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AFC Enterprises Reports Earnings For Third Quarter 2012

Stocks in this article: AFCE

During the third quarter, the Company repurchased approximately 132,000 shares of its common stock for approximately $2.9 million. Through November 7, 2012, the Company has repurchased approximately 600,000 shares of common stock for approximately $11.5 million. These purchases were made in accordance with the Company's previous share repurchase guidance of $15 million for 2012. Approximately $5.2 million remains under the Company's current share repurchase program.

During the third quarter, the Popeyes system opened 28 restaurants, which included 18 domestic and 10 international. The Popeyes system permanently closed 23 restaurants, including 14 domestic and 9 international. Through the third quarter, Popeyes opened 79 restaurants and permanently closed 56 restaurants, resulting in 23 net openings, compared to 88 restaurant openings, 64 permanent closures and 24 net openings in 2011. The lower number of new openings in 2012 is largely attributable to the more measured pace of growth in international markets. Full-year international openings for 2012 are expected to be approximately 60 units compared to 67 in 2011.

Strategic Plan Update

The Company’s Strategic Road Map is founded on the five Pillars below.

1. Build a Distinctive Brand

  • The Popeyes system continues to grow average unit volumes by complementing its core Bonafide® offerings with a wide array of distinctive, premium quality boneless chicken and seafood products.
  • Menu innovation, combined with the expansion of our highly effective national media advertising program, is resonating with a broader spectrum of guests and accelerating the performance of our brand.

2. Run Great Restaurants

  • At the end of the third quarter, approximately 18% of the Popeyes domestic system had incorporated the new Popeyes Louisiana Kitchen re-image. Our goal is to have approximately one-third of our domestic system in the new restaurant image by the end of 2012, and the balance of the system by the end of 2015.
  • Speed of service at the drive-thru continued to be an area of focus. By the end of the third quarter, approximately three quarters of our domestic system restaurants attained speed of service below our 180 second standard.
  • We revised our Guest Experience Monitor (“GEM”) process in the first quarter of 2012 and are pleased that we have doubled the number of guest survey responses. For the third quarter, GEM “Overall Delighted” scores were approximately 70%.

3. Grow Restaurant Profits

  • In the second quarter of 2012, our franchisees reported average restaurant operating profits nearly 20% higher than last year despite commodity cost inflation of 1.5%.
  • On a full year basis, the Company now expects commodity costs to increase by approximately 2%, which equates to an approximate 0.7% negative impact on restaurant operating profit margins.
  • We expect to offset the full year impact of commodity inflation by continuing to deliver top-line sales growth and implementing on-going supply chain cost savings and in-restaurant cost controls.
  • For 2013, we expect commodity inflation of approximately 1-2% based on current market indications.

4. Accelerate Quality Restaurants

  • Approximately two-thirds of the 42 domestic restaurant openings through the end of the third quarter have been in top priority development markets.
  • The average unit volumes of the new freestanding restaurants continue to be significantly higher than the system average as a direct result of the improved site selection discipline we have in place.
  • We believe that our opportunity in the U.S. is to at least double our current footprint through additional development in existing markets and entry into new markets.
  • Company-operated restaurant development remains on track, with 4 to 6 new restaurants expected to open in the fourth quarter.

5. Create a Culture of Servant Leaders

  • Our work on key initiatives to transform the Popeyes culture into one of Servant Leadership punctuates the importance we place on human capital and its proven impact on long term performance.
  • We are intent on delivering a branded guest experience that differentiates Popeyes among our competitors. The foundation of this effort is based on establishing Popeyes unique employee value proposition, defining the guest experience and developing leaders at all levels of the organization who can execute that experience.
  • We are currently gathering insights from our guests and employees. We believe feedback from these important stakeholders is key to understanding what they expect from an employee and guest experience.

Pending Transaction

On October 11, 2012, we entered into an agreement to acquire 29 restaurants in Minnesota and California at a price of $13.8 million. The Company intends to convert 28 of the restaurants to Popeyes Louisiana Kitchen restaurants at a cost of approximately $11.5 million and to dispose of one of the restaurant sites. Following the conversions, the restaurants will be leased to Popeyes franchisees to operate. The closing of the acquisition, the Asset Purchase Agreement, the number of acquired restaurants, the resulting number of restaurants converted to the Popeyes concept, and the conversion costs are subject to bankruptcy court approval of the transaction and customary closing conditions. As of 12:00 noon Eastern Time on November 7, 2012, the bankruptcy court had not ruled with respect to approval. The Company will provide an update following such ruling.

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