By a News Reporter-Staff News Editor at Investment Weekly News -- NPC International, Inc. (the "Company" or "NPC"), reported results for its second fiscal quarter ended July 1, 2014. SECOND QUARTER HIGHLIGHTS: Pizza Hut comparable store sales decreased (5.6)% rolling over a decrease of (3.7)% last year.
Adjusted EBITDA (reconciliation attached) was $20.9MM; a decline of $12.3MM from the prior year.
The Company generated a net loss of ($1.4)MM compared to net income of $8.1MM last year.
An incremental term loan borrowing of $40.0MM was drawn during the quarter to finance the 56-unit Wendy's acquisition completed in July subsequent to quarter end. YEAR-TO-DATE RESULTS: Comparable store sales decreased (5.1)% rolling over a decrease of (2.9)% last year.
Adjusted EBITDA (reconciliation attached) of $49.9MM was $21.9MM or 30% below last year.
Net income was $1.6MM, a decrease of $19.8MM from last year.
Cash balances increased to $48.3MM, primarily as a result of the $40.0MM incremental term loan financing completed during the quarter.
Our leverage ratio was 4.52X Consolidated EBITDA, net of allowable cash balances of $45.3MM (as defined in our Credit Agreement).
NPC's President and CEO Jim Schwartz said, "Clearly this was a very disappointing quarter for our Pizza Hut business. Extreme commodity pressure and soft comparable store sales combined to place significant pressure on our operating margins as we foreshadowed in our first quarter communications. Commodity inflation alone contributed roughly 50% to our year-over-year EBITDA shortfall as our second quarter was the anticipated quarterly commodity inflation "ceiling" for 2014. Fortunately, as a partial offset, our Wendy's business continues to perform well and is delivering upon our pre-acquisition expectations.
During the initial six weeks of our third quarter our Pizza Hut business is benefitting from changes in promotional activities that are favorably impacting our margins and top line performance relative to our second quarter. This sequential improvement in these operating metrics is expected to improve our year-over-year EBITDA trends in our third quarter relative to our results to-date.
We are actively working in lock-step with Pizza Hut brand leadership to launch a major new advertising positioning along with the innovation designed to better connect with millennials and separate us from competition. Fortunately, we have a strong platform from which to launch this advertising positioning. Pizza Hut remains the clear category share leader and is the beneficiary of a leveragable 56 year heritage of quality, innovation and service. In addition, the brand is committed to steer the positioning and make the necessary infrastructure and technology investments that is required to implement the strategy changes.
On the Wendy's front, we continue to be pleased with our investment in the Wendy's brand, which continues to operate at a "Cut Above" its competition. In July we completed a 56-unit acquisition from a franchisee in North Carolina, primarily in the Winston-Salem and Greensboro metropolitan areas. This has historically been a strong market for the Wendy's brand and provides NPC another toehold in the Wendy's system for future expansion. Our initial investment in the Wendy's business was made in July of last year. Since that time we have made 4 acquisitions in the brand and we are now operating 145 stores with annual sales of approximately $195 million, representing almost 20% of our consolidated net product sales on a pro forma basis. Obviously we are pleased with this growth, the associated benefits of diversification across two iconic brands and the remaining opportunities for continued growth.
During the quarter, we drew upon our incremental term loan to finance our recent Wendy's acquisition and to maintain a strong liquidity profile. Despite soft comparable store sales and inflationary pressures, our two brands maintain strong cash flow characteristics that we will continue to leverage, further bolstering our liquidity. Despite our challenges in the Pizza Hut brand, we are confident that brand leadership is addressing those challenges and we look forward to updating you on the progress of those strategies after the much anticipated brand re-launch." The Company is a wholly-owned subsidiary of NPC Restaurant Holdings, LLC ("Parent"), which has guaranteed the Company's 10.50% Senior Notes due 2020. As a result of its guaranty, Parent is required to file reports with the Securities and Exchange Commission which include consolidated financial statements of Parent and its subsidiaries (including the Company). Parent's only material asset is all of the stock of the Company. The quarterly financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for Parent and the Company on a consolidated basis are set forth in Parent's Form 10-Q for the fiscal quarter ended July 1, 2014 which can be accessed at www.sec.gov. CONFERENCE CALL INFORMATION: The Company's second quarter earnings conference call will be held Monday, August 18, 2014 at 9:00 am CT (10:00 ET). In addition to a discussion of second quarter results, the call may also include discussion of Company developments, forward-looking information and other material information about business and financial matters. You can access this call by dialing 888-391-6937. The international number is 716-247-5763. The access code for the call is 85830164.
For those unable to participate live, a replay of the call will be available until August 25, 2014 by dialing 855-859-2056 or by dialing international at 404-537-3406. The access code for the replay is 85830164.
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