13 October 2024
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Papa John’s: Announces Q4 and Full Year 2015 Results

Louisville / KY. (pj) Papa John’s International Inc., the world’s third largest pizza company, announced financial results for the fourth quarter and fiscal year ended December 27, 2015. Highlights:

  • Fourth quarter earnings per diluted share of 0.62 USD in 2015 compared to 0.52 USD in 2014, an increase of 19.2 percent
  • Adjusted earnings per diluted share of 2.09 USD for full year 2015, excluding a legal settlement, or an increase of 19.4 percent over 2014; reported earnings per diluted share of 1.89 USD for full year 2015
  • System-wide comparable sales increases of 1.9 percent for North America and 5.3 percent for International for the fourth quarter; System-wide comparable sales increases of 4.2 percent for North America and 6.9 percent for International for the full year
  • 107 worldwide net unit openings in the fourth quarter and 230 for the full year, of which 182 were International and 48 were in North America

«I’d like to congratulate our entire team for making 2015 another great year for the Papa John’s brand», said Papa John’s founder, chairman and CEO John Schnatter. «From continued improvements to our product, to digital innovations, to growing our international footprint – all while again growing EPS nearly 20 percent and running strong positive comp sales – this year has left us tremendously well-positioned entering 2016».

Fourth quarter 2015 revenues were 416.8 million USD, a 2.0 percent decrease from fourth quarter 2014 revenues of 425.5 million USD. Fourth quarter 2015 net income increased 16.6 percent to 24.7 million USD, compared to fourth quarter 2014 net income of 21.2 million USD. Fourth quarter 2015 diluted earnings per share were 0.62 USD, or a 19.2 percent increase, compared to fourth quarter 2014 diluted earnings per share of 0.52 USD.

Full year 2015 revenues were 1.64 billion USD, a 2.5 percent increase from 2014 revenues of 1.60 billion USD. Full year 2015 net income was 75.7 million USD (83.7 million USD, or a 14.1 percent increase, excluding the after-tax expense of a legal settlement as detailed in the «Item Impacting Comparability» table), compared to 2014 net income of 73.3 million USD. Full year 2015 diluted earnings per share were 1.89 USD (2.09 USD, or a 19.4 percent increase, excluding the legal settlement), compared to 2014 diluted earnings per share of 1.75 USD.

Global Restaurant and Comparable Sales Information

Q4/2015 Q4/2014 FY-2015 FY-2014
Global restaurant sales growth (a) 3.4 percent 6.6 percent 5.3 percent 9.8 percent
Global restaurant sales growth, excluding the impact of foreign currency (a) 5.7 percent 8.2 percent 7.8 percent 10.6 percent
Comparable sales growth (b)
Domestic company-owned restaurants 3.4 percent 5.9 percent 5.9 percent 8.2 percent
North America franchised restaurants 1.3 percent 3.4 percent 3.6 percent 6.2 percent
System-wide North America restaurants 1.9 percent 4.1 percent 4.2 percent 6.7 percent
System-wide international restaurants 5.3 percent 8.9 percent 6.9 percent 7.4 percent
(a) Includes both company-owned and franchised restaurant sales.
(b) Represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. Comparable sales results for restaurants operating outside of the United States are reported on a constant Dollar basis, which excludes the impact of foreign currency translation.

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We believe global restaurant and comparable sales growth information, as defined in the table above, is useful in analyzing our results since our franchisees pay royalties that are based on a percentage of franchise sales. Franchise sales generate commissary revenue in the United States and in certain international markets. Global restaurant and comparable sales growth information is also useful in analyzing industry trends and the strength of our brand. Management believes the presentation of global restaurant sales growth excluding the impact of foreign currency provides investors with useful information regarding underlying sales trends by presenting sales growth excluding the external factor of foreign currency exchange. Franchise restaurant sales are not included in company revenues.

Revenue and Operating Highlights

All revenue and operating highlights below are compared to the same period of the prior year, unless otherwise noted.

Revenue Highlights: Consolidated revenues decreased 8.7 million USD, or 2.0 percent, for the fourth quarter of 2015 and increased 39.2 million USD, or 2.5 percent, for the full year. The decrease for the three-month period was primarily due to lower FOCUS equipment sales, as anticipated, since the rollout is now complete and lower domestic commissary sales from lower commodity costs. The following summarizes changes in our revenues for the fourth quarter and full year:

