Papa John's International Inc (PZZA) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Papa John's second-quarter 2011 conference call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a Question-and-Answer session with instructions following at that time.

(Operator Instructions).

As a reminder, this conference call is being recorded. And now, I would like to turn the call over to Lance Tucker. Please begin.

Thanks. Good morning. With me on the call today are our founder, Chairman and CEO, John Schnatter; Executive Vice President of Global Operations and President, PJ Food Service, Tony Thompson; Chief Marketing Officer, Andrew Varga; and other members of our Senior Management Team. After a brief financial update, John will have some comments about our business and the Management Team will then be available for Q&A. Our discussion today will contain forward-looking statements that involve risks and uncertainties relating to future events. Actual events may differ materially from the projections discussed today.

Certain factors that can cause actual results to materially differ are outlined in our earnings release and in our forms 10Q and 10K. In addition, certain financial measures we use on this call, including earnings per share, excluding BIBP, and free cash flow, are expressed on a non-GAAP basis. Our GAAP to non-GAAP results reconciliation can be found in our earnings press release available on the Investor Relations Section of our website. This call is being taped and the replay will be available for a limited time on our website and in downloadable podcast format.

As more fully described in our press release, beginning in 2011 we no longer have operating income for the BIBP cheese purchasing entity. So we no longer need to report earnings on a pro forma basis exclusive of BIBP gains or losses. We will continue though to show 2010 results excluding the BIBP for comparative purposes. We were pleased with our second quarter results with solid profitability, driven by good worldwide sales performance. We earned $0.47 per share during the quarter, as compared to EPS of $0.43 in the second quarter of 2010 excluding BIBP, an increase of 9.3%.

As we discussed on our last call, second quarter results were negatively impacted by approximately $0.03 by management transition costs. So all things considered, a strong quarter in a difficult environment. Our year-to-date earnings of a $1.11 per share was 14.4% higher than the EPS of $0.97 per share reported for the same period in 2010, excluding BIBP. During the second quarter, revenues increased 4.6%, as compared to the same prior year quarter, primarily due to a 2.1% comp sales increase for North American Company-owned restaurants, and a 4.8% increase for international restaurants. In addition, the impact of higher commodity costs on PJ Food Service revenues contributed to the overall revenue increase, as did a 6.2% increase on worldwide units on a quarter-over-quarter basis.

We continued our strong unit openings momentum with 46 net worldwide units opened in the second quarter, bringing us to 87 net worldwide units opened thus far in 2011. On a business segment basis, operating income for domestic Company-owned restaurants decreased approximately $1.2 million, as compared to Q2 2010, due primarily to increased commodity and advertising costs, partially offset by positive comp sales of 2.1%. Operating income for our domestic, commissary business segment decreased $3.7 million, as compared to Q2 2010, due primarily to lower margins resulting from higher commodity costs, lower sales volumes, and higher distribution costs driven by the high cost of fuel. Operating income from our North America franchising segment increased approximately $500,000, due to the previously noted increases in the number of units. The stated royalty rate also increased from 4.75% to 5% at the beginning of 2011. However, the effect of royalty rate was fairly consistent between the current and prior year quarters, due to rebate incentives available to be earned by our franchisees in 2011.

Operating results for our international segment were approximately $1.1 million favorable to Q2 2010, primarily due to revenue increases from the previously noted increases in unit count and 4.8% positive comp sales in Q2 2011. In addition, prior year results included costs related to the startup of our quality control center in the United Kingdom. Operating results for the all others business segment decreased approximately $500,000 year-over-year, primarily due to increased infrastructure and support costs related to our enhanced online system, and a 0.50% reduction in the online fee percentage.

Unallocated corporate expenses were approximately $3.6 million lower than in Q2 2010, due primarily to lower incentive compensation costs and also due to the shift in franchise support initiatives from discretionary market and contributions in 2010 to the rebate incentives available to be earned by franchisees in 2011. These rebate incentives are reflected in North American franchising segments as a reduction in royalties.

