Papa John's International, Inc. PZZA reported dismal first-quarter 2018 results. The company's earnings missed the Zacks Consensus Estimate for the second straight quarter, while revenues lagged the same after two consecutive beats.
Following the quarterly results, Papa John's shares were down nearly 2% in after-hour trading yesterday. In a year's time, the stock has witnessed a sharp decline of 28.3% against the industry 's gain of 5.0%.
Adjusted earnings of 50 cents per share lagged the consensus estimate of 62 cents by 19.4%. The bottom line also fell 35.1% from the year-ago quarter figure due to weak operating results.
Revenues came in at $427.4 million, missing the consensus mark of $438 million by 2.4% and declining 4.9% year over year. The downside can be attributed to dismal North America restaurants comparable sales and decline in North America commissary sales on weak volumes. The decrease was partially overshadowed by an increase in international sales and favorable impact of foreign exchange rates.
Also, a challenging sales environment in the U.S. restaurant space has been affecting the company for quite some time, which is evident from Papa John's top-line performance. Moreover, labor costs coupled with increased operating costs from digital initiatives and marketing expenses has put a substantial pressure on the company's bottom line, which is expected to linger in 2018 as reflected in its outlook for the year.
Global Restaurant Sales & Comps
In the first quarter, global restaurant sales decreased 1.3% compared unfavorably with the last reported quarter's rise of 9.9% and the year-ago quarter's growth of 4.9%. Excluding foreign currency impact, global restaurant sales inched down 1% compared to the previous quarter and the year-ago quarter's increase of 9.6% and 5.5%, respectively.
Domestic company-owned restaurant comps were down 6.1% in the reported quarter compared to comps growth of 3% in the year-ago quarter.
Comps at North America franchised restaurants fell 5% comparing unfavorably with comps growth of 1.7% in the first quarter of 2017. Comps at system-wide North American restaurants decreased 5.3% compared to 2% comps growth in the year-ago quarter.
Comps at system-wide international restaurants inched up 0.3%, lower than comps growth of 6% in the year-ago quarter.
Total operating margin was 6.4% in the first quarter, a decrease of 330 basis points (bps) from the year-ago quarter. Total costs and expenses amounted $400.3 million, down 1.3% from first-quarter 2017.
Net income declined 41.1% year over year to $16.7 million.
Papa John's International, Inc. Price, Consensus and EPS Surprise
Papa John's International, Inc. Price, Consensus and EPS Surprise | Papa John's International, Inc. Quote
As of Apr 1, 2018, cash and cash equivalents totaled $31.9 million compared with $22.3 million as of Dec 31, 2017. Long-term debt came in at $568.8 million at the end of the first quarter compared with $446.6 million at the end of 2017.
Inventories at the end of quarter decreased to $28.3 million from $30.6 million at the end of Dec 31, 2017. Free cash flow totaled $31.7 million at the end of the reported quarter, compared with $32.3 million at the end of first-quarter 2017.
In the quarter under review, Papa John's repurchased 2,001 shares at a cost of $119.7 million. Management declared second-quarter dividend of 225 cents per common share, which will be paid on May 25, 2018 to shareholders of record at the close of business on May 14, 2018.
The company reiterated its previously announced guidance for 2018. Management continues to expect GAAP EPS in the range of $2.40-$2.60. Adjusted earnings are expected to decline in the range of 4.5-12% year over year due to lower operating results, primarily from expected pressure on Domestic restaurants' sales, higher delivery and insurance costs for the company-owned restaurants, and higher costs for technology and marketing investments.
North America comps are expected in the range of negative 3% to flat. International comps are anticipated to grow in the 3% to 5% band.
Capital expenditures of $45-$55 million are expected in 2018, whereas total Debt/EBITDA is expected between 3x and 3.5x.
Zacks Rank & Peer Releases
Papa John's carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Darden DRI reported mixed third-quarter fiscal 2018 results, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same. Adjusted earnings of $1.71 per share increased 29.5% year over year backed by higher revenues.
Restaurant Brands' QSR first-quarter 2018 earnings and revenues surpassed the Zacks Consensus Estimate. Earnings under the previous accounting standard came in at 67 cents, improving 86.1% year over year.
Chipotle's CMG first-quarter 2018 earnings surpassed analysts' expectations while revenues were in line with the same. Adjusted earnings of $2.13 grew 33.1% from the year-ago quarter driven by higher revenues and lower food costs.
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