  • Domestic company-owned restaurant sales increased 8.4 million USD, or 4.6 percent, and 54.5 million USD, or 7.8 percent, for the fourth quarter and full year 2015, respectively, primarily due to increases of 3.4 percent and 5.9 percent in comparable sales and increases of 1.9 percent and 2.7 percent in equivalent units.
  • North America franchise royalty revenue increased approximately 800’000 USD, or 3.4 percent, and 5.6 million USD, or 6.3 percent, for the fourth quarter and full year 2015, respectively, primarily due to increases of 1.3 percent and 3.6 percent in comparable sales, increases of 1.2 percent and 1.0 percent in equivalent units and lower royalty incentives.
  • Domestic commissary sales decreased 7.2 million USD, or 4.4 percent, and 13.9 million USD, or 2.2 percent, for the fourth quarter and full year, respectively, primarily due to lower revenues associated with lower cheese prices, somewhat offset by increases in restaurant sales volumes. Our pricing for cheese is based on a fixed Dollar markup; when cheese prices decrease, revenues decrease with no overall impact on the related Dollar margin.
  • Other sales decreased approximately 9.9 million USD, or 40.3 percent, and 9.5 million USD, or 12.8 percent, for the fourth quarter and full year 2015, respectively. As previously discussed, the decreases are primarily due to the lower FOCUS equipment sales, as anticipated. The higher levels of FOCUS equipment sales in the fourth quarter and full year of 2014 had no significant impact on operating results.
  • International revenues decreased approximately 900’000 USD, or 3.4 percent, for the fourth quarter and increased approximately 2.2 million USD, or 2.2 percent, for the full year 2015. The decrease for the fourth quarter was primarily due to lower sales at company-owned restaurants in China due to the disposition of eleven restaurants in 2014 and negative comparable sales. This decrease was partially offset by higher royalties and commissary revenues due to an increase in the number of franchised restaurants and an increase in franchised comparable sales, calculated on a constant Dollar basis. The increase for the full year was primarily due to higher royalties and commissary revenues from the increase in the number of franchised restaurants and an increase in franchised comparable sales. These increases were partially offset by lower sales at company-owned restaurants in China. Foreign currency exchange rates had a negative impact on revenues of approximately 1.5 million USD and 7.5 million USD for the fourth quarter and full year, respectively.

Operating Highlights: The tables below summarize income before income taxes on a reporting segment basis for the fourth quarter and full year 2015. Full year 2015 adjusted income before income taxes excludes the previously mentioned legal settlement (as detailed in the «Item Impacting Comparability» section).

(In thousands) Q4/2015 Q4/2014 Change
Domestic company-owned restaurants 15’267 USD 8’900 USD 6’367
Domestic commissaries 12’027 13’143 (1’116 )
North America franchising 21’770 20’620 1’150
International 4’084 3’179 905
All others 1’075 141 934
Unallocated corporate expenses (15’260 ) (14’035 ) (1’225 )
Elimination of intersegment profits (40 ) 443 (483 )
Total income before income taxes USD 38’923 USD 32’391 USD 6’532

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As Reported Legal Adjusted Adjusted
 Year Ended … December 27, Settlement December 27, December 28, Change
(In thousands) 2015 expense 2015 2014
Domestic company-owned restaurants USD 56’452 USD – USD 56’452 USD 40’969 USD 15’483
Domestic commissaries 44’721 – 44’721 39’317 5’404
North America franchising 83’315 – 83’315 77’009 6’306
International 10’891 – 10’891 7’250 3’641
All others 845 – 845 (9 ) 854
Unallocated corporate expenses (75’896 ) 12’278 (63’618 ) (49’440 ) (14’178 )
Elimination of intersegment profits (1’181 ) – (1’181 ) (841 ) (340 )
Total income before income taxes USD 119’147 USD 12’278 USD 131’425 USD 114’255 USD 17’170

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Fourth quarter 2015 income before income taxes increased approximately 6.5 million USD, or 20.2 percent. This increase was primarily due to the following:

  • Domestic company-owned restaurants income increased 6.4 million USD primarily due to higher profits from the 3.4 percent increase in comparable sales, lower commodity costs and lower insurance costs including non-owned automobile claims of approximately 3.4 million USD. The improvement in insurance costs is primarily attributable to 2014 including significant adverse claims experience in the fourth quarter. The market price for cheese averaged 1.60 USD per pound for the fourth quarter of 2015, compared to 1.99 USD per pound in the fourth quarter of 2014.
  • North America franchising income increased 1.2 million USD primarily due to higher royalties attributable to the 1.3 percent and 1.2 percent increases in comparable sales and equivalent units, respectively, and lower royalty incentives.
  • International income increased approximately 900’000 USD primarily due to higher royalties from an increase in units and comparable sales of 5.3 percent and an improvement in China results, including lower depreciation expense of 500’000 USD as we are no longer depreciating our China company-owned restaurants, which are classified as held for sale. This was somewhat offset by the negative impact of foreign currency exchange rates of approximately 600’000 USD.
  • The results for the «All others» segment increased approximately 900’000 USD primarily due to lower costs for our digital ordering business and a higher margin at our print and promotions business as the prior year included a reduced cost direct mail campaign offered to our domestic franchised restaurants.

