PIZZA PIZZA ROYALTY CORP. ANNOUNCES STRONG FOURTH QUARTER AND FULL YEAR RESULTS
Fourth Quarter highlights:
- Same store sales(2) increased 4.0%
- Royalty Pool sales increased 7.0%
- Adjusted earnings per share(5) increased 7.1%
- Restaurant network increased by 11 net locations
2023 Full Year highlights:
- Same store sales(2) increased 8.2%
- Royalty Pool sales increased 10.6%
- Adjusted earnings per share(5) increased 10.9%
- Restaurant network increased by 32 net locations
- Monthly cash dividend increased three times, aggregating to 10.7%
- Royalty Pool of restaurants for 2023 increased by 16 restaurants on
January 1, 2023
SALES
Royalty Pool System Sales for the Quarter increased 7.0% to
Royalty Pool System Sales for the Year increased 10.6% to
For the Quarter and Year, the increase in Royalty Pool System Sales is primarily driven by the increase in same store sales and new restaurants added to the Royalty Pool on
SAME STORE SALES GROWTH ("SSSG")
SSSG, the key driver of yield growth for shareholders of the Company, increased 4.0% (2022 –13.0%) for the Quarter and 8.2% (2022 – 15.2%) for the Year.
SSSG |
Fourth Quarter (%) |
Year (%) |
||
|
2023 |
2022 |
2023 |
2022 |
Pizza Pizza |
3.5 |
15.2 |
8.4 |
17.8 |
Pizza 73 |
7.3 |
1.3 |
7.2 |
1.1 |
Combined |
4.0 |
13.0 |
8.2 |
15.2 |
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, the average customer check increased as the brands passed along retail price increases. At both brands restaurant traffic increased due to strong value messaging, promotional brand activities and product innovation. Additionally, 2022 results reflected a comparison to periods impacted by COVID-19, and 2023 reflects more normalized performance.
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
The Company declared shareholder dividends of
The Company declared shareholder dividends of
The Company's policy is to distribute all available cash in order to maximize returns to shareholders over time, after allowing for reasonable reserves. Despite seasonal variations inherent to the restaurant industry, the Company's policy is to make equal dividend payments to shareholders on a monthly basis in order to smooth out income to shareholders.
The Company's working capital reserve is
CREDIT FACILITY
On
In
CURRENT INCOME TAX EXPENSE
Current income tax expense for the Quarter increased to
Of particular note is that the Company's adjusted earnings from operations before income taxes differs significantly from its taxable income due largely to the tax amortization of the Pizza Pizza and Pizza 73 Rights and Marks, as well as the taxable income allocated to PPL. The amount of tax amortization deducted is based on a declining balance basis and will decrease annually.
EARNINGS PER SHARE ("EPS")
Fully-diluted basic EPS increased 7.3% to
As compared to basic EPS, the Company considers adjusted EPS(5) to be a more meaningful indicator of the Company's operating performance and, therefore, presents fully diluted, adjusted EPS. Adjusted EPS for the Quarter increased 7.1% to
RESTAURANT DEVELOPMENT
As announced in 2023, the number of restaurants in the Company's Royalty Pool increased by 16 locations to 743 on the
During the Quarter, PPL opened seven traditional and five non-traditional Pizza Pizza restaurants, and closed one non-traditional Pizza Pizza restaurant.
