Papa John's Reports First Quarter Earnings

Business Wire,  May 6, 2008  

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* Domestic Franchising Segment. Domestic system-wide franchise sales for the first quarter of 2008 increased 1.5% to $381.9 million from $376.3 million for the same period in 2007, primarily resulting from a 1.4% increase in comparable sales. Domestic franchising operating income increased $1.5 million, to $14.5 million, for the three months ended March 30, 2008, from $13.0 million in the prior comparable period. The increase was primarily the result of the 0.25% increase in our royalty rate implemented at the beginning of 2008 (the royalty rate for the majority of domestic franchisees is 4.25% in 2008 as compared to 4.0% in 2007). The increase in the royalty rate was a part of the franchise agreement renewal program announced in the fourth quarter of 2007, which was completed during the first quarter of 2008 with over 95% of our domestic franchisees renewing under the new form of agreement. Our equivalent franchise units were relatively consistent with the corresponding 2007 quarter as net unit openings offset the previously mentioned acquisition of 55 restaurants by the company during the last nine months of 2007.

* International Segment. The international segment reported an operating loss of $1.7 million for the three months ended March 30, 2008, which was a $600,000 improvement as compared to the prior year loss of $2.3 million. The improvement reflects leverage on the international organizational structure from increased revenues due to growth in number of units and unit volumes.

* All Others Segment. The operating income for the "All others" reporting segment increased approximately $1.5 million for the three months ended March 30, 2008, as compared to the corresponding 2007 period. The increase is primarily due to an improvement in operating results of our print and promotions subsidiary, Preferred Marketing Solutions, Inc., resulting from increased commercial sales and related margin improvement.

* Unallocated Corporate Segment. Unallocated corporate expenses increased $924,000 for the three months ended March 30, 2008, as compared to the first quarter of 2007. The components of the unallocated corporate expenses were as follows:

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The increase in unallocated general and administrative costs was primarily due to severance-related costs and increases in expenses related to employee benefits, including health insurance and deferred compensation program costs. Management incentive costs were relatively consistent year-over-year.

The effective income tax rate was 36.6% and 36.5% for the three-month periods ended March 30, 2008 and April 1, 2007, respectively (36.0% and 36.5%, respectively, excluding BIBP). The 36.0% rate, excluding BIBP, is expected throughout 2008.

Cash Flow

Cash flow from operations was $20.3 million for the first quarter of 2008 as compared to $19.9 million for the comparable period in 2007. The consolidation of BIBP decreased cash flow from operations by approximately $8.0 million and $400,000 in the first quarter of 2008 and 2007, respectively. Excluding the impact of the consolidation of BIBP, cash flow from operations was $28.3 million in 2008, as compared to $20.3 million in the corresponding 2007 period. The $8.0 million increase was primarily due to an improvement in working capital, including inventories, income and other taxes, accrued expenses and accounts payable.