TORONTO, Nov. 10, 2021 /CNW/ - Pizza Pizza
Royalty Corp. (the "Company"), 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, 2021.
Third Quarter Highlights:
- Royalty Pool sales increased 3.5%
- Same store sales increased 2.8%
- Adjusted earnings per share increased by 2.0%
Paul Goddard, CEO, Pizza Pizza
Limited said, "We're pleased with the strong sales growth in our
largest markets which was supported by strong marketing campaigns,
effective product innovation in the quarter, high vaccination rates
and the lifting of COVID-19 restrictions in many provinces,
especially in Ontario. In most
provinces during the quarter, consumers became more comfortable
with social interactions which increased our walk-in sales.
Additionally, several key, non-traditional locations re-opened
including universities, schools, and large sporting and
entertainment venues. While we continue to experience lingering
effects of the pandemic in certain provinces, we remain optimistic
that the fourth quarter, which historically has been our strongest,
will continue this positive momentum, especially as we continue
expanding our restaurant network in British Columbia and Quebec."
Year-to-Date Highlights:
- Royalty Pool sales decreased 2.4%
- Same store sales decreased 3.4%
- Adjusted earnings per share decreased 3.5%
- Restaurant network increased by five 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 September 30, 2021, System Sales from the 725
restaurants in the Royalty Pool increased 3.5% to $129.7 million from $125.4
million in the same quarter last year when there were 749
restaurants in the Royalty Pool. By brand, sales from the 622 Pizza
Pizza restaurants in the Royalty Pool increased 6.4% to
$111.3 million and the 103 Pizza 73
restaurants decreased 11.2% to $18.4
million for the Quarter.
For the nine months ended September 30,
2021, System Sales decreased 2.4% to $355.9 million from $364.6
million in the prior year comparative period. For the nine
months ended September 30, 2021,
sales from the 622 Pizza Pizza restaurants in the Royalty Pool
decreased 0.6% to $300.2 million and
sales from the 103 Pizza 73 restaurants decreased 11.1% to
$55.7 million.
Royalty Pool System Sales of the Pizza Pizza restaurants
increased in the Quarter due to positive SSSG, as the economy began
reopening, restaurant visits increased and Pizza Pizza
non-traditional locations began to re-open with capacity
limitations. However, the Royalty Pool System Sales of the Pizza 73
restaurants were negatively impacted during the Quarter due to
lingering effects of the pandemic. 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 Amount. The Make-Whole
Carryover Amount added $4.1 million
to System Sales for the Quarter, and $12.4
million for the Period.
SAME STORE SALES GROWTH ("SSSG")
SSSG, the key
driver of yield growth for shareholders of the Company, increased
2.8% for the Quarter (2020 – decreased 9.5%), and decreased 3.4%
for the Period (2020 – decreased 10.8%).
When comparing the results of 2021 to 2020, it is important to
remember that the COVID-19 pandemic began impacting business in
mid-March 2020. While it is over a
year since the initial and sudden impact of the pandemic began, the
effect continued through the third quarter of 2021.
SSSG
|
Third
Quarter
(%)
|
Year-to-Date
(%)
|
|
2021
|
2020
|
2021
|
2020
|
Pizza
Pizza
|
5.7
|
-10.6
|
-1.8
|
-11.9
|
Pizza 73
|
-11.4
|
-3.4
|
-10.9
|
-4.8
|
Combined
|
2.8
|
-9.5
|
-3.4
|
-10.8
|
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 increase in SSSG at the
Pizza Pizza brand was largely driven by the lifting of COVID-19
related public health restrictions, especially in Ontario, which led to increased walk-in
traffic, plus many of PPL's non-traditional locations reopened. As
walk-in traffic increased, we experienced a decrease in the average
check. At Pizza 73, the SSSG was impacted by the decrease in
traffic as COVID-19 lockdowns continued to impact consumer
behavior.
