Papa John's International Inc. (NASDAQ:PZZA) Q1 2017 Earnings Conference Call Transcript

May 03, 2017 • 10:00 am ET

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Papa John's International Inc. (NASDAQ:PZZA) Q1 2017 Earnings Conference Call Transcript

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Presentation
Operator
operator

Good day, ladies and gentlemen, and welcome to the Papa John's First Quarter 2017 Conference Call and Webcast. (Operator Instructions) As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Lance Tucker, CFO. Sir, you may begin.

Executive
Lance Tucker

Thank you, Chelsea, and good morning, everyone. Joining me on the call today are our Founder, Chairman and CEO, John Schnatter; our President and COO, Steve Ritchie; and 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 release in the Investor Relations section of our website for a reconciliation of non-GAAP financial measures discussed on this call.

Now onto a discussion of our first quarter operating results.

Diluted EPS in the first quarter was $0.77, up 12% over 2016. EPS benefited by $0.03 due to the adoption of the new stock-based accounting rules.

First quarter revenues were up 4.8%, driven primarily by higher QCC sales from volume increases and higher commodity prices as well as increased global comp sales and units.

Domestic company-owned restaurant margins decreased to 1.6%, driven primarily by higher labor, higher non-owned automobile claim costs and increased mileage reimbursement expense from higher fuel prices.

North America commissary and other margins decreased 50 basis points, due primarily to the higher delivery expense of the commissaries, offset partially by improved margins from our online and mobile ordering business.

International margins improved 1%, due primarily to an increase in franchise royalties from 6% comps and the year- over-year increase in units. G&A was lower by approximately $2.2 million, down to 8.5% of consolidated revenues due to several factors, including lower franchise incentives, lower bonuses, favorable bad debt experience and the timing of international marketing spend.

Our effective tax rate was 28.6% in the first quarter, down 3.7% from the prior year. Of this decrease, 3.2% was due to the new stock-based compensation accounting rules.

We repurchased $13 million of stock during the quarter and currently have approximately $120 million of remaining share repurchase authorization. And our free cash flow, a non-GAAP measure, we define as cash flow from operations less capital expenditures, was approximately $32.3 million in the first quarter, up from 2016, mainly due to a large nonrecurring payment that occurred in 2016.

As noted in our previous press release, the company is reaffirming all aspects of its previously issued 2017 outlook. To reiterate, our EPS outlook includes the benefit of the 53rd week and excludes the impact of the new stock-based compensation accounting rules.

And now I'd like to turn the call over to our Founder, Chairman and CEO, John Schnatter. John?

Executive
John Schnatter

Thanks, Lance, and good morning, everyone. Thanks for joining us on the call today as we discuss our first quarter 2017 results.

I am pleased with our solid revenue and earnings growth in the first quarter. We continued to perform well in