Finally, interest expense was approximately $900,000 lower than in Q2 2010, due to lower outstanding debt balances and lower borrowing rates. We repurchased approximately $22 million of stock during the quarter, bringing our year-to-date share repurchases to approximately $26.2 million as of the end of quarter 2. As noted on our first quarter call, we expect that our total share repurchases in 2011 will approximate 2010 levels for the full year. The Company had approximately $57 million of remaining share repurchase authorizations as of July 27.

Our free cash flow, a non-GAAP measure we define as cash flow from operations excluding BIBP less capital expenditures, was $37.7 million for the first 6 months of 2011, and $66.2 million for the trailing 4 quarters, representing a free cash flow yield of 8.4% based upon the 25.7 million average diluted shares outstanding on yesterday's $30.53 closing stock market price. Net debt position, defined as total debt less cash and cash equivalents, was up $27.9 million at quarter end, a $6.4 million reduction during Q2, even as we ramped up our share repurchases.

We are reaffirming our annual 2011 earnings per share guidance at a range of $2.02 to $2.12, reflecting our view that our solid first half results will substantially mitigate the unfavorable impact of projected commodity and fuel cost increases throughout the remainder of the year. We are also reaffirming our full-year 2011 North American comp sales guidance at 2% to 3% and our global net openings guidance at 190 to 220 net openings for full-year 2011. We are increasing our full year 2011 international comp sales guidance to a range of 2% to 4%, up from a range of 1% to 3%, reflecting our strong first-half international results.

And now, I'd like to turn the call over to our Founder, Chairman and CEO, John Schnatter. John?

Thanks, Lance. We are pleased with our solid second-quarter results even in the face of what continues to be a challenging commodity cost and competitive environment. The Papa John's system continues to show both resiliency and growth. We are right on plan with continued momentum.

Let me first comment on the resiliency of the Papa John's brand. On the domestic front, our operators ran positive comp sales in the quarter in an environment where the competition continues to place a big emphasis on price discounting. We are also delivering value as demonstrated by today's pressured consumers, but are doing so that does not waiver from our 26 year focus on quality. This includes bringing our customers limited time offered pizzas that play to our strength of using superior quality, demonstrably better ingredients and offering these at a compelling $11 price point.

This long-term focus on quality has served us well, allowing us to deliver consistent quality messages to the consumer while also delivering steady and high-quality operating results over the long term. In fact, we have delivered positive or even domestic comp growth for 7 consecutive years and now are on track to make that an 8 year, this year, with positive domestic comps in 2011. And if you look back even further, since 1998, we delivered positive or even domestic comps 11 of 13 years, and 19 out of 21 years respectively. We like steady and consistent long-term performance and that will continue to be our goal moving forward.

We're also seeing good momentum on the restaurant growth front both in the US and abroad. During the quarter, we had 46 net restaurant openings, bringing our store count to 3,733 restaurants in 32 countries. This makes 87 net new global restaurant openings for the first 6 months of the year. And we remain very confident in delivering on our commitment of a 190 to 220 net openings for the full year of 2011. Looking beyond this year, our development pipeline is very, very strong with signed agreements in place to open roughly 1,700 restaurants, 440 in North America and 1,260 units internationally. The majority of which are scheduled to open over the next 6 months. Our brand remains strong even in challenging economic times. And our growth prospects remain strong for the foreseeable future.

Now, turning to our international business, international operations posted a very solid 4.8% positive comps during the quarter. We have a strong group of international franchisees that are devoted. They are great Company operators, who believe in and are committed to better ingredients, better pizza in the Papa John's way. And our international business is ahead on a 2011 budget, which we are delighted. Keeping us on track to achieve, for the first time, profitability in international in 2012.

Finally, some really good news. I want to close by touching on our NFL sponsorship. We are pleased that the owners and players resolved their differences as we prepare to kick off the second year of our sponsorship with the NFL, which we've thoroughly enjoyed.

And with that, I'll turn it back over to Lance for any questions. Lance?

Thank you, John. We'll open up for questions real quick. I just want to clarify one thing. I think our pipeline is actually scheduled to open over the next 6 years, not 6 months. So I assume you all knew that, but just in case.

Thank you Lance.

We're ready for questions.

Thank you ladies and gentlemen. (Operator Instructions). Michael Wolleben; Sidoti & Co.

