Papa John's International's PZZA CEO John Schnatter on Q1 2014 Results
Good day, ladies and gentlemen, and welcome to the Papa John's First Quarter 2014 Conference Call and Webcast. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this call is being recorded.
I'll now introduce your host for today's conference, Lance Tucker, Chief Financial Officer. You may begin.
Thank you, Ashley. Good morning. With me on the call today are our Founder, Chairman and CEO, John Schnatter; President and COO, Tony Thompson; SVP of Global Operations, Steve Ritchie, CMO, Bob Kraut, and other members of our senior management team. After a brief financial update, John and Tony will have comments about our business and the management team will then be available for Q 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. All forward looking statements should be considered in conjunction with the cautionary statements in our earnings press release and the risk factors included in our SEC filings. All statements made on this call are as of today, and we undertake no obligation to update the information on this call in the event facts or circumstances subsequently change.
In addition, certain financial measures we use on this call 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. Unless otherwise noted, all comparisons are versus the comparable a year ago. This call is being taped and the replay will be available for a limited time on our website and in downloadable podcast format. Finally, we ask any media to be in a listen only mode, as this is primarily an investor call.
Now on to a discussion of our first quarter and operating results; for the first quarter, our diluted earnings per share were $0.45, up 7% versus 2013 with operating income growth of $2.4 million or 8%. Our first quarter revenues increased 13% versus the fourth quarter of 2013 driving the increase for comp sales of 9.6% in North America and 6.4% for international as well as a 5.8% increase in the number of units operating globally on a year over year basis.
The North American comps and increased unit count also drove higher PJ Food Service revenues as they had higher cheese prices. We opened 12 net global units in the first quarter with 17 net international opens and five net North America closures. On a business segment basis, operating income for domestic company owned restaurant was up over $2.3 million in the first quarter. Incremental profits from our 11.4% comps were partially offset by lower gross margins due primarily to higher cheese prices.
Operating income for the North America franchising segment increased approximately $1.3 million in the first quarter, due primarily to the increase in net units and comparable sales of 8.9%. Operating income for our domestic commissary business segment increased by approximately $300,000 in the first quarter, due primarily to the incremental volume associated with higher restaurant sales, partially offset by transition costs to in house distribution from a third party firm at certain of our QCCs.
Operating results for our international segment increased approximately $400,000 in the first quarter, due primarily to 6.4% comps and a higher number of you units on a year over year basis. Unallocated corporate expenses increased approximately $2.9 million in the first quarter, due primarily to a $400,000 increase in interest expense, the prior year including an $800,000 benefit from JV accounting and higher G cost related primarily to salaries, benefits and the performance based incentive compensation plan.
Our effective tax rate was 34.6% in the first quarter, up 1.7% from the prior year. Our effective tax rate may fluctuate for various reasons. The first quarter 2013 benefited from a reinstatement of certain 2012 tax credits and certain favorable tax settlements, none of which were present in 2014.
Our free cash flow, a non GAAP measure we define as cash flow from operations less capital expenditures was approximately $50 million for the trailing 12 month period. Our net debt position, defined as total debt less cash and cash equivalents, was approximately $163 million at the end of the first quarter.
Finally, the Company reaffirms all previously announced 2014 full year guidance. Given the current high commodity cost environment, we expect that we may be towards the lower end of our net unit openings guidance range as domestic restaurant closures continue to run a bit higher than we had originally expected.
Now, I would like to turn the call over to our Founder, Chairman and CEO, John Schnatter. John?
Thanks, Lance, and good morning everyone. We're glad you're able to join us this morning as we discuss our first quarter 2014 results. I am pleased to report that Papa John's is off to a strong start in 2014 and I'm optimistic that we can maintain our momentum throughout the year. As Lance noted, we had particularly strong sales results domestically with our system delivering 9.6% North America comp sales.
Our international performance was also strong at 6.4% comp sales, the storng sales across all regions. My congratulations to our franchisees and operators throughout the world on these strong results. I'm proud to see that in the midst of competitive and economic pressures, including high commodity costs that our franchisees continued focus on the fundamentals and delivering on our better ingredients, better pizza brand promise continues to pay off.
Now, as you've seen in our earnings release, we were pleased to report our international division continues steadily improvement. In total, our international division delivered system wide sales growth of 22% for the quarter and we opened 17 net new restaurants. Congratulations to our international team for a strong quarter. As we planned, infrastructure investments made over the past several years, now coupled with strong sales, are driving solid results.
