Popeyes Louisiana Kitchen, Inc. Reports Results for Second Quarter 2014

2014-08-21
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  • Global same-store sales increased 3.6% in 2014, for a two-year growth rate of 8.0%.

    Popeyes Louisiana Kitchen, Inc. (NASDAQ: PLKI), the franchisor and operator of Popeyes® restaurants, today reported results for its fiscal second quarter of 2014 which ended July 13, 2014. The Company also reiterated guidance for fiscal 2014.

    “Popeyes strong second quarter demonstrates our focused execution of our strategic roadmap. We have consistently delivered excellent results quarter after quarter for the past six years. The sustainability of our performance is a reflection of our principles, priorities and processes. As we look ahead, we are excited about this new era for Popeyes – an innovative menu, beautifully remodeled restaurants, an expanding global footprint, and a renewed focus on our employees and guests,” commented Cheryl Bachelder, Popeyes Chief Executive Officer.

    Second Quarter 2014 Highlights

    Earnings:

    • Reported net income was $8.3 million, or $0.35 per diluted share.
    • Adjusted earnings per diluted share were $0.39, excluding the impact of executive transition expenses, compared to $0.35 in 2013, representing an increase of 11.4%.

    Same-store Sales:

    • Global same-store sales increased 3.6% in 2014, for a two-year growth rate of 8.0%.
      • Total domestic same-store sales increased 3.8%, compared to 4.3% last year.
      • International same-store sales increased 2.2%, compared to 5.8% last year.
    • Popeyes domestic same-store sales have outpaced the chicken-QSR segment for 25 consecutive quarters and overall QSR for 11 consecutive quarters according to independent data.
    • Popeyes market share of the domestic chicken-QSR segment reached 23.1%, compared to 20.5% in the prior year.

    Openings:

    • The Popeyes system opened 36 restaurants, which included 20 domestic and 16 international restaurants, compared to 44 openings in the prior year.
      • Included in second quarter 2013 domestic openings were the conversion of eight restaurant properties which were acquired in 2012 in Minnesota and California.
    • Net restaurant openings were 21, compared to 28 net restaurant openings last year.

    Other:

    • Total system-wide sales increased by 9.5%.
    • Total revenues increased approximately 12% to $53.7 million in 2014 from $47.9 million in the prior year.
    • Through the end of the second quarter, Operating EBITDA was $38.9 million, or 31.4% of total revenue, compared to $34.1 million last year, a 14% increase.
    • Company-operated restaurant operating profit was $4.2 million, or 18.8% of sales, compared to $3.2 million, or 18.3% of sales in 2013. The restaurant operating profit of company restaurants through the end of the second quarter was $10.2 million, or 19.7% of sales, compared to $7.9 million, or 19.1% of sales last year.
    • Average restaurant operating profit margins of Popeyes domestic freestanding franchised restaurants before rent was 23.4% in the first quarter 2014, compared to 22.2% last year.
    • Through the end of the second quarter, free cash flow was $24.2 million, compared to $22.0 million in 2013.
    • The Company repurchased approximately 222,000 shares of its common stock for approximately $10.0 million. Through the second quarter, total shares repurchased were 462,000, for approximately $20.0 million.
    • On June 16, 2014, the Company announced the purchase of the recipes and formulas used in the preparation of many of its core menu items from Diversified Foods and Seasonings, L.L.C. (“Diversified”) for $43 million. In connection with the purchase of the recipes and formulas, the Company and Diversified entered into a new supply agreement whereby Diversified continues as the exclusive supplier of certain agreed upon core products in the Company's domestic markets through March 2034. Going forward, the $3.1 million annual royalty that would otherwise have been paid to Diversified had the prior agreement remained in effect will be reinvested, net of incremental interest expense, into various growth initiatives.

    Fiscal 2014 Guidance

    Based on second quarter year-to-date performance, the Company reiterates full year guidance as follows:

    • Same-store sales growth of 3.0% to 4.0%.
    • Adjusted earnings per diluted share in the range of $1.58 to $1.63.
    • New restaurant openings of 180 to 200, with net restaurant openings of 100 to 130, for a system growth rate of approximately 5%. During 2014, the Company expects to open 10 to 15 new company-operated restaurants.
    • General and administrative expenses of approximately 3.0% of system-wide sales.
    • An effective income tax rate of approximately 38%.
    • Capital expenditures for the year of $30 to $35 million.
    • Share repurchases of $20 to $30 million.

    Corporate Profile

    Popeyes Louisiana Kitchen, 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 July 13, 2014, Popeyes had 2,262 operating restaurants in the United States, three territories, and 26 foreign countries. The Company’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. 

    Popeyes Louisiana Kitchen, Inc.