Good morning, guys. I wanted to touch on international profitability first. Clearly, the year-over-year increase, or decrease in the loss there, has been a large function of the costs that were incurred last year from that UK commissary. But absent that, you guys just noted that you are ahead of your target, but previously you were saying that you were looking for break even in the back half of '12. Is that target being moved up closer to the first half with how operations are running?

Michael, this is Lance. Good question. Couple things. First of all, I believe we're on track for full-year 2012 profitability. And I believe that that's where we will leave it for now. The other thing I would like to say is we really believe the drivers of our growth in international are our comp sales and our unit growth. And so certainly it helps that the UK commissary is becoming more efficient, but a lot of units and a nice comp base, or comp sales rather, is really pushing that number along.

Michael, this is Andrew. I would add one other thing. The great part about the international story is that the way we communicate the brand in the 32 countries outside the United States is very consistent with how we communicate it inside the United States. The better ingredients, better pizza promise, and our founder differentiation really resonates well with consumers around the world. So, obviously we feel very good about the branding story as well.

This is John Schnatter. We look at 3 things in our business for success. Of course, a passion for excellence. To be best in our class, and, of course, unit economics. International has come so far the last 24 months meeting those criteria. From the Latin America success stories, to over in Russia, Kuwait, Cypress, the Papa John's way works internationally. We've had some learning curve in there, where we had work on product quality, sourcing the product, getting the food, the labor, the mileage in line so the franchisees international could make money. But where we were 3 years ago versus where we are today is a whole different picture.

Okay. Great. And then just quickly here on the domestic front. With those 440 units that are in the pipeline, can those be weighted more in the near term as opposed to the back end of that 6 years given the rebates and incentives that you guys are offering? And how do you think about the effective royalty rate that you guys should be receiving here over the next year or 2? Thanks.

Okay, Michael. Another good question. Relative to those domestic units in the pipeline, you're right. Typically, up to say 2 or 3 years is when you'd expect to see a good number, probably 3 years, to see a good number of those domestic units opened. The international pipeline tends to take a little bit longer. Relative to effective royalty rates, right now we are at the 5%. And then, we tend to give some incentives and try to draw performance within the brand. And we want to retain that flexibility to do that if we need to. So, for now I would say, keep your effective royalty rate about where it is, and we'll update you as changes occur.

Thank you.

Matt Van Vliet; Stifel Nicolaus.

(inaudible) this morning. The first question is the difference in the performance from the domestic franchisees and the Company stores. Is there anything specific going on that caused such a big gap? If you could just give us some details there, that would be great.

Sure, Matt. This is Andrew. I will comment on that. I would say the biggest difference is that our corporate stores did a very nice job lining up strong local store marketing efforts that made a big difference during the quarter. As you know, we own 600 stores so it is naturally easier to realize LSM benefits in a broad section of our overall store population. It's nice to see our franchise store population following suit right behind the corporate stores with similar LSM tactics and activities. We feel good about what corporate did during the quarter and what the franchisees are following along with.

Your question is spot on, Matt, as far as timing. The only, or 1 of few franchisors that pretty well sets the example and every single attribute or category as far as performance. I think our volumes are almost $2,900 or $3,000 ahead of our franchisees. We are running 600 stores. So it's not like it's 6 stores or 60. We usually lead pizza scores, service, and pretty well in all matrices. The question is spot on in that, this is a very comprehensive business, while it appears to be very simple. It is more complex once you dig in. And, the how we are doing this is something that we were on the road yesterday with 3 markets. Our job as management is to lead by example and to educate the franchisees on how we are doing this and how we are getting this done. And then, once we agree on the how and the what, then question is, let's go out and get it done. I will turn it over to Tony Thompson or Steven Ritchie, our operators. They can talk to you in a little bit more detail. What we are doing to try to get our franchisees to close the gap from our performance to their's.

This is Tony Thompson. We have a very, very good collaborative relationship with our franchise system. And to John's point, we really leverage our corporate model and our corporate strategy. We get out and we work with our franchisees in helping them. I think overall, it's helped improve our overall unit economics following that approach.

This is Steve Ritchie. I would just add that I think this complements what we had done when we announced back in December a parting out our corporate and our franchise side of the business to provide us the opportunity to really hone in and focus on results. You continue to see that through the results that we've reported and we continue to share that on both sides of the business.

