Reported net income was $30.4 million, or $1.24 per diluted share, compared to $24.2 million, or $0.97 per diluted share, in 2011. Adjusted earnings per diluted share, which included approximately $0.01 for the 53rd week of operations, were $1.24 compared to $0.99 in 2011, a 25% increase.
AFC Enterprises, Inc. (NASDAQ: AFCE), the franchisor and operator of Popeyes® restaurants, reported results for fiscal 2012 which ended December 30, 2012. The Company also provided guidance for fiscal 2013 as well as an update on its Strategic Plan.
“AFC Enterprises Fiscal 2012 Earnings Conference Call.”
AFC Enterprises Chief Executive Officer Cheryl Bachelder stated “It is rewarding to see our team’s disciplined and creative work deliver outstanding results to our franchise owners and our shareholders. We believe our five pillar strategic plan will continue to deliver sustained growth well into the future. Furthermore, we have now demonstrated the capability to seize opportunities to accelerate our growth as we did with the fourth quarter acquisition of restaurants in Minnesota and California and the opening of new Company-owned restaurants in Indianapolis and Charlotte. Both of these actions provide strong value to our shareholders.”
Fiscal 2012 Results and Highlights
Strategic Plan Update
Through its strategic plan, the Company has achieved momentum in growing shareholder value through intense focus on its single brand, Popeyes Louisiana Kitchen. To accelerate that momentum, the Company remains fully engaged in the execution of the original four pillars of this strategic plan which was launched in 2008. Those pillars are as follows:
In addition to the original four strategic pillars, the Company added a fifth strategic pillar during 2012 designed to sustain brand momentum and profitability in the future.
The Company believes that our strategic plan will continue to keep us focused on the essential elements of chain restaurant success: a differentiated and innovative brand, a delightful guest experience in a beautiful restaurant environment, and a growing franchisee network experiencing strong profitability and sound investment returns. This is how we plan to deliver our growth goals, creating value for our shareholders.
Fiscal 2013 Guidance
As described below, the Company is providing certain targets regarding its expectations for fiscal 2013.
2012 Financial Performance Review
Total system-wide sales increased by 13.5% in fiscal 2012. System-wide sales were comprised of $2.2 billion in franchise restaurant sales and $64.0 million in Company-operated restaurant sales. Of the 13.5% growth in 2012, approximately 180 basis points was attributable to the effect of the 53rd week.
Global same-store sales increased 6.9%, compared to a 3.1% increase in 2011. Total domestic same-store sales increased 7.5%, compared to a 3.0% increase last year. This positive sales growth reflects Popeyes continued introduction of highly innovative new products, supported by expanded relevant advertising and strengthened restaurant execution.
International same-store sales increased 2.6%, compared to a 3.3% increase last year, the sixth consecutive year of positive same-store sales.
As result of positive same store sales and growth in new restaurants, total revenues were $178.8 million, versus $153.8 million in the prior year, a 16% increase.
Company-operated restaurant operating profit of $11.1 million was 17.3% of sales, compared to $10.2 million and 18.7% of sales last year. The $0.9 million increase in Company-operated restaurant operating profit was primarily due to same-store sales of 5.3% and two new restaurant openings in 2011. The 2012 operating profit includes approximately $0.3 million in pre-opening costs associated with opening 5 new restaurants. The 2011 restaurant operating profit includes a $0.5 million favorable adjustment to insurance reserves. Excluding the effects of pre-opening costs in 2012 and the change in estimated insurance reserves in 2011, Company-operated restaurant operating profit margin would have been 17.8% in both 2012 and 2011. 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 $67.6 million, at 3.0% of system-wide sales compared to $61.3 million at 3.1% of system-wide sales in 2011. The increase in 2012 primarily reflects continued strategic investment in people and resources to accelerate global sales, and Company-operated restaurant development and remodeling. The Company’s general and administrative expenses remain among the most efficient in the industry.
Other income was $0.5 million in 2012, compared to other expenses of $0.5 million last year. Fiscal 2012 results include $0.9 million in gains on sale of real estate assets to franchisees, partially offset by $0.4 million loss on disposal of property and equipment and other expenses, net.
