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06.11.2019 23:26:00
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Pizza Pizza Royalty Corp. Announces Third Quarter Financial Results
TORONTO, Nov. 6, 2019 /CNW/ - Pizza Pizza Royalty Corp. (the "Company"), which owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three and nine months ended September 30, 2019.
Third quarter highlights:
- Royalty Pool sales were flat
- Same store sales decreased by 0.1%
- Restaurant network increased by one location
Year-to-date highlights:
- Royalty Pool sales increased 0.4%
- Same store sales growth was 0%
- Restaurant network decreased by 11 locations
- Royalty Pool of restaurants increased by 14 net restaurants effective January 1, 2019
SALES
For the three months ended September 30, 2019 ("Quarter"), Royalty Pool System Sales from the 772 restaurants in the Royalty Pool remained consistent with the prior year's comparative quarter at $138.5 million. For the nine months ended September 30, 2019, Royalty Pool System Sales increased 0.4% to 406.6 million compared to $404.9 million in the same period last year when there were 758 restaurants in the Royalty Pool.
Total Royalty Pool System Sales for the Quarter and nine month period reflect the impact of the reported same store sales growth ("SSSG") and the new restaurants added to the Royalty Pool on January 1, 2019.
SSSG, the key driver of yield growth for shareholders of the Company, decreased by 0.1% for the Quarter compared to the same quarter last year. Year-to-date, SSSG was flat when compared to the same period in 2018.
SSSG | Third Quarter (%) | Year-to-Date (%) | ||
2019 | 2018 | 2019 | 2018 | |
Pizza Pizza | (0.4) | (0.9) | (0.7) | (1.4) |
Pizza 73 | 1.7 | (0.5) | 3.4 | (1.4) |
Combined | (0.1) | (0.8) | 0.0 | (1.4) |
SSSG is driven by the change in the customer check and customer traffic, both of which are affected by changes in pricing and sales mix. During the Quarter and first nine months, the average customer check increased and customer traffic decreased when measured against the same periods last year.
Paul Goddard, CEO, Pizza Pizza Limited said, "We are pleased to see Pizza 73 continue posting positive same store sales growth in western Canada and are encouraged by our recent momentum at Pizza Pizza in winning back customers and recovering traffic in the highly competitive Ontario market. Our market-leading brands, marketing power and new innovations in our technology and menu offerings are gaining traction and we expect these to continue providing major advantages over competitors in the pizza industry."
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
In the Quarter, the Company declared shareholder dividends of $5.3 million, or $0.2139 per Share, which is unchanged from the prior year comparable quarter. The payout ratio was 103% for the Quarter and 102% the comparative quarter last year.
For the nine-month period, the Company declared shareholder dividends of $15.8 million, or $0.6417 per Share, which is unchanged from the prior year comparable period. The payout ratio was 106% for the first nine months and the prior year comparable period.
The Company's working capital reserve is $3.3 million at September 30, 2019, which is a decrease of $870,000 since December 31, 2018. With this reserve in place, the Company has targeted an annual payout ratio at or near 100% on an annualized basis; however, the ratio may exceed 100% in 2019 due to the reported SSSG. The Company's fourth quarter Royalty Pool System Sales have historically been the strongest quarter which has resulted in the fourth quarter payout ratio being less than 100%.
EARNINGS PER SHARE ("EPS")
Fully-diluted basic EPS decreased 0.4% to $0.212 for the Quarter and decreased 0.6% to $0.628 year-to-date when compared to the prior year.
As compared to basic EPS, the Company considers "adjusted" EPS1 to be a more meaningful indicator of the Company's operating performance and, therefore, presents fully-diluted adjusted EPS. Adjusted EPS for the quarter decreased 0.5% to $0.221 when compared to the same period in 2018, and increased 0.2% for the nine months.
CREDIT FACILITY
On June 28, 2019, the Partnership amended and extended its $47 million credit facility with a syndicate of chartered banks from April 2020 to April 2025. The Partnership's current interest rate is 2.75% and is projected to remain unchanged through April 2020 (2018 – 2.75%). The effective rate is comprised of a portion fixed with two interest rate swaps at 1.875% plus the credit spread, currently set at 0.875%. In the third quarter, the Partnership entered into a five year forward swap arrangement, commencing April 2020, at which time the credit facility will have a new, effective interest rate of 2.685% comprised of a fixed rate of 1.81% plus a credit spread, currently at 0.875%.
RESTAURANT DEVELOPMENT
The number of restaurants in the Company's Royalty Pool increased by 14 locations to 772 on the January 1, 2019 Adjustment Date. The number of restaurants in the Royalty Pool will remain unchanged through December 31, 2019.
During the Quarter, Pizza Pizza Limited ("PPL") opened two traditional and two non-traditional Pizza Pizza restaurants; one traditional and two non-traditional Pizza Pizza restaurants were closed.
For the nine months, PPL opened four traditional Pizza Pizza restaurants, one in Quebec, one in Ontario and two in British Columbia; seven traditional Pizza Pizza restaurants were closed. Additionally, eight non-traditional Pizza Pizza locations were opened and ten non-traditional locations were closed. At the Pizza 73 brand, one traditional and five non-traditional restaurants were closed.
With an enhanced focus on restaurant level profitability across the entire national network of locations, management has recently undertaken a review of underperforming restaurants and now projects closing four traditional and eight nontraditional locations in the fourth quarter which, when added to the closures through nine months, will exceed openings for the full year. We project opening eight traditional and two nontraditional restaurants in the fourth quarter. Management anticipates returning to overall net positive store growth for 2020 at both brands.
When PPL reports closed restaurants, an amount reflecting the reduction in the Royalty resulting from the decrease in System Sales will be paid by PPL to the Partnership, monthly, (the "Make-Whole Payment"), commencing from the date of permanent closure of a restaurant and paid until the following Adjustment Date (January 1). On the subsequent Adjustment Date, the calculated lost System Sales from the closed restaurants will be offset against forecasted System Sales of the new restaurants added to the Royalty Pool. The details of the full calculation can be found in the Company's Annual Information Form.
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.
__________________________ |
1 Adjusted earnings and adjusted EPS are not recognized measures under International Financial Reporting Standards ("IFRS") and may be calculated in a manner that differs from that used by other issuers. For additional information about the calculation and use of these measures, please see "Reconciliation of Non-IFRS Measures" in the Company's Management's Discussion & Analysis ("MD&A"). |
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 consolidated financial statements of the Company. Readers should note that the 2019 results are not directly comparable to the 2018 results because of the fact that there are 772 restaurants in the 2019 Royalty Pool compared to 758 restaurants in the 2018 Royalty Pool.
(in thousands of dollars, except number of | Three months September 30, 2019 | Three months September 30, 2018 | Nine months September 30, 2019 | Nine months September 30, 2018 | |||||
Restaurants in Royalty Pool(1) | 772 | 758 | 772 | 758 | |||||
Same store sales growth(2) | -0.1% | -0.8% | 0.0% | -1.4% | |||||
Days in the Year | 92 | 92 | 273 | 273 | |||||
System Sales reported by Pizza Pizza restaurants in | |||||||||
the Royalty Pool(6) | $ | 116,506 | $ | 117,189 | $ | 339,712 | $ | 340,664 | |
System Sales reported by Pizza 73 restaurants in | |||||||||
the Royalty Pool(6) | 21,957 | 21,268 | 66,914 | 64,198 | |||||
Total System Sales | $ | 138,463 | $ | 138,457 | $ | 406,626 | $ | 404,862 | |
Royalty – 6% on Pizza Pizza System Sales | $ | 6,990 | $ | 7,031 | $ | 20,383 | $ | 20,440 | |
Royalty – 9% on Pizza 73 System Sales | 1,976 | 1,915 | 6,022 | 5,778 | |||||
Royalty income | $ | 8,966 | $ | 8,946 | $ | 26,405 | $ | 26,218 | |
Interest paid on borrowings(3)(5) | (327) | (334) | (942) | (993) | |||||
Administrative expenses | (108) | (122) | (352) | (399) | |||||
Adjusted earnings available for distribution to | |||||||||
the Company and Pizza Pizza Limited(5) | $ | 8,531 | $ | 8,490 | $ | 25,111 | $ | 24,826 | |
Distribution on Class B and Class D Exchangeable | |||||||||
Shares(4) | (1,935) | (1,861) | (5,836) | (5,694) | |||||
Current income tax expense | (1,471) | (1,447) | (4,314) | (4,235) | |||||
Adjusted earnings available for shareholder | |||||||||
dividends(5) | $ | 5,125 | $ | 5,182 | $ | 14,961 | $ | 14,897 | |
Add back: | |||||||||
Distribution on Class B and Class D Exchangeable | |||||||||
Shares(4) | 1,935 | 1,861 | 5,836 | 5,694 | |||||
Adjusted earnings from operations(5) | $ | 7,060 | $ | 7,043 | $ | 20,797 | $ | 20,591 | |
Adjusted earnings per share(5) | $ | 0.221 | $ | 0.222 | $ | 0.651 | $ | 0.650 | |
Basic earnings per share | $ | 0.212 | $ | 0.213 | $ | 0.628 | $ | 0.632 | |
Dividends declared by the Company | $ | 5,266 | $ | 5,266 | $ | 15,798 | $ | 15,798 | |
Dividend per share | $ | 0.2139 | $ | 0.2139 | $ | 0.6417 | $ | 0.6417 | |
Payout ratio(5) | 103% | 102% | 106% | 106% | |||||
(1) | The number restaurants for which the Pizza Pizza Royalty Limited Partnership earns a royalty ("Royalty Pool"), as defined in the amended and restated Pizza Pizza license and royalty agreement (the "Pizza Pizza License and Royalty Agreement") and the amended and restated Pizza 73 license and royalty agreement (the "Pizza 73 License and Royalty Agreement") (together, the "License and Royalty Agreements"). For the 2019 fiscal period, the Royalty Pool includes 660 Pizza Pizza restaurants and 112 Pizza 73 restaurants. 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. |
(2) | SSSG means the change in period gross sales of Pizza Pizza and Pizza 73 restaurants as compared to sales in the previous period, where the restaurants have been open at least 13 months. Additionally, for a Pizza 73 restaurant whose restaurant territory was adjusted due to an additional restaurant, the sales used to derive the Step-Out Payment may be added to sales to arrive at SSSG. SSSG does not have any standardized meaning under IFRS. Therefore, these figures may not be comparable to similar figures presented by other companies. See "Reconciliation of Non-IFRS Measures" in the Company's MD&A. |
(3) | The Company, indirectly through the Partnership, incurs interest expense on the $47 million outstanding bank loan. Interest expense also includes amortization of loan fees and off-market swap payments. See "Interest Expense" in the Company's MD&A. |
(4) | Represents the distribution to PPL from the Partnership on Class B and Class D Units of the Partnership. The Class B and D Units are exchangeable into common shares of the Company ("Shares") based on the value of the Class B Exchange Multiplier and the Class D Exchange Multiplier at the time of exchange as defined in the Licence and Royalty Agreements, respectively, and represent 23.0% of the fully diluted Shares at September 30, 2019 (December 31, 2018 – 22.3%). During the quarter ended March 31, 2019, as a result of the final calculation of the equivalent Class B and Class D Share entitlements related to the January 1, 2018 Adjustment to the Royalty Pool, PPL was paid a distribution on additional equivalent Shares as if such Shares were outstanding as of January 1, 2018. Included in the three months ended March 31, 2019, is the payment of $31 in distributions to PPL pursuant to the true-up calculation (March 31, 2018 - PPL was paid $111). |
(5) | "Adjusted earnings from operations", "Adjusted earnings available for shareholder dividends", "Adjusted earnings per Share", "Payout Ratio", "Working Capital", and "Interest paid on borrowings" do not have any standardized meaning under IFRS. Therefore, these figures may not be comparable to similar figures presented by other companies. See "Reconciliation of Non-IFRS Measures" in the Company's MD&A. |
(6) | System Sales (as defined in the Licence and Royalty Agreements) reported by Pizza Pizza and Pizza 73 restaurants include the gross sales of Pizza Pizza company-owned, jointly-controlled and franchised restaurants, excluding sales and goods and service tax or similar amounts levied by any governmental or administrative authority. System Sales do not represent the consolidated operating results of the Company, but are used to calculate the royalties payable to the Partnership as presented above. |
A copy of the Company's interim condensed consolidated financial statements and related MD&A will be available at www.sedar.com and www.pizzapizza.ca after the market closes on November 6, 2019.
As previously announced, the Company will host a conference call to discuss the results. The details of the conference call are as follows:
Date: | Thursday, November 7, 2019 |
Time: | 9:00 a.m. ET |
Call-in number: | 647-427-7450 / 1-888-231-8191 |
Conference ID: | 9797659 |
Recording call in number: | 416-849-0833 / 1-855-859-2056 |
Available until midnight, November 21, 2019 | |
Passcode: 9797659 |
A recording of the call will also be available on the Company's website at www.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.
SOURCE Pizza Pizza Royalty Corp.
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