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AFC Enterprises Reports Financial Results for Third Quarter 2010; Raises Fiscal 2010 Earnings Guidance

2010-11-11

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AFC Enterprises Total system-wide sales increased 8.2 percent compared to a 0.5 percent increase in 2009.

AFC Enterprises, Inc. (NASDAQ: AFCE), the franchisor and operator of Third Quarter 2010 Highlights Compared to Third Quarter

Reported net income was $5.9 million, or $0.23 per diluted share,

Total system-wide sales increased 8.2 percent compared to a 0.5

Global same-store sales increased 5.2 percent compared to a 0.3

The Popeyes system opened 24 restaurants and permanently closed 18

Company-operated restaurants operating profit margin was 17.1 percent

Year-to-date EBITDA of $36.0 million was 32.1 percent of total

Year-to-date, the Company has generated $22.3 million of free cash
AFC Enterprises Chief Executive Officer Cheryl Bachelder stated, “We are Strategic Plan Update
The Company’s Strategic Plan is built on the Four Pillars 1. Build the Popeyes Brand

At the end of August, the Company announced that Popeyes’ Spicy and
Popeyes is currently promoting its 2^nd Annual Crawfish
2. Run Great Restaurants

Third quarter Guest Experience Monitor (GEM) “% Delighted”
3. Strengthen Unit Economics

In the third quarter, Popeyes restaurants achieved a 2.5 percent
4. Ramp Up New Unit Growth

The Company’s global development pipeline for new unit openings
Third Quarter 2010 Financial Performance Compared to Third Quarter Total system-wide sales increased by 8.2 percent. System-wide sales were Global same-store sales increased 5.2 percent compared to a 0.3 percent International same-store sales increased 4.3 percent compared to a 1.0 Total revenues were $34.1 million, compared to $31.9 million last year. Company-operated restaurants operating profit margin was 17.1 percent of Rent and other occupancy expenses associated with properties leased or General and administrative expenses were $12.3 million, or 2.8 percent Year-to-date EBITDA of $36.0 million was 32.1 percent of total revenues, Operating profit was $10.6 million compared to operating profit of $8.9 Interest expense, net was $1.4 million in the third quarter, a $2.1 Income tax expense was $3.3 million, an effective tax rate of 35.9 Reported net income was $5.9 million, or $0.23 per diluted share, During the third quarter, the Popeyes system opened 24 restaurants, At the end of the third quarter, the Popeyes system had 1,949 Uses of Cash Flow
Through the end of the third quarter, the Company generated $22.3 At the end of the third quarter, the Company’s total outstanding debt For fiscal 2011, the Company has prioritized its uses of cash to be 1) Fiscal 2010 Guidance
Given its year-to-date same-store sales performance, the Company now Popeyes continues to expect its global new openings will be in the range Additionally, the Company now expects general and administrative The Company now expects 2010 adjusted earnings per diluted share will be Long-Term Guidance
Consistent with previous guidance, over the course of the next five

Logos, product and company names mentioned are Popeyes® restaurants, today reported results for third quarter and third quarter year-to-date 2010 which ended October 3, 2010. The Company also raised earnings guidance for fiscal 2010 and provided a business update on its Strategic Plan.
2009:

compared to $0.13 per diluted share last year. Adjusted earnings per diluted share were $0.23, compared to $0.18 last year. Year-to-date, adjusted earnings per diluted share were $0.68 compared to $0.57 last year. 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.” percent increase in 2009. percent decrease last year. Total domestic same-store sales increased 5.3 percent compared to a 0.3 percent decrease last year. The Company’s same-store sales performance reflects its successful Bonafide® bone-in chicken value offerings in the third quarter and represented a promotional timing shift from last year when the Company ran similar offerings in the second quarter. International same-store sales increased 4.3 percent compared to a 1.0 percent decrease in 2009. restaurants, resulting in 6 net openings. of sales, an increase of 210 basis points over last year. This improvement was primarily due to higher same-store sales. Company-operated restaurants operating profit margin is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.” revenues, which included $0.1 million of other income, compared to EBITDA last year of $33.8 million, at 29.3 percent of total revenues, which included $2.6 million of other income. The Company’s EBITDA as a percentage of total revenues remains among the highest in the restaurant industry. EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.” flow, which included $0.1 million of other income, compared to $19.3 million in the same time period last year, which included $2.6 million of other income. Free cash flow is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.” delighted with our third quarter earnings performance which was driven by strong positive same-store sales. During the third quarter, we announced Popeyes beat KFC® in a U.S. taste test between Popeyes spicy and mild bone-in fried chicken and KFC®’s Original Recipe® bone-in fried chicken. We declared what we have always known, that Popeyes chicken simply tastes better. This national campaign was one of our most successful ever. I am proud of our management team and the Popeyes system for these results that continue to steadily outperform our competitors.”
below.

Mild Bonafide® bone-in fried chicken had beaten KFC®’s Original Recipe® bone-in fried chicken in a national taste test. In connection with the announcement, the Company ran national media advertising which promoted Bonafide bone-in chicken with a 2-piece offer for $1.99 and a 9-piece box offer for $7.99. Festival with national media advertising. For the festival, Popeyes is featuring its spicy, crispy Crawfish Tackle Box with Cajun fries and a buttermilk biscuit, and three menu items -- Crawfish Po’Boy, Crawfish Traveler, and Crawfish Etouffee. scores were at 73 percent, up 6 percentage points from a year ago. The Company’s speed of service focus continues to deliver improvements throughout the system as well. In the third quarter, Popeyes GEM “Speed of Service” scores were up 10 percentage points over the third quarter last year when the new speed program was rolled out. In addition, by the end of the third quarter, Popeyes had more than 900 restaurants reporting drive-thru times on a weekly basis, with approximately 40 percent of those restaurants reporting drive-thru times at or below 180 seconds. decrease in food costs compared to last year, primarily the result of successful renegotiation of vendor contracts, restaurant efficiency initiatives, and declines in commodity costs. On a full year basis, the Company continues to expect these cost savings to deliver one full percentage point of restaurant operating profit margin improvement compared to 2009. continues to strengthen. During the first three quarters of 2010, the Company opened 58 new restaurants. The Company continues to expect global openings of 120-130 new restaurants for the full year. Consistent with prior years, many of these openings are expected to occur in December. Additionally, the Company now expects closures to be approximately 70 restaurants, resulting in 50-60 net unit growth, compared to previous guidance of 80-90 restaurant closures and 30-50 net unit growth. 2009
comprised of $426.6 million in franchise restaurant sales and $12.3 million in company-operated restaurant sales.
decrease in 2009. Total domestic same-store sales increased 5.3 percent compared to a 0.3 percent decrease last year. The Company’s same-store sales performance reflects its successful Bonafide® bone-in chicken value offerings in the third quarter and represented a promotional timing shift from last year when the Company ran similar offerings in the second quarter. Year-to-date total domestic same-stores sales increased 1.5 percent compared to a 1.1 percent increase last year. According to independent data, Popeyes’ third quarter domestic same-store sales significantly outpaced both the QSR and chicken QSR categories by 3 and 10 percentage points, respectively. During the fourth quarter, Popeyes’ marketing efforts will remain focused on offering its guests the brand’s distinctive food at compelling value to drive traffic into the restaurants.
percent decrease in 2009. Strong sales in Canada, Turkey, Korea and Latin America were partially offset by weaker performance in the Middle East and overseas U.S. military bases. The Company’s international marketing focus will continue to increase the emphasis on value promotions to drive traffic.
This $2.2 million increase was primarily due to positive same-store sales.
sales, an increase of 210 basis points over last year. This improvement was primarily due to higher same-store sales. Company-operated restaurants operating profit margin is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
sub-leased to franchisees or other third parties were $0.1 million in the third quarter, a $0.5 million decrease from last year, primarily due to a rent adjustment from a lease termination of an income property.
of system-wide sales, compared to $12.0 million, or 3.0 percent of system-wide sales, last year. General and administrative expenses as a percent of system-wide sales were lower primarily due to timing of expenses which will be incurred later in the year and due to stronger same-store sales performance. General and administrative expenses as a percentage of system-wide sales remains among the lowest in the restaurant industry.
which included $0.1 million of other income, compared to EBITDA last year of $33.8 million, at 29.3 percent of total revenues, which included $2.6 million of other income. The Company’s EBITDA as a percentage of total revenues remains among the highest in the restaurant industry. EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
million last year.
million decrease from 2009. This decrease was primarily due to $1.9 million expensed in the third quarter last year in connection with the Company’s amendment of its credit facility and lower average debt balances as compared to 2009.
percent, compared to an effective tax rate of 37.0 percent in the prior year. The lower effective rate is primarily due to adjustments to estimated tax reserves.
compared to $3.4 million, or $0.13 per diluted share, last year. Adjusted earnings per diluted share were $0.23 compared to $0.18 in 2009. Year-to-date adjusted earnings per diluted share were $0.68 compared to $0.57 last year. 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.”
which included 12 domestic and 12 international. The Popeyes system permanently closed 18 restaurants, including 12 domestic and 6 international. Year-to-date, Popeyes opened 58 restaurants and permanently closed 47 restaurants, resulting in 11 net openings, compared to 51 restaurants openings and 61 permanent closures last year. The lower closure rate reflects stronger restaurant performance as a result of higher sales, cost savings initiatives, and improved operations.
restaurants, compared to 1,918 restaurants at the end of the third quarter last year. Total unit count was comprised of 1,570 domestic and 379 international restaurants in 26 foreign countries, Guam, Puerto Rico, and the Cayman Islands. Of this total, 1,912 were franchised restaurants and 37 were company-operated restaurants.
million of free cash flow, which included $0.1 million of other income, compared to $19.3 million in 2009, which included $2.6 million of other income. Free cash flow is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.” At the end of third quarter, the Company had $11.8 million in cash.
was $67.3 million and its Total Leverage Ratio (TLR) was 1.24 to 1, compared to $88.6 million of total outstanding debt and a TLR of 2.14 to 1 at the end of the third quarter last year. The Company is currently evaluating refinancing options with the intent to complete a refinancing of its credit facility near year end.
investments in its core business that deliver positive long-term returns to its stakeholders; and 2) opportunistic share repurchases and debt repayments. Core business investments may include the selective acquisition of Popeyes restaurants to improve operations and brand image, the opening of additional Popeyes restaurants in company-operated markets, and the re-imaging of company-operated restaurants. These investments would not materially change the Company’s percentage of franchised restaurants or the Company’s strategy of operating as a highly franchised best-in-class restaurant franchisor providing outstanding support to the Popeyes system.
projects that its global same-store sales for fiscal 2010 will be positive 2.0 percent to positive 2.5 percent, an increase from the Company’s previous guidance of flat to positive 2.0 percent.
of 120-130 restaurants. Consistent with prior years, many of these new openings are projected to occur in December. The Company now expects its closures will be approximately 70 restaurants, resulting in 50-60 net unit growth, compared to previous guidance of 30-50 net unit growth.
expenses for fiscal 2010 to be approximately 3.0 percent of system-wide sales, an improvement from its previous guidance of 3.1-3.2 percent of system-wide sales. During the fourth quarter, management now expects general and administrative expenses to be in the range of $14.0-$14.5 million, which is approximately $2 million, or $0.05 per diluted share, higher than the year-to-date run rate. This increase is due primarily to the timing of 2010 investment spending occurring later in the year than originally planned. This $2 million includes investments for new product testing, new domestic restaurant development personnel, and international personnel to support Popeyes global growth.
$0.81-$0.83, an increase from previous guidance of $0.75-$0.79 per diluted share, compared to adjusted earnings per diluted share of $0.74 last year. The Company calculates 2010 adjusted earnings per diluted share by excluding its year-to-date tax benefit of $1.4 million, or $0.05 per diluted share. 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.”
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 new unit growth of 4 to 6 percent; and earnings per diluted share growth of 13 to 15 percent.