In the prior year, beginning in March
2020, SSSG was negatively impacted as a direct result of the
COVID-19 pandemic and the government-mandated social
distancing policies. As a result of closing restaurant
seating, walk-in sales decreased significantly, negatively
impacting overall customer traffic on a year-to-date basis.
Initially, the decline in walk-in sales resulted in an overall
increase in the average check at both brands as the average check
of a walk-in customer is much lower than a delivery order check
amount. The negative sales effect from the decline in customer
traffic, as well as the decrease in non-traditional sales, more
than offset the effect of the increase in the average check,
resulting in negative SSSG for the Period.
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
The
Company declared shareholder dividends of $4.3 million for the Quarter, or $0.175 per share, compared to $3.7 million, or $0.15 per share, for the prior year comparable
quarter. The payout ratio was 90% for the Quarter and was 74% in
the prior year comparable quarter.
For the Period, the Company declared shareholder dividends of
$12.4 million, or $0.505 per share, compared to $12.7 million, or $0.5139 per share, for the prior year comparable
period. The payout ratio was 97% for the Period and was 92% 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. After the reduction in the
monthly dividend in April 2020, the
increase in November 2020, and the
increase in August 2021, any further
change will be implemented with a view to maintaining the
continuity of consistent monthly distributions. It is expected that
future dividends will continue to be funded entirely by cash flow
from operations and the cash reserve.
The Company's working capital reserve is $5.8 million at September
30, 2021, which is an increase of $0.5 million in the Period due largely to the
improvement in Royalty Pool System Sales and the 90% payout ratio.
With the change in the monthly dividend beginning in August 2021, the Company believes that there is
sufficient cash flow to service the Company's obligations as they
fall due, while also partially restoring the monthly dividend to
pre-COVID levels.
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 based upon covenant test levels.
CURRENT INCOME TAX EXPENSE
Current income tax expense
for the Quarter increased to $1.4
million from $1.3 million. For
the Period, current income tax decreased slightly from $3.8 million to $3.7
million. The increase for the Quarter and decrease for the
Period are a result of the increase and decrease in the Company's
earnings before income taxes, respectively.
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 by 2.6% to $0.195 for the
Quarter compared to the prior year comparable quarter.
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 increased 2.2% to
$0.202 when compared to the same
quarter in 2020.
__________
|
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").
|
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 January 1, 2021 Adjustment Date, and consists of
622 Pizza Pizza restaurants and 103 Pizza 73 restaurants. The
number of restaurants in the Royalty Pool will remain unchanged
through December 31, 2021.
During the Quarter, PPL opened six traditional and one
non-traditional Pizza Pizza restaurants;14 non-traditional Pizza
Pizza restaurants were closed. During the Period, PPL opened 16
traditional and five non-traditional Pizza Pizza restaurants, and
closed two traditional and 15 non-traditional restaurants. The
majority of the non-traditional restaurant closures were in smaller
movie theatre venues. Additionally, for the Period 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 January 1,
2022.
During the Quarter, substantially all traditional Pizza Pizza
and Pizza 73 restaurants remained open for delivery and pick-up
customers across Canada. As the provincial governments began
lifting restrictions early in the current Quarter, some of PPL's
non-traditional locations, which initially closed, reopened in a
limited capacity as allowed by each province. With the full
reopening of the economy, PPL will see a return of its larger
non-traditional locations, especially those in key sporting
arenas.
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.
