PIZZA PIZZA ROYALTY CORP. ANNOUNCES THIRD QUARTER 2024 RESULTS
TORONTO, Nov. 4, 2024 /CNW/ - Pizza Pizza Royalty Corp. (the "Company") (TSX:PZA), which indirectly owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three months ("Quarter") and nine months ("Period") ended September 30, 2024.
Third Quarter highlights:
Same store sales(2) decreased 5.3%
Royalty Pool sales decreased 4.6%
Adjusted earnings per share(5) decreased 6.3%
Restaurant network increased by six net locations
Year-to-Date Quarter highlights:
Same store sales(2) decreased 2.7%
Royalty Pool sales decreased 1.0%
Adjusted earnings per share(5) decreased 2.3%
Restaurant network increased by 16 net locations
Royalty Pool of restaurants for 2024 increased by 31 restaurants on January 1, 2024
"In the third quarter we continued to experience headwinds as we navigate ongoing reduced consumer spending and its impact on foodservice, particularly delivery channels. In this environment, we have seen ongoing shifts to pick up orders across pizza QSR, which is an opportunity for us with our best in class restaurant footprint," said Paul Goddard, President and CEO of Pizza Pizza Limited. "Our sales recovery strategy continues to leverage our strong everyday value leadership position backed by ongoing enhancements to our menu, restaurants and digital customer experience."
SALESRoyalty Pool System Sales for the Quarter decreased 4.6% to $155.8 million from $163.2 million in the same quarter last year. By brand, sales from the 672 Pizza Pizza restaurants in the Royalty Pool decreased 5.0% to $134.9 million for the Quarter compared to $142.0 million in the same quarter last year. Sales from the 102 Pizza 73 restaurants decreased 1.8% to $20.8 million for the Quarter compared to $21.2 million in the same quarter last year.
Royalty Pool System Sales for the Period decreased 1.0% to $460.0 million from $464.4 million in the same period last year. By brand, sales from the 672 Pizza Pizza restaurants in the Royalty Pool decreased 1.6% to $397.0 million for the Period compared to $403.3 million in the same period last year. Sales from the 102 Pizza 73 restaurants increased 3.1% to $63.0 million for the Period compared to $61.1 million in the same period last year.
For the Quarter and Period, the change in Royalty Pool System Sales is primarily driven by the offsetting effects of new restaurants added to the Royalty Pool on January 1, 2024 and the same store sales. The Royalty Pool System Sales for the Period also benefitted from the extra day of sales in February 2024 due to the leap year. Additionally, while the number of restaurants in the Pizza 73 Royalty Pool remains less than in 2019 when there were 104 restaurants, the negative impact on Royalty Pool System Sales due to prior year restaurant closures has been mitigated by the Make-Whole Carryover Amount.
SAME STORE SALES GROWTH ("SSSG")SSSG, the key driver of yield growth for shareholders of the Company, decreased 5.3% (2023, increased 7.0%) for the Quarter, and decreased 2.7% for the Period (2023, increased 9.8%). SSSG is not affected by the additional day during the leap year, as SSSG is calculated using a 13 and 39-week comparative basis.
SSSG
Third Quarter
(%)
Period
(%)
2024
2023
2024
2023
Pizza Pizza
-5.9
6.4
-3.6
10.2
Pizza 73
-1.5
11.3
3.4
7.1
Combined
-5.3
7.0
-2.7
9.8
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 Period, consistent with the general market trends, at both brands restaurant traffic decreased due to the current economic situation and its impact on consumer discretionary spending. The average customer check was relatively flat as the brands introduced new value-oriented offerings.
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVEThe Company declared shareholder dividends of $5.7 million for the Quarter, or $0.2325 per share, compared to $5.5 million, or $0.225 per share, for the prior year comparable quarter. The payout ratio is 109% for the Quarter and was 93% in the prior year, comparable quarter.
