Papa Johns 1998 Annual Report Download - page 26

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Franchise and development fees increased 24.3% to $5.3 million in 1997, from $4.3 million in 1996. This
increase was primarily due to the 288 franchised restaurants opened during 1997, as compared to 224
opened during 1996, an increase of 28.6%, partially offset by the lower per unit franchise and development
fees collected on certain non-traditional restaurant units opened in 1997.
Commissary sales increased 31.5% to $188.0 million in 1997, from $143.0 million in 1996. This increase
was primarily due to the increases in equivalent franchised restaurants and comparable sales for
franchised restaurants noted above, partially offset by the impact of lower average cheese prices in 1997.
Equipment and other sales increased 48.2% to $40.0 million in 1997, from $27.0 million in 1996. This
increase was primarily due to the increase in equivalent franchised restaurants open during 1997 as
compared to 1996, and the increase in franchised restaurants opened during 1997 as compared to 1996.
A portion of the equipment and other sales increase was also attributable to the increase in sales of the
Papa John’s PROFIT System, a proprietary point of sale system, and related PROFIT support services to
the franchisees, as well as increasing insurance commissions from franchisees. We initiated an insurance
agency function for franchisees during the fourth quarter of 1996.
Costs and Expenses. Restaurant cost of sales, which consists of food, beverage and paper costs, decreased
as a percentage of restaurants sales to 26.4% in 1997, from 28.0% in 1996. The primary reason for the
decrease is attributable to lower average cheese prices for the year and increased efficiencies at both
mature and newly-opened stores.
Restaurant salaries and benefits increased as a percentage of restaurant sales to 27.0% in 1997, from
26.7% in 1996. The increase is primarily due to the impact of increases in the federal minimum wage
in October 1996 and September 1997, and increased staffing levels during the second quarter of 1997
to ensure quality customer service was delivered during the 12th Anniversary Promotion.
Restaurant advertising and related costs decreased as a percentage of restaurant sales to 9.3% in 1997,
from 9.6% in 1996. The decrease in 1997 was primarily the result of higher 1996 costs related to the
fourth quarter rollout of a new thin crust product. Also, restaurant level advertising is intentionally
managed to higher levels for new restaurants; therefore, as the percentage of new Company-owned
restaurant openings to existing Company-owned restaurants decreases, the overall advertising cost
percentage also decreases.
Other restaurant operating expenses were relatively consistent as a percentage of restaurant sales at
13.5% for 1997, and 13.6% for 1996.
Commissary, equipment and other expenses include cost of sales and operating expenses associated
with sales of food, paper, equipment, information systems and printing and promotional items to
franchisees and other customers. These costs increased as a percentage of combined commissary sales
and equipment and other sales to 91.5% in 1997, from 91.1% in 1996. Cost of sales as a percentage of
combined commissary sales and equipment and other sales decreased to 77.8% in 1997 from 79.3% in
1996, due to the timing of certain favorable commodity price changes. The decrease was offset by an
increase in salaries and benefits and other operating expenses to 13.7% in 1997 compared to 11.8% in
1996, due primarily to increased delivery costs resulting from larger commissary service areas and
staffing and other costs related to the opening of three commissary facilities in 1997.
General and administrative expenses declined slightly as a percentage of total revenues to 7.3% in 1997
from 7.4% in 1996.
Pre-opening and other general expenses increased $1.5 million in 1997. This increase was primarily
attributable to equipment and leasehold write-offs resulting from an increased number of restaurant
relocations during the year.