Papa Murphy's (NASDAQ: FRSH) reported Q1 EPS of $0.04, $0.09 worse than the analyst estimate of $0.13. Revenue for the quarter came in at $33 million versus the consensus estimate of $33.9 million. Domestic comparable store sales decreased by 2.8%, including a 2.8% decrease at both domestic franchisee-owned stores and at company-owned stores, compared with the first quarter of 2015.

Ken Calwell, President and Chief Executive Officer of Papa Murphy’s Holdings, Inc., stated, “We are disappointed with our overall comparable store sales performance in the first quarter and the resultant level of profitability. We have identified and are taking action against specific areas for improvement and expect to demonstrate progress in the second half of the year.”

Calwell continued, “There were some bright spots in the quarter, including the early launch of our on-line ordering and eCommerce site, providing us with a technology platform foundation for future growth. We now have online ordering capability available in over 82% of our domestic stores, with the full rollout expected to be complete in June, and we are beginning to see the mix of orders placed online increase as we market the site. Additionally, we continue to be encouraged by the outperformance of some of our less developed markets where we are focused on raising brand awareness by investing in advertising and building stores. Comparable store sales growth in these less penetrated markets outperformed the system average by 290 basis points in the quarter.”

“We opened 27 new stores system-wide during the quarter, including 25 in the U.S. The development process enhancements we put in place in 2015 have been effective, leading to a significantly more balanced new store opening cadence this year. We remain on track to open 115 to 120 new units in 2016,” Calwell concluded.

2016 Financial Outlook

Based on current information, Papa Murphy’s Holdings, Inc. is updating full year guidance for fiscal year 2016, which ends on January 2, 2017.

• (revised) Domestic system-wide comparable store sales growth of approximately flat to +1.0%, compared to previous guidance of +2.0% to +3.0%;
• Domestic new store openings of between 115 and 120 units, including 20 to 25 company-owned;
• Revenue to include transaction fees from franchisees for use of the new on-line ordering platform of approximately $1.7 million and zero-margin POS License revenue of approximately $2.1 million;
• (revised) Selling, general and administrative expenses of approximately $33.0 million to $34.0 million, compared to previous guidance of $34.0 million to $36.0 million, inclusive of operating costs of approximately $3.1 million associated with the new on-line ordering platform and approximately $2.1 million associated with POS licenses resold to franchisees at cost;
• Pre-opening costs associated with new Company stores of approximately $0.9 million;
• Capital expenditures, including acquisitions, of approximately $13.0 million to $15.0 million;
• Expected full-year effective tax rate of approximately 38.5%; and
• Diluted share-count of approximately 17.0 million.

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