AFC Enterprises, Inc. (NASDAQ: AFCE), the franchisor and operator of Popeyes® restaurants, today reported results for its fiscal second quarter 2013 which ended July 14, 2013. The Company also reiterated earnings guidance for fiscal 2013 and provided an update on its Strategic Plan.
Commenting on the second quarter performance, AFC Enterprises Chief Executive Officer Cheryl Bachelder stated, “Popeyes’ team continues to demonstrate a sound strategy for accelerated unit growth fueled by innovation, a compelling new restaurant design, and increasing restaurant operating profit. Given the opportunity for improving our guest experience and growing our global footprint, I believe we have significant runway ahead and the human capital to deliver on that potential.”
Second Quarter 2013 Highlights
Strategic Plan Update
- Reported net income was $8.5 million compared to $6.6 million last year. Diluted earnings per share were $0.35 compared to $0.27 last year, an increase of 30%. Through the end of the second quarter, adjusted earnings per diluted share were $0.75 compared to $0.62 last year, an increase of 21%. 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 4.4% compared to 7.5% last year. Year-to-date through the end of the second quarter, global same-store sales were 4.5% compared to a 7.5% increase in the prior year, for a two year same-store sales growth of 12%.
- Global system-wide sales increased 11.6% compared to an 11.5% increase last year.
- The Popeyes system opened 44 restaurants and closed 16 restaurants, resulting in 28 net openings compared to 9 in the prior year. Through the end of the second quarter, the Popeyes system had opened 84 and closed 40 restaurants, for net restaurant openings of 44 compared to 18 last year.
- Through the end of the second quarter, Operating EBITDA increased 19% to $34.1 million at 31.5% of total revenues, compared to the prior year Operating EBITDA of $28.6 million at 31% of total revenues. 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 through the end of the second quarter was $21.8 million compared to $18.2 million 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.”
The Company continues to strengthen its competitive position in the restaurant industry and quick service restaurant sector by executing its Strategic Plan which is based on the following pillars:
Second Quarter Financial Performance Review
- Build a Distinctive Brand
- In the second quarter, Popeyes promoted Three of Kind – three different configurations of our Bonafide® bone-in chicken and Handcrafted Tenders, each for $3.99. We also featured Garlic Pepper Wicked Chicken and reprised Zatarain’s® Butterfly Shrimp.
- This was Popeyes’ 13 th consecutive quarter of positive same-store sales. According to independent industry research, Popeyes has outpaced the same-store sales of the entire Chicken-QSR category for 21 consecutive quarters and the same-store sales of the overall QSR category for seven consecutive quarters.
- Run Great Restaurants
- As of the end of the second quarter, approximately 40% of the domestic system was in the new Popeyes Louisiana Kitchen image. The Company expects approximately 60% of the domestic system to be in the new image by the end of 2013. On average, reimaged restaurants are enjoying a 3% to 4% sales lift.
- At the end of the second quarter, approximately 70% of the domestic system restaurants attained speed of service below our 180 second standard.
- The Company’s Guest Experience Monitor, or GEM, percent delighted scores were approximately 61% at the end of the second quarter.
- Grow Restaurant Profits
- Average restaurant operating profit before rent of Popeyes domestic freestanding franchised restaurants increased to 22.2% of total revenues for the first quarter, compared to 21.8% in the first quarter of 2012.
- Commodity prices were flat for the second quarter versus year ago, and up 1.2% through the end of the second quarter. For full year 2013, we expect commodity costs to be down slightly versus the prior year.
- Accelerate Quality Restaurant Openings
- The Company further expanded its presence in Indianapolis, IN with the opening of two restaurants. The average annualized sales volumes of our restaurants in this market are significantly out-performing the domestic system average of $1.2 million.
- In the second quarter, we converted and franchised eight of the 26 restaurants acquired in 2012 in Minnesota and California. One-time franchisee fees of approximately $1.8 million were recognized in the second quarter as franchising of these restaurants was completed. We have converted 13 of the 26 acquired restaurants and the remaining 13 acquired restaurants are expected to be converted at a steady pace over the balance of 2013.
- Create a Culture of Servant Leaders
- We place great emphasis on our human capital and its proven impact on our guest experience and the sustained long term performance of our Company.
- In 2013, we are defining the critical elements that will become Popeyes distinctive employee and guest experiences. We are also building the disciplines, tools and processes needed for in-market testing followed by a system launch.
Total system-wide sales increased by 11.6% reflecting the brand’s successful product promotions and expanding domestic footprint. System-wide sales were comprised of $554.0 million in franchise restaurant sales and $17.5 million in company-operated restaurant sales.