During the Year, PPL opened 21 traditional and 20 non-traditional Pizza Pizza restaurants, and closed five traditional and seven non-traditional restaurants. Additionally, at the Pizza 73 brand, PPL opened two traditional and two non-traditional restaurants, and closed one traditional restaurant. These restaurants have been added to the Royalty Pool on
New restaurant construction continues across
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 tables set out selected financial information and other data of
(in thousands of dollars, except number of |
Three months |
Three months |
Year ended
|
Year ended
|
|
|
|
|
|
|
|
Restaurants in Royalty Pool (1) |
743 |
727 |
743 |
727 |
|
Same store sales growth (2) |
4.0 % |
13.0 % |
8.2 % |
15.2 % |
|
Days in the Period |
92 |
92 |
365 |
365 |
|
|
|
|
|
|
|
System Sales reported by Pizza Pizza restaurants in the Royalty Pool (6) |
$ 141,051 |
$ 132,108 |
$ 544,388 |
$ 490,626 |
|
System Sales reported by Pizza 73 restaurants in the Royalty Pool (6) |
22,861 |
21,077 |
83,949 |
77,656 |
|
Total System Sales |
$ 163,912 |
$ 153,185 |
$ 628,337 |
$ 568,282 |
|
|
|
|
|
|
|
Royalty – 6% on Pizza Pizza System Sales |
$ 8,463 |
$ 7,926 |
$ 32,663 |
$ 29,438 |
|
Royalty – 9% on Pizza 73 System Sales |
2,058 |
1,898 |
7,556 |
6,989 |
|
Royalty income |
$ 10,521 |
$ 9,824 |
$ 40,219 |
$ 36,427 |
|
|
|
|
|
|
|
Interest paid on borrowings (3) (5) |
(323) |
(323) |
(1,280) |
(1,322) |
|
Administrative expenses |
(229) |
(233) |
(643) |
(632) |
|
Interest Income |
115 |
82 |
378 |
82 |
|
Adjusted earnings available for distribution to the Company and |
$ 10,084 |
$ 9,350 |
$ 38,674 |
$ 34,555 |
|
Distribution on Class B and Class D Exchangeable Shares (4) |
(2,370) |
(2,059) |
(9,117) |
(7,823) |
|
Current income tax expense |
(1,834) |
(1,679) |
(7,002) |
(6,142) |
|
Adjusted earnings available for shareholder dividends (5) |
$ 5,880 |
$ 5,612 |
$ 22,555 |
$ 20,590 |
|
Add back: |
|
|
|
|
|
Distribution on Class B and Class D Exchangeable Shares (4) |
2,370 |
2,059 |
9,117 |
7,823 |
|
Adjusted earnings from operations (5) |
$ 8,250 |
$ 7,671 |
$ 31,672 |
$ 28,413 |
|
|
|
|
|
|
|
Adjusted earnings per share (5) |
$ 0.255 |
$ 0.238 |
$ 0.979 |
$ 0.883 |
|
Basic earnings per share |
$ 0.249 |
$ 0.232 |
$ 0.958 |
$ 0.856 |
|
|
|
|
|
|
|
Dividends declared by the Company |
$ 5,662 |
$ 5,108 |
$ 21,849 |
$ 19,633 |
|
Dividend per share |
$ 0.230 |
$ 0.2075 |
$ 0.8875 |
$ 0.7975 |
|
Payout ratio (5) |
96 % |
91 % |
97 % |
95 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (5) |
|
|
$ 8,237 |
$ 7,512 |
|
Total assets |
|
|
$ 370,092 |
$ 367,831 |
|
Total liabilities |
|
|
$ 76,184 |
$ 75,408 |
|
|
|
|
|
|
|
(1) |
The number of restaurants for which the |
(2) |
Same store sales growth ("SSSG") is a supplementary financial measure under NI 52-112 and therefore may not be comparable to similar measures presented by other issuers. SSSG means the change in Period's gross revenue of a particular Pizza Pizza or Pizza 73 restaurant as compared to sales in the previous comparative Period, where the restaurant has 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 (calculated as the difference between the average monthly Pizza 73 Royalty payment attributable to that |
(3) |
The Company, indirectly through the Partnership, incurs interest expense on the |
(4) |
Represents the distribution to PPL from the Partnership on Class B and Class |
(5) |
"Adjusted earnings available for distribution to the Company and |
(6) |
System Sales (as defined in the License 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, and the monthly Make-Whole Payment, 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 unaudited interim condensed consolidated financial statements and related Management's Discussion and Analysis ("MD&A") will be available at www.sedarplus.ca and www.pizzapizza.ca after the market closes on
As previously announced, the Company will host a conference call to discuss the results. The details of the conference call are as follows:
Date: |
|
Time: |
|
Call-in number: |
416-764-8650 / 888-664-6383 |
|
|
Recording call in number: |
416-764-8677 / 888-390-0541 |
|
Available until midnight, |
|
|
Conference ID: |
005650 |
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, including information regarding the Company's dividend policy, its ability to meet covenants and other financial obligations, and the potential business and financial impacts of the COVID-19 pandemic on the Company, PPL and its franchisees and restaurant operators and their ability to achieve their business objectives, constitute "forward-looking" statements, which involve known and unknown risks, uncertainties and other factors that 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 in conjunction with a discussion of future events or operating or financial performance. These statements reflect management's current expectations regarding future events and operating and financial performance and speak only as of the date of this MD&A. The Company