Papa John's International Inc. (NASDAQ:PZZA) Q2 2016 Earnings Conference Call Transcript

Aug 03, 2016 • 10:00 am ET

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Papa John's International Inc. (NASDAQ:PZZA) Q2 2016 Earnings Conference Call Transcript

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Presentation
Operator
operator

Good day, ladies and gentlemen and welcome to Papa John's Second Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions) As a reminder, this conference is being recorded.

Now, I'll turn the conference over to your host, Lance Tucker, CFO. Please begin.

Executive
Lance Tucker

Thank you, Tyrone, and good morning, everyone. Joining me on the call today are our Founder, Chairman and CEO, John Schnatter and our President and COO, Steve Ritchie, as well as other members of our senior management team. After the financial update, John and Steve will have comments about our business and the management team will then be available for Q&A.

(Forward-Looking Cautionary Statements)

Please refer to our earnings press release and the Investor Relations section of our website for a reconciliation and other disclosures related to our discussion of non-GAAP financial measures on this call. Unless otherwise noted, all comparisons are versus the comparable periods from a year ago. This call is being taped, and a replay will be available for a limited time on our website and in downloadable podcast format.

Now for a discussion of our second-quarter operating results, EPS in the second quarter was $0.61, up 30% over 2015. All areas of the business performed well, driven primarily by strong global comp sales, global unit growth, and favorable commodity trends.

Second quarter revenues were up 6%, mostly driven by 5.6% higher comp sales in our domestic corporate restaurants. In addition, domestic franchise revenues were up due to 4.5% comp sales in higher units. And international revenues were up for the same reasons with 5.3% higher comp sales and a greater number of restaurants versus the prior year.

We opened 32 net global units in the second quarter, 20 on the international side and 12 in North America. On a business segment basis, operating income for domestic Company-owned restaurants increased $700,000 due mainly to 5.6% comp sale increases and lower commodity costs, partially offset by higher non-owned auto insurance expenses.

Operating income for the North America franchising segment was up $2.4 million due primarily to increased units, 4.5% comps, and lower sales and development incentives. Operating income for our domestic commissary segment increased by approximately $1 million due primarily to higher volumes.

Second-quarter operating results for our international segment increased approximately $600,000 due primarily to 5.3% comps and increased units. Foreign currency exchange rates negatively impacted operating results by approximately $500,000.

Our unallocated corporate expenses decreased $600,000 due mainly to lower legal expenses. Our effective tax rate was 31.5%, up 2.6% versus the prior year, due mainly to the impact of the legal settlement in the second quarter of 2015, which lowered taxable income and therefore lowered the effective income tax rate last year.

We repurchased $30 million of stock during the quarter, and currently have over $107 million of remaining share repurchase authorization. Our free cash flow, a non-GAAP measure we define as cash flow