Earnings
AFC (Popeyes) Reports Financial Results for First Quarter 2011
May 25, 2011 · 0 Comments
ATLANTA– May 25, 2011 (www.hospitalitybusinessnews.com) –AFC Enterprises, Inc. the franchisor and operator of Popeyes® restaurants, today reported results for its fiscal first quarter which ended April 17, 2011. The Company also reaffirmed its fiscal 2011 guidance and provided a business update on its Strategic Plan.
- Reported net income was $7.2 million, or $0.28 per diluted share, compared to $5.8 million, or $0.23 per diluted share, last year. Adjusted earnings per diluted share were $0.27 compared to $0.23 in 2010. This improvement was primarily due to stronger same-store sales and lower interest expense. Adjusted earnings per diluted share is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
- Global system-wide sales increased 6.9 percent compared to a 2.1 percent increase last year.
- Global same-store sales increased 3.9 percent compared to a 0.3 percent decrease last year. Domestic same-store sales increased 3.9 percent compared to a 0.4 percent decrease in 2010. According to independent data, in the first quarter 2011, Popeyes same-store sales outpaced the chicken QSR category for the 12th consecutive quarter and the QSR category for the 4th consecutive quarter. International same-store sales increased 4.1 percent compared to a 1.2 percent increase last year.
- The Popeyes system opened 32 restaurants and permanently closed 14 restaurants, resulting in 18 net openings compared to 5 net openings last year.
- Operating EBITDA was $13.3 million, at 28.4 percent of total revenue, compared to first quarter 2010 of $13.3 million, at 30.4 percent of total revenue. The decrease in Operating EBITDA as a percent of total revenue was primarily due to investments in general and administrative expenses. Operating EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
- The Company’s free cash flow was $6.9 million, which included $0.5 million of other income, compared to $6.3 million in 2010, which included $0.1 million of other income. The Company used $6.5 million of cash to repurchase 438,288 shares of common stock under the Company’s current Share Repurchase Program. Free cash flow is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
AFC Enterprises Chief Executive Officer Cheryl Bachelder stated, “We delivered another strong quarter of positive results operationally and financially. This growth was primarily driven by global top-line sales momentum from both same-store sales and new unit growth, as we continue to focus on our strategic roadmap. Our restaurants are managing in a tough commodity environment by keeping sales strong, selectively raising prices, and tightly controlling labor. We remain on track to deliver our 2011 goals.”
The Company’s Strategic Plan is built on the foundation of the Four Pillars below.
1. Build the Popeyes Brand
- In March, Popeyes promoted its signature Butterfly Shrimp Tackle Box featuring 8-pieces of Butterfly Shrimp with Cajun fries and a buttermilk biscuit for only $4.99. This promotion was supported with national media advertising.
- On March 23, the Popeyes system offered its customer appreciation “Pay Day” promotion for the third consecutive year. This one-day event featured 8-pieces of Popeyes famous Bonafide® chicken for only $4.99.
- In May, to continue the celebration of Popeyes® spicy and mild bone-in fried chicken beating KFC®’s Original Recipe® bone-in fried chicken in a national taste test, Popeyes launched a Buy One, Get One free Bonafide® chicken promotion. This Limited Time Offer (“LTO”) featured a free 2-piece meal with the purchase of a 3-piece meal at regular menu price.
- Starting May 30, Popeyes will promote Wicked Chicken, one of its most successful LTOs and the winner of Nation’s Restaurant News®2011 Menu Masters Award for best LTO. Supported with national media, this promotion will feature Wicked Chicken, Cajun fries, a buttermilk biscuit, ranch dipping sauce and a mini bottle of TABASCO® Pepper Sauce for only $3.99.
- International franchisees also continue to successfully leverage marketing strategies of innovation and value, such as “Pay Day”, to drive guests into Popeyes restaurants.
2. Run Great Restaurants
- During the first quarter, Popeyes restaurants continued to experience steady improvements in Guest Experience Monitor (“GEM”) scores with “% Delighted” and “Speed of Service” scores both up approximately two percentage points over year end 2010.
- Since system-wide adoption of Popeyes Speed of Service initiatives, restaurant average weekly drive-thru times have improved significantly, reducing the time by approximately 30 seconds.
- Popeyes is also implementing measurement tools around core operating systems across the Company’s international markets. At the end of the first quarter, GEM was in place in approximately one third of the Company’s international restaurants.
3. Strengthen Unit Economics
- In the first quarter, Popeyes restaurants experienced an approximate 6 percent increase in food costs compared to last year, primarily the result of higher commodity costs. On a full year basis, the Company now expects food costs to increase by 4-5 percent which equates to approximately 150 basis points on restaurant operating profit margins. As previously indicated, management expects these costs to be partially offset by top-line sales growth, additional supply chain cost savings, selective menu pricing and in-restaurant cost controls.
