AFC Enterprises, Inc. (NASDAQ: AFCE), the franchisor and operator of Popeyes restaurants, today reported results for fiscal 2011 which ended December 25, 2011. The Company also provided guidance for fiscal 2012 as well as an update on its Strategic Plan.
Fiscal 2011 Highlights
- Reported net income was $24.2 million, or $0.97 per diluted share, compared to $22.9 million, or $0.90 per diluted share, in 2010. Adjusted earnings per diluted share were $0.99 compared to $0.86 in 2010. 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 3.1%, compared to a 2.6% increase in 2010.
- System-wide sales increased 6.6%, compared to a 5.1% increase in 2010.
- The Popeyes system opened 140 restaurants as compared to 106 last year, an increase of 32%, and permanently closed 75 restaurants, resulting in 65 net openings, compared to 39 in 2010.
- Operating EBITDA of $45.4 million was 29.5% of total revenues, compared to Operating EBITDA last year of $45.3 million, at 30.9% 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 was $28.5 million compared to $26.3 million in 2010. 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 4thquarter:
- Adjusted earnings per diluted share was $0.24 vs. $0.19 in 2010
- Global same store sales were 5.8% vs. 6.0% in 2010
- 52 new restaurants were opened vs. 48 in 2010.
AFC Enterprises Chief Executive Officer Cheryl Bachelder stated “The fourth quarter was a strong close to our solid 2011 performance. The results are an early indication of what this brand is capable of achieving. As we approach our 40th anniversary, Popeyes is emerging as a strong growth story among QSR restaurants. The strategic roadmap and the principles with which we partner with our franchisees are the keys to our performance results. On this sound foundation, we see 2012 and beyond as the time for accelerated growth, first in the U.S. followed by sensible international expansion thereafter.”
Fiscal 2012 Expectations and Guidance
From 2009 through 2011, the Company invested in the pillars of its new strategic plan, which we believe differentiate our direction and prospects for the future. The pillars of our strategic plan are:
- Build a Distinctive Brand
- Run Great Restaurants
- Grow Restaurant Profits
- Accelerate Quality Restaurant Openings.
The Company’s intense focus on these 4 pillars has resulted in 1) effective, efficient advertising of relevant new product innovations that drive traffic; 2) effective tools to support and measure improved speed of service and guest experience; 3) supply chain cost reductions, process improvements and training to improve restaurant profitability; and 4) robust site selection tools and analytics which have resulted in a pipeline of qualified operators opening new Popeyes restaurants with average unit volumes above the system average.
The Company’s execution of its strategic plan coupled with its highly-franchised business model continues to generate strong, consistent free cash flow which serves as the engine for future growth.
Globally, in 2012 the Company expects:
- Same-store sales growth in the range of 3.0% to 4.0%.
- New restaurant openings in the range of 135-155 restaurants, and net restaurant openings in the range of 60-100.
- General and administrative expenses between 2.9% and 3.0% of system-wide sales.
- Adjusted earnings per diluted share in the range of $1.09 to $1.13, which includes approximately $0.01 for the 53rd week of operations in fiscal 2012.
- The Company expects its operating model will deliver 2012 increases of approximately 10%-13% in operating profit, Operating EBITDA and adjusted earnings per diluted share after including the effect of the following two items:
- In 2012, the Company plans to repurchase approximately $15 million in outstanding shares, compared to $22.3 million of share repurchases in 2011.
- The Company’s effective income tax rate in 2012 is expected to be 37-38% compared to 34.6% in 2011.
In 2012, the Company’s emphasis will be on aggressively pursuing significant domestic growth opportunities. Under the leadership of President-U.S., Ralph Bower, the Company has demonstrated the capability to successfully operate high volume company-owned restaurants. As such, the Company has decided to selectively invest in additional company-owned restaurants to expand the high return Popeyes business model in under-penetrated markets. Accordingly, the Company expects to open 7-9 new company-operated restaurants in 2012, principally in the Indianapolis market where one company-owned restaurant opened in the 4th quarter of 2011. The investment of capital to open these restaurants, combined with the maintenance capital and reimage capital required in existing company-operated restaurants, is estimated to be in the range of $13 to $15 million.
2011 Financial Performance Review
Total system-wide sales increased by 6.6% in fiscal 2011. System-wide sales were comprised of $1.93 billion in franchise restaurant sales and $54.6 million in company-operated restaurant sales.
Global same-store sales increased 3.1%, compared to a 2.6% increase in 2010. Total domestic same-store sales increased 3.0%, compared to a 2.5% increase last year. This positive sales growth reflects Popeyes continued introduction of highly innovative new products, and refreshed, higher impact merchandising of its famous Bonafide® bone-in chicken. These strategies, married with strong advertising and media plans, have built awareness and improved traffic for the brand.
International same-store sales increased 3.3%, compared to a 3.1% increase last year, the fifth consecutive year of positive same-store sales. Sales growth was due primarily to positive sales in Canada and Turkey, partially offset by negative sales in Korea and Singapore.
As result of positive same store sales and growth in new restaurants, total revenues were $153.8 million, versus $146.4 million in the prior year.
Company-operated restaurant operating profit of $10.2 million was 18.7% of sales, compared to $10.1 million at 19.2% of sales last year. The 50 basis point decrease was primarily due to inflation in commodity costs of approximately 8%, which was partially offset by nominal menu price increases, supply chain savings, and efficiencies in labor and other non-food related costs. Company-operated restaurant operating profit margin 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 $61.3 million, or 3.1% of system-wide sales, consistent with the Company’s previous guidance, and compared to $56.4 million, or 3.0% of system-wide sales last year. The increase in 2011 primarily reflects continued strategic investment in people and resources to accelerate global sales and new restaurant expansion. The Company’s general and administrative expenses as a percentage of system-wide sales remain among the lowest in the industry.
Other expenses were $0.5 million, compared to other expenses of $0.2 million last year. In 2011, the Company recognized $0.8 million in expenses for the corporate service center relocation, $0.5 million in impairments and disposals of fixed assets offset by a $0.8 net gain on the sale of assets.
Operating profit of $40.7 million was $0.5 million less than in 2010 and Operating EBITDA was $45.4 million compared to $45.3 million in 2010. Higher revenues were offset by strategic investments to accelerate global sales and new restaurant development and by higher commodity costs in company-operated restaurants. Operating EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
Interest expense, net was $3.7 million, a $4.3 million decrease from 2010. This decrease was primarily due to lower average interest rates under the Company’s new credit facility entered into in the 4th quarter of 2010, and lower average debt balances outstanding.
Income tax expense was $12.8 million, yielding an effective tax rate of 34.6%, compared to an effective tax rate of 31.0% in the prior year. In 2011, the Company recognized $0.8 million in work opportunity tax credits related to prior years. Excluding the tax credits, the 2011 effective rate would have been 36.8%. In 2010, the Company recorded a tax benefit of $1.4 million related to the completion of a federal income tax audit for years 2004 and 2005. Excluding the tax benefit of $1.4 million during 2010, the 2010 effective tax rate would have been 35.2%. Other differences in the effective tax rate and the statutory rates are due to changes in estimated income tax reserves.
Reported net income was $24.2 million, or $0.97 per diluted share, compared to $22.9 million, or $0.90 per diluted share last year. Adjusted earnings per diluted share were $0.99 in 2011 compared to $0.86 last year. This $0.13 increase in adjusted earnings per diluted share was comprised of $0.09 lower interest expense, plus $0.03 from $22.3 million of share repurchases, and $0.01 in higher operating profit. 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.”
The Company generated $28.5 million of free cash flow in 2011, compared to $26.3 million in 2010. Free cash flow is a supplemental non-GAAP measure performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures” for the Company’s revised definition of free cash flow.
The Popeyes system opened 140 restaurants in 2011, which included 73 domestic and 67 international restaurants, compared to 106 openings in 2010, an increase of 32%. The Popeyes system permanently closed 75 restaurants in fiscal 2011, resulting in 65 net restaurant openings, compared to 39 net openings last year. These closures included 27 domestic and 48 international restaurants.
On a system-wide basis, Popeyes had 2,035 restaurants operating at the end of fiscal 2011, compared to 1,977 restaurants at the end of last year. Total restaurant unit count was comprised of 1,627 domestic restaurants and 408 international restaurants in 25 foreign countries and three territories. Of this total, 1,995 were franchised restaurants and 40 were company-operated restaurants.
Consistent with previous guidance, over the course of the upcoming five years, the Company believes the execution of its Strategic Plan will deliver on an average annualized basis the following results: same-store sales growth of 1 to 3 percent; net unit growth of 4 to 6 percent; and earnings per diluted share growth of 13 to 15 percent.
The Company will host a conference call and internet webcast with the investment community at 9:00 A.M. Eastern Time on March 8, 2012, to review the results of the fourth quarter and full year fiscal 2011. To access the Company’s webcast, go to www.afce.com, select “Investor Information” and then select “AFC Enterprises Fiscal 2011 Earnings Conference Call.” A replay of the conference call will be available for 90 days at the Company’s website or through a dial-in number for a limited time following the call.
AFC Enterprises, Inc. is the franchisor and operator of Popeyes® restaurants, the world’s second-largest quick-service chicken concept based on number of units. As of December 25, 2011, Popeyes had 2,035 operating restaurants in the United States, Guam, Puerto Rico, the Cayman Islands and 25 foreign countries. AFC’s primary objective is to deliver sales and profits by offering excellent investment opportunities in its Popeyes brand and providing exceptional franchisee support systems and services to its owners. AFC Enterprises can be found at www.afce.com.