These increases were partially offset by the following decreases:

  • Domestic commissaries income decreased approximately 1.1 million USD due to a planned lower margin. We manage commissary results on a full year basis and the margins can vary somewhat by quarter.
  • Unallocated corporate expenses increased approximately 1.2 million USD primarily due to increases in management incentive costs from higher annual operating results, health insurance claims costs, and interest costs from higher levels of debt and a higher effective interest rate. These increases were partially offset by lower legal costs.

Income before income taxes increased 17.2 million USD, or 15.0 percent, for the full year 2015, excluding the 12.3 million USD legal settlement. This increase was primarily due to the following:

  • Domestic company-owned restaurants income increased 15.5 million USD primarily due to higher profits from the 5.9 percent increase in comparable sales and lower commodity costs. These increases were partially offset by higher depreciation expense of 1.1 million USD associated with FOCUS equipment. The market price for cheese averaged 1.61 USD per pound for 2015, compared to 2.12 USD per pound for the prior year.
  • Domestic commissaries income increased approximately 5.4 million USD primarily due to incremental profits from higher restaurant volumes and a higher margin, partially offset by incremental insurance expense from higher automobile claims costs of approximately 1.5 million USD.
  • North America franchising income increased 6.3 million USD primarily due to higher royalties attributable to the 3.6 percent and 1.0 percent increases in comparable sales and equivalent units, respectively, and lower royalty incentives.
  • International income increased approximately 3.6 million USD primarily due to an increase in units and comparable sales of 6.9 percent, which resulted in both higher royalties and an increase in United Kingdom commissary results. Additionally, our Company-owned China results improved primarily due to lower non-operating costs of 1.5 million USD for impairment, disposition and depreciation. These increases were partially offset by the negative impact of foreign currency exchange rates of approximately 2.8 million USD.
  • The results for the «All others» segment increased approximately 900’000 USD primarily due to lower infrastructure costs to support our digital ordering business.

These increases were partially offset by higher unallocated corporate expenses of approximately 14.2 million USD primarily due to higher salaries and benefits, including an increase in health insurance claims costs, as well as increased interest costs associated with higher levels of debt and a higher effective interest rate. In addition, management incentive compensation costs increased in 2015 due to higher annual operating results.

The effective income tax rates were 32.5 percent and 31.2 percent for the fourth quarter and full year 2015, respectively, representing an increase of 1.5 percent for the fourth quarter and a decrease of 0.8 percent for the full year period. Our effective income tax rate may fluctuate from quarter to quarter for various reasons. The 2015 full year rate includes higher benefits from various tax deductions and credits.

The company’s free cash flow, a non-GAAP financial measure, was as follows (in thousands):

Q4/2015 Q4/2014
Net cash provided by operating activities (a) USD 160’312 USD 122’632
Purchases of property and equipment (b) (38’972 ) (48’655 )
Free cash flow USD 121’340 USD 73’977
(a) The increase of approximately 37.7 million USD was primarily due to higher operating income and favorable changes in inventory and other working capital items. The prior year included higher inventory levels of equipment to support the rollout of FOCUS to our domestic franchised restaurants. The legal settlement does not impact cash provided by operating activities as it was paid in January 2016.
(b) The decrease of approximately 9.7 million USD is primarily due to the prior year including FOCUS equipment costs for domestic Company-owned restaurants and higher levels of FOCUS software development costs.

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We define free cash flow as net cash provided by operating activities (from the consolidated statements of cash flows) less the amounts spent on the purchase of property and equipment. We view free cash flow as an important measure because it is a factor that management uses in determining the amount of cash available for dividends, share repurchases and discretionary investment. Free cash flow is not a term defined by GAAP, and as a result, our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP measures.

See the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for additional information concerning our operating results and cash flow for the full year ended December 27, 2015.

Global Restaurant Unit Data

At December 27, 2015, there were 4’893 Papa John’s restaurants operating in all 50 states and in 39 international countries and territories, as follows:

Domestic Company-owned Franchised North America Total North America International System-wide
Fourth Quarter
Beginning – September 27, 2015 697 2’664 3’361 1’425 4’786
Opened 8 38 46 93 139
Closed (2 ) (17 ) (19 ) (13 ) (32 )
Acquired (divested) 4 (4 ) – – –
Ending – December 27, 2015 707 2’681 3’388 1’505 4’893
Year-to-date
Beginning – December 28, 2014 686 2’654 3’340 1’323 4’663
Opened 16 106 122 235 357
Closed (2 ) (72 ) (74 ) (53 ) (127 )
Acquired (divested) 7 (7 ) – – –
Ending – December 27, 2015 707 2’681 3’388 1’505 4’893
Unit growth 21 27 48 182 230
percent increase 3.1 percent 1.0 percent 1.4 percent 13.8 percent 4.9 percent

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Our development pipeline as of December 27, 2015 included approximately 1’140 restaurants (200 units in North America and 940 units internationally), the majority of which are scheduled to open over the next six years.