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
ended
September 30,
2021
|
Three months
ended
September 30,
2020
|
Nine months
ended September 30, 2021
|
Nine months
ended
September 30,
2020
|
|
|
|
|
|
Restaurants in
Royalty Pool(1)
|
725
|
749
|
725
|
749
|
Same store sales
growth(2)
|
2.8%
|
-9.5%
|
-3.4%
|
-10.8%
|
Days in the
Period
|
92
|
92
|
273
|
274
|
|
|
|
|
|
System Sales reported
by Pizza Pizza restaurants in the Royalty
Pool(6)
|
111,303
|
104,653
|
300,175
|
301,936
|
System Sales reported
by Pizza 73 restaurants in the Royalty
Pool(6)
|
18,408
|
20,731
|
55,720
|
62,704
|
Total System
Sales
|
$
|
129,711
|
125,384
|
355,895
|
364,640
|
|
|
|
|
|
Royalty – 6% on Pizza
Pizza System Sales
|
$
|
6,678
|
6,279
|
18,010
|
18,116
|
Royalty – 9% on Pizza
73 System Sales
|
1,657
|
1,866
|
5,015
|
5,644
|
Royalty
income
|
$
|
8,335
|
8,145
|
23,025
|
23,760
|
Interest paid on
borrowings(3) (5)
|
(350)
|
(324)
|
(1,006)
|
(904)
|
Administrative
expenses
|
(119)
|
(157)
|
(379)
|
(453)
|
Adjusted earnings
available for distribution to the Company and Pizza Pizza
Limited(5)
|
$
|
7,866
|
7,664
|
21,640
|
22,403
|
Distribution on Class
B and Class D Exchangeable Shares(4)
|
(1,743)
|
(1,384)
|
(5,076)
|
(4,909)
|
Current income tax
expense
|
(1,362)
|
(1,307)
|
(3,691)
|
(3,792)
|
Adjusted earnings
available for shareholder dividends(5)
|
$
|
4,761
|
4,973
|
12,873
|
13,702
|
Add back:
|
|
|
|
|
Distribution on Class
B and Class D Exchangeable Shares(4)
|
1,743
|
1,384
|
5,076
|
4,909
|
Adjusted earnings
from operations(5)
|
$
|
6,504
|
6,357
|
17,949
|
18,611
|
|
|
|
|
|
Adjusted earnings per
share(5)
|
$
|
0.202
|
$
|
0.198
|
$
|
0.558
|
$
|
0.578
|
Basic earnings per
share
|
$
|
0.195
|
$
|
0.190
|
$
|
0.536
|
$
|
0.574
|
|
|
|
|
|
Dividends declared by
the Company
|
$
|
4,308
|
$
|
3,693
|
$
|
12,432
|
$
|
12,651
|
Dividend per
share
|
$
|
0.175
|
$
|
0.150
|
$
|
0.505
|
$
|
0.5139
|
Payout
ratio(5)
|
90%
|
74%
|
97%
|
92%
|
|
|
|
|
|
|
|
|
September 30,
2021
|
December 31,
2020
|
Working
capital(5)
|
|
|
$
|
5,841
|
$
|
5,388
|
|
|
|
|
|
|
|
(1)
|
The number of
restaurants for which the Pizza Pizza Royalty Limited Partnership
earns a royalty, 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").
For the 2021 fiscal year, the Royalty Pool includes 622 Pizza Pizza
restaurants and 103 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 Pizza Pizza Limited 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 License and Royalty
Agreements, respectively, and represent 23.5% of the fully diluted
Shares at September 30, 2021 (December 31, 2020 – 23.5%). During
the quarter ended March 31, 2021, as a result of the final
calculation of the equivalent Class B and Class D Share
entitlements related to the January 1, 2020 Adjustment to the
Royalty Pool, PPL was paid a distribution on additional equivalent
Shares as if such Shares were outstanding as of January 1, 2020.
Included in the three months ended March 31, 2021, is the payment
of $nil in distributions to PPL pursuant to the true-up calculation
(March 31, 2020 - PPL was paid
$164).
|
(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
November 10, 2021.
As previously announced, the Company will host a conference call
to discuss the results. The details of the conference call are as
follows:
Date:
|
Wednesday, November
10, 2021
|
Time:
|
5:30 p.m. ET
Call-in
number:
|
|
416-764-8650 /
888-664-6383
|
|
|
Recording call in
number:
|
416-764-8677 /
888-390-0541
|
|
Available until
midnight, November 24, 2021
|
|
|
Conference
ID:
|
93923811
|
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 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 foregoing MD&A, the PPL
financial statements for the period ended October 3, 2021 and the related MD&A
and the Company's Annual Information Form.
SOURCE Pizza Pizza Royalty Corp.