Papa Johns 2000 Annual Report Download - page 39

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Domestic restaurant sales increased 14.7% to $394.6 million in 1999, from $344.1 million in 1998. This
increase was primarily due to a 12.6% increase in the number of equivalent Company-owned restaurants
open during 1999 as compared to 1998. Also, comparable sales increased 3.5% in 1999 over 1998 for
Company-owned restaurants open throughout both years, in large part due to reduced price discounting.
Domestic franchise royalties increased 26.3% to $40.6 million in 1999, from $32.1 million in 1998. This
increase was primarily due to a 25.6% increase in the number of equivalent franchised restaurants open
during 1999 as compared to 1998. Also, comparable sales increased 6.4% in 1999 over 1998 for
franchised restaurants open throughout both years.
Domestic franchise and development fees increased 22.3% to $6.5 million in 1999, from $5.3 million in
1998. This increase was primarily due to the 345 franchised restaurants opened during 1999, as compared
to 296 opened during 1998, an increase of 16.6%. The remainder of the increase is due to the mix of
restaurant openings.
Commissary sales increased 20.3% to $306.9 million in 1999, from $255.1 million in 1998. 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 1999 cheese costs which
resulted in lower cheese pricing and sales relative to 1998 levels.
Equipment and other sales increased 16.9% to $53.1 million in 1999, from $45.4 million in 1998. This
increase was primarily due to ongoing equipment, smallwares, uniforms and print materials related to the
increase in equivalent franchised restaurants open during 1999 as compared to 1998, and the increase in
the number of new restaurant equipment packages sold to franchisees that opened restaurants in 1999 as
compared to 1998.
The international revenues of $3.6 million in 1999 are principally comprised of Perfect Pizza ($2.9 million
of the 1999 revenues) which was purchased on November 29, 1999.
Costs and Expenses. Domestic restaurant cost of sales, which consists of food, beverage and paper
costs, decreased as a percentage of restaurant sales to 25.4% in 1999, from 26.9% in 1998. The primary
reason for the decrease is attributable to reduced restaurant menu price discounting and a decrease in the
average cheese block price. The cost of cheese, representing approximately 40% of food cost in 1999, and
other commodities are subject to significant price fluctuations caused by weather, availability, demand and
other factors. Most of the factors affecting the cost of cheese are beyond our control (see “Item 1.
Business - Quality Control Centers; Strategic Supply Chain Management” and “Note 12” of “Notes to
Consolidated Financial Statements”).
Domestic restaurant salaries and benefits increased as a percentage of restaurant sales to 27.0% in 1999,
from 26.8% in 1998. This increase was primarily due to higher staffing levels after our 14th Anniversary
promotion to support the demands of new customers and enhanced employee benefits to select restaurant
personnel. Occupancy costs as a percentage of restaurant sales remained consistent at 5.0% for both
1999 and 1998.
Restaurant advertising and related costs increased as a percentage of restaurant sales to 9.1% in 1999,
from 8.7% in 1998. The increase in 1999 was primarily the result of increased promotional activities in the
second quarter in response to significant promotional activities by our competitors and increased activities
in the fourth quarter in response to overall market conditions and sales trends.