Toronto, Ontario, May 9, 2017 – Pizza Pizza Royalty Corp. (the “Company”), which owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three months ended March 31, 2017.
For the three months ended March 31, 2017 (“Quarter”), System Sales from the 751 restaurants in the Royalty Pool increased 0.6% to $133.9 million from $133.1 million in the prior year comparable quarter when there were 736 restaurants. System Sales in the prior year quarter included an extra day of sales in February 2016 due to the leap year, which management estimated to be $1.0 million.
Royalty Pool System Sales for the Quarter increased over the prior year comparative period as a result of the impact of net, new restaurants added to the Royalty Pool on January 1, 2017, offset by the reported same store sales decrease. Additionally, the extra day of sales in the prior year quarter should be considered when comparing 2017 to 2016.
Same store sales growth (“SSSG”), the key driver of yield growth for shareholders of the Company, decreased by 0.7% for the Quarter compared to a 2.5% increase in the same quarter last year. SSSG is not affected by the additional day during the leap year in 2016, as SSSG is calculated using a 13-week comparative basis.
Paul Goddard, CEO, Pizza Pizza Limited, said: “Our sales were softer than anticipated this quarter. The average customer check increased, but customer traffic decreased compared to the prior year quarter. In the past year, we’ve selectively increased prices on a few of our most popular offerings which has negatively impacted traffic, but positively impacted restaurant profitability. In what seems to be an industry-wide trend, we encountered continued weakness in consumer spending, not only in western markets, but, in parts of Ontario as well. Having said that, we are excited to begin celebrating Pizza Pizza’s 50th anniversary with sales-building campaigns designed to increase traffic.”
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
The Company declared shareholder dividends of $5.3 million, or $0.2139 per share, for the Quarter compared to $5.1 million, or $0.2091 per share, for the prior year comparable quarter. The payout ratio was 103% for the Quarter and was 100% for the prior year comparable quarter.
For Canadian federal tax purposes, the dividend is considered a taxable eligible dividend.
The Company’s working capital reserve is $5.0 million at March 31, 2017, which is a decrease of $150,000 as compared to December 31, 2016. The decrease in the reserve was the result of flat adjusted earnings in the Quarter, coupled with an increase in the dividend effective June 2016.
The reserve is available to stabilize dividends and fund other expenditures in the event of short- to medium-term variability in System Sales and, thus, the Company’s royalty income. With this reserve in place, the Company has set a 2017 targeted payout ratio at or near 100% on an annualized basis. The Company does not have capital expenditure requirements or employees.
EARNINGS PER SHARE (“EPS”)
Fully-diluted basic EPS for the Quarter increased 1.4% to $0.217 per share compared to $0.214 per share for the same quarter in 2016. The increase in EPS for the Quarter is attributable to increased royalty income and a decrease in administrative expenses.
As compared to basic EPS, the Company considers “adjusted” EPS to be a more meaningful indicator of the Company’s operating performance and, therefore, presents fully-diluted adjusted EPS. Adjusted EPS for the Quarter was flat at $0.219 when compared to the same quarter in 2016.
CURRENT INCOME TAX EXPENSE
Current income tax expense for the Quarter was consistent with the 2016 comparable period at $1.4 million, as the operating results were comparable.
Of particular note is that the Company’s earnings from operations before income taxes, calculated under International Financial Reporting Standards (“IFRS”), differs significantly from its taxable income, largely due to the tax amortization of the Pizza Pizza and Pizza 73 Rights and Marks. The amount of the tax amortization deducted is based on a declining basis and will decrease annually.
The number of restaurants in the Company’s Royalty Pool increased by a net, 15 to 751 on the January 1, 2017 Adjustment Date. The number of restaurants in the Royalty Pool will remain unchanged through December 31, 2017.
During the Quarter, Pizza Pizza Limited (“PPL”) opened six restaurants and closed two. By brand, for the Quarter, Pizza Pizza opened three traditional and one non-traditional restaurants; two non-traditional locations were closed. Pizza 73 opened two traditional restaurants; no Pizza 73 restaurants were closed.
Readers should note that the number of restaurants added to the Royalty Pool each year may differ from the number of restaurant openings and closings reported by PPL on an annual basis as the periods for which they are reported differ slightly.
SELECTED FINANCIAL HIGHLIGHTS
The following table sets out selected financial information and other data of the Company and should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company. Readers should note that the 2017 results are not directly comparable to the 2016 results because of an extra day of royalty revenue in 2016 due to the leap year, in addition to the fact that there are 751 restaurants in the 2017 Royalty Pool compared to 736 restaurants in the 2016 Royalty Pool.
A copy of the Company’s unaudited interim condensed consolidated financial statements and related MD&A will be available at www.sedar.com and phx2uat.pizzapizza.ca after the market closes on May 9, 2017.
As previously announced, the Company will host a conference call to discuss the results. The details of the conference call are as follows:
A recording of the call will also be available on the Company’s website phx2uat.pizzapizza.ca.
Forward Looking Statements
Certain statements in this report may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this report, such statements include such words as “may”, “will”, “expect”, “believe”, “plan”, and other similar terminology. These statements reflect management’s current expectations regarding future events and speak only as of the date of this report. These forward-looking statements involve a number of risks and uncertainties, including those described in the Company’s annual information form. The Company assumes no obligation to update these forward looking statements, except as required by applicable securities laws.
For further information:
Curt Feltner, Chief Financial Officer, Pizza Pizza Limited
(416) 967-1010 x307
Christine D’Sylva, Vice President, Finance & Investor Relations, Pizza Pizza Limited
(416) 967-1010 x393