LOUISVILLE, KY. – Papa John’s International Inc. entered a major refranchising agreement with Sun Holdings, one of the largest domestic franchisers of Papa John’s restaurants, in which Sun Holdings has assumed control of 90 Papa John’s restaurants in Texas. The restaurants were part of a joint venture between Papa Johns and Blue and Silver Ventures Ltd.
Financial terms of the agreement were not disclosed. Blue and Silver Ventures continues to be a limited partner in the joint venture, and their share of ownership is unchanged, Papa John’s said.
Papa John’s expects the impact on net income attributable to the company and on earnings per diluted share to be neutral, the company said in a filing with the Securities and Exchange Commission (SEC).
“For the fiscal year ended Dec. 26, 2021, the majority-controlled restaurants, which were consolidated in the company’s results, contributed approximately $106.0 million of revenue and $8.6 million of operating income,” according to the filing. “Net income attributable to the company related to the restaurants was $4.8 million or 13.5¢ per diluted share in fiscal 2021.
“By way of illustration, on a pro forma basis during the same period, the company would have recorded total revenue of $34.1 million and operating income of $5.7 million, related to the 90 joint-venture restaurants if they had been fully franchised under the terms of the current transaction,” the filing said. “On a pro forma basis, the restaurants would have contributed net income attributable to the Company of $4.7 million or 13.4¢ per diluted share in fiscal 2021.”
Papa John’s noted that the company also expects to recognize a one-time, non-cash charge in the first quarter of 2022 of approximately $7 million to $9 million pre-tax (15¢ to 20¢ per diluted share), which considers an unearned royalty stream to be recognized over the period of the franchise agreement pertaining to the refranchised restaurants.
The refranchising agreement between Papa John’s and Sun Holdings follows a significant development agreement the two companies reached in September 2021. Sun Holdings will open 100 new restaurants across high-growth markets by 2029 in addition to the restaurants it has acquired. Sun Holdings is strongly positioned to accelerate its development plans and Papa John’s domestic growth.
“We are excited to partner on an even larger scale with Papa John’s, an innovative brand that is well-positioned in the QSR industry and has already begun to deliver a high return on our investment,” said Guillermo Perales, president and chief executive officer of Sun Holdings. “We look forward to growing together and are thankful to the team at Papa John’s for the trust they are placing in Sun Holdings.”
The agreement also continues the acceleration of unit growth and development by Papa John’s in the United States and globally.
“Sun Holdings is a proven, well-capitalized operator who understands our ambitious goals to expand the footprint of our brand,” said Amanda Clark, Papa John’s Chief Development Officer. “We will continue to build new corporate restaurants as well as refranchise when we can provide our franchisees strategic scale to support the brand’s long-term growth, with this deal as a great example.”
In January, Papa Johns announced a partnership with FountainVest Partners to open more than 1,350 new stores across South China by 2040. The deal is the biggest franchisee development agreement in the company’s history.