PIZZA PIZZA ROYALTY CORP. ANNOUNCES FIRST QUARTER 2025 RESULTS
TORONTO, May 7, 2025 /CNW/ - Pizza Pizza Royalty Corp. (the "Company") (TSX: PZA), which indirectly owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three months ("Quarter") ended March 31, 2025.
First Quarter highlights:
- Same store sales(2) increased 1.2%
- Royalty Pool sales increased 1.6%
- Adjusted earnings per share(5) was unchanged
- Royalty Pool of restaurants for 2025 increased by 20 net restaurants on January 1, 2025
"We are pleased to report a solid start to the year with positive same store sales growth at both Pizza Pizza and Pizza 73, driven by increases in guest traffic and check," said Paul Goddard, President and CEO of Pizza Pizza Limited. "As consumers and companies alike continue to navigate uncertain economic conditions, our customers can be certain that our brands will continue to offer new and exciting menu options at the value we are known for, supported by our creative brand messages."
SALES
Royalty Pool System Sales for the Quarter increased 1.6% to $151.3 million from $148.9 million in the same quarter last year. By brand, sales from the 694 Pizza Pizza restaurants in the Royalty Pool increased 1.2% to $129.8 million for the Quarter compared to $128.3 million in the same quarter last year. Sales from the 100 Pizza 73 restaurants increased 4.3% to $21.5 million for the Quarter compared to $20.6 million in the same quarter last year.
For the Quarter, the change in Royalty Pool System Sales is primarily driven by the effects of new restaurants added to the Royalty Pool on January 1, 2025 and the same store sales. Additionally, while the number of restaurants in the Pizza 73 Royalty Pool remains less than in 2019 when there were 104 restaurants, the negative impact on Royalty Pool System Sales due to prior year restaurant closures has been mitigated by the Make-Whole Carryover Amount.
SAME STORE SALES GROWTH ("SSSG")
SSSG, the key driver of yield growth for shareholders of the Company, increased 1.2% (2024 – increased 1.7%) for the Quarter.
SSSG |
First Quarter (%) |
|
2025 |
2024 |
|
Pizza Pizza |
0.6 |
0.6 |
Pizza 73 |
4.6 |
8.5 |
Combined |
1.2 |
1.7 |
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, at both brands, restaurant traffic and the average customer check increased.
MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE
The Company's dividends remained unchanged in the Quarter, as the Company declared shareholder dividends of $5.7 million, or $0.2325 per share, for the Quarter and the prior year comparable quarter. The payout ratio is 117% for the Quarter and was 122% in the prior year, comparable quarter.
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.
The Company's working capital reserve, $5.2 million at March 31, 2025, which is a decrease of $0.9 million in the Quarter. System sales for the quarter ended March 31 have generally been the softest and historically results in a payout ratio over 100%. 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.
EARNINGS PER SHARE ("EPS")
Fully-diluted basic EPS decreased 0.9% to $0.233 for the Quarter compared to the prior year comparable quarter.
As compared to basic EPS, the Company considers adjusted EPS(5) to be a more meaningful indicator of the Company's operating performance and, therefore, presents fully diluted, adjusted EPS. Adjusted EPS for the Quarter was consistent at $0.230 when compared to the prior year comparable quarter.
RESTAURANT DEVELOPMENT
As previously announced, the number of restaurants in the Company's Royalty Pool increased by 20 net locations to 797 on the January 1, 2025 Adjustment Date, and consists of 697 Pizza Pizza restaurants and 100 Pizza 73 restaurants. The number of restaurants in the Royalty Pool will remain unchanged through 2025.
During the Quarter, Pizza Pizza Limited ("PPL") opened two traditional and two non-traditional Pizza Pizza restaurants, and closed one traditional and four non-traditional Pizza Pizza restaurants. PPL also opened one traditional Pizza 73 restaurant during the Quarter. The traditional Pizza Pizza closure will be rebranded to a Pizza 73 restaurant in the second quarter.
PPL management expects to grow its traditional restaurant network by 2-3% and continue its renovation program through 2025.
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 Years for which they are reported differ slightly.
CREDIT FACILITY
On March 20, 2025, the Company's existing credit facility was extended for three years with new maturity date of April 24, 2028. Mandatory repayment remains interest-only until the loan matures. The facility will bear interest at Canadian Overnight Repo Rate Average ("CORRA") rate plus a credit spread of 1.00% to 1.50%, depending on the level of certain financial ratios.
Subsequent to the Quarter, on April 3, 2025, the Partnership entered into a three-year forward swap arrangement, commencing April 24, 2025; the credit facility will have a new effective interest rate of 3.51%, comprised of a fixed rate of 2.51% plus a credit spread currently set at 1.00%.
SELECTED FINANCIAL HIGHLIGHTS
The following tables set out selected financial information and other data of the and should be read in conjunction with the March 31, 2025 unaudited interim condensed consolidated financial statements of the Company. Readers should note that the 2025 results are not directly comparable to the 2024 results due to there being 794 restaurants in the 2025 Royalty Pool compared to 774 restaurants in the 2024 Royalty Pool.
(in thousands of dollars, except number of |
Twelve months |
Twelve months |
|||
Restaurants in Royalty Pool(1) |
794 |
774 |
|||
Same store sales growth(2) |
1.2 % |
1.7 % |
|||
Days in the Period |
90 |
91 |
|||
System Sales reported by Pizza Pizza restaurants in the Royalty Pool(6) |
$ 129,820 |
$ 128,284 |
|||
System Sales reported by Pizza 73 restaurants in the Royalty Pool(6) |
21,503 |
20,611 |
|||
Total System Sales |
$ 151,323 |
$ 148,895 |
|||
Royalty – 6% on Pizza Pizza System Sales |
$ 7,789 |
$ 7,697 |
|||
Royalty – 9% on Pizza 73 System Sales |
1,936 |
1,855 |
|||
Royalty – International operations |
4 |
- |
|||
Royalty income |
$ 9,729 |
$ 9,552 |
|||
Interest paid on borrowings(3) (5) |
(317) |
(319) |
|||
Administrative expenses |
(152) |
(126) |
|||
Interest income |
68 |
120 |
|||
Adjusted earnings available for distribution to the Company and Pizza Pizza Limited(5) |
$ 9,328 |
$ 9,227 |
|||
Distribution on Class B and Class D Exchangeable Shares(4) |
(2,760) |
(2,872) |
|||
Current income tax expense |
(1,656) |
(1,646) |
|||
Adjusted earnings available for shareholder dividends(5) |
$ 4,912 |
$ 4,709 |
|||
Add back: |
|||||
Distribution on Class B and Class D Exchangeable Shares(4) |
2,760 |
2,872 |
|||
Adjusted earnings from operations(5) |
$ 7,672 |
$ 7,581 |
|||
Adjusted earnings per share(5) |
$ 0.230 |
$ 0.230 |
|||
Basic earnings per share |
$ 0.233 |
$ 0.235 |
|||
Dividends declared by the Company |
$ 5,724 |
$ 5,724 |
|||
Dividend per share |
$ 0.2325 |
$ 0.2325 |
|||
Payout ratio(5) |
117 % |
122 % |
|||
March 31, |
December 31, |
||||
Working capital(5)(7) |
$ 5,195 |
$ (40,908) |
|||
Total assets |
$ 379,138 |
$ 373,745 |
|||
Total liabilities |
$ 75,468 |
$ 75,527 |
|||
(1) |
The number of restaurants for which the Pizza Pizza Royalty Limited Partnership (the "Partnership") earns a royalty ("Royalty Pool"), 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") (together, the "License and Royalty Agreements"). For the 2025 fiscal year, the Royalty Pool includes 697 Pizza Pizza restaurants and 100 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 ("PPL") on an annual basis as the Years for which they are reported differ slightly. |
(2) |
Same store sales growth ("SSSG") is a supplementary financial measure under NI 52-112 and therefore may not be comparable to similar measures presented by other issuers. SSSG means the change in Year's gross revenue of a particular Pizza Pizza or Pizza 73 restaurant as compared to sales in the previous comparative Year, where the restaurant has 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 (calculated as the difference between the average monthly Pizza 73 Royalty payment attributable to that Adjusted Restaurant in the 12 months immediately preceding the month in which the territory reduction occurs, less the Pizza 73 Royalty payment attributable to the restaurant in the current month) may be added to sales to arrive at SSSG. SSSG does not have any standardized meaning under International Financial Reporting Standards ("IFRS"). See "Exhibit One: Reconciliation of Non-IFRS Measures". |
(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. |
(4) |
Represents the distribution to PPL from the Partnership on Class B and Class D Units of the Partnership held by PPL directly and indirectly through a wholly-owned subsidiary. 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 26.2% of the fully diluted Shares at March 31, 2025 (December 31, 2024 – 25.2%). During the quarter ended March 31, 2025, as a result of the final calculation of the Exchangeable Class B and Class D Share entitlements related to the January 1, 2024 Adjustment to the Royalty Pool, PPL was paid a distribution on additional Exchangeable Shares as if such Shares were outstanding as of January 1, 2024. Included in the three months ended March 31, 2025, is the payment of $34 in distributions to PPL pursuant to the true-up calculation (March 31, 2024 - PPL received $288). |
(5) |
"Adjusted earnings available for distribution to the Company and Pizza Pizza Limited", "Adjusted earnings from operations", "Adjusted earnings available for shareholder dividends", "Adjusted earnings per Share", "Interest paid on borrowings", "Payout Ratio", and "Working Capital" are non-GAAP financial measures under NI 52-112. They do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. See "Exhibit One: Reconciliation of Non-IFRS Measures". |
(6) |
System Sales (as defined in the License 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. |
(7) |
Working capital for 2024 includes the reclassification of the $47 million credit facility to current liabilities. Excluding the reclassification, working capital would be $6.1 million, see "Exhibit One: Reconciliation of Non-IFRS Measures - Working Capital". |
A copy of the Company's interim consolidated financial statements and related Management's Discussion and Analysis ("MD&A") will be available at www.sedarplus.ca and www.pizzapizza.ca after the market closes on May 7, 2025.
As previously announced, the Company will host a conference call to discuss the results. The details of the conference call are as follows:
Date: |
May 7, 2025 |
Time: |
5:30 p.m. ET |
Call-in number: |
416-945-7677 / 888-699-1199 |
Recording call in number: |
289-819-1450 / 888-660-6345 |
Available until midnight, May 21, 2025 |
|
Conference ID: |
16378# |
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 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 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 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), 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 13-week period ended March 30, 2025 and the related MD&A and the Company's Annual Information Form.
www.pizzapizza.ca and www.pizza73.com or www.sedarplus.ca.
Exhibit One: Reconciliation of Non-IFRS Measures
The Company's earnings, as presented under IFRS includes non-cash items, such as deferred tax, that do not affect the Company's business operations or its ability to pay dividends to shareholders. The Company believes its earnings are not the only, or most meaningful, measurement of the Company's ability to pay dividends or measure the rate at which the Company is paying out its earnings. Therefore, the Company reports the following non-IFRS measures:
- Adjusted earnings available for distribution to the Company and PPL;
- Adjusted earnings from operations;
- Adjusted earnings available for shareholder dividends;
- Adjusted earnings per share ("EPS");
- Payout Ratio; and
- Working Capital.
The Company believes that the above noted measures provide investors with more meaningful information regarding the amount of cash that the Company has generated to pay dividends, and, together with Interest Paid on Borrowings and SSSG, help illustrate the Company's operating performance and highlight trends in the Company's business. These measures are also frequently used by analysts, investors, and other interested parties in the evaluation of issuers in the Company's sector, particularly those with a royalty-based model. The adjustments to net earnings as recorded under IFRS relate to non-cash items included in earnings and cash payments accounted for on the statement of financial position. Investors are cautioned, however, that this should not be construed as an alternative to net earnings as a measure of profitability. The method of calculating the Company's NI 52-112 non-IFRS financial measures: Adjusted earnings available for distribution to the Company and Pizza Pizza Limited, Adjusted earnings from operations, Adjusted earnings available for shareholder dividends, Adjusted EPS, Payout Ratio, Working Capital, Interest Paid on Borrowings and SSSG for the purposes of this MD&A may differ from that used by other issuers and, accordingly, these measures may not be comparable to similar measures used by other issuers.
The table below reconciles the following to "Earnings for the Year before income taxes" which is the most directly comparable measure calculated in accordance with IFRS:
- Adjusted earnings available for distribution to the Company and Pizza Pizza Limited;
- Adjusted earnings from operations; and
- Adjusted earnings available for shareholder dividends.
(in thousands of dollars, except number of shares) |
Q1 2025 |
Q4 2024 |
Q3 2024 |
Q2 2024 |
Earnings for the period before income taxes |
9,328 |
9,840 |
9,566 |
9,557 |
Adjusted earnings available for distribution to |
9,328 |
9,840 |
9,566 |
9,557 |
Current income tax expense |
(1,656) |
(1,767) |
(1,714) |
(1,712) |
Adjusted earnings from operations |
7,672 |
8,073 |
7,852 |
7,845 |
Less: Distribution on Class B and Class D Exchangeable Shares |
(2,760) |
(2,584) |
(2,584) |
(2,584) |
Adjusted earnings available for shareholder dividends |
4,912 |
5,489 |
5,268 |
5,261 |
Weighted average Shares – diluted |
33,353,588 |
32,908,631 |
32,908,631 |
32,908,631 |
(in thousands of dollars, except number of shares) |
Q1 2024 |
Q4 2023 |
Q3 2023 |
Q2 2023 |
Earnings for the period before income taxes |
9,227 |
10,084 |
10,080 |
9,742 |
Adjusted earnings available for distribution to |
9,227 |
10,084 |
10,080 |
9,742 |
Current income tax expense |
(1,646) |
(1,834) |
(1,833) |
(1,766) |
Adjusted earnings from operations |
7,581 |
8,250 |
8,247 |
7,976 |
Less: Distribution on Class B and Class D Exchangeable Shares |
(2,872) |
(2,370) |
(2,316) |
(2,255) |
Adjusted earnings available for shareholder dividends |
4,709 |
5,880 |
5,931 |
5,721 |
Weighted average Shares – diluted |
32,908,631 |
32,337,580 |
32,337,580 |
32,337,580 |
The Basic EPS and the Adjusted EPS calculations are based on fully diluted weighted average shares, and both include PPL's Class B and Class D Exchangeable Shares since they are exchangeable into and economically equivalent to the Shares. See "Adjusted EPS".
Adjusted EPS is calculated by dividing Adjusted earnings from operations, as explained above, by the fully diluted weighted average shares.
Basic EPS is adjusted as follows: |
Three months ended |
|||
March 31, |
March 31, |
|||
Basic EPS |
$ 0.233 |
$ 0.235 |
||
Adjustments: |
||||
Deferred tax expense |
(0.003) |
(0.005) |
||
Adjusted EPS |
$ 0.230 |
$ 0.230 |
||
Payout Ratio is a non-IFRS financial measure that does not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company presents the Payout Ratio to illustrate the earnings being returned to shareholders. The Company's Payout Ratio is calculated by dividing the dividends declared to shareholders by the adjusted earnings from operations, after paying the distribution on Class B and Class D Exchangeable Shares, in that same period.
Three months ended |
||||
(in thousands of dollars, except as noted otherwise) |
March 31, |
March 31, |
||
Dividends declared to shareholders |
5,724 |
5,724 |
||
Adjusted earnings available for shareholder dividends |
4,912 |
4,709 |
||
Payout Ratio |
117 % |
122 % |
||
Working Capital is defined as total current assets less total current liabilities. The Company views working capital as a measure for assessing overall liquidity and its ability to stabilize dividends and fund unusual expenditures in the event of short- to medium-term variability in Royalty Pool System Sales. During 2024, the borrowings of $47.0 million were reclassified to current liabilities as the facility was scheduled to come due in April 2025. On March 20, 2025, the Company renewed its facility for a three-year term and maturity is now April 2028. Excluding the impact of the borrowings in 2024, the working capital reserve would have been $6.1 million as at December 31, 2024. The use of the working capital during the Quarter relates to the payout ratio of 117%.
(in thousands of dollars) |
March 31, 2025 |
December 31, 2024 |
|
Total current assets |
8,897 |
9,621 |
|
Less: Total current liabilities |
3,702 |
50,529 |
|
Working Capital |
5,195 |
(40,908) |
SSSG is a key indicator used by the Company to measure performance against internal targets and prior Year results. SSSG is commonly used by financial analysts and investors to compare PPL to other QSR brands. SSSG is defined as the change in period gross revenue of Pizza Pizza and Pizza 73 restaurants as compared to sales in the previous comparative period, where the restaurant has 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. It is a key performance indicator for the Company as this measure excludes sales fluctuations due to store closings, permanent relocations and chain expansion.
The following table calculates SSSG by reconciling Royalty Pool System Sales, based on calendar periods, to PPL's 13-week sales reporting period used in calculating same store sales.
Three months ended |
||||
(in thousands of dollars) |
March 31, |
March 31, |
||
Total Royalty Pool System Sales |
151,323 |
148,895 |
||
Adjustments for stores not in both periods, Make-Whole Carryover Amount, Step- |
(1,332) |
(627) |
||
Same Store Sales |
149,991 |
148,268 |
||
SSSG |
1.2 % |
1.7 % |
||
SOURCE Pizza Pizza Royalty Corp.
For further information: Christine D'Sylva, Chief Financial Officer, Pizza Pizza Royalty Corp., (416) 967-1010 x393, [email protected]
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