Item Impacting Comparability

The following table reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures, for the fourth quarter and year ended December 27, 2015:

(In thousands, except per share amounts) Q4/2015 Q4/2014 FY-2015 FY-2014
Income before income taxes, as reported USD 38’923 USD 32’391 USD 119’147 USD 114’255
Legal Settlement expense – – 12’278 –
Income before income taxes, as adjusted USD 38’923 USD 32’391 USD 131’425 USD 114’255
Net income, as reported USD 24’695 USD 21’181 USD 75’682 USD 73’315
Legal Settlement expense – – 7’986 –
Net income, as adjusted USD 24’695 USD 21’181 USD 83’668 USD 73’315
Diluted earnings per share, as reported USD 0.62 USD 0.52 USD 1.89 USD 1.75
Legal Settlement expense – – 0.20 –
Diluted earnings per share, as adjusted USD 0.62 USD 0.52 USD 2.09 USD 1.75

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The legal settlement expense represents a pre-tax expense of 12.3 million USD for a legal settlement preliminarily approved by the court and recorded in the quarter ended June 28, 2015. The court issued the final approval on January 12, 2016 and the funds were then remitted to the administrator for payment to the class and the plaintiffs’ attorneys. This collective and class action, Perrin v. Papa John’s International, Inc. and Papa John’s USA, Inc., which included approximately 19’000 drivers, alleged delivery drivers were not reimbursed in accordance with the Fair Labor Standards Act. The company continues to deny any wrongdoing in this matter.

The non-GAAP results shown above, which exclude the legal settlement, should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP results. Management believes presenting the financial information excluding the legal settlement is important for purposes of comparison to prior year results. In addition, management uses this metric to evaluate the company’s underlying operating performance and to analyze trends.

Share Repurchase Activity

In February 2016, the company’s Board of Directors approved a 75 million USD increase in the amount of common stock that may be purchased under the company’s share repurchase program through February 2017, bringing the total authorized under the program to 1.525 billion USD since its inception in 1999. Approximately 167.1 million USD remains available under the company’s share repurchase program as of February 16, 2016.

The following table reflects our repurchases for the fourth quarter and full year 2015 and subsequent repurchases through February 16, 2016 (in thousands):

Period Number of Shares Cost
Fourth Quarter 2015 637 USD 39’627
Full Year 2015 1’845 USD 119’793
December 28, 2015 through February 16, 2016 860 USD 42’589

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There were 39.4 million and 40.0 million diluted weighted average shares outstanding for the fourth quarter and full year 2015, respectively, representing decreases of 3.5 percent and 4.1 percent, respectively, over the prior year comparable periods. Diluted earnings per share increased 0.02 USD and 0.08 USD, respectively, for the fourth quarter and full year 2015 due to the reduction in shares outstanding, primarily resulting from the share repurchase program. Approximately 38.6 million actual shares of the company’s common stock were outstanding as of December 27, 2015.

2016 Key Operating Assumptions and Earnings Guidance

Earnings per Share (EPS) – The company projects 2016 EPS to increase to a range of 2.30 USD to 2.40 USD, or increase 10 percent to 15 percent over 2015 EPS of 2.09 USD, excluding the legal settlement.

Comparable Restaurant Sales – North America system-wide comparable sales are expected to increase 2 percent to 4 percent in 2016. International comparable sales are expected to increase 5 percent to 7 percent, on a constant Dollar basis, in 2016.

Worldwide Net Unit Growth – Worldwide net unit growth in 2016 is expected to range between 180 and 210 units, with approximately 75 percent of the net unit growth in International markets.

Revenues – Total consolidated revenues are expected to increase 4 percent to 6 percent in 2016.

Income Before Income Taxes Margin – Consolidated income before income taxes margin in 2016 is expected to increase up to 25 basis points over 2015 levels. We are assuming full-year block cheese prices in the low 1.60 USD’s per pound.

Income Tax Rate – The income tax rate in 2016 is expected to range from 31.0 percent to 32.5 percent.

Share Repurchases and Debt – The company expects to repurchase shares of its outstanding stock in a range of 100 to 150 million USD. Debt is expected to range between 1.5x and 2.0x 2016 earnings before interest, taxes, depreciation and amortization (Ebitda).

Capital Expenditures – Capital expenditures for 2016 are expected to approximate 55 to 60 million USD. This includes a new domestic commissary in the Southeast Region to be completed in 2017, company-owned unit development in the U.S., investments in technology and routine capital replacement.


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