Okay. Just following on that, is there anything that you are seeing from the competition, whether it be from your direct competitors in pizza or just the whole QSR/fast food industry that has changed? Or does it continue to be highly driven by advertising and promotion and that is just something that given the smaller relative budget for advertising that you guys just have to pick your spot and try to win until that maybe calms down a little bit?

This is John. There is no doubt and I've been doing this for 27 years, that the last 30 months there has been tectonic shifts in how to run a pizza chain. No doubt about that. Give you a commodity. For example, the Asia-Pacific. The demands that New Zealand, Australia, and Asia Pacific are putting on cheese is unprecedented. The amount of exports on cheese is historic. And you have the dynamic that China is way behind the 8 ball on safety to even produce cheese. The supply and demand on ingredients throughout the world, we are really becoming more of a global economy. The new normal on commodities is going to be a new normal. I'll turn it over to Andrew. Andrew, why don't you talk a little bit about the branding aspect of what you're seeing?

I would just say this. We believe as the quality leader, first and foremost, that we can get a premium to our competitive set. The main change that we've seen in our own business is that we've been at $11 since mid-February and our competition for the most part has stayed at prices well below that. We feel good about how we've performed. The momentum we have. And how we are priced against the competitive set. I would just say from a national perspective, we have more national dollars in the back half of the year with some very good plans that we have to put us in a great competitive situation. We really feel good about that. But as far as any major changes from the competition, they all seem to be at the same spot. And we keep trying to do what we do best and that's it leverage our premium positioning, leverage our quality, and do it the right way every day.

All right. Thank you, guys.

Mark Smith; Feltl and Company.

Hello guys. Can you give us an update just on weeks, or what we see you had on TV during the quarter versus last year?

Can you speak up a little bit?

Can you just talk about TV advertising that you guys had out during the quarter versus a year ago, and then maybe what you have planned through the remainder of the year?

Sure. This is Andrew. I'll comment on that. Or the first 6 months of the year basically, we were at the same levels of TV. And in the back half of the year, we'll have more weight and weeks than we've ever had as a result of our national marketing fund increase that we've talked to you all about.

Okay. And just looking at the timing of openings this year. Here in the second half, will openings be more back end loaded towards Q4 or should they be pretty evenly spaced?

This is Tim O'Hern. They should be more towards the back part of Q4, although I think Q3 going to be fairly strong. It'll be more in Q4 as it is typically every year.

Great. Thank you.

Brad Ludington, KeyBanc Capital Markets.

I wanted to start off with a just on the guidance for maintaining the same store sales guidance. It implies that is in line with your comment you just had about increased marketing weight in the back of the year, that you expect same store sales to at least modestly accelerate in the back half. Is that an accurate take on that?

Brad, this is Lance. I'll start out and then pitch it over. But we are cautiously optimistic about the second half. We have the NFL coming back in. You do in fact have higher media weights, as Andrew just said. And frankly, we are 3.3% comp so far for the year so we feel like we're going to be able to continue the momentum we have had for the first half of the year. Andrew, John do you guys want add-on?

This is John. I don't see any indicators or anything that is coming down the path. I say that with caution because in this business there is always something that seems to be an oddity. It will bounce around a little quarter to quarter because of the competitive nature and some of the things that may go on with commodities. Or your competitors discounting, but year-to-date, we are right on plans. We feel good about the momentum in Q3 to your point. And again, management has been out to 7 markets in the last week. I have participated in 3. We are just not seeing anything but positive and a lot of pride and a lot of momentum. We feel really good about our guidance and full-year guidance we haven't changed that despite unprecedented high commodities. We don't like the high commodities. It does make it tougher. But we are right on plan.

Brad, this is Andrew. I would just add 1 thing. We feel very good about our premium pricing position. It is something we work very hard on over the quarter and had very good momentum with that price repositioning. And we believe that not only is that a short-term benefit but should play out nicely for us long-term as the premium leader and the quality leader.

Okay. Thank you. And John, on the lobby redesign that you all are rolling out, do you have enough out to comment on performance of those at this point?

I will turn it over to Tony because he was actually in LA coop where they were very complimentary. We were in Memphis, Tennessee yesterday and Columbus, Ohio. We did Louisville on Monday. We are getting a lot of positive feedback. The employees like it. The consumers seem to think it relates and correlates more with our branding. I think we are right at 1,050 stores remodeled. It is a $6,000 to $8,000 outlay of cash which is very tough in this commodity market. But the franchisees are buying in. They are doing it and they like it. Tony?

We have gotten great feedback from our franchisees, and of course even, they've given us secondary feedback from customers. Even somewhat of a wow factor. We are actually really excited about it. A lot of the testimonies from those that put their first one in. After they did their first restaurant, they were just really charged and they were actually speaking in the meetings, speaking up and the pride the exudes from the brand. We are excited about it.

The excitement, does that come from increased walk-in orders? Or is it just feedback, or what is the metric on that?

It is feedback. Our carryout in different parts of the country can be significantly high. So that's having a big impact on those carryout customers. That's where they are hearing it. It is early to tell in terms of real numbers, but we just know from an intuitive standpoint that it's having a positive impact.

Okay. And then, looking at the commissary division, I know we got fuel and commodities and everything pressuring, but getting down to a 6.1% operating margin in the quarter was lower than we expected. Should we expect some similar level in future quarters? Or should there be a reset back to a more normalized level in the back half of the year?

Remember the commissary has really 3 tasks in hand. First and foremost is it protects the BIBP promise. It is there to provide product quality and most importantly product consistency. Second is, we use the commissary to protect the unit economics of food, labor, and mileage, if you will. And third is to make a profit. When the system is under a little duress, we use those dollars to be supportive, and when the costs are low then we make a little bit more on the food service. If you look at the business on a quarterly basis, it really doesn't give you the true picture of what we are trying to do for the year. Probably made a little more than 3% in Q1 and a little less in Q2. Again, our full year is right on plan. So I wouldn't plan on seeing drastic changes in the operating margin in the food service. With that, I will let Lance talk about specifics.

Brad, just a couple of other points on that. 1, when cheese is as high as it is right now, since we have a fixed markup on our cheese, it will naturally drive that margin down. That is a big contributor of what is going on. And the other thing I want to point out, since you're looking at commissary and other, we did reduce our online fee percentage by 50 basis points, which also tends to drive that margin down. As John said, we are right on track long-term. We wouldn't expect to see a bunch of changes in our margin in that group.

Yes, Brad, this is John. We knew if we lowered the margin we would lose some profitability dollars. Let's say the online is a $600 million business or more. Half a point on that is $3 million. That being said, we knew if we lowered the margin we would drive online participation. And so, both have happened. We are losing more money on online and yet we are driving participation. At the end of the day, it protects unit economics which is the name of the game. The problem with that scenario is you have to have the fortitude to approach the business from a longer-term perspective than a quarter. And that is what we do.

And just the fact again, that we're keeping our guidance intact. We are being very strategic in how we are operating these parts of our business with a very keen focus on unit economics as John pointed out.

Okay. And then, just 1 quick question to follow-up and I will stop hogging the phone. What is the percentage of online sales right now?

This is Lance. In the past, I know we've given that number on occasion. The last public number we gave at the end of 2010 was in the high 20s. What I can tell you is we continue to grow that quarter-over-quarter but I'd like to leave it there.

All right. Thank you.

Christopher O'Cull; SunTrust Bank.

Thank you. Good morning. I apologize if I missed this. But you raised your cheese inflation expectation in the back half of the year, but didn't change your annual earnings guidance. What was the offset?

There's a couple of things going on there. Again, first of all, we felt like we had a lot of the downside already covered, so that is really the majority of it. We are on track as we talked about to have a good sales year. And then, we are just managing the business and getting labor efficiencies in restaurants and other things.

What are you targeting for overall commodity inflation in the back half of the year?

What we typically say, Brad, on that, and I think John has a comment -- what we typically do is express that in terms of restaurant cost of sales. And we believe it's a 2.5% to 3% restaurant cost of sales impact on a full-year basis, which is up from the last time we answered this question. It had been 2% to 2.5% so we have come up a half point on both sides.

This is John Schnatter. We go into the year with a pretty wide range and this is the very reason we do that. We don't like to go in with a wide range, but, at a $1.40 for a pound at cheese versus $2.10, you have a $0.70 swing on 2 million pounds a week. You are talking about real dollars here. The reason we have not had to move our range down is because we were proactive in our thinking that just in case cheese does go to $2 a pound, we are in a position where we can make sure we make our range, which is a very important for us to do for the Street. We are also doing things like getting more efficient with labor. G&A we have tightened up a little bit. I think it's fair to say that our labor at our stores continues to get more efficient. We are doing all kinds of peripheral things to help offset this horrendous commodity environment.

Thank you. That's helpful. John, also, 1 other question. Your competitors are clearly pushing carryout, which seems to make sense on paper and tap into the consumer trend with smartphones. But from an operator's perspective, what is your view on this trend in terms of the financial implications, the labor implications, what's your thoughts on this?

Tell you what Chris, I'll let Steve Ritchie handle that. He runs our 600 corporate stores. Or Tony Thompson. It's a good question. It's an interesting question. And we are proactive on our carryout business.

We continue to focus on both sides of the business, carryout and delivery. Certainly, we have been noticed as a delivery Company and from a technology standpoint as we continue to drive the online side of the business that plays a key factor, in addition to, as we spoke to earlier, our local store marketing tactical initiatives. Both also drive both sides of the business. With the input of delivery charge, 6 years ago, that certainly plays a factor and a key role into our profitability side from a carryout and delivery perspective. As before delivery charge, certainly there was higher profitability on the carryout side.

Is there a big difference in the profitability of carryout versus delivery today, given the delivery charge?

We don't see a large disparity since the input of the delivery charge from carryout to delivery from a profitability standpoint. Certainly, it's in terms of the modeling from a pricing and menu mix standpoint.

Just as a follow-up, Andrew, what are the implications of this from a pricing standpoint, or check average standpoint from consumer's minds, if they are seeing $7.95 large pies and $10 any large pies for carryout only. Is that going to make it more challenging to raise check over the years?

Obviously, you see what we do nationally and how we advertise our pricing, which is at a premium. It really hasn't affected us much with people focus on carryout only type offers. And we just continue running the plays that we have been running at premium prices and doing quite well.

This is Tony. Carryout has been a key part of our overarching strategy as Steve pointed out earlier. Actually I think we believe we probably got 1 of the highest carryout percentages right now against our competitors. And we have been pretty strong there. We haven't seen it. I don't think it will be a significant impact going forward.

Great. Thanks.

Peter Saleh; Telsey Advisory Group.

Lance, you had mentioned some labor efficiencies. Can you elaborate a little bit more on that? Is that coming from online sales or where are you getting these labor efficiencies?

Peter, I will kick that over to Steve Ritchie, who runs our restaurants corporately.

I think it ties back to some of the comments made before. As we noted, we certainly we are focusing on the online side of our business. As we have noticed previously, we see a higher ticket average and we see better efficiencies on the online side of the business. Certainly with that higher ticket average, we are seeing better efficiencies from a labor standpoint. With what we've gone from a transaction growth over the last couple of years, certainly increased transactions drives increased productivity, which is driving better labor efficiencies at the restaurants.

Great. And then, as we look at the next year or 2 in terms of your unit development, and domestically, what percentage of those units are coming from existing franchisees versus new franchisees?

I'm going to kick that question to Tim O'Hern. But what we'll typically do is give a range here, Peter, so we are not going to give you an exact number.

This is Tim O'Hern. We are seeing a lot of interest. As a matter of fact, we have more leads this year from outside sources then we have in the last couple of years. But our franchise family remains strong in terms of development. We have incentives out there for them to develop, and they are keenly interested in developing stores. And it is still the majority of our development is coming from inside the franchise family.

Great. Thank you.

Michael Wolleben; Sidoti and Company.

I just wanted to follow back up on some commodity questions here. And in relation to where the store margins are going. Clearly, the biggest driver of margin is increasing sales, which you guys are doing here. But with cheese costs up, I have personally seen John on my TV a lot more promoting the meats, the meat products that you guys have out there. Are you using less cheese on those pies? Is that a meaningful difference at a store level margin if you are driving a lot more sales of those pies?

Michael, this is John. You just put a dagger in my heart. The reason we have a wide range going into the year is because I don't want to be tempted, and I certainly don't want Papa John's team to be tempted to put less on. And we just don't play that game. We've seen in the past that competitors play that game and we just think that's a bad way to run a railroad long-term. No, we are making the best pizza we have ever made. We are getting better at making the best pizza we have ever made. We eat a lot of pizza from our competitors. And we really like our product differentiation, frankly. Not to be braggadocious, but we feel good about the taste of the product and the quality of the product and, as Andrew said, we're getting a premium. You don't get a premium unless you put your best foot forward and that's what we do everyday at Papa John's, try to put our best foot forward.

Q1 was a little bit better than we may have thought. Q2 was where we thought, maybe a little less. But it wasn't a lack of hard work in Q2. Everyday we get up and we hit it. And over time we continue to grow market share and we grow stores. Where ever there is a scale of quality between us and the competition, we win. The good news is, every time we are at parity with the amount of stores, Papa John's is a better horse. The bad news is, the competition knows that and they are trying to do everything they can to try to keep us from getting sales. That's the dynamics of the marketplace. The capitalism, if you would. No. No cheating on the cheese.

This is Tony, just to comment as well. Certainly product mix comes into our forecasting process. We monitor that extremely close given our commodity basket. But to John's point, it is nonnegotiable on our standard of quality. But, as I think we have said it before, we have seen this environment before as challenging as it is on the commodity side. And with the efficiencies that we focus on at the store level, our commissary system throughout, we are really dialed in and feel really good about the progress we've made and the plan that we have in place. And again, to these headwinds, still keeping our full-year guidance where it is has said a lot.

And, Michael, I would just add one thing. You alluded to the way to mitigate high commodities and sales it's also through your pricing and the level of your pricing. And we have been at $11 now for 6 months and feel really good about that position and how we've accomplished that.

Okay. Sorry, John, I certainly wasn't implying that you guys were skipping on quality. Thanks.

(Operator Instructions). Brad Ludington; KeyBanc Capital Markets.

Thanks. I just wanted to follow up with 1 quick question, trying to figure out what is going on with the weather and everything across the country. We talked before if it's really cold or snow, that can be good for pizza delivery. Is there anything that you're seeing with hot weather? It's suppose to be 110 or 111 here in Dallas today. Does that help, hurt, or anything?

Brian, this is Lance. I'm going to pitch this over to Tony Thompson and let him answer this question.

I think certainly we've seen some unprecedented temperatures in many areas of the country, including even where we are located here in Louisville, Kentucky. What we have actually seen, I think some of the extreme heat, it's probably not a total cause and effect, but there's actually been somewhat of a benefit to us on sales. People just wanted to stay indoors and not really go anywhere. It has been that hot at some point. We think that's certainly been somewhat of a factor. But, Andrew, if you want to add some additional comments?

Brad, I would just say this -- weather is weather. That's what it is. Sometimes it's in your favor and sometimes it's not. So maybe incredible heat helps, but the fact that we have not gotten a lot of rain across the last couple of months hurts. So we literally look at it and just play our game and do the best we can day-to-day and see how it all shakes out.

Brad, this is Lance. Just to wrap that up. We talk about this when we're out on the road. Year-over-year, there's always going to be weather events and we don't really factor that into our thinking much.

Brad, this is John. I went back through the last 10 years of reports that we gave the Street and the things we talked about with folks like you and our analysts. Every quarter is tough. Every quarter has a commodity problem and every quarter has a competitive situation going on. So it is never easy in this business and has not been easy for 27 years. It is just human nature to think that you won't have a drought, or China won't buy cheese, but there is always something going on that you have to navigate around and that is just the nature of the beast.

Thank you.

Thank you. I am showing no further questions at this time. I'd like to turn the call over to Management for any closing remarks.

Operator, thank you. And thanks to everybody for being on the call.

Thank you.

Ladies and gentlemen, thank you for your participating in today's conference. This concludes the program. You may now disconnect and have a wonderful day. (End of transcript. )