Papa John's Q2
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Papa John's Q2
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(FOOL CONFERENCE CALL
SYNOPSIS)* By Debora Tidwell (MF Debit)
Papa John's International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PZZA)") else Response.Write("(NASDAQ: PZZA)") end if %> UNION CITY, Ca., August 1, 1996/FOOLWIRE/ --- Papa John's International released their Q2 earnings after the market close yesterday and held their conference call this morning. The company had record revenues of $87.7 million and net income of $4.2 million. They beat analyst consensus estimates by a penny with earnings per share of $0.23, compared to $0.15 per share for Q2 last year. They also completed a stock offering of 1.1 million shares, resulting in approximately $50 million of net proceeds to the company.
During Q2 they opened a total of 69 units, with the company opening 15 and franchisees opening 54. The company acquired 3 restaurants and franchisees closed 1. Unit count at the end of the quarter was 248 company-owned locations and 752 franchised locations for a total of 1,000 in 28 states. Thusfar in Q3 they have opened 6 of their 19 planned corporate openings and 6 of their 60 planned franchise openings. Their construction pipeline is in good shape with 38 corporate leases signed and 66 franchise leases signed. They have approximately 98 stores in the works for Q3 and a total of 208 stores in the works for the remainder of the year. Those are sites that have been approved, but they don't anticipate that all of those will necessarily open.
Strong system-wide sales continued during the quarter with corporate comps at 14.7% and franchise comps at 8.1%. The Q2 corporate comp base consists of 151 restaurants or 61% of the total. The franchise comp base consists of 511 restaurants or 68% of the total. Company stores had $40.5 million in restaurant sales in the quarter and franchise stores had $108.5 million in restaurant sales for a total of almost $149 million in system-wide sales. Average weekly sales for the corporate comp base restaurants was $13,920. Restaurants not included in the comp base averaged $11,760. This makes an overall average of $13,130. Average weekly sales for the franchise comp base restaurants were $12,160. Restaurants not included in the comp base averaged $10,300 for an overall average of $11,620. Sales continue to be strong so far in Q3. They haven't seen much of a bump due to the Olympics.
Restaurant cost of sales were 28.8% and operating expenses were 54.2%, compared to 28.6% and 55.4% during Q2 1995. Restaurants included in their comp base averaged cost of sales of 28.4% and operating expenses of 52.1%, compared to 28.5% and 54.8% during Q2 1995. As expected, restaurants not included in their comp base averaged higher cost of sales of 29.5% and operating expenses of 58.7%, versus 31% and 64% in 1995.
Commissary and equipment margins remained in line resulting in an after-tax profit of about 3%. Cheese prices averaged $1.46 per pound during the quarter compared to $1.23 last year. This equates to somewhere around a 0.7% margin impact. And, cheese is currently at $1.62 per pound, which is at a higher level than they would expect at this time of the year. Last year at this time it was $1.25 per pound. For wheat prices, right now they are locked in through Q3 and are not anticipating much of a change in Q4. For wheat, their prices are locked in through Q3. Wheat prices seem to be dropping so they are working on locking in 1997 prices too. As far as the cheese, it is supposedly somewhat of a supply issue along with the grain costs going up. Right now, cheese is at the highest in its history. They anticipate it coming back down. They were up in food costs partly because of cheese and partly because they did some fairly heavy discounting in their 11th anniversary which also affects the cost line.
Going forward, their plan is to protect their margins and assume that cheese will stay at about the level that it is now. They don't expect any immediate relief. But, they think they are in the best position of any of the major players when it comes to pricing and dealing. They think they are still under the prices Dominos and Pizza Hut charges in most cases. With that, the company feels that those companies will probably have to make moves as they look at the food cost and the minimum wage cost coming up. The company asserts that if competitors don't make moves to raise the prices of their pizzas, they will be less aggressive in their specials. Papa John's already has a decent amount of room compared to them to hold prices until Q4 -- which is better timing seasonally for price increases and also coincides with the introduction of their new thin crust product to drive sales.
G&A for the company remained in line at 7.6% of revenues as well as D&A at 3.8%. They ended the quarter with a strong balance sheet including $90 million in cash and investments and $2.2 million in long-term debt. The company has two annual meetings for all of their operations teams. That meeting was originally scheduled for July but there were some scheduling conflicts with it and they moved it into Q2 and were able to absorb the $200,000 cost for the meeting in Q2 -- that was the biggest chunk of G&A expense in Q2. They have also started to do some additions to their training area and to the franchise development area. They feel they are getting in much better shape on the development side and want to stay ahead there. So, they are doing some investment spending, particularly in those areas. Therefore Q3 G&A shouldn't be much different from Q2.
The company continued the testing of a new thin-crust pizza product in 6 markets. The sales mix (thin mix percentage) in those markets most recently has run between 3% and 14%. The initial launch period, of course, is higher. They cannot continue to support it heavily with marketing so those are the mixes they are currently seeing, with approximately 40% of the incremental sales being for the thin crust mix. They will finish the creative on the print and TV spots during the August/September time frame and during Q4 they will start the rollout of this product to include all regions hopefully by the end of this year. The final consumer research is being completed this week.
During Q2 they opened the Dallas commissary operation which is, in essence, a cross-stocking facility and distribution facility. They manufacture the dough in Mississippi and then ship it out throughout Texas and other parts of the Southwest from their Dallas facility. They also opened their Denver facility, as they have opened both corporate and franchise stores in the Denver market during Q2 as well as several more this quarter. The Denver facility is up and going and getting up to its capacity of 100-150 stores. They are working on their commissaries for next year and have several in process. They are working on a Rotterdam New York facility to service the Northeast. They expect it will open in Q1 1997. It will be a full-service commissary servicing approximately 300 stores and will open with somewhere between 70-100 stores that it will automatically start servicing. They are also working on a Phoenix Arizona commissary. They are currently talking with a couple of bakeries to see whether they can provide the dough product for them, but they anticipate in either scenario that they will have the Phoenix commissary open in the early part of Q1. They are also looking at a site in the central Iowa area and expect to be opening a full-service commissary in late Q2/early Q3 1997 to service the central Midwest, the Chicago area, etc. And, they are planning on relocating their Louisville commissary into a new facility that is a little more state-of-the-art and has more room to be able to service more stores. One of the nice things some of these additional commissaries do is eliminate the need to make further investment in their Raleigh North Carolina (Garner) commissary. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |