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AFC Enterprises Reports Fiscal 2012 Results; Provides Fiscal 2013 Guidance

AFC Enterprises, Inc. (NASDAQ: AFCE), the franchisor and operator of Popeyes® restaurants, today reported results for fiscal 2012 which ended December 30, 2012. The Company also provided guidance for fiscal 2013 as well as an update on its Strategic Plan.

AFC Enterprises Chief Executive Officer Cheryl Bachelder stated “It is rewarding to see our team’s disciplined and creative work deliver outstanding results to our franchise owners and our shareholders. We believe our five pillar strategic plan will continue to deliver sustained growth well into the future. Furthermore, we have now demonstrated the capability to seize opportunities to accelerate our growth as we did with the fourth quarter acquisition of restaurants in Minnesota and California and the opening of new Company-owned restaurants in Indianapolis and Charlotte. Both of these actions provide strong value to our shareholders.”

Fiscal 2012 Results and Highlights

  • Reported net income was $30.4 million, or $1.24 per diluted share, compared to $24.2 million, or $0.97 per diluted share, in 2011. Adjusted earnings per diluted share, which included approximately $0.01 for the 53 rd week of operations, were $1.24 compared to $0.99 in 2011, a 25% increase. 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 same-store sales increased 6.9%, compared to a 3.1% increase last year.
  • System-wide sales increased 13.5%, compared to a 6.6% increase in 2011.
  • The Popeyes system opened 141 restaurants, compared to 140 last year, and permanently closed 75 restaurants, resulting in 66 net openings, compared to 65 in 2011.
  • General and administrative expenses were $67.6 million, at 3.0% of system-wide sales compared to $61.3 million at 3.1% of system-wide sales in 2011.
  • Operating EBITDA of $55.9 million was 31.3% of total revenues, compared to $45.4 million, at 29.5% of total revenues last year. Operating EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
  • Free cash flow was $36.7 million, compared to $28.5 million in 2011. As a percentage of total revenue, free cash flow increased to 20.5%, compared to 18.5% last year. Free cash flow is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures”.
  • In the fourth quarter:
    • Adjusted earnings per diluted share were $0.34 including approximately $0.01 for the 53 rd week of operations, compared to $0.24 in 2011, an increase of 42%.
    • Global same store sales were 6.2%, compared to 5.8% in 2011, for a two-year same store sales increase of 12.0%.
    • 62 new restaurants were opened, compared to 52 in 2011. New openings included 5 Company-operated restaurants located in the Indianapolis and Charlotte markets.
    • The Company completed a $13.8 million acquisition of 27 restaurants in Minnesota and California. The restaurants were previously in the trade image of another quick service restaurant concept. Two of the acquired restaurants in California were converted into the Popeyes Louisiana Kitchen image and leased to a franchisee in December. Of the remaining 25 restaurants, 24 will be converted in 2013 and one property will be sold.
    • The Company recorded $1.8 million in franchise revenues related to two significant franchisee transfers.
    • The Company repurchased approximately 144,000 shares of its common stock for approximately $3.7 million, bringing total shares repurchased in fiscal 2012 to approximately 741,000 for approximately $15.2 million. These purchases were made in accordance with the Company's previous share repurchase guidance of approximately $15 million for 2012. On February 13, 2013 the Board of Directors approved an additional $50.0 million for the share repurchase program. As of February 27, 2013, the remaining dollar amount of shares that may be repurchased under the program was approximately $51.4 million.

Strategic Plan Update

Through its strategic plan, the Company has achieved momentum in growing shareholder value through intense focus on its single brand, Popeyes Louisiana Kitchen. To accelerate that momentum, the Company remains fully engaged in the execution of the original four pillars of this strategic plan which was launched in 2008. Those pillars are as follows:

  • Build a Distinctive Brand
    • With bold, flavorful food promoted by relevant advertising, national media impact and a spokesperson who resonates with a broad consumer audience, Popeyes’ emphasis on growing a distinctive brand has fueled our 10% cumulative increase in same stores sales over the last two years.
    • For four years in a row, our domestic same-store sales outpaced the chicken QSR and the entire QSR category, according to independent data.
  • Run Great Restaurants
    • Popeyes’ use of metric-driven scorecards to measure each restaurant’s performance in terms of guest experience, culture, operations, sales, and profits is a key differentiator of our brand. In 2012, our enhanced Guest Experience Monitor (“GEM”) yielded higher response rates, and identified areas of opportunity to deliver service that matches the quality of our food. As of year-end, approximately 70% of guest respondents rated Popeyes service a 5 out of 5 on our guest survey.
    • We finished 2012 with over 400 restaurants in the new Popeyes Louisiana Kitchen image and approximately 100 additional restaurants in progress. We expect to have over 60% of our domestic system in the new image by the end of 2013.
  • Grow Restaurant Profits
    • Popeyes domestic freestanding restaurants have realized profitability gains in dollars for four consecutive years.
    • Average restaurant operating profit margins, before rent, of Popeyes domestic freestanding franchised restaurants have increased to more than 20% through the end of the third quarter of 2012. Average restaurant operating profit increased by approximately $30,000 over last year, for a year-over-year growth rate of approximately 19%.
    • Our strong sales performance and our continued focus on cost saving initiatives offset commodity inflation of approximately 2% for the full year 2012. For 2013, we expect commodity costs to be essentially flat year-over-year, based on current market indications.
  • Accelerate Quality Restaurant Openings
    • The annual new restaurant growth of our global system has averaged approximately 6% over the last 5 years.
    • As a result of rigorous site selection and strong franchisee partners, the average first year sales of Popeyes new domestic freestanding restaurants are exceeding the overall domestic system average by approximately 40%.
    • We believe the Popeyes operating system and our disciplined real estate selection will continue to deliver new Popeyes restaurants with strong returns on investment for the Company portfolio as well as for our franchisees. The contribution to earnings made by Company-operated restaurants is accretive to our shareholders, and fuels our investment in our franchise system.
    • We believe the acquisition of restaurants in Minnesota and California will accelerate our development in these under-penetrated areas while providing an opportunity for growth by high-performing franchisees.
      • Of our 2013 expected adjusted earnings per share, approximately $0.10 will be derived from one-time fees associated with the conversion of these acquired restaurants.
    • Popeyes International continued its focus on strengthening existing markets and laying the groundwork for future growth. In the 4th quarter, 20 new restaurants were opened internationally, bringing total openings to 57 for the year. The initial sales results of these restaurants are trending higher than the international system average as a result of improved site selection, new restaurant marketing support and differentiated brand messaging.

In addition to the original four strategic pillars, the Company added a fifth strategic pillar during 2012 designed to sustain brand momentum and profitability in the future.

  • Create a Culture of Servant Leaders
    • Our stated Popeyes purpose is “to inspire servant leaders to achieve superior results.” Serving others and developing leaders is the essence of what we do for a living. With our fifth pillar, we are building a culture and people capability which we believe will translate to a meaningful competitive advantage in our team members’ and guests’ experience.

The Company believes that our strategic plan will continue to keep us focused on the essential elements of chain restaurant success: a differentiated and innovative brand, a delightful guest experience in a beautiful restaurant environment, and a growing franchisee network experiencing strong profitability and sound investment returns. This is how we plan to deliver our growth goals, creating value for our shareholders.

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