Papa John's International Inc. (NASDAQ:PZZA) Q3 2017 Earnings Conference Call Transcript

Nov 01, 2017 • 10:00 am ET

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Papa John's International Inc. (NASDAQ:PZZA) Q3 2017 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to Papa John's Third Quarter 2017 Conference Call and Webcast. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Mr. Lance Tucker, CFO. Sir, please go ahead.

Executive
Lance Tucker

All right, thank you, Liz. Good morning. 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 and the IR section of our website for a reconciliation of non-GAAP financial measures discussed on this call. Finally, we would ask any media to be in a listen-only mode since this is primarily an investor call.

Now on to a discussion of our third quarter operating results. Diluted EPS in the third quarter was $0.60 up 5% over the prior year. Third quarter EPS was not materially impacted by the adoption of the new stock-based compensation accounting rules. Third quarter revenues were up 2.2%, driven primarily by higher QCC sales from volume increases as well as increased global comp sales and units. These increases were partially offset by reduced corporate restaurant sales due to the sale of the Phoenix market in the fourth quarter of 2016 which negatively impacted year-over-year revenues by over $8.5 million. Domestic company-owned margins, restaurant margins rather, were down 1.2% from 2016 primarily due to higher delivery expenses including higher non-owned automobile insurance costs.

North America commissary and other margins decreased 1.5% due primarily to higher operating and start-up costs related to the opening of our new quality control center or QCC in Georgia which opened in the third quarter. International margins increased 2% due primarily to higher comp sales and higher units. In addition, 2016 results included a onetime charge of $800,000 related to U.K. head lease arrangements. G&A and other expenses were lower by over $3.2 million coming in at 8.6% of revenues a 1% improvement versus the prior year. The primary drivers of this improvement were lower management incentive costs and lower restaurant supervisory bonuses. Our effective tax rate was 26.8% in the third quarter, down 1.6% from the prior year due primarily to a reduction in required state and local reserves, as the tax matter was favorably resolved.

During the quarter, we closed on a new $1 billion debt facility. As of quarter end we had drawn the entire proceeds of the $400 million term loan, but had no balance outstanding on a new $600 million revolver. As part of the expanded share repurchase authorization announced last quarter, we repurchased $87.7 million of stock during the third quarter. And as of October 24, we had remaining share repurchase authorization of over $485 million. The company expects to implement an accelerated