does not intend to or assume any obligation to update any such forward looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. These forward-looking statements involve a number of risks and uncertainties. The following are some factors that could cause actual results to differ materially from those expressed in or underlying such forward-looking statements: changes in national and local business and economic conditions including those resulting from the COVID-19 pandemic (such as customers' ability and willingness to visit restaurants and their perception of health and food safety issues, discretionary spending patterns and supply chain limitations, and the related financial impact on PPL and its franchisees and restaurant operators), impacts of legislation and governmental regulation, accounting policies and practices, competition, changes in demographic trends and changing consumer preferences, and the results of operations and financial condition of PPL. The foregoing list of factors is not exhaustive and should be read in conjunction with the other information included in the foregoing MD&A, the PPL financial statements for the period ended
Exhibit One: Reconciliation of Non-IFRS Measures
The Company's earnings, as presented under IFRS includes non-cash items, such as deferred tax, that do not affect the Company's business operations or its ability to pay dividends to shareholders. The Company believes its earnings are not the only, or most meaningful, measurement of the Company's ability to pay dividends or measure the rate at which the Company is paying out its earnings. Therefore, the Company reports the following non-IFRS measures:
- Adjusted earnings available for distribution to the Company and PPL;
- Adjusted earnings from operations;
- Adjusted earnings available for shareholder dividends;
- Adjusted earnings per share ("EPS");
- Payout Ratio; and
- Working Capital.
The Company believes that the above noted measures provide investors with more meaningful information regarding the amount of cash that the Company has generated to pay dividends, and, together with Interest Paid on Borrowings and SSSG, help illustrate the Company's operating performance and highlight trends in the Company's business. These measures are also frequently used by analysts, investors, and other interested parties in the evaluation of issuers in the Company's sector, particularly those with a royalty-based model. The adjustments to net earnings as recorded under IFRS relate to non-cash items included in earnings and cash payments accounted for on the statement of financial position. Investors are cautioned, however, that this should not be construed as an alternative to net earnings as a measure of profitability. The method of calculating the Company's NI 52-112 non-IFRS financial measures: Adjusted earnings available for distribution to the Company and
The table below reconciles the following to "Earnings for the period before income taxes" which is the most directly comparable measure calculated in accordance with IFRS:
- Adjusted earnings available for distribution to the Company and
Pizza Pizza Limited ; - Adjusted earnings from operations; and
- Adjusted earnings available for shareholder dividends.
(in thousands of dollars, except number of shares) |
2023 |
Q4 2023 |
Q3 2023 |
Q2 2023 |
Q1 2023 |
Earnings for the period before income taxes |
38,674 |
10,084 |
10,080 |
9,742 |
8,768 |
Adjusted earnings available for distribution to the Company and |
38,674 |
10,084 |
10,080 |
9,742 |
8,768 |
Current income tax expense |
(7,002) |
(1,834) |
(1,833) |
(1,766) |
(1,568) |
Adjusted earnings from operations |
31,672 |
8,250 |
8,247 |
7,976 |
7,200 |
Less: Distribution on Class B and Class D Exchangeable Shares |
(9,117) |
(2,370) |
(2,316) |
(2,255) |
(2,176) |
Adjusted earnings available for shareholder dividends |
22,555 |
5,880 |
5,931 |
5,721 |
5,024 |
Weighted average Shares – diluted |
32,337,580 |
32,337,580 |
32,337,580 |
32,337,580 |
32,337,580 |
(in thousands of dollars, except number of shares) |
2022 |
Q4 2022 |
Q3 2022 |
Q2 2022 |
Q1 2022 |
Earnings for the period before income taxes |
34,555 |
9,350 |
9,106 |
8,647 |
7,452 |
Adjusted earnings available for distribution to the Company and |
34,555 |
9,350 |
9,106 |
8,647 |
7,452 |
Current income tax expense |
(6,142) |
(1,679) |
(1,663) |
(1,528) |
(1,272) |
Adjusted earnings from operations |
28,413 |
7,671 |
7,443 |
7,119 |
6,180 |
Less: Distribution on Class B and Class D Exchangeable Shares |
(7,823) |
(2,059) |
(1,984) |
(1,924) |
(1,856) |
Adjusted earnings available for shareholder dividends |
20,590 |
5,612 |
5,459 |
5,195 |
4,324 |
Weighted average Shares – diluted |
32,177,276 |
32,177,276 |
32,177,276 |
32,177,276 |
32,177,276 |
The Basic EPS and the Adjusted EPS calculations are based on fully diluted weighted average shares, and both include PPL's Class B and Class D Exchangeable Shares since they are exchangeable into and economically equivalent to the Shares. See "Adjusted EPS".