China continues to be a focused market for us with a large and growing consumer class and economy that continues to grow at over 7%. Clearly, we are at the right place, at the right time. As in the case domestically, Papa John's is the quality leader in the international markets we serve. While our international markets will have their ups and downs as we gain scale, we are extremely bullish on our long term prospects across the world. Today, we only have about one restaurant for 3 million people in our international market. So there's a long runway for growth for Papa John's internationally.
Now, turning to the domestic business. Our first quarter success was fueled in large part by the success of our Double Cheeseburger Pizza promotion and our continuing relationship with Peyton Manning and the NFL. We kicked off the year with an anniversary offer that was supported by an ad featuring Peyton Manning and four time winning Super Bowl quarterback Joe Montana.
Given Peyton's incredible year and the Bronco's Super Bowl run, we were thrilled to have the most talked about athlete in all of sports promoting our brand. That success rolled right into our Double Cheeseburger promotion, which was very popular with the customer and also operators because it was a $12 price point. This proved, yet again, that consumers are willing to pay a premium a little bit of a premium for quality that they can't get anywhere except for Papa John's Pizza.
It looks like we're on our way to replicating that success and fun that we had with Peyton with our newest partner, Indiana Pacers all star forward, Paul George. This last week we launched a campaign with Paul to promote our new Sweet Chili Chicken Pizza, which we expect to do very well. I'll wrap up by saying Papa John's says clearly perform well across nearly every measure of over the past several years and we are proud of the fact that we have not had to divert from our strategy and our model of high quality, better ingredients, better pizza promise, which is a proven winner.
Going forward, we will deliver on our well positioned to continue to deliver on the three things we know drive shareholder value, driving new unit development, two building same store sales growth, three driving strong unit level economics. We are confident we will continue our momentum throughout 2014 with study growth and sale in EPS along with continued digital and technology gains.
Now, let me hand it over to our President, Authentic Odell Beckham Jr Jersey Tony Thompson. Tony?
Thanks John. I would like to start by congratulating our franchisees and operators around the world on a tremendous first quarter. With continued competitive pressures and high cheese prices, delivering 9.6% North American comp sales and 6.4% international comp sales in Q1. While growing operating profit is very impressive. In my mind, one word in particular sums up our quarter momentum. We started 2014 coming off a very strong Q4 and we never took our foot off the pedal.
As John mentioned, our anniversary promotion supported by the Peyton Manning and Joe Montana commercial, as well as our popular Double Cheeseburger LTO, not only kept our sales momentum going but accelerated it. On our last call I mentioned that two areas, in particular, stood out in Weston Richburg Youth Jersey helping us deliver an outstanding 2013.
One of them is our strong LTO pipeline. The success of the Double Cheeseburger Pizza, as well as our new Sweet Chili Chicken Pizza, are Weston Richburg Kids Jersey direct results of that focus on our LTO pipeline. That enabled us to distance ourselves from the competition during the quarter, where, as John noted, we were able to command a $12 premium for our pizza while the competition remained at a lower price point. The point John made bears repeating. Our Q1 success reinforces the notion that consumers are willing to pay more for a better quality product from the industry's recognized quality leader.
The other area that continued to be a strength for us in Q1, and continues, is our digital leadership position. delivery restaurants in 2001, 13 years later, Papa John's is still setting the pace.
We grew our total domestic digital sales to well over 45% during the quarter, putting us on the cusp of being the first national pizza chain to achieve a domestic system wide digital sales mix of 50%. Odell Beckham Jr Youth Jersey And during the quarter, nearly 60% of all domestic delivery sales came to our digital channels, another industry leading technology milestone for Papa John's.
During the quarter, we also began our roll out of our new point of sale system, which we call FOCUS. Over the long term, we expect FOCUS to contribute meaningfully to store level productivity and profitability.
Finally, I'd like to talk briefly about our international operations. I, along with several members of our executive leadership team, toured seven international markets during the quarter, spanning from Asia to Europe. We were very pleased to see the progress being made in each of these markets and, as importantly, the vast growth opportunities available to us, particularly in China. I'm really proud of our product quality throughout the world and, with the tremendous amount of runway and robust and a robust development pipeline, we're very bullish on the continued growth and success of our international operations.