Pizza Pizza Royalty Corp. Announces First Quarter Financial Results

TORONTO, ONTARIO--(Marketwired - May 9, 2017) - Pizza Pizza Royalty Corp. (the "Company") (TSX:PZA), which owns the Pizza Pizza and Pizza 73 Rights and Marks, released financial results today for the three months ended March 31, 2017.

First Quarter highlights:

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-- Royalty Pool sales increased 0.6%

-- Same store sales decreased 0.7%

-- Restaurant network grew by 4, net locations

-- Royalty Pool of restaurants increased by a net, 15 effective January 1,

2017

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SALES

For the three months ended March 31, 2017 ("Quarter"), System Sales from the 751 restaurants in the Royalty Pool increased 0.6% to $133.9 million from $133.1 million in the prior year comparable quarter when there were 736 restaurants. System Sales in the prior year quarter included an extra day of sales in February 2016 due to the leap year, which management estimated to be $1.0 million.

Royalty Pool System Sales for the Quarter increased over the prior year comparative period as a result of the impact of net, new restaurants added to the Royalty Pool on January 1, 2017, offset by the reported same store sales decrease. Additionally, the extra day of sales in the prior year quarter should be considered when comparing 2017 to 2016.

Same store sales growth ("SSSG"), the key driver of yield growth for shareholders of the Company, decreased by 0.7% for the Quarter compared to a 2.5% increase in the same quarter last year. SSSG is not affected by the additional day during the leap year in 2016, as SSSG is calculated using a 13-week comparative basis.

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First Quarter

SSSG (%)

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2017 2016

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Pizza Pizza (0.7) 4.9

Pizza 73 (0.7) (7.9)

Combined (0.7) 2.5

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Paul Goddard, CEO, Pizza Pizza Limited, said: "Our sales were softer than anticipated this quarter. The average customer check increased, but customer traffic decreased compared to the prior year quarter. In the past year, we've selectively increased prices on a few of our most popular offerings which has negatively impacted traffic, but positively impacted restaurant profitability. In what seems to be an industry-wide trend, we encountered continued weakness in consumer spending, not only in western markets, but, in parts of Ontario as well. Having said that, we are excited to begin celebrating Pizza Pizza's 50th anniversary with sales-building campaigns designed to increase traffic."

MONTHLY DIVIDENDS AND WORKING CAPITAL RESERVE

The Company declared shareholder dividends of $5.3 million, or $0.2139 per share, for the Quarter compared to $5.1 million, or $0.2091 per share, for the prior year comparable quarter. The payout ratio was 103% for the Quarter and was 100% for the prior year comparable quarter.

For Canadian federal tax purposes, the dividend is considered a taxable eligible dividend.

The Company's working capital reserve is $5.0 million at March 31, 2017, which is a decrease of $150,000 as compared to December 31, 2016. The decrease in the reserve was the result of flat adjusted earnings in the Quarter, coupled with an increase in the dividend effective June 2016.

The reserve is available to stabilize dividends and fund other expenditures in the event of short- to medium-term variability in System Sales and, thus, the Company's royalty income. With this reserve in place, the Company has set a 2017 targeted payout ratio at or near 100% on an annualized basis. The Company does not have capital expenditure requirements or employees.

EARNINGS PER SHARE ("EPS")

Fully-diluted basic EPS for the Quarter increased 1.4% to $0.217 per share compared to $0.214 per share for the same quarter in 2016. The increase in EPS for the Quarter is attributable to increased royalty income and a decrease in administrative expenses.

As compared to basic EPS, the Company considers "adjusted" EPS(1) to be a more meaningful indicator of the Company's operating performance and, therefore, presents fully-diluted adjusted EPS. Adjusted EPS for the Quarter was flat at $0.219 when compared to the same quarter in 2016.

(1) Adjusted earnings and adjusted EPS are not recognized measures under International Financial Reporting Standards ("IFRS") and may be calculated in a manner that differs from that used by other issuers. For additional information about the calculation and use of these measures, please see "Reconciliation of Non-IFRS Measures" in the Company's Management's Discussion & Analysis ("MD&A").

