Pizza is the world’s most popular food and has provided a lot of returns. Papa John’s International Inc. (PZZA, Financial) is one of those pizza delivery experts in the industry that is playing well.
Papa John's is the world's third-largest pizza delivery company, which operates and franchises pizza delivery and carryout restaurants.The company has 4,935 franchised Papa John's restaurants operating in 50 states and in 43 international countries and territories. Along with pizza, Papa John’s offers side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. Further, Papa John's is the Official Pizza Sponsor of the National Football League and the Official Pizza of Major League Baseball.
Strong Second Quarter Results
On Aug. 2, the Louisville, Kentucky-based company reported its financial results for the second quarter. The following chart provides the company’s different revenues for the reported quarter.
| Types of revenues | 2Q 2016 | 2Q 2015 | % change |
| Domestic company-owned restaurant sales | $204.25 | $185.96 | 9.83% |
| Domestic franchise royalties and fees | $25.30 | $23.28 | 8.68% |
| Domestic commissary and other sales | $164.95 | $163.43 | 0.93% |
| International | $28.46 | $26.33 | 8.09% |
| Total revenues | $422.96 | $399.0 | 6.0% |
All figures are in millions
Papa John’s net income doubled to $22.54 million (an increase of 109.1%), compared to $10.78 million for the comparable prior-year period. General and administrative expenses decreased 1% to $42.62 million, compared to $43.05 million in the year-ago quarter. On the other hand, the company’s total cost and expenses increased 4.93% to $386.13 million, compared to $367.99 million in the fiscal 2015 comparable period.
Papa John’s diluted EPS for the reported quarter increased 125.92% to 61 cents, compared to 27 cents in the year-ago quarter.
Papa John’s ended the quarter with cash and cash equivalents of $15.27 million and long-term debt of $316.48 million (an increase of 24.04%, compared to $255.15 million for the comparable prior-year period).
The following chart provides Papa John’s performance for six months.
| Metrics | Six months ended June 2016 | Six months ended June 2015 | % change |
| Total revenues | $851.56 | $831.27 | 2.44% |
| Net income | $48.72 | $33.02 | 47.55% |
| General and administrative expenses | $82.87 | $86.8 | (4.53)% |
| Total cost and expenses | $771.83 | $762.63 | 1.21% |
| Diluted EPS | $1.29 | $0.82 | 57.32% |
| Net cash from operating activities | $75.12 | $77.98 | (3.67)% |
All figures are in millions except Diluted EPS
Share Repurchase and Dividend
Papa John’s diluted weighted average shares outstanding for the reported quarter decreased 6.7% to 37.5 million, compared to the prior year comparable period. Further, for six months, diluted weighted average shares outstanding decreased 6.1% to $37.9 million compared to the prior year comparable period.
During the reported quarter, the company has paid a cash dividend of approximately $6.5 million (17 cents per common share) and further, the company’s board of directors has approved a 14% increase in the company's dividend rate per common share, from 70 cents on an annual basis to 80 cents on an annual basis and declared a third quarter dividend of 20 cents per common share (approximately $7.4 million based on current shareholders of record).
Projections
After reporting such a wonderful quarter, Papa John’s has updated its guidance for fiscal 2016 (previous guidance issued in May). The company expects its North America comparable sales will increase by +2.0% to +4.0%. Diluted EPS will be in the range of $2.30 to $2.40. Capital expenditures are expected to be in the range of $55 to $60 million. Further, Papa John’s has introduced new overtime rules and its impact on fiscal 2017 will be evaluated in the coming months.
Development Plan
Papa John’s has started development incentives for domestic openings which include a zero franchise fee, royalty reduction over several years, set of two middleby ovens and royalty relief.
Growth
Papa John’s has provided 12 consecutive years of positive or flat comparable same store sales in North America. Further, it has provided 6 consecutive years of international same store sales growth.
Papa John’s is the first major brand with highest digital sales mix of over 55% in the category. To improve customer experience, the company is in an ongoing investment across all digital channels, including iOS app upgrade. Recently, Papa John’s has renewed its multiyear partnership deal as the Official Pizza Sponsor of the NFL and Super Bowl.
From 2013 to 2015, the company’s revenues, operating income, net income and EPS grew at a CAGR of 4.40%, 8.57%, 6.39% and 10.48%, respectively.
International presence
As of March, Papa John’s has total 1,513 units in Latin America and the Caribbean, Europe, Middle East/Africa and Asia. The company expects growth of at least 130-200 net units per year for next several years. Further, its new development agreements include Northeast France (38 restaurants), Madrid, Spain (100 restaurants), the Netherlands and Tunisia. It is also pursuing refranchising of the company-owned China market in 2016.
(Source: company website)
On a Concluding Note
Overall, Papa John’s is a rock-solid company with EPS growth, increase in net income, recognized quality leader in the pizza category, experienced management team and strong cash flow with a conservative balance sheet.
Further, for 15 of the past 17 years, consumers have rated Papa John's number one in customer satisfaction among all national pizza chains in the American Customer Satisfaction Index (ACSI). Finally, 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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