- The Company is also focusing on restaurant profitability in its international markets, where food costs are typically higher. Some of the activities include localized product sourcing, regional volume leverage and stronger strategic supplier partnerships. These cost-reducing activities are being implemented to make Popeyes’ restaurant cost structure more competitive around the globe.
4. Ramp Up New Unit Growth
- The Company’s global development pipeline for new unit openings continues to strengthen, with both a greater number of projects underway and a more balanced schedule of expected openings throughout the year.
- Internationally, the Company is now applying the same successful strategic discipline and approach evidenced in the brand’s domestic business. Management expects this will lead to a deliberate and sustainable long-term international growth plan.
First Quarter 2011 Financial Performance Compared to First Quarter 2010
Global system-wide sales increased by 6.9 percent. System-wide sales were comprised of $575.4 million in franchise restaurant sales and $17.6 million in Company-operated restaurant sales.
Global same-store sales increased 3.9 percent compared to a 0.3 percent decrease in 2010. Total domestic same-store sales increased 3.9 percent compared to a 0.4 percent decrease last year. According to independent data, in the first quarter 2011, Popeyes same-store sales outpaced the chicken QSR category for the 12th consecutive quarter and the QSR category for the 4th consecutive quarter.
International same-store sales increased 4.1 percent and represented the 5th consecutive quarter of positive same-store sales. This increase was primarily driven by strong same-store sales in Turkey, Latin America and Canada pa
rtially offset by Korea and U.S. military bases abroad.
Total revenues were $46.8 million, compared to $43.8 million last year. This increase was primarily attributable to positive same-store sales and sales from new restaurants opened in 2010.
Company-operated restaurant operating profit (“ROP”) was $3.4 million, or 19.3 percent of sales, compared to $3.2 million, or 19.9 percent of sales, last year. The $0.2 million increase in ROP was primarily due an increase in same store sales of 6.4 percent partially offset by higher food costs as a result of increased commodity costs. Company-operated Restaurant Operating Profit is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
General and administrative expenses were $18.5 million, or 3.1 percent of system-wide sales, compared to $16.8 million, or 3.0 percent of system-wide sales, last year. This increase was primarily attributable to selective investments to support global new restaurant development.
Other income was $0.5 million, primarily due to a net gain on the sale of two real estate properties.
Operating EBITDA was $13.3 million, at 28.4 percent of total revenue, compared to first quarter 2010 of $13.3 million, at 30.4 percent of total revenue. The decrease in Operating EBITDA as a percentage of total revenue was primarily due to investments in general and administrative expenses, partially offset by revenue from stronger same-store sales. Operating EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
Operating profit was $12.5 million, compared to operating profit of $12.2 million last year.
Interest expense, net was $1.1 million, a $1.7 million decrease from 2010. This decrease was primarily due to lower average interest rates under the Company’s new 2010 credit facility, and lower amortization for bank fees and swap settlement charges recognized in first quarter 2010.
Income tax expense was $4.2 million, yielding an effective tax rate of 36.8 percent, compared to an effective tax rate of 38.3 percent in the prior year. The effective rates differ from statutory rates due to tax credits.
Reported net income was $7.2 million, or $0.28 per diluted share, compared to $5.8 million, or $0.23 per diluted share, in 2010. Adjusted earnings per diluted share were $0.27 compared to $0.23 last year. This improvement was primarily due to stronger same-store sales and a decrease in interest expense, net. Adjusted earnings per diluted share is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
Free cash flow was $6.9 million, which included $0.5 million of other income, compared to $6.3 million in 2010, which included $0.1 million of other income. Free cash flow is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
During the first quarter, the Company repurchased 438,288 shares of its common stock for approximately $6.5 million.
During fiscal year 2011 through May 25, 2011, AFC has repurchased 1,085,036 shares of common stock for approximately $16.2 million. These purchases were made in accordance with the Company’s previous stock repurchase guidance for 2011 of $20-$25 million. As of May 15, 2011, approximately 24.8 million shares of the Company’s common stock were outstanding.
The Popeyes system opened 32 restaurants in the first quarter, which included 11 domestic and 21 international restaurants, compared to 17 openings last year. The Company permanently closed 14 restaurants, resulting in 18 net openings compared to 5 net openings in the first quarter of 2010. The 14 closures in 2011 included 6 domestic and 8 international restaurants.
