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Mixed 4Q for Papa John's

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Papa John’s International Inc. (PZZA - Free Report) reported fourth quarter 2012 earnings of 74 cents per share, missing the Zacks Consensus Estimate by 2 cents. However, the result surpassed the year-ago earnings of 65 cents per share. In 2012, the company posted earnings of $2.58 per share versus $2.16 in the prior year.

Total revenues jumped 19.9% year over year to $367.3 million and surpassed the Zacks Consensus Estimate of $348 million. The annual improvement was attributable to higher comparable restaurant revenues in both domestic and international markets and increase in number of units worldwide. In 2012, revenues were $1.3 billion, up 10.2% year over year.

Behind the Headline Numbers

Comparable system-wide restaurant revenues rose 5.2% and 7.0% in North America and in the international markets, respectively. Domestic company-owned restaurant revenues improved 23.6% to $161.6 million, signifying an increase of 6.9% in comparable revenues and acquisition activity during the quarter.

Hike in net franchised units along with comparable franchised restaurants’ revenues growth of 4.6% resulted in an 18.3% rise in North America franchise royalty revenues to $21.2 million. Domestic commissaries revenues upped 15.9% year over year to $149.1 million, primarily due to a rise in sales volume.

International revenues surged 29.1% year over year to $20.7 million, due to higher number of restaurants opened and comparable revenues growth.

In the quarter under review, Papa John’s company-owned restaurant expenses and domestic commissary and other expenses rose 22.2% to $129.8 million and 17.9% to $128.4 million, respectively. General and administrative (G&A) expenses hiked 38.1% year over year to $38.1 million. Operating income also rocketed 14.0% year over year to $27.0 million.

Unit Growth

During the quarter, the company opened 156 restaurants and closed 22 units, representing a 7.2% increase worldwide. As of Dec 30, 2012, Papa John’s had 4,163 restaurants in 50 states across 35 countries.


At quarter end, Papa John’s had cash and cash equivalents of $16.4 million. The long-term debt and shareholders’ equity stood at $88.3 million and $181.5 million, respectively.

Share Repurchases

During the reported quarter, the company repurchased 804,000 shares worth $41.9 million and also bought back 2.3 million shares worth $106.1 million in 2012. In the fourth quarter, the company approved the buy back of an additional $100 million shares under its existing share repurchase program.

2013 Outlook

Papa John’s expects full-year 2013 earnings per share in the range of $2.85 to $2.95, up nearly 10% to 14% year over year. North America system-wide comparable revenues are projected to increase in the range of 1.5% to 2.5%. International comparable revenues are expected to increase in the range of 5.0% to 7.0% in 2013.

Moreover, international restaurants’ sales are likely to grow by 20%-25% on the back of unit growth and comps improvement. Worldwide net unit is expected to grow within 230 and 260. Further, the company anticipated that total revenue growth will be in the range of 6% to 7% with the rise in number of units and comps growth. Consolidated pre-tax income margin will be nearly in line with the prior year.

Our Viewpoint

We remain encouraged by the company’s long and successful track record, robust unit and comps growth and viable business strategy. However, growing competition within the restaurant industry is a huge matter of concern.

Papa John’s retains a Zacks Rank #3 (Hold). Another restaurateur AFC Enterprises Inc. recently declared its preliminary fourth quarter and full year 2012 results. The company projects its adjusted earnings per share for the full year of 2012 to be within $1.23-$1.24, up from 99 cents in 2011. AFC also provided an optimistic outlook for 2013. AFC currently holds a Zacks Rank #2 (Buy).

Other restaurateurs, which are expected to perform well moving ahead, include Krispy Kreme Doughnuts, Inc. and Burger King Worldwide, Inc. . Both carry a Zacks Rank #2 (Buy).

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