AFC Enterprises, Inc. (NASDAQ: AFCE), the franchisor and operator of Popeyes® restaurants, today reported results for its fiscal third quarter which ended October 6, 2013. The Company also narrowed earnings guidance for fiscal 2013 and provided a business update on its Strategic Plan.
Commenting on the third quarter performance, AFC Enterprises Chief Executive Officer Cheryl Bachelder stated, "Popeyes delivered another great quarter of sales, earnings and new unit development. We had two strong back-to-back promotions that drove our global same-store sales to +5.1%. While we expect the rate of sales growth will moderate in the fourth quarter, we are on track for a very good year as indicated by our full year guidance."
Third Quarter Highlights:
Strategic Plan Update
- Reported net income was $9.0 million, or $0.37 per diluted share, compared to $6.9 million, or $0.29 per diluted share, in 2012.
- Adjusted earnings per diluted share were $0.38 compared to $0.29 last year. Through the end of the third quarter, adjusted earnings per diluted share were $1.13 compared to $0.91 last year, an increase of 24.2%.
- Global system-wide sales increased 12.4%, rolling over a 10.5% increase in the third quarter of 2012, for a two-year growth rate of 22.9%.
- Global same-store sales increased 5.1% rolling over a 6.3% increase in the third quarter of 2012. Through the end of the third quarter, global same-store sales increased 4.6%, rolling over a 7.1% increase last year, for a two-year same-store sales growth of 11.7%.
- The Popeyes system opened 39 new restaurants during the third quarter and permanently closed 6 restaurants, resulting in 33 net openings. Through the end of the third quarter, the Popeyes system opened 123 new restaurants and permanently closed 46, for 77 net restaurant openings compared to 23 in 2012.
- Through the end of the third quarter, Operating EBITDA increased by 25.2% to $51.2 million, at 32.5% of total revenue, compared to $40.9 million, at 31.2% of total revenue, in the prior year.
- The Company generated $33.2 million of Free Cash Flow through the third quarter compared to $26.3 million last year. As a percentage of Total Revenue, Free Cash Flow increased to 21.1% compared to 20.0% last year.
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:
Third Quarter 2013 Financial Performance
- Build a Distinctive Brand
- In the third quarter, Popeyes followed its latest boneless innovation – Chicken Waffle Tenders – with a celebration of its core Bonafide bone-in chicken positioned as “Love That Chicken Month”. Together with sustained national media, these promotions helped lead Popeyes to a 21.2% market share of the Chicken-QSR category in the third quarter, up 1.7 percentage points over the same period last year.
- According to independent industry research, Popeyes has outpaced the domestic same-store sales of the Chicken-QSR category for the 22 nd consecutive quarter and the overall QSR category for the 8 th consecutive quarter.
- Internationally, same-store sales have been positive for 15 consecutive quarters. We continue to increase the number of markets where our growth has afforded us the benefit of using TV advertising to message the distinctiveness of the brand.
- Run Great Restaurants
- As of the end of the third quarter, approximately 47% of the Popeyes’ domestic system had incorporated the new Popeyes Louisiana Kitchen image. The Company expects approximately 60% of our 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 third quarter, approximately 70% of the domestic system restaurants attained speed of service below our 180 second standard.
- Guest Experience Monitor (“GEM”) percent delighted scores were approximately 59% at the end of the third quarter for the Popeyes domestic system. We will continue to focus on improving the guest experience by introducing new customer service programs in the restaurants in 2014.
- Grow Restaurant Profits
- The average restaurant operating profit before rent of Popeyes’ domestic freestanding franchised restaurants increased to 22.0% of total revenues for the first half of 2013, compared to 21.0% last year.
- Commodity prices decreased approximately 90 basis points in the third quarter versus 2012. We expect commodity costs to continue to moderate in the fourth quarter, bringing our full year 2013 expectations to slightly below 2012.
- Accelerate Quality Restaurants
- The average unit volumes of Popeyes’ domestic freestanding restaurants opened in 2012 continue to be significantly higher than the domestic freestanding system average due primarily to improved trade areas and site selection processes.
- Five company-operated restaurants were opened through the end of the third quarter, bringing the total to 49.
- In the third quarter, we converted and franchised seven of the 26 restaurants acquired in 2012 in Minnesota and California. One-time conversion fees of approximately $1.6 million were recognized in the third quarter as franchising of these restaurants was completed. The remaining six acquired restaurants are expected to be converted in the fourth quarter.
- Create a Culture of Servant Leaders
- We place great emphasis on our human capital and its impact on our guest experience and the sustained long term performance of our Company.
- During the third quarter, we conducted a number of best practices visits with companies across industries as part of our benchmarking research. These efforts will lead to the definition and design of our in-market plans.
Global system-wide sales increased by 12.4%. System-wide sales were comprised of $555.8 million in franchise restaurant sales and $18.6 million in company-operated restaurant sales.