AFC Reports Financial Results for Fiscal 2008 In-Line with Expectations and Provides Fiscal 2009 Guidance

AFC Enterprises, Inc. (NASDAQ: AFCE) , the franchisor and operator of Popeyes(R), today reported results for its fiscal year 2008 which ended December 28, 2008. The Company also provided guidance for fiscal 2009 and provided a business update on its strategic plan.

Fiscal 2008 Highlights:

• Net income was $19.4 million, or $0.76 per diluted share, compared to $23.1 million, or $0.80 per diluted share, in fiscal 2007. Fiscal 2008 diluted earnings per share were consistent with the Company's previous guidance of $0.75-$0.77. Excluding other non-operating income, net income would have been $16.8 million or $0.65 per diluted share, compared to $21.4 million or $0.74 per diluted share last year.

• Total system-wide sales increased by 0.6 percent compared to an increase of 0.3 percent in fiscal 2007.

• Total global same-store sales decreased 1.7 percent compared to a decrease of 2.0 percent last year. Total domestic same-store sales decreased 2.2 percent compared to a decrease of 2.3 percent in fiscal 2007. International same-store sales increased 4.1 percent compared to an increase of 1.1 percent in fiscal 2007.

• The Popeyes system opened 140 restaurants and closed 120 restaurants, resulting in net openings of 20 restaurants, exceeding the Company's previous guidance of 5-15 units. At the end of 2008, total unit count was 1,922 compared to 1,905 at the end of 2007.

• The Company repurchased 2.1 million shares of common stock for approximately $19.0 million and made $13.4 million in net debt repayments under its 2005 Credit Facility.

• The Company's free cash flow remains strong at $26.2 million, compared to $28.5 million last year.

AFC Enterprises Chief Executive Officer Cheryl Bachelder stated, "In 2008 we built a sound foundation for our strategic plan. While our domestic same-store sales fell short of our goals, we outpaced the chicken QSR category for the third consecutive quarter according to independent data. Our international restaurants enjoyed a good year in both same-store sales and unit growth. In total, we met our earnings expectations at $0.76 per diluted share and we exceeded our opening guidance with 140 new restaurants globally."

"Going forward, we will continue to execute our strategic plan with an emphasis on compelling value, improving the guest experience, and strengthening restaurant profitability. In the current environment, we believe that our superior food matched with greater QSR value and service will be the recipe for our success."

Strategic Plan Update

1. Build the Popeyes Brand -- In 2008, Popeyes launched its new menu board featuring three new permanent menu platforms - Big Deals value sandwiches and wraps, Louisiana Travelers nuggets and tenders, and Big Easy chicken bowls and chicken sandwiches - adding greater flexibility to the menu to address value, portability, and lunch and snack dayparts. To help drive traffic to the restaurants, the Company's 2009 product promotions are designed to offer its customers Popeyes distinctive Louisiana food at more compelling price points. -- Consistent with the Company's 2008 marketing approach, Popeyes will continue to support and invest in national advertising in 2009 to build awareness and purchase frequency.

2. Run Great Restaurants -- The Company continues to focus on operations improvements by training and action- planning using the metrics and tools implemented in 2008. -- During 2009, Popeyes will place specific attention on improved speed of service for its guests. In 2009, the Company plans to complete the system-wide implementation of drive-thru headsets and timers, the essential equipment for speed of service.

3. Strengthen Unit Economics -- The Company remains focused on steady improvements in restaurant operating profit. In 2009, the Company will continue to build upon "Finding Your 2%" cost savings initiatives and will complete the standardization of back-of-the-house restaurant equipment. -- The Company also developed new site modeling software utilizing consumer and real estate data in 2008. In 2009, this predictive tool will be used to prioritize markets for domestic unit growth and build a pipeline of growth-ready franchisees.

4. Align People and Resources to Deliver Results Re-franchising of company-operated restaurants -- Consistent with the Company's strategic initiative to re-franchise company-operated restaurants, on January 26, 2009, the Company completed the re-franchising sale of its 3 restaurants in the Nashville market. -- The Company is in continued negotiations to re-franchise the remaining 14 restaurants in the Atlanta market, however, at this time the Company is unable to predict the timing of when a sale will be completed.

2008 Financial Performance Review

Total system-wide sales increased by 0.6 percent. This growth was comprised of a 0.7 percent increase in franchisee restaurant sales to $1.66 billion, and a 2.1 percent decrease in company-operated restaurant sales to approximately $78.3 million.

Total global same-store sales decreased 1.7 percent compared to a decrease of 2.0 percent last year. Total domestic same-store sales decreased 2.2 percent compared to a decrease of 2.3 percent last year. The Company's previous full year guidance was at the lower-end of negative 1.0 to negative 2.0 percent. According to independent data, Popeyes continued to outpace the chicken QSR category in the fourth quarter of 2008 by 0.6 percentage points. International same-store sales increased 4.1 percent compared to an increase of 1.1 percent last year.

Total revenues were $166.8 million, compared to $167.3 million last year. This decrease was comprised of $5.2 million due to negative same-store sales and $4.0 million related to the re-franchising of 11 company-operated restaurants in the Atlanta market. The decrease was partially offset by $6.5 million from new openings of company-operated restaurants in the Atlanta and Tennessee markets and the re-opening of temporarily closed restaurants in New Orleans, and $2.2 million primarily from royalties and fees of new franchised restaurants.

Company-operated restaurant expenses for food, beverages and packaging as a percentage of sales were 35 percent compared to 34 percent last year. This increase was attributable to higher commodity costs, primarily from chicken, wheat, and shortening, partially offset by better management of food costs and a 2 percent price increase taken during the second quarter of 2008. Restaurant employee, occupancy and other expenses as a percentage of sales were 53 percent compared to 51 percent last year. The increase was primarily associated with additional costs for payroll, utilities and insurance.

For income statement reporting purposes, the Company has re-classified rental expenses associated with properties leased or subleased to franchisees or other third parties to a separate line item entitled "rent and other occupancy expenses" from general and administrative expenses. Excluding the $2.4 million of rent and other occupancy expenses, general and administrative expenses were $53.9 million or 3.1 percent of system-wide sales, compared to $47.2 million or 2.7 percent of system-wide sales last year. This increase was due primarily to expenditures for marketing and new menu expansion, national cable advertising and the cost of new management talent. General and administrative expenses, including rent and other occupancy expenses, were $56.3 million, or 3.2 percent of system-wide sales, compared to the Company's previous guidance of 3.3 percent of system-wide sales.

Other income was $4.6 million, or $0.11 per diluted share, including a gain of $12.9 million from insurance recoveries, partially offset by an expense of $9.2 million for impairment charges associated with re-franchising company-operated restaurants in the Atlanta and Nashville markets.

Including the $4.6 million in other non-operating income, fiscal 2008 EBITDA was $46.6 million, at a margin of 27.9 percent of total revenue, compared to 2007 EBITDA of $52.5 million, at a margin of 31.4 percent of total revenue. AFC's EBITDA computation and reconciliation to GAAP measures is described in detail under the heading "Use of Non-GAAP Financial Measures."

Operating profit was $40.3 million, compared to operating profit of $45.6 million last year.

Income tax expense was $12.8 million, yielding an effective tax rate of 39.8 percent, compared to an effective tax rate of 37.4 percent in the prior year. Last year's effective tax rate benefited from the reversal of tax reserves due to the expiration of certain statutes of limitation. Had the statutes of limitation not expired during the prior year, the effective tax rate for fiscal 2007 would have been 38.5 percent.

Net income was $19.4 million, or $0.76 per diluted share, compared to $23.1 million, or $0.80 per diluted share, for fiscal 2007. Excluding other non-operating income, net income would have been $16.8 million or $0.65 per diluted share, compared to $21.4 million or $0.74 per diluted share last year.

The Company repurchased 2.1 million shares of common stock for approximately $19.0 million and made $13.4 million in net debt repayments under its 2005 Credit Facility.

Free cash flow in fiscal 2008 was $26.2 million, including the $4.6 million in other non-operating income. AFC's free cash flow computation and reconciliation to GAAP measures is described in detail under the heading "Use of Non-GAAP Financial Measures."

As of February 20, 2009, there were approximately 25.3 million shares of the Company's common stock outstanding.

Global openings for fiscal 2008 exceeded expectations at 140 openings, compared to guidance of 115-130 openings. These openings included 73 domestic restaurants and 67 international restaurants. The additional openings were primarily due to favorable timing of the Company's international openings and favorable year-end weather and permitting conditions domestically. During fiscal 2008, the Company had 120 restaurant closures, resulting in 20 net restaurant openings. Fiscal 2008 closures consisted of 68 domestic restaurants and 52 international restaurants.

On a system-wide basis, Popeyes had 1,922 restaurants operating at the end of fiscal 2008, compared to 1,905 restaurants at the end of last year. Total unit count was comprised of 1,582 domestic restaurants and 340 international restaurants in 25 foreign countries and two territories. Of this total, 1,867 were franchised restaurants and 55 were company-operated restaurants.

Fiscal 2009 Guidance

During 2009, the Company will emphasize Popeyes superior food matched with greater QSR value and speed of service. The Company's goal is to build guest traffic and increase market share. Given the intense value competition in the marketplace, the Company is conservatively projecting global same-store sales for the year of negative 1.0 to negative 3.0 percent.

The Company plans to slow its global new openings to 90-110 restaurants in 2009, focusing on the improvement of core operations and unit economics. Management believes this decision positions the Company for more rapid growth once economic conditions improve. Popeyes expects system-wide unit closings in the range of 140-160 restaurants, resulting in a decrease of 30-70 net restaurant openings in 2009. The Company's guidance for a higher closure rate in 2009 reflects the continuation of more stringent enforcement of operating standards. Popeyes restaurant closures typically have sales significantly lower than the system average.

The Company expects fiscal 2009 general and administrative expenses, excluding rent and other occupancy expenses, to be consistent with the prior year's expenses of 3.1-3.2 percent of system-wide sales. During 2009, the Company will continue to tightly manage general and administrative expenses and invest in key strategic initiatives, including its continued commitment to national advertising and operations improvements which management believes are essential for the long-term growth of the brand.

Based on operating guidance, the Company expects 2009 earnings to be in the range of $0.62-$0.67 per diluted share, compared to fiscal 2008 earnings of $0.65 per diluted share, excluding $0.11 of other non-operating income. The Company's fiscal 2009 earnings per diluted share guidance excludes the impact of one-time items and other non-operational income or expenses.

Ms. Bachelder concluded, "We are confident that our strategic initiatives will steadily build Popeyes market share and profitability over time. During 2009 our focus will continue to be on the generation of strong steady cash flow and we plan to use that cash to repay debt and invest in key initiatives to deliver long-term growth and solid returns for our franchisees and shareholders."

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