The Company declared shareholder dividends of $17.1 million for the Period, or $0.6975 per share, compared to $16.2 million, or $0.6575 per share, for the prior year comparable period. The payout ratio is 113% for the Period and was 97% in the prior year, comparable period.
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, excluding the credit facility, is $6.3 million at September 30, 2024, which is a decrease of $1.9 million in the Period due to the decrease in royalty income and the 113% payout ratio. 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. The Company has historically targeted a payout ratio at or near 100% on an annualized basis.
EARNINGS PER SHARE ("EPS")Fully-diluted basic EPS decreased 6.4% to $0.233 for the Quarter compared to the prior year comparable quarter.
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 decreased 6.3% to $0.239 when compared to the same period in 2023, and decreased 2.3% to $0.707 for the Period.
RESTAURANT DEVELOPMENT As announced earlier this year, the number of restaurants in the Company's Royalty Pool increased by 31 locations to 774 on the January 1, 2024 Adjustment Date, and consists of 672 Pizza Pizza restaurants and 102 Pizza 73 restaurants. The number of restaurants in the Royalty Pool will remain unchanged through 2024.
During the Quarter, PPL opened five traditional and three non-traditional Pizza Pizza restaurants, and closed three non-traditional Pizza Pizza restaurants. PPL also opened one traditional Pizza 73 restaurant.
During the Period, PPL opened 13 traditional and 20 non-traditional Pizza Pizza restaurants, and closed three traditional and 16 non-traditional Pizza Pizza restaurants. PPL also opened one traditional and one non-traditional Pizza 73 restaurant.
PPL management expects to grow its traditional restaurant network by 3-4% and continue its renovation program through 2024.
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.
CREDIT FACILITYOn June 19, 2024, in response to the cessation of the Canadian Dollar Offered Rate ("CDOR"), the benchmark interest rate on bankers' acceptances, the credit facility was amended. The amendment transitioned the $47.0 million term loan from bankers' acceptances to CORRA loans. The remaining terms and conditions are consistent with those of the previous credit facility. The fixed interest rate on the swaps remained unchanged with this amendment, and the effective interest rate remained at 2.685% for the Quarter and Period.
The Company is currently in the process of renegotiating the terms of its credit facility that matures in 2025. The Company expects the new facility to be similar in size, however at higher interest rates as compared to its existing facility.
SELECTED FINANCIAL HIGHLIGHTSThe following tables set out selected financial information and other data of Pizza Pizza Royalty Corp. ("PPRC" or the "Company") and should be read in conjunction with the September 30, 2024 unaudited interim condensed consolidated financial statements of the Company ("Financial Statements"). Readers should note that the 2024 results are not directly comparable to the 2023 results due to there being 774 restaurants in the 2024 Royalty Pool compared to 743 restaurants in the 2023 Royalty Pool.
(in thousands of dollars, except number of
restaurants, days in the year, per share amounts,
and noted otherwise)
Three months
ended
September 30, 2024
Three months
ended
September 30, 2023
Nine months
endedSeptember 30, 2024
Nine months
endedSeptember 30, 2023
Restaurants in Royalty Pool(1)
774
743
774
743
Same store sales growth(2)
-5.3 %
7.0 %
-2.7 %
9.8 %
Days in the Period
92
92
274
273
System Sales reported by Pizza Pizza restaurants in the Royalty Pool(6)
$ 134,924
$ 141,995
$ 397,046
$ 403,337
System Sales reported by Pizza 73 restaurants in the Royalty Pool(6)
20,835
21,219
62,964
61,088
Total System Sales
$ 155,759
$ 163,214
$ 460,010
$ 464,425
Royalty, 6% on Pizza Pizza System Sales
$ 8,095
$ 8,520
$ 23,823
$ 24,200
Royalty, 9% on Pizza 73 System Sales
1,876
1,910
5,667
5,498
Royalty income
$ 9,971
$ 10,430
$ 29,490
