million from $10.69 million and $21.37 million. On the other hand, revenues from the franchise and development fees and other decreased 34.51% to $0.74 million and 11.67% to $0.53 million from $1.13 million and $0.6 million in the same period last year.

Papa Murphy's operating income decreased 17.85% to $3.82 million from $4.65 million in the year-ago quarter. Operating income as a percentage of total revenues was 10.77%. Net income decreased 43.73% to $1.48 million, or nine cents per diluted share, compared to $2.63 million, or 16 cents per diluted share, in the comparable prior-year period. Net income as a percentage of total revenue for the reported quarter was 4.17%, compared to 7.78% for the comparable prior-year period.

The company's EBITDA remained almost flat at $7.23 million. Adjusted EBITDA increased 3.32% to $7.78 million from $7.53 million a year ago. On the other hand, adjusted EBITDA as a percentage of total revenue decreased to 21.93% from 22.28%.

Papa Murphy's total costs and expenses increased 8.68% to $31.66 million. Total costs and expenses as a percentage of total revenues increased to 89.23% from 86.21% in the prior-year period. Selling, general and administrative expenses decreased 2.53% to $6.94 million. Net interest expenses for the quarter increased 14.28% to $1.28 million.

Papa Murphy's ended the quarter with cash and equivalents of $2.07million, a 69.87% decrease from $6.87 million a year ago. Long-term debt, net of current portion, decreased 6.72% to $100.96 million from $108.24 million.

Fiscal 2016 results overview

The following chart shows financial results for fiscal 2016.


Fiscal 2016

Fiscal 2015

% change

Total revenues

$126.88 million

$120.21 million


Revenues from franchise royalties

$39.85 million

$40.24 million


Revenues from franchise and development fees

$2.91 million

$4.22 million


Revenues from company-owned store

$82.08 million

$74.3 million


Revenues from other

$2.04 million

$1.44 million


Operating income

$9.65 million

$15.63 million


Net income

$2.65 million

$4.41 million



$21.7 million

$21.5 million


Adjusted EBITDA

$24.8 million

$28.12 million


Total costs and expenses

$117.23 million

$104.57 million


Selling, general and administrative expenses

$28.11 million

$28.21 million


Net interest expense

$4.87 million

$4.52 million



For fiscal 2017, Papa Murphy's expects its domestic system-wide comparable store sales in the range of flat to 2% and plans to open 75 new stores. Capital expenditures, net of cash proceeds from refranchising and EBITDA, are expected in the range of $5.0 million to $7.0 million and as a minimum of $24 million. Selling, general and administrative expenses and diluted share count are expected to be approximately $2.6 million and 16.8 million. Further, Papa Murphy's anticipates cash flow from operations to be at least $13 million.

Growth and initiatives

To perform well in the future, Papa Murphy's has chalked out a long-term annual growth model. In this model, the company expects disciplined new franchise growth of 6% to 8% and consistent low single-digit comparable store sales growth. Further, it expects EBITDA, net income and EPS growth of more than 10% and 20%.

To attract more customers, Papa Murphy's has taken the following steps:

  1. To drive business, the company is focused on TV advertising and product innovation. Papa Murphy's believes TV exposure will accelerate system growth and market maturity.
  2. The company is focused on refranchising programs across various markets with multiyear initiatives.
  3. Papa Murphy's is investing in digital marketing which will increase guest-check for orders placed online.


On Feb. 21, Papa Murphy's appointed Katherine L. Scherping as an independent member of its board of directors and audit committee. Scherping's 30-plus years of financial expertise and strong background in the industry will help the company to accomplish its growth strategy and build long-term shareholder value.

On a concluding note

Overall, Papa Murphy's is a rock-solid company with remarkable white space opportunities, an asset-light franchise business model, attractive long-term growth model and an experienced management team. Additionally, the company has a history of strong comparable store sales growth. 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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This article first appeared on GuruFocus.