Adjusted EPS is calculated by dividing Adjusted earnings from operations, as explained above, by the fully diluted weighted average shares.
Basic EPS is adjusted as follows: |
Three months ended |
Year ended |
||
|
2023 |
2022 |
2023 |
2022 |
Basic EPS |
$ 0.249 |
$ 0.232 |
$ 0.958 |
$ 0.856 |
Adjustments: |
|
|
|
|
Deferred tax expense |
0.006 |
0.006 |
0.021 |
0.027 |
Adjusted EPS |
$ 0.255 |
$ 0.238 |
$ 0.979 |
$ 0.883 |
Payout Ratio is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company presents the Payout Ratio to illustrate the earnings being returned to shareholders. The Company's Payout Ratio is calculated by dividing the dividends declared to shareholders by the adjusted earnings from operations, after paying the distribution on Class B and Class D Exchangeable Shares, in that same period.
|
Three months ended |
Year ended |
||
(in thousands of dollars, except as noted otherwise) |
2023 |
2022 |
2023 |
2022 |
Dividends declared to shareholders |
5,662 |
5,108 |
21,849 |
19,633 |
Adjusted earnings available for shareholder dividends |
5,880 |
5,612 |
22,555 |
20,590 |
Payout Ratio |
96 % |
91 % |
97 % |
95 % |
Working Capital is defined as total current assets less total current liabilities. The Company views working capital as a measure for assessing overall liquidity and its ability to stabilize dividends and fund unusual expenditures in the event of short- to medium-term variability in Royalty Pool System Sales.
(in thousands of dollars) |
|
|
|
Total current assets |
12,549 |
11,582 |
9,341 |
Less: Total current liabilities |
4,312 |
4,070 |
2,804 |
Working Capital |
8,237 |
7,512 |
6,537 |
SSSG is a key indicator used by the Company to measure performance against internal targets and prior period results. SSSG is commonly used by financial analysts and investors to compare PPL to other QSR brands. SSSG is defined as the change in period gross revenue of Pizza Pizza and Pizza 73 restaurants as compared to sales in the previous comparative period, where the restaurant has 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. It is a key performance indicator for the Company as this measure excludes sales fluctuations due to store closings, permanent relocations and chain expansion.
The following table calculates SSSG by reconciling Royalty Pool System Sales, based on calendar periods, to PPL's 13-week sales reporting period used in calculating same store sales.
|
Three months ended |
Year ended |
||
(in thousands of dollars) |
December 2023 |
December 2022 |
December 2023 |
December 2022 |
Total Royalty Pool System Sales |
163,912 |
153,185 |
628,337 |
568,282 |
Adjustments for stores not in both periods, Make-Whole Carryover Amount, Step-Out payments, and the impact of calendar reporting |
(5,112) |
(499) |
(20,899) |
(7,067) |
Same Store Sales |
158,800 |
152,686 |
607,438 |
561,215 |
SSSG |
4.0 % |
13.0 % |
8.2 % |
15.2 % |
SOURCE