Papa John’s 4Q16: Who Turned off the Oven? PART 5 OF 8
In 4Q16, Papa John’s (PZZA) posted EBIT (earnings before interest and tax) of $41.2 billion, which represents an EBIT margin of 9.4%. Analysts were expecting the company to post an EBIT margin of 9%, where was in 4Q15, the company posted an EBIT margin of 12%.
Factors that lowered Papa John’s margins
A rise in the cost of sales, labor expenses, and SG&A (selling, general, and administrative) expenses led Papa John’s EBIT margins to fall in 4Q16. However, sales leverage from positive SSSG (same-store sales growth), lower depreciation, and amortization expenses offset some of the declines in EBIT margins.
During the quarter, the operating expenses for domestic company-owned restaurants rose from 79.4% of total revenue to 79.7%. The operating expenses for North American commissionaires rose 0.6% to 92.6% due to lower planned margins to attain higher sales. Operating expenses from its international business rose 3.2% to 62.2%, due to a rise in marketing expenditures.
In 4Q16, Papa John’s SG&A expenses fell from 9.4% of total revenues to 9.2%, while depreciation and amortization expenses rose from 2.3% to 2.4% of total revenue.
Peer comparisons and outlook
In 4Q16, Yum! Brands (YUM) posted EBIT margins of 25.3%, as…