Pizza Pizza Royalty Corp. First Quarter Results

Hello fellow dividend investors today I am going to write about Pizza Pizza Royalty Corp’s first quarter results. I am doing this because I am an investor and this will allow me the opportunity to see how the company did, and also because you the reader can learn a bit about the company and you may want to do further research and possibly invest in the company.

The Company

The company indirectly through the Partnership, owns the trademarks and trade names used by PPL (Pizza Pizza Limited) in its Pizza Pizza and Pizza 73 restaurants. The Pizza Pizza trademarks and other intellectual property (Pizza Pizza Rights) were licensed to PPL in 2005 for 99 years, for which PPL pays the Partnership a royalty equal to 6% of the System Sales of its Pizza Pizza restaurants in the Royalty Pool. On July 24, 2007, the Partnership acquired the trademarks and other intellectual property of Pizza 73 Inc. and licensed them to PPL for 99 years, for which PPL pays a royalty equal to 9% of the System Sales of the Pizza 73 restaurants in the Royalty Pool.

For the year 2015, the Royalty Pool consisted of 630 Pizza Pizza restaurants and 100 Pizza 73 restaurants.

Business of PPL Overview

PPL a privately- owned Canadian corporation, opened its first restaurant in Ontario in 1967 and has since become Canada’s number one pizza quick service brand. Since the 2007 acquisition of the Pizza 73 chain, Pizza Pizza expanded its restaurant network to Alberta and across the country. Pizza Pizza and Pizza 73 serve over 31 million customers annually.

On Jan 1, 2016 PPL had 739 locations in its system, comprised of 651 franchised or licensed restaurants, 74 jointly-controlled restaurants and 14 owned and operated as corporate restaurants. PPL on Jan 1st had 636 Pizza Pizza restaurants and 103 Pizza 73 restaurants with 98 of them located in the province of Alberta.

First Quarter Highlights

• Royalty Pool sales increased 3.3%
• Same store sales increased 2.5%
• Adjusted earnings per share 1.4%
• Restaurant network grew by two net locations

Sales

System Sales from the 736 restaurants in the Royalty Pool increased 3.3% to $133.1 million (Pizza Pizza $111.210 million and Pizza 73 $21,881 million) from $128.9 million in the prior year quarter when there was 730 restaurants in the pool.

SSSG (Same Store Sales Growth)

	2016	2015
Pizza Pizza	4.9	2.2
Pizza 73	-7.9	3.8
Combined	2.5	2.5

Pizza Pizza brand continues to show strong same store sales growth, Pizza Pizza has a strong presence in Ontario and Quebec where the economies are improving which is allowing the population to eat out more. Pizza Pizza has 552 restaurants in Ontario and 41 in Quebec. 

With the collapse in oil prices and thousands of workers losing their jobs the people of Alberta have cut back on their expenses, and that has hurt Pizza 73 where it has 95% of its restaurants.

Monthly Dividends

The company declared shareholder dividends of $5.1 million or $0.2091 per share for the quarter compared to $4.6 million or $0.2001 per share. The reason for the increase was because there were two dividend increases in 2015 (1.95% in April and a $2.5% increase in November). The payout ratio was 100% and the company continues to target a payout ratio at or near 100%.

Earnings Per Share (EPS)

Fully diluted EPS for the quarter was $0.214 per share compared to $0.210 in the same quarter in 2015. The increase is attributable to an increase in royalty income and decrease in interest expense, offset by an increase in current tax expense. 

When adjusted for non-cash items, EPS for the quarter increased 1.4% to $0.219 per share compared to $0.216 in 2015.

Restaurant Development

The number of restaurants in the Royalty Pool increased by six to 736 (636 Pizza Pizza and 100 Pizza 73) on the January 1, 2016 Adjustment Date.

Conclusion

I have been a shareholder of this company for close to two years now and currently own 235 shares. I am pleased to see the Pizza Pizza brand continue to show strong growth in terms of SSSG. With the bulk of the Pizza Pizza restaurants located in central Canada I believe that the growth will continue. I am concerned with the Pizza 73 brand as they have 95% of the restaurants in Alberta where the collapse in oil prices have really hammered the province. Also I am sure you are all aware of the terrible fires that have hit Fort McMurray, Alberta my thoughts and prayers go out to those people, will also have an impact on Pizza 73.

I think that Pizza Pizza Royalty Corp is a good stock to own, the Pizza Pizza restaurants will be able to pick up the slack in same store sales growth while Pizza 73 struggles.

Hope you guys enjoyed this post please let me know what your thoughts are.

Thanks

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