Papa Johns 2003 Annual Report Download - page 25

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The comparable annual sales for Company-owned restaurants decreased 3.0% in 2003, increased 0.2% in
2002 and decreased 2.9% in 2001. We believe the cumulative decrease in comparable sales over the last
three years is the result of an increased competitive market.
We continually strive to obtain high-quality sites with good access and visibility, and to enhance the
appearance and quality of our restaurants. We believe that these factors improve our image and brand
awareness. The average cash investment for the restaurants in our most recent comparable sales base is
$272,000. The average cash investment for the ten domestic Company-owned restaurants opened during
2003, exclusive of land, decreased to approximately $248,000 from $250,000 for the ten units opened in
2002. We expect the average cash investment for restaurants opening in 2004 to be approximately
$260,000.
Approximately 48% of our revenues for 2003 and 2002 and 47% for 2001 were derived from the sale to
franchisees of food and paper products, restaurant equipment, printing and promotional items, risk
management services and information systems equipment and software and related services by us, our
commissary subsidiary, PJ Food Service, Inc. (“PJFS”), our support services subsidiary, Papa John’s
Support Services, Inc., our insurance subsidiaries, RSC Insurance Services, Ltd. and Risk Services Corp.
and our United Kingdom subsidiary, Papa John’s UK. We believe that, in addition to supporting both
Company and franchised growth, these subsidiaries contribute to product quality and consistency and
restaurant profitability throughout the Papa John’s system.
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented consist of
52 weeks.
Restaurant Initiatives
The company announced several restaurant initiatives throughout 2002 and 2003, including certain
system-wide quality initiatives, increases in general manager and assistant manager base pay and
incentive pay potential, increased restaurant staffing levels, a realignment of the field management
structure for company-owned restaurants and a system-wide initiative to increase portions for several
core pizza products.
During 2003 we saw improved operational trends as a result of these initiatives, including reduced
turnover at the general manager and assistant manager positions, and improved product quality and
consistency. However, during most of 2003, the improvements did not translate into increased sales as
the overall restaurant industry, the pizza category and the economy continued to produce a very
challenging environment. According to industry sources, customer traffic count was relatively flat or
declined in the QSR pizza segment for the latest reported seven consecutive quarters, with data for the
most recent September-October-November quarter indicating a 4% decline in transactions for the
segment. Although the current industry and overall economic environment continue to be challenging, we
are encouraged by our recently reported results: Four of the last five reported periods (October 2003
through February 2004) have realized increases in comparable sales.
The system-wide cost of these initiatives, when combined with the declining comparable sales trends in
2003, negatively impacted operating margins for both company-owned and franchise restaurants. The
Company has begun initiatives, such as focusing on procurement, administrative and marketing costs to
identify opportunities for improving restaurant operating margins. Additionally, we employed a new
Chief Marketing Officer in December 2003. We believe the anticipated and realized success of these
initiatives will encourage new unit development and reduce future unit closings. Accordingly, annual net
unit percentage growth could return to the mid-single digits over the next few years. Further, the
combination of net unit growth, a return to consistent low single digit percentage increases in comparable