Pizza Pizza Royalty Corp. Announces First Quarter Financial Results

TORONTO, May 9, 2018 /CNW/ - Pizza Pizza Royalty Corp. (the "Company"), which owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three months ended March 31, 2018.

First quarter highlights:

• Royalty Pool sales increased 1.1%
• Same store sales decreased 0.2%
• Restaurant network grew by seven locations
• Royalty Pool of restaurants increased by seven effective January 1, 2018

SALES
For the three months ended March 31, 2018, ("Quarter") System Sales from the 758 restaurants in the Royalty Pool increased 1.1% to $135.3 million from $133.9 million in the prior year comparable quarter when there were 751 restaurants in the Royalty Pool.

Royalty Pool System Sales for the Quarter increased over the comparative period in 2017 as a result of the impact of restaurants added to the Royalty Pool on January 1, 2018, slightly offset by the reported same store sales growth ("SSSG").

SSSG, the key driver of yield growth for shareholders of the Company, decreased by 0.2% for the Quarter compared to the same quarter last year.

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, the average customer check increased, when the two brands are combined, while the customer traffic count decreased. The average customer check increased as a result of increasing retail prices to partially offset provincial minimum wage increases. The price increases resulted in softness in traffic counts compared to one year ago, which was anticipated. Management is closely monitoring consumer reaction to retail pricing strategies, in what continues to be, a highly competitive, value-oriented retail environment.

Paul Goddard, C.E.O., Pizza Pizza Limited, said: "As labour costs in many provinces increase, our focus at both the Pizza Pizza and Pizza 73 brands will be to place an increased emphasis on key differentiators, including innovation in digital ordering, quality ingredients, convenience and customer service, to ensure continued profitable and sustainable growth." 

RESTAURANT DEVELOPMENT
The number of restaurants in the Company's Royalty Pool increased by seven locations to 758 on the January 1, 2018 Adjustment Date. The number of restaurants in the Royalty Pool will remain unchanged through December 31, 2018.

During the Quarter, Pizza Pizza Limited ("PPL") opened seven restaurants. By brand, for the Quarter, Pizza Pizza opened three traditional restaurants. Pizza 73 opened two traditional and two non-traditional restaurants during the Quarter.

Mr. Goddard noted, "In 2018, our total number of restaurants is projected to increase 2% in addition to continuing our network re-imaging program. Growth is expected to come from our national expansion strategy as we further strengthen our geographic diversification from coast to coast."

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.

MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
In the Quarter, the Company declared shareholder dividends of $5.3 million, or $0.2139 per Share, which is unchanged from the prior year comparable quarter.  The payout ratio was 107% for the Quarter and was 103% in the same quarter last year.

For Canadian federal tax purposes, the dividend is considered a taxable eligible dividend.

The Company's working capital reserve is $4.7 million at March 31, 2018, which is a decrease of $342,000 since December 31, 2017. The decrease in the reserve is attributable to the fact that first quarter royalty pool sales have historically been the weakest sales quarter of the year. Also during the Quarter, the Company paid  $111,000 as a 2017 true-up payment to Pizza Pizza Limited as part of the January 1 Adjustment Date mentioned above.

With this reserve in place, the Company will continue to target an annual payout ratio at or near 100% on an annualized basis.

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 does not have capital expenditure requirements or employees.

EARNINGS PER SHARE ("EPS")
Fully-diluted basic EPS was $0.217 for the Quarter and for the same quarter in 2016 EPS was relatively flat quarter over quarter, as the increase in royalty income was offset by the increase in current tax.

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 decreased 0.5% to $0.218 when compared to the same period of 2017.

CURRENT INCOME TAX EXPENSE
Current income tax expense for the Quarter was $1,410,000 compared to $1,375,000 in the prior year comparable quarter. The tax expense increased slightly in the Quarter due to an increase in royalty income plus the fact that the available tax amortization on undepreciated capital assets decreased for the period.

Of particular note is that the Company's earnings from operations before income taxes, calculated under International Financial Reporting Standards ("IFRS"), differs significantly from its taxable income, largely due to the tax amortization of the Pizza Pizza and Pizza 73 Rights and Marks. The amount of the tax amortization deducted is based on a declining basis and will decrease annually.

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 consolidated financial statements of the Company. Readers should note that the 2018 results are not directly comparable to the 2017 results because of the fact that there are 758 restaurants in the 2018 Royalty Pool compared to 751 restaurants in the 2017 Royalty Pool.

A copy of the Company's consolidated financial statements and related MD&A will be available at www.sedar.com and www.pizzapizza.ca after the market closes on May 9, 2018.

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 may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which 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. These statements reflect management's current expectations regarding future events and speak only as of the date of this report. These forward-looking statements involve a number of risks and uncertainties, including those described in the Company's annual information form. The Company assumes no obligation to update these forward looking statements, except as required by applicable securities laws.

SOURCE Pizza Pizza Royalty Corp.