    Condensed Consolidated Balance Sheets (unaudited)

    (In millions, except share data)

         
     
    ASSETS 7/13/2014

     

    12/29/2013
    Current assets:
    Cash and cash equivalents $ 10.5

    $

    9.6
    Accounts and current notes receivable, net 8.6 8.9
    Other current assets 5.3 9.8
    Advertising cooperative assets, restricted 29.1   27.8  
    Total current assets 53.5   56.1  
    Long-term assets:
    Property and equipment, net 83.4 77.6
    Goodwill 11.1 11.1
    Trademarks and other intangible assets, net 94.9 53.4
    Other long-term assets, net 1.9   2.3  
    Total long-term assets 191.3   144.4  
    Total assets $ 244.8  

    $

    200.5  
     
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
    Accounts payable $ 5.4

    $

    8.5
    Other current liabilities 6.8 8.1
    Current debt maturities 0.3 0.3
    Advertising cooperative liabilities 29.1   27.8  
    Total current liabilities 41.6   44.7  
    Long-term liabilities:
    Long-term debt 109.8 66.9
    Deferred credits and other long-term liabilities 30.7   30.1  
    Total long-term liabilities 140.5   97.0  
     
    Commitments and contingencies
    Shareholders' equity:
    Preferred stock ($.01 par value; 2,500,000 shares authorized; - -
    0 shares issued and outstanding)
    Common stock ($.01 par value; 150,000,000 shares authorized; authorized;
    23,507,519 and 23,784,041 shares issued and outstanding
    at July 13, 2014 and December 29, 2013, respectively) 0.2 0.2
    Capital in excess of par value 62.1 77.9
    Accumulated earnings (deficit) 0.7 (18.7 )
    Accumulated other comprehensive loss (0.3 ) (0.6 )
    Total shareholders' equity 62.7   58.8  
     
    Total liabilities and shareholders' equity $ 244.8  

    $

    200.5  
     

    Popeyes Louisiana Kitchen, Inc.

    Condensed Consolidated Statements of Operations (unaudited)

    (In millions, except per share data)

                 
    12 Weeks Ended 28 Weeks Ended
    7/13/2014 7/14/2013 7/13/2014 7/14/2013
     
    Revenues:
    Sales by company-operated restaurants $ 22.3 $ 17.5 $   51.7 $ 41.4
    Franchise royalties and fees 30.0 29.1 68.8 64.3
    Rent from franchised restaurants 1.4 1.3   3.3 2.6
    Total revenues 53.7 47.9   123.8 108.3
     
    Expenses:
    Restaurant food, beverages and packaging 7.3 5.8 16.9 13.7
    Restaurant employee, occupancy and other

    expenses

    10.8 8.5 24.6 19.8
    General and administrative expenses 17.4 16.8 41.8 38.8
    Occupancy expenses – franchise restaurants 0.7 0.8 1.6 1.9
    Depreciation and amortization 2.0 1.5 4.6 3.3
    Other expenses (income), net 1.4 -   1.5 0.1
    Total expenses 39.6 33.4   91.0 77.6
     
    Operating profit 14.1 14.5 32.8 30.7
    Interest expense, net 0.7 0.9   1.6 2.0
    Income before income taxes 13.4 13.6 31.2 28.7
    Income tax expense 5.1 5.1   11.8 10.6
    Net income $ 8.3 $ 8.5 $   19.4 $ 18.1
     
    Earnings per common share, basic: $ 0.36 $ 0.36 $

     

    0.83 $ 0.77
     
    Earnings per common share, diluted: $ 0.35 $ 0.35 $

     

    0.82 $ 0.75
     
    Weighted average shares outstanding
    Basic 23.3 23.6 23.4 23.6
    Diluted 23.7 24.1 23.8 24.2
     

    Popeyes Louisiana Kitchen, Inc.

    Condensed Consolidated Statements of Cash Flows (unaudited)

    (In millions)

       
    28 Weeks Ended
    7/13/2014

    7/14/2013

    Cash flows provided by (used in) operating activities:
    Net income

     

    $

    19.4

     

    $

    18.1
    Adjustments to reconcile net income to net cash provided by (used in) operating activities:
    Depreciation and amortization 4.6 3.3
    Asset write-downs 0.2 0.2
    Net gain on sale of assets (0.1 ) (0.1 )
    Deferred income taxes - 0.4
    Non-cash interest expense, net 0.6 0.2
    Provision for credit losses - 0.1
    Excess tax benefit from stock-based payment arrangements (1.9 ) (1.9 )
    Stock-based compensation expense 2.9 2.9
    Change in operating assets and liabilities:
    Accounts receivable 0.4 (0.4 )
    Other operating assets 6.3 1.0
    Accounts payable and other operating liabilities (2.7 ) (0.5 )
    Net cash provided by operating activities 29.7   23.3  
     
    Cash flows used in investing activities:
    Capital expenditures (12.9 ) (15.6 )
    Investment in intangible (41.8 ) -  
    Net cash used in investing activities (54.7 ) (15.6 )
     
    Cash flows provided by (used in) financing activities:

    Principal payments - 2010 credit facility (term loan)

    -

    (4.3 )
    Borrowings under 2013 credit facility 43.0

    -

    Share repurchases (20.0 ) (8.4 )
    Proceeds from exercise of employee stock options 1.3 1.5
    Excess tax benefit from stock-based payments arrangements 1.9 1.9
    Other financing activities, net (0.3 ) (0.2 )
    Net cash provided by (used in) financing activities 25.9   (9.5 )
     
    Net increase (decrease) in cash and cash equivalents 0.9 (1.8 )
    Cash and cash equivalents at beginning of year 9.6   17.0  
    Cash and cash equivalents at end of quarter

     

    $

    10.5  

     

    $

    15.2  
     

    Popeyes Louisiana Kitchen, Inc.

    Same-store sales and restaurant count

       
    12 Weeks ended 28 Weeks ended
    7/13/2014   7/14/2013 7/13/2014   7/14/2013
    Same-store sales growth    
    Company-operated restaurants 1.6 % 1.7 % 4.0 % 2.5 %
    Domestic franchised restaurants 3.9 % 4.3 % 4.1 % 4.5 %
    Total domestic (company-operated and franchised restaurants) 3.8 % 4.3 % 4.1 % 4.4