1Q17 EBIT margins
In 1Q17, Papa John’s (PZZA) posted EBIT[1. earnings before interest and tax] of $43.7 million, which translates to an EBIT margin of 9.7%. Comparatively, the company posted an EBIT margin of 10% in 1Q16.
Factors that led PZZA’s margins to decline
The decline in Papa John’s 1Q17 EBIT margins was due to decline in operating margins of company-owned restaurants and North American commissaries. However, some of the declines were offset by lower SG&A (selling, general, and administrative) expenses and improved margins from international operations.
During the quarter, the restaurant margins of company-owned restaurants declined 1.6% due to increased labor expenses from a wage increase, higher non-owned automobile claim costs, and increased reimbursement from higher fuel prices.
The margins of North American commissaries fell 0.5% due to higher delivery expenses. However, improved margins from its online and mobile ordering business offset some of the declines.
The margins from international operations rose 1% due to a rise in royalties from same-store sales growth of 6% and the addition of new restaurants. The SG&A expenses fell from 9.4% of total revenues to 8.5% of total revenues. The SG&A expenses declined due to lower bonuses, lower franchise incentives, and the timing of international marketing spending.
For the next four quarters, analysts expect Papa John’s (PZZA) to post a 9.4% EBIT margin compared to 8.9% in the corresponding quarters in 2016. This expansion is expected to be driven by sales leverage from positive same-store sales growth.
Next, we’ll look at Papa John’s 1Q17 earnings.