Second Quarter Highlights:
- Royalty Pool sales increased 3.9%
- Same store sales increased 0.8%
August 2021 monthly dividend increased 9%, to$0.06 per share from$0.055 previously.- Adjusted earnings per share increased by 2.2%
- Restaurant network increased by five locations during the Quarter
Year-to-Date Highlights:
- Royalty Pool sales decreased 5.5%
- Same store sales decreased 6.5%
- Adjusted earnings per share decreased 6.6%
- Restaurant network increased by 12 locations during the Period
- Royalty Pool of restaurants for 2021 decreased by 24 net restaurants on
January 1, 2021
SALES
For the three months ended
For the six months ended
Total Royalty Pool System Sales for the Quarter and Period continued to be impacted by COVID-19 as restaurants comply with government imposed COVID-19 restrictions, including the closure of restaurant seating areas. Additionally, while the number of stores in the Royalty Pool are less than the comparative periods, the negative impact on Royalty Pool System Sales has been mitigated by the Make-Whole Carryover Payment.
SAME STORE SALES GROWTH ("SSSG")
SSSG, the key driver of yield growth for shareholders of the Company, increased 0.8% for the Quarter (2020 – decreased 16.3%), and decreased 6.5% for the Period (2020 – decreased 11.4%).
When comparing the results of 2021 to 2020, it is important to remember that the COVID-19 pandemic began impacting business in
SSSG | Second Quarter (%) | Year-to-Date (%) | ||
2021 | 2020 | 2021 | 2020 | |
Pizza Pizza | 3.1 | -19.1 | -5.7 | -12.6 |
Pizza 73 | -9.5 | -2.4 | -10.7 | -5.5 |
Combined | 0.8 | -16.3 | -6.5 | -11.4 |
SSSG is normally driven by the change in the customer check and customer traffic, both of which are affected by changes in pricing and sales mix. For the Quarter, the SSSG for Pizza Pizza was driven by an increase in traffic and a decrease in the average check, while for Pizza 73 the SSSG was impacted by the decrease in traffic and a relatively consistent cheque. Beginning in
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
Today, the Company's Board announced a 9% increase to its monthly dividend. The August dividend increased to
The Company declared shareholder dividends of
For the Period, 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. After the reduction in the monthly dividend in
The Company's working capital reserve is
INTEREST EXPENSE
Interest expense for the Quarter and Period increased due to a higher effective interest rate on the facility. The interest rate swap agreements fixed the facility interest rate at the Bankers' Acceptance rate of 1.81% plus a credit spread that moves with the results of the covenants.
CURRENT INCOME TAX EXPENSE
Current income tax expense for the Quarter was consistent with the prior year comparable quarter at
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 decreased 6.4% to
As compared to basic EPS, the Company considers adjusted EPS[1] 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 2.2% to
RESTAURANT DEVELOPMENT
As announced earlier this year, the number of restaurants in the Company's Royalty Pool decreased by 24 locations to 725 on the
During the Quarter, PPL opened seven traditional Pizza Pizza restaurants; one traditional and one non-traditional Pizza Pizza restaurants were closed. During the Period, PPL opened 10 traditional and four non-traditional Pizza Pizza restaurants, and closed two traditional and one non-traditional restaurant. Additionally, at the Pizza 73 brand, the Company opened two traditional restaurants and closed one non-traditional restaurant. These restaurants will be added to the Royalty Pool on
During the Quarter, substantially all traditional Pizza Pizza and Pizza 73 restaurants remained open for delivery and pick-up customers across Canada; however, the majority of non-traditional Pizza Pizza and Pizza 73 locations remained closed, with the exception of a few locations in hospitals and gas stations. As the provincial governments began lifting restrictions, some of our non-traditional locations, which initially closed, have reopened and others should reopen in a limited capacity as allowed by each province.
New restaurant construction continues across Canada and PPL expects to accelerate restaurant network expansion and increase renovations for the remainder of 2021, assuming pandemic effects are mitigated in the coming months.
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 unaudited interim condensed consolidated financial statements of the Company. Readers should note that the 2021 results are not directly comparable to the 2020 results because of the fact that there are 725 restaurants in the 2021 Royalty Pool compared to 749 restaurants in the 2020 Royalty Pool.
(in thousands of dollars, except number of restaurants, days in the year, per share amounts, and noted otherwise) | Three months | Three months | Six months ended | Six months ended | ||||
Restaurants in Royalty Pool(1) | 725 | 749 | 725 | 749 | ||||
Same store sales growth(2) | 0.8% | -16.3% | -6.5% | -11.4% | ||||
Days in the Period | 91 | 91 | 181 | 182 | ||||
System Sales reported by Pizza Pizza restaurants in the Royalty Pool(6) | $ | 98,647 | $ | 92,113 | $ | 188,872 | $ | 197,283 |
System Sales reported by Pizza 73 restaurants in the Royalty Pool(6) | 19,304 | 21,393 | 37,313 | 41,974 | ||||
Total System Sales | $ | 117,951 | $ | 113,506 | $ | 226,185 | $ | 239,257 |
Royalty – 6% on Pizza Pizza System Sales | $ | 5,919 | $ | 5,527 | $ | 11,332 | $ | 11,837 |
Royalty – 9% on Pizza 73 System Sales | 1,737 | 1,925 | 3,358 | 3,778 | ||||
Royalty income | $ | 7,656 | $ | 7,452 | $ | 14,690 | $ | 15,615 |
Interest paid on borrowings(3) (5) | (341) | (271) | (655) | (580) | ||||
Administrative expenses | (159) | (181) | (261) | (296) | ||||
Adjusted earnings available for distribution to the Company and | $ | 7,156 | $ | 7,000 | $ | 13,774 | $ | 14,739 |
Distribution on Class B and Class D Exchangeable Shares(4) | (1,667) | (1,384) | (3,334) | (3,525) | ||||
Current income tax expense | (1,219) | (1,166) | (2,328) | (2,485) | ||||
Adjusted earnings available for shareholder dividends(5) | $ | 4,270 | $ | 4,450 | $ | 8,112 | $ | 8,729 |
Add back: | ||||||||
Distribution on Class B and Class D Exchangeable Shares(4) | 1,667 | 1,384 | 3,334 | 3,525 | ||||
Adjusted earnings from operations(5) | $ | 5,937 | $ | 5,834 | $ | 11,446 | $ | 12,254 |
Adjusted earnings per share(5) | $ | 0.185 | $ | 0.181 | $ | 0.356 | $ | 0.381 |
Basic earnings per share | $ | 0.177 | $ | 0.189 | $ | 0.341 | $ | 0.384 |
Dividends declared by the Company | $ | 4,062 | $ | 3,693 | $ | 8,124 | $ | 8,959 |
Dividend per share | $ | 0.165 | $ | 0.150 | $ | 0.330 | $ | 0.3639 |
Payout ratio(5) | 95% | 83% | 100% | 103% | ||||
2021 | ||||||||
Working capital(5) | $ | 5,384 | $ | 5,388 |
(1) | The number of restaurants for which the |
(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 |
(4) | Represents the distribution to PPL from the Partnership on Class B and Class |
(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 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 MD&A will be available at www.sedar.com 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: | 82117770 |
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 report. 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 restrictions on restaurant operations, 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 and their ability to meet debt and lease obligations), 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 Company's MD&A, the PPL financial statements and the related MD&A, and the Company's Annual Information Form.
SOURCE
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