On a system-wide basis, Popeyes had 1,997 restaurants operating at the end of the first quarter, compared to 1,944 at the end of the first quarter 2010. Total unit count was comprised of 1,587 domestic restaurants and 410 international restaurants in 25 foreign countries and three territories. Of this total, 1,959 were franchised restaurants and 38 were Company-operated restaurants.
Fiscal 2011 Guidance
The Company reaffirms its expectation that Popeyes global same-store sales growth will be in the range of positive 1.0 to 3.0 percent. This guidance reflects stronger same-store sales in the first half of the year and softer in the second half, as Popeyes restaurants roll over strong same-store sales from the third and fourth quarters of 2010.
Global new openings are still expected to be in the range of 120-140 restaurants. As previously indicated, international new unit openings are expected to remain on pace with 2010 growth of approximately 60 restaurants.
Consistent with previous guidance, the Company projects system-wide unit closings will be in the range of 60-80 restaurants, resulting in 40-80 net openings as compared to 39 net openings in 2010.
The Company continues to expect general and administrative expenses will be in the range of $60-$62 million, at a rate of 3.1-3.2 percent of system-wide sales, among the lowest in the restaurant industry. As previously disclosed, this expense includes $1.0 million for a planned corporate office relocation. Absent this unusual item, general and administrative expenses as a percent of system-wide sales would be 3.0-3.1 percent.
The Company now expects 2011 reported earnings per diluted share will be in the range of $0.87-$0.91, which includes $0.5 million of other income, net, recognized in the first quarter primarily from the sale of two real estate properties; compared to the previous guidance of $0.86-$0.90.
| AFC Enterprises, Inc. | ||||||||
| Condensed Consolidated Balance Sheets (unaudited) | ||||||||
| (In millions, except share data) | ||||||||
| ASSETS |
4/17/2011 |
12/26/2010 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 15.4 | $ | 15.9 | ||||
| Accounts and current notes receivable, net | 6.4 | 5.6 | ||||||
| Other current assets | 2.1 | 4.3 | ||||||
| Advertising cooperative assets, restricted | 17.7 | 16.1 | ||||||
| Total current assets | 41.6 | 41.9 | ||||||
| Long-term assets: | ||||||||
| Property and equipment, net | 20.8 | 21.2 | ||||||
| Goodwill | 11.1 | 11.1 | ||||||
| Trademarks and other intangible assets, net | 46.9 | 47.0 | ||||||
| Other long-term assets, net | 2.6 | 2.7 | ||||||
| Total long-term assets | 81.4 | 82.0 | ||||||
| Total assets | $ | 123.0 | $ | 123.9 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4.1 | $ | 4.8 | ||||
| Other current liabilities | 4.9 | 7.6 | ||||||
| Current debt maturities | 5.2 | 4.0 | ||||||
| Advertising cooperative liabilities | 17.7 | 16.1 | ||||||
| Total current liabilities | 31.9 | 32.5 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt | 59.5 | 62.0 | ||||||
| Deferred credits and other long-term liabilities | 21.0 | 20.2 | ||||||
| Total long-term liabilities | 80.5 | 82.2 | ||||||
| Total liabilities | 112.4 | 114.7 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock ($.01 par value; 2,500,000 shares authorized; | ||||||||
| 0 issued and outstanding) | - | - | ||||||
| Common stock ($.01 par value; 150,000,000 shares authorized; | &nbs p; |
|||||||
| 25,407,161 and 25,685,705 shares issued and outstanding | ||||||||
| at April 17, 2011 and December 26, 2010, respectively) | 0.3 | 0.3 | ||||||
| Capital in excess of par value | 110.9 | 116.4 | ||||||
| Accumulated deficit | (100.2 | ) | (107.4 | ) | ||||
| Accumulated other comprehensive loss | (0.4 | ) | (0.1 | ) | ||||
| Total shareholders’ equity | 10.6 | 9.2 | ||||||
| Total liabilities and shareholders’ equity | $ | 123.0 | $ | 123.9 | ||||
| AFC Enterprises, Inc. | ||||||||
| Condensed Consolidated Statements of Operations (unaudited) | ||||||||
| (In millions, except per share data) | ||||||||
| 16 Weeks Ended | ||||||||
| 4/17/2011 | 4/18/2010 | |||||||
| Revenues: | ||||||||
| Sales by company-operated restaurants | $ | 17.6 | $ | 16.1 | ||||
| Franchise revenues | 27.9 | 26.4 | ||||||
| Rent and other revenues | 1.3 | 1.3 | ||||||
| Total revenues | 46.8 | 43.8 | ||||||
| Expenses: | ||||||||
| Restaurant employee, occupancy and other
Expenses |
8.4 | 7.8 | ||||||
| Restaurant food, beverages and packaging | 5.8 | 5.1 | ||||||
| Rent and other occupancy expenses | 0.8 | 0.8 | ||||||
| General and administrative expenses | 18.5 | 16.8 | ||||||
| Depreciation and amortization | 1.3 | 1.2 | ||||||
| Other expense (income), net | (0.5 | ) | (0.1 | ) | ||||
| Total expenses | 34.3 | 31.6 | ||||||
| Operating profit | 12.5 | 12.2 | ||||||
| Interest expense, net | 1.1 | 2.8 | ||||||
| Income before income taxes | 11.4 | 9.4 | ||||||
| Income tax expense | 4.2 | 3.6 | ||||||
| Net income | $ | 7.2 | $ | 5.8 | ||||
| Earnings per common share, basic: | $ | 0.28 | $ | 0.23 | ||||
| Earnings per common share, diluted: | $ | 0.28 | $ | 0.23 | ||||
| Weighted-average shares outstanding: | ||||||||
| Basic | 25.4 | 25.3 | ||||||
| Diluted | 25.8 | 25.4 | ||||||
| AFC Enterprises, Inc. | ||||||||
| Condensed Consolidated Statements of Cash Flows (unaudited) | ||||||||
| (In millions) | ||||||||
| 16 Weeks Ended | ||||||||
| 4/17/2011 |
4/18/2010 |
|||||||
| Cash flows provided by (used in) operating activities: | ||||||||
| Net income | $ | 7.2 | $ | 5.8 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 1.3 | 1.2 | ||||||
| Asset write downs | 0.1 | 0.1 | ||||||
| Net gain on sale of assets | (0.6 | ) | (0.2 | ) | ||||
| Deferred income taxes | 0.5 | 0.4 | ||||||
| Non-cash interest expense, net | 0.1 | 0.8 | ||||||
| Provision for credit losses | − | (0.1 | ) | |||||
| Stock-based compensation expense | 0.7 | 0.6 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (0.9 | ) | 0.9 | |||||
| Other operating assets | 2.0 | (0.5 | ) | |||||
| Accounts payable and other operating liabilities | (3.2 | ) | (3.3 | ) | ||||
| Net cash provided by operating activities | 7.2 | 5.7 | ||||||
| Cash flows provided by (used in) investing activities: | ||||||||
| Capital expenditures | (1.0 | ) | (0.8 | ) | ||||
| Proceeds from dispositions of property and equipment | 0.7 | − | ||||||
| Proceeds from notes receivables and other investing activities | 0.1 | 1.7 | ||||||
| Net cash provided by (used in) investing activities | (0.2 | ) | 0.9 | |||||
| Cash flows provided by (used in) financing activities: | ||||||||
| Principal payments – 2005 Credit Facility (term loan) | − | (6.7 | ) | |||||
| Principal payments – 2010 Credit Facility (term loan) | (1.2 | ) | − | |||||
| Share repurchases | (6.5 | ) | − | |||||
| Proceeds from exercise of employee stock options | 0.4 | − | ||||||
| Other financing activities, net | (0.2 | ) | (0.2 | ) | ||||
| Net cash used in financing activities | (7.5 | ) | (6.9 | ) | ||||
| Net (decrease) in cash and cash equivalents | (0.5 | ) | (0.3 | ) | ||||
| Cash and cash equivalents at beginning of year | 15.9 | td> | 4.1 | |||||
| Cash and cash equivalents at end of the quarter | $ | 15.4 | $ | 3.8 | ||||
|
Total Same-Store Sales |
Q1 Ended
4/17/11 |
Q1 Ended
4/18/10 |
||||
| Company-operated | 6.4 | % | 0.2 | % | ||
| Domestic Franchised a | 3.8 | % | (0.5 | %) | ||
| Total Domestic | 3.9 | % | (0.4 | %) | ||
| International Franchise b | 4.1 | % | 1.2 | % | ||
| Total Global | 3.9 | % | (0.3 | %) | ||
| Total Franchised (a and b) | 3.8 | % | (0.3 | %) | ||
|
New Unit Openings |
||||||
| Company-operated | - | - | ||||
| Domestic Franchised | 11 | 5 | ||||
| Total Domestic | 11 | 5 | ||||
| International Franchise | 21 | 12 | ||||
| Total Global | 32 | 17 | ||||
|
Unit Count |
||||||
| Company-operated | 38 | 37 | ||||
| Domestic Franchised | 1,549 | 1,533 | ||||
| Total Domestic | 1,587 | 1,570 | ||||
| International Franchise | 410 | 374 | ||||
| Total Global | 1,997 | 1,944 | ||||
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