CURRENT INCOME TAX EXPENSE

Current income tax expense for the Quarter was consistent with the 2016 comparable period at $1.4 million, as the operating results were comparable.

Of particular note is that the Company's earnings from operations before income taxes, calculated under International Financial Reporting Standards ("IFRS"), differs significantly from its taxable income, largely due to the tax amortization of the Pizza Pizza and Pizza 73 Rights and Marks. The amount of the tax amortization deducted is based on a declining basis and will decrease annually.

RESTAURANT DEVELOPMENT

The number of restaurants in the Company's Royalty Pool increased by a net, 15 to 751 on the January 1, 2017 Adjustment Date. The number of restaurants in the Royalty Pool will remain unchanged through December 31, 2017.

During the Quarter, Pizza Pizza Limited ("PPL") opened six restaurants and closed two. By brand, for the Quarter, Pizza Pizza opened three traditional and one non-traditional restaurants; two non-traditional locations were closed. Pizza 73 opened two traditional restaurants; no Pizza 73 restaurants were closed.

Readers should note that the number of restaurants added to the Royalty Pool each year may differ from the number of restaurant openings and closings reported by PPL on an annual basis as the periods for which they are reported differ slightly.

SELECTED FINANCIAL HIGHLIGHTS

The following table sets out selected financial information and other data of the Company and should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company. Readers should note that the 2017 results are not directly comparable to the 2016 results because of an extra day of royalty revenue in 2016 due to the leap year, in addition to the fact that there are 751 restaurants in the 2017 Royalty Pool compared to 736 restaurants in the 2016 Royalty Pool.

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3 months ended

(in thousands of dollars, except number of

restaurants, days in the period, per Share March 31, March 31,

amounts, and noted otherwise) 2017 2016

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Restaurants in Royalty Pool(1) 751 736

Same store sales growth(2) -0.7% 2.5%

Days in the period 90 91

System Sales reported by Pizza Pizza restaurants

in the Royalty Pool(6) $ 112,508 $ 111,210

System Sales reported by Pizza 73 restaurants in

the Royalty Pool(6) 21,355 21,881

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Total System Sales $ 133,863 $ 133,091

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Royalty - 6% on Pizza Pizza System Sales $ 6,751 $ 6,673

Royalty - 9% on Pizza 73 System Sales 1,922 1,969

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Royalty income $ 8,673 $ 8,642

Interest paid on borrowings(3) (314) (332)

Administrative expenses (135) (163)

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Adjusted earnings available for distribution to

the Company and Pizza Pizza Limited(5) $ 8,224 $ 8,147

Distribution on Class B and Class D Exchangeable

Shares(4) (1,735) (1,644)

Current income tax expense (1,375) (1,375)

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Adjusted earnings available for shareholder

dividends(5) $ 5,114 $ 5,128

Add back:

Distribution on Class B and Class D Exchangeable

Shares(4) 1,735 1,644

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Adjusted earnings from operations(5) $ 6,849 $ 6,772

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Adjusted earnings per share(5) $ 0.219 $ 0.219

Basic earnings per share $ 0.217 $ 0.214

Dividends declared by the Company $ 5,266 $ 5,148

Dividend per share $ 0.2139 $ 0.2091

Payout ratio(5) 103% 100%

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(1) The number restaurants for which the Partnership earns a royalty

("Royalty Pool"), as defined in the amended and restated Pizza Pizza

license and royalty agreement (the "Pizza Pizza License and Royalty

Agreement") and the amended and restated Pizza 73 license and royalty

agreement (the "Pizza 73 License and Royalty Agreement") (together, the

"License and Royalty Agreements"). For the 2017 fiscal period, the

Royalty Pool includes 651 Pizza Pizza restaurants and 100 Pizza 73

restaurants. The number of restaurants added to the Royalty Pool each

year may differ from the number of restaurant openings and closings

reported by Pizza Pizza Limited ("PPL") on an annual basis as the

periods for which they are reported differ slightly.

(2) SSSG means the change in period gross sales of Pizza Pizza and Pizza 73

restaurants as compared to sales in the previous period, where the

restaurants have been open at least 13 months. Additionally, for a Pizza

73 restaurant whose restaurant territory was adjusted due to an

additional restaurant, the sales used to derive the Step-Out Payment may

be added to sales to arrive at SSSG. SSSG does not have any standardized

meaning under IFRS. Therefore, these figures may not be comparable to

similar figures presented by other companies. See "Reconciliation of

Non-IFRS Measures" in Management's Discussion & Analysis ("MD&A").

(3) The Company, indirectly through the Partnership, incurs interest expense

on the $47 million outstanding bank loan. Interest expense also includes

amortization of loan fees. See "Interest Expense" in the Company's MD&A.

(4) Represents the distribution to PPL from the Partnership on Class B and

Class D Units of the Partnership. The Class B and D Units are

exchangeable into common shares of the Company ("Shares") based on the

value of the Class B Exchange Multiplier and the Class D Exchange

Multiplier at the time of exchange as defined in the Licence and Royalty

Agreements, respectively, and represent 21.1% of the fully diluted

Shares at March 31, 2017 (December 31, 2016 - 20.4%). During the quarter

ended March 31, 2017, as a result of the final calculation of the

equivalent Class B and Class D Share entitlements related to the January

1, 2016 Adjustment to the Royalty Pool, PPL was paid a distribution on

additional equivalent Shares as if such Shares were outstanding as of

January 1, 2016. Included in the three months ended March 31, 2017, is

the payment of $8 in distributions to PPL pursuant to the true-up

calculation (March 31, 2016 - PPL was paid $22).

(5) "Adjusted earnings from operations", "Adjusted earnings available for

shareholder dividends", "Adjusted earnings per Share", and "Payout

Ratio" do not have any standardized meaning under IFRS. Therefore, these

figures may not be comparable to similar figures presented by other

companies. See "Reconciliation of Non-IFRS Measures" in the Company's

MD&A.

(6) System Sales (as defined in the Licence and Royalty Agreements) reported

by Pizza Pizza and Pizza 73 restaurants include the gross sales of Pizza

Pizza company-owned, jointly-controlled and franchised restaurants,

excluding sales and goods and service tax or similar amounts levied by

any governmental or administrative authority. System Sales do not

represent the consolidated operating results of the Company but are used

to calculate the royalties payable to the Partnership as presented

above.

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A copy of the Company's unaudited interim condensed consolidated financial statements and related MD&A will be available at www.sedar.com and www.pizzapizza.ca after the market closes on May 9, 2017.

As previously announced, the Company will host a conference call to discuss the results. The details of the conference call are as follows:

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Date: Wednesday, May 10, 2017

Time: 9:00 a.m. ET

Call-in number: 416-340-2216 / 800-377-0758

Recording call in number: 905-694-9451 / 800-408-3053

Available until midnight, May 24, 2017

Passcode: 5616015#

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A recording of the call will also be available on the Company's website www.pizzapizza.ca.

Forward Looking Statements

Certain statements in this report may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this report, such statements include such words as "may", "will", "expect", "believe", "plan", and other similar terminology. These statements reflect management's current expectations regarding future events and speak only as of the date of this report. These forward-looking statements involve a number of risks and uncertainties, including those described in the Company's annual information form. The Company assumes no obligation to update these forward looking statements, except as required by applicable securities laws.

Contact Information:

Pizza Pizza Limited

Curt Feltner

Chief Financial Officer

(416) 967-1010 x307

cfeltner@pizzapizza.ca

www.pizzapizza.ca / www.pizza73.com / www.sedar.com

Pizza Pizza Limited

Christine D'Sylva

Vice President, Finance & Investor Relations

(416) 967-1010 x393

cdsylva@pizzapizza.ca

www.pizzapizza.ca / www.pizza73.com / www.sedar.com

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