Operating EBITDA was $55.9 million at 31.3% of total revenue, compared to $45.4 million at 29.5% of total revenue last year. The $10.5 million increase was primarily the result of higher franchise revenues and higher Company-operated restaurant operating profit, partially offset by our strategic investments to accelerate global sales and new restaurant development. Operating EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”
Income tax expense was $17.3 million, at an effective tax rate of 36.3%, compared to an effective tax rate of 34.6% in 2011. The prior year income tax expense included a tax benefit of $0.8 million, or 2.2%, for work opportunity tax credits related to prior years. Excluding the impact of these tax credits, the 2012 effective rate was lower than 2011 due to minor favorable adjustments to income tax reserves, partially offset by higher state income taxes. Other differences in the effective tax rate and the statutory rates are due to changes in estimated income tax reserves.
Reported net income was $30.4 million, or $1.24 per diluted share, compared to $24.2 million, or $0.97 per diluted share last year. Adjusted earnings per diluted share for fiscal 2012, which included approximately $0.01 for the 53rd week of operations, were $1.24 compared to $0.99 in 2011, a 25% increase. 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.”
As a result of strong revenue and operating profit, the Company generated free cash flow of $36.7 million in 2012, compared to $28.5 million in 2011. As a percentage of total revenue, free cash flow increased to 20.5%, compared to 18.5% last year. The Company’s free cash flow margin is amongst the highest in the industry. 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 141 restaurants in 2012, which included 84 domestic and 57 international restaurants, compared to 140 openings in 2011. The Popeyes system permanently closed 75 restaurants in fiscal 2012 comprised of 29 domestic and 46 international restaurants. Net restaurant openings were 66, compared to 65 net restaurant openings last year.
On a system-wide basis, Popeyes had 2,104 restaurants operating at the end of fiscal 2012, compared to 2,035 restaurants at the end of last year. Total restaurant count was comprised of 1,679 domestic restaurants and 425 international restaurants in 26 foreign countries and three territories. Of this total, 2,059 were franchised restaurants and 45 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%; net unit growth of 4 to 6%; and earnings per diluted share growth of 13 to 15%.
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 30, 2012, Popeyes had 2,104 operating restaurants in the United States, 3 territories, and 26 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.
Supplemental Financial Information on pages 8-17
|AFC Enterprises, Inc.|
|Consolidated Balance Sheets|
|As of December 30, 2012 and December 25, 2011|
|(In millions, except share data)|
|Cash and cash equivalents||$||17.0||$||17.6|
|Accounts and current notes receivable, net||7.3||7.0|
|Other current assets||4.2||4.8|
|Advertising cooperative assets, restricted||25.7||18.9|
|Total current assets||54.2||48.3|
|Property and equipment, net||51.3||27.4|
|Trademarks and other intangible assets, net||53.9||46.5|
|Other long-term assets, net||1.9||2.3|
|Total long-term assets||118.2||87.3|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Other current liabilities||5.9||8.2|
|Current debt maturities||6.0||5.2|
|Advertising cooperative liabilities||25.7||18.9|
|Total current liabilities||45.2||38.4|
|Deferred credits and other long-term liabilities||26.2||24.6|
|Total long-term liabilities||93.0||83.4|
|Commitments and contingencies|
|Preferred stock ($.01 par value; 2,500,000 shares authorized;|
|0 issued and outstanding)||-||-|
|Common stock ($.01 par value; 150,000,000 shares authorized;|
|23,907,428 and 24,383,274 shares issued and outstanding|
|at the end of fiscal years 2012 and 2011, respectively)||0.2||0.2|
|Capital in excess of par value||87.6||97.6|
|Accumulated other comprehensive loss||(0.8||)||(0.8||)|
|Total shareholders' equity||34.2||13.8|
|Total liabilities and shareholders' equity||$||172.4||$||135.6|
|AFC Enterprises, Inc.|
|Consolidated Statements of Operations|
|(In millions, except per share data)|
|12 Weeks Ended||Year Ended|
|(unaudited)||(unaudited)||(53 weeks)||(52 weeks)|
|Sales by Company-operated restaurants||$||16.4||$||12.4||$||64.0||$||54.6|
|Rent and other revenues||1.0||1.0||4.3||4.2|
|Restaurant employee, occupancy and other|
|Restaurant food, beverages and packaging||5.7||4.2||21.7||18.3|
|Rent and other occupancy expenses||0.8||0.6||2.9||2.7|
|General and administrative expenses||17.9||15.1||67.6||61.3|
|Depreciation and amortization||1.1||1.0||4.6||4.2|
|Other expenses (income), net||(0.7||)||0.5||(0.5||)||0.5|
|Interest expense, net||0.9||0.9||3.6||3.7|
|Income before income taxes||13.7||8.5||47.7||37.0|
|Income tax expense||5.1||2.8||17.3||12.8|
|Earnings per common share, basic:||$||0.36||$||0.25||$||1.27||$||0.99|
|Earnings per common share, diluted:||$||0.35||$||0.23||$||1.24||$||0.97|
|Weighted-average shares outstanding|
|AFC Enterprises, Inc.|
|Consolidated Statements of Cash Flows|
|Cash flows provided by (used in) operating activities:|
|Adjustments to reconcile net income to net cash provided by (used in)|
|Depreciation and amortization||4.6||4.2|
|Disposals of property and equipment||0.3||0.5|
|Net gain on sale of assets||(0.9||)||(0.8||)|
|Deferred income taxes||2.2||1.3|
|Non-cash interest expense, net||0.4||0.5|
|Provision for credit losses (recoveries)||(0.1||)||(0.3||)|
|Excess tax benefit from share-based payment arrangements||(0.4||)||(0.1||)|
|Stock-based compensation expense||4.9||2.9|
|Change in operating assets and liabilities:|
|Other operating assets||0.8||(0.2||)|
|Accounts payable and other operating liabilities||(1.8||)||1.3|
|Net cash provided by operating activities||40.2||32.1|
|Cash flows provided by (used in) investing activities:|
|Proceeds from dispositions of property and equipment||0.4||0.7|
|Investment in trademark||(8.0||)||-|
|Proceeds from notes receivable and other investing activities||-||0.3|
|Net cash used in investing activities||(34.9||)||(6.6||)|
|Cash flows provided by (used in) financing activities:|
|Principal payments – 2010 Credit Facility (term loan)||(5.0||)||(3.8||)|
|Borrowings under 2010 revolving credit facility||13.0||2.0|
|Excess tax benefits from share-based payment arrangements||0.4||0.1|
|Proceeds from exercise of employee stock options||1.3||0.6|
|Other financing activities, net||(0.4||)||(0.4||)|
|Net cash used in financing activities||(5.9||)||(23.8||)|
|Net increase (decrease) in cash and cash equivalents||(0.6||)||1.7|
|Cash and cash equivalents at beginning of year||17.6||15.9|
|Cash and cash equivalents at end of year||$||17.0||$||17.6|
|12 Weeks ended||Year Ended|
|Same-store sales growth (1)|
|Domestic franchised restaurants||6.4||%||6.2||%||7.5||%||3.1||%|
|Total domestic (Company-operated and franchised restaurants)||6.4||%||5.9||%||7.5||%||3.0||%|
|International franchised restaurants||4.3||%||4.6||%||2.6||%||3.3||%|
|Total global system||6.2||%||5.8||%||6.9||%||3.1||%|
|Company-operated restaurants (all domestic)|
|Restaurants at beginning of period||40||38||40||38|
|New restaurant openings||5||2||5||2|
|Less: Permanent closings||-||-||-||-|
|Temporary (closings)/re-openings, net||-||-||-||-|
|Restaurants at end of period||45||40||45||40|
|Franchised restaurants (domestic)|
|Restaurants at beginning of period||1,606||1,560||1,587||1,542|
|New restaurant openings||37||30||79||71|
|Less: Permanent closings||(6||)||(2||)||(29||)||(27||)|
|Temporary (closings)/re-openings, net||(3||)||(1||)||(3||)||1|
|Restaurants at end of period||1,634||1,587||1,634||1,587|
|Franchised restaurants (international)|
|Restaurants at beginning of period||414||400||408||397|
|New restaurant openings||20||20||57||67|
|Less: Permanent closings||(13||)||(9||)||(46||)||(48||)|
|Temporary (closings)/re-openings, net||4||(3||)||6||(8||)|
|Restaurants at end of period||425||408||425||408|
|Total restaurant count at end of period||2,104||2,035||2,104||2,035|
(1) Same-store sales growth for the fourth quarter of 2012 has been revised from operating results previously reported in the AFC Enterprises Preliminary Fiscal 2012 Operating Results press release issued on February 23, 2013. The revisions are due to the timing of and adjustments to franchisee reported sales for the last period of our fiscal year, primarily from our international franchisees.
As a result, total global system same-store sales growth for the 12 weeks ended 12/30/12 increased to 6.2% compared to the previously reported 6.0%. Domestic franchisee restaurant same-store sales increased to 6.4% compared to the previously reported 6.3%. International franchisee restaurant same-store sales increased to 4.3% compared to the previously reported 3.5%.
For the full year, total global system same-store sales growth increased to 6.9% compared to the previously reported 6.8%. International franchisee restaurant same-store sales increased to 2.6% compared to the previously reported 2.4%.
Management’s Use of Non-GAAP Financial Measures
Adjusted earnings per diluted share, Operating EBITDA, Company-operated restaurant operating profit margins, and Free cash flow are supplemental non-GAAP financial measures. The Company uses Adjusted earnings per diluted share, Operating EBITDA, Company-operated restaurant operating profit margins, and Free cash flow, in addition to net income, operating profit and cash flows from operating activities, to assess its performance and believes it is important for investors to be able to evaluate the Company using the same measures used by management. The Company believes these measures are important indicators of its operational strength and the performance of its business. Company-operated restaurant operating profit margins, Operating EBITDA, free cash flow and adjusted earnings per diluted share as calculated by the Company are not necessarily comparable to similarly titled measures reported by other companies. In addition, Company-operated restaurant operating profit margins, Operating EBITDA, free cash flow and adjusted earnings per diluted share: (a) do not represent net income, cash flows from operations or earnings per share as defined by GAAP; (b) are not necessarily indicative of cash available to fund cash flow needs; and (c) should not be considered as an alternative to net income, earnings per share, operating profit, cash flows from operating activities or other financial information determined under GAAP.
Adjusted earnings per diluted share: Calculation and Definition
The Company defines adjusted earnings for the periods presented as the Company’s reported net income after adjusting for certain non-operating items consisting of the following:
(i) other expense (income), net, as follows:
(ii) for fiscal 2011, $0.5 million in accelerated depreciation related to the Company’s relocation to a new global service center;
(iii) for fiscal 2012, $0.5 million in legal fees related to licensing arrangements; and
(iv) the tax effect of these adjustments.
Adjusted earnings per diluted share provides the per share effect of adjusted net income on a diluted basis. The following table reconciles on a historical basis the fourth quarter 2012, fourth quarter 2011, fiscal 2012 and fiscal 2011, the Company’s adjusted earnings per diluted share on a consolidated basis to the line on its consolidated statement of operations entitled net income, which the Company believes is the most directly comparable GAAP measure on its consolidated statement of operations to adjusted earnings per diluted share:
|(in millions, except per share data)||Q4 2012||Q4 2011||
|Other expense (income), net||(0.7||)||0.5||(0.5||)||0.5|
Accelerated depreciation related to the Company’s
|relocation to a new Global Service Center||-||-||-||0.5|
|Fees related to licensing arrangements||-||-||0.5||-|
|Adjusted net income||$||8.2||$||6.0||$||30.4||$||24.7|
|Adjusted earnings per diluted share||$||0.34||$||0.24||$||1.24||$||0.99|
|Weighted average diluted shares outstanding||24.3||24.5||24.5||25.0|