1Q18 EBIT margin
Papa John’s (PZZA) posted an EBIT (earnings before interest and tax) of $27.3 million in 1Q18, which represents an EBIT margin of 6.4%. The company posted an EBIT margin of 9.7% in 1Q17. The decline was due to increased operating expenses of domestic company-owned restaurants, domestic commissaries, and international operations. The rise in G&A (general and administrative) expenses and D&A (depreciation and amortization) expenses led to a fall in the company’s margins.
The operating expenses for domestic company-owned restaurants increased from 80.0% in 1Q17 to 82.7% due to sales deleverage from negative SSSG (same-store sales growth), increased labor expenses, and a rise in non-owned automobile insurance costs. The operating expenses for domestic commissaries also increased from 93.4% to 93.8% due to the lower sales volume. The operating expenses for international operations increased from 61.6% to 63.2% due to an increased revenue contribution from the United Kingdom’s commissary sales, which operates under lower margins.
The G&A expenses increased from 8.1% of the total revenue in 1Q17 to 9.3% due to increased expenses associated with the implementation of technological advancements, the rise in bad debt, and higher legal costs. The D&A expenses increased from 2.3% to 2.7% due to increased investments in technological advancement and higher depreciation associated with the new Georgia quality control center.