Pizza Pizza Royalty Corp. Announces Second Quarter 2020 Results and August Dividend
Pizza Pizza Royalty Corp. Announces Second Quarter 2020 Results and August Dividend |
[12-August-2020] |
TORONTO, Aug. 12, 2020 /CNW/ - Pizza Pizza Royalty Corp. (the "PZA", "Company"), which indirectly owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three three months ("Quarter") and six months ("Period") ended June 30, 2020. Paul Goddard, CEO, Pizza Pizza Limited said, "Looking back from today to the beginning of the pandemic, July comparable sales have rebounded quickly, up 20 percentage points from April sales. Our traditional restaurants posted solid results in the latter part of the quarter and into July, and account for approximately 90% of Royalty Pool System Sales. Our delivery and pickup sales, particularly through our digital channels, grew significantly throughout the second quarter, nearly offsetting a major decrease in our dine-in sales that was unavoidable due to government mandated restrictions. During the early part of the quarter, we quickly introduced innovative customer-centric safety measures such as contactless digital transactions and industry-first tamper-free pizza boxes, providing customers additional assurances when ordering. Most of our non-traditional restaurants, which account for 10% of sales, remain closed due to government restrictions, although we are encouraged to see provinces beginning to ease restrictions on some of these captive-market locations. As well, many key municipalities recently began allowing restaurant dine-in to resume, which we expect to provide a helpful tailwind to our overall business, given walk-in/dine-in historically represents 40% of total sales at Pizza Pizza. We are also optimistic that the return of televised professional sports events should add additional momentum to our delivery business at both brands." Second Quarter highlights compared to the second quarter 2019:
Paul Goddard continued, "We're pleased with our significantly improved results at both brands, and particularly our Pizza 73 results, especially operating in a challenged, economic environment, even prior to the pandemic's adverse effects. Our total sales continue recovering from the -26% same store sales low watermark in April. July reported -7.8% comparable store sales as traditional restaurants continued posting strong sales improvements. Our strong and growing delivery focus at both brands, together with our recent relaunch of our digital ordering apps, have been major sales-driving advantages during our recovery. A special thanks to our restaurant owners and their teams, our employees, and especially our restaurant delivery drivers for their tireless work, resilience and commendable customer focus through these unprecedented market conditions." Year-to-Date highlights:
SALES For the six months ended June 30, 2020, System Sales decreased 10.8% to $239.3 million from $268.2 million in the prior year's comparative period. For the six months, sales from the 645 Pizza Pizza restaurants in the Royalty Pool decreased 11.6% to $197.3 million and sales from the 104 Pizza 73 restaurants decreased 6.6% to $42.0 million. Total Royalty Pool System Sales for the Quarter decreased over the comparative periods largely as a result of the negative impact of the COVID-19 pandemic and the change in the number of restaurants in the Royalty Pool on January 1, 2020. To better understand the COVID-19 impact on the Company's Royalty Pool System Sales, readers should note that Pizza Pizza and Pizza 73 operate traditional and non-traditional restaurants. The Royalty Pool sales mix includes delivery, pickup, and walk-in sales from traditional restaurants, plus sales at non-traditional locations. By brand, Pizza Pizza traditional restaurant sales have historically consisted of approximately 60% delivery and pickup sales and 40% walk-in sales, whereas Pizza 73 traditional restaurant sales have been approximately 90% delivery and pickup sales and only 10% walk-in sales. As a result of government-mandated social distancing policies, the walk-in sales at both brands decreased significantly beginning in mid-March and this trend continued throughout April; however, walk-in sales began modestly improving in May and have continued to improve in June and July. During the same period, delivery sales have grown significantly and, thus, have partially offset the lost walk-in sales. Non-traditional store locations, offering a limited menu and typically operating in sporting arenas, outdoor entertainment venues, universities, hospitals, and cinemas, account for nearly 10% of Royalty Pool System Sales. Unfortunately, the majority of non-traditional Pizza Pizza and Pizza 73 locations temporary closed in March and most have remained closed, although certain locations are beginning to reopen in a limited capacity. SAME STORE SALES GROWTH ("SSSG") The Company typically provides only comparative, quarterly SSSG for Pizza Pizza and Pizza 73 restaurants. However, due to the timing of the COVID-19 impact on System Sales, the Company is providing the following period-level detail which indicates how Pizza Pizza and Pizza 73 restaurant sales trended during the quarter; July is also included.
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. As mentioned earlier, beginning in mid-March, 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. 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 Quarter and Period. MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE For the Quarter, the Company declared shareholder dividends of $3.7 million, or $0.15 per Share compared to $5.3 million, or $0.2139 per share, for the prior year comparable quarter. The payout ratio was 83% for the Quarter and was 107% in the prior year, comparable quarter. For the Period, the Company declared shareholder dividends of $9.0 million, or $0.3639 per share, compared to $10.5 million, or $0.4278 per share, for the prior year comparable period. The payout ratio was 103% for the Period and was 107% in the prior year, comparable period. With the decrease in Royalty Pool Sales, the Company's royalty income also decreased and, as a result, the Company previously announced its monthly dividend was reduced by 30% from $0.0713 per share to $0.05 per share beginning with the April 2020 dividend. Pizza Pizza Royalty Limited Partnership ("Partnership") also reduced its monthly distribution to Pizza Pizza Limited ("PPL") by 30% on PPL's Class B and Class D Exchangeable Shares, beginning with the April 2020 distribution. After the reduction in the monthly dividend, any further change will be implemented with a view to maintaining the continuity of uniform 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 $3.4 million at June 30, 2020, which is an increase of $761,000 in the Quarter due largely to the 30% dividend decrease in April which resulted in an 83% payout ratio for the Quarter. For the Period, the reserve decreased $225,000 attributable to the first quarter's payout ratio of 123% which was a direct result of the financial impact of the COVID-19 pandemic, as well as a 2020 true-up payment to PPL of $164,000 made in relation to the January 1, 2019 Adjustment Date. 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. However, this policy is under review as the Company continues to closely monitor System Sales and royalty income, and will consider further changes to the monthly dividend taking into account the duration and impact of the COVID-19 pandemic on restaurant operations, and the timing and pace of economic recovery in the markets that Pizza Pizza and Pizza 73 service. EARNINGS PER SHARE ("EPS") 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 decreased 15.4% to $0.181 when compared to the same period in 2019, and decreased and decreased 11.4% for the Period.
CURRENT INCOME TAX EXPENSE Of particular note is that the Company's earnings from operations before income taxes, calculated under International Financial Reporting Standards ("IFRS"), can differ significantly from its taxable income, largely due 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 the tax amortization deducted is based on a declining basis and will decrease annually. RESTAURANT DEVELOPMENT During the Quarter, PPL opened one traditional restaurant and one non-traditional Pizza Pizza location; five traditional and eight non-traditional Pizza Pizza restaurants were permanently closed. Additionally, one traditional Pizza 73 restaurant opened. During the Period, PPL opened three traditional restaurants and one non-traditional Pizza Pizza location; nine traditional and 12 non-traditional Pizza Pizza restaurants were closed. Additionally, one traditional Pizza 73 restaurant opened and one non-traditional Pizza 73 restaurant closed. As mentioned earlier, during the second quarter, substantially all traditional Pizza Pizza and Pizza 73 restaurants remained open across Canada; nine locations remain temporarily closed after the quarter due to the pandemic. However, the majority of non-traditional Pizza Pizza and Pizza 73 restaurants have remained closed, with the exception of a few locations in hospitals and gas stations. New restaurant construction has resumed across Canada as government mandated restrictions on commercial construction have been lifted in all provinces. We expect accelerated restaurant network expansion and increased renovations in 2021, assuming pandemic effects are mitigated in the coming months. When PPL reports closed restaurants, an amount reflecting the reduction in the Royalty resulting from the decrease in System Sales will be paid by PPL to the Partnership, monthly, (the "Make-Whole Payment"), commencing from the date of permanent closure of a restaurant and paid until the following Adjustment Date (January 1). On the subsequent Adjustment Date, the calculated lost System Sales from the closed restaurants will be offset against forecasted System Sales of the new restaurants added to the Royalty Pool. The details of the full calculation can be found in the Company's Annual Information Form. 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
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 August 12, 2020. As previously announced, the Company will host a conference call to discuss the results. The details of the conference call are as follows:
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 Pizza Pizza Royalty Corp. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company Codes: Toronto:PZA |
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