Papa John’s International, Inc (PZZA) reported second quarter 2012 adjusted earnings of 61 cents per share, beating the Zacks Consensus Estimate of 56 cents. The adjusted earnings per share also surpassed the year-ago earnings of 47 cents by 29.8%.
Quarter Highlights
Total revenue jumped 8.5% year over year to $318.6 million and surpassed the Zacks Consensus Estimate of $311.0 million. The year-over-year improvement was attributable to higher comparable restaurant revenues in both domestic and international markets, and increase in number of units worldwide. Comparable system-wide restaurant revenue rose 5.7% and 6.1% in North America and in the international markets, respectively.
Domestic company-owned restaurant revenue improved 12.4% to $15.9 million, signifying an increase of 7.4% in comparable revenue and acquisition activity during the quarter.
Hike in net franchise units and comparable franchised restaurants revenue growth of 5.1% resulted in a 5.5% rise in North America franchise royalty revenue to $1.0 million. Domestic commissaries revenue upped 4.6% year over year to $5.6 million, primarily due to a hike in sales volume. International revenues surged 21.8% year over year to $3.1 million, due to higher number of restaurants opened and comparable system-wide revenue growth.
In the quarter under review, Papa John’s company-owned restaurant expenses and domestic commissary and other expenses rose 12.2% to $115.4 million and 1.4% to $127.1 million, respectively. General and administrative (G&A) expenses jumped 13.9% year over year to $31.5 million. Operating income also increased 27.0% year over year to $24.3 million.
Acquisitions and Dispositions
Since April 23, 2012, Papa John’s acquired 56 franchised restaurants in the Denver and Minneapolis markets for $5.2 million. Consequently, the company refranchised six of the total acquired restaurants.
Unit Growth
Consistent with its unit growth momentum, Papa John’s opened 67 restaurants and closed 27 restaurants, representing a worldwide increase of 6.4%. As of June 24, 2012, Papa John’s had 3,973 restaurants in 50 states across 33 countries.
By the next six years, the company expects to open approximately 1,500 restaurants, including 300 in North America and 1,200 in the international market.
Liquidity
At quarter end, Papa John’s had cash and cash equivalents of $33.6 million. The long-term debt and shareholders’ equity stood at $50.0 million and $225.5 million, respectively.
During the quarter, the company repurchased 0.6 million shares for $24.9 million. Subsequent to end of the quarter through July 26, 2012, the company repurchased 0.3 million shares for $13.6 million.
2012 Outlook
Based on the strong second quarter results, Papa John’s increased its earnings per share and domestic and international system-wide comps guidance. The company now expects full-year 2012 earnings per share in the range of $2.45-$2.55, up from the previous projection of $2.40-$2.50. One extra week of operation in fiscal 2012 is projected to benefit earnings by 8 cents to 10 cents per share and offset the expected decrease in earnings from Incentive Contribution in 2012.
The North America system-wide comparable revenue is projected to increase in the range of 2.0% to 3.0%, up from the earlier guidance of 1.5% to 2.5%. The international comparable revenue is expected to increase in the range of 4.0% to 5.5%, up from the previous guidance of 2.5% to 4.5%. However, the company reiterated its total revenue growth outlook increase to be in the range of 6% to 7%.
Our Take
We remain encouraged by the company’s long and successful track record, viable business strategy and strong balance sheet. Based on these, we expect analysts to revise their estimates upward in the coming days. The Zacks Consensus Estimates for 2012 and 2013 are currently pegged at $2.52 and $2.87, respectively.
One of Papa John’s peers – Panera Bread Co. (PNRA) – recently reported second-quarter 2012 earnings of $1.50 per share, surpassing the Zacks Consensus Estimate of $1.39. Papa John’s currently carries a Zacks #1 Rank, implying a short-term strong Buy rating. We also reiterate our long-term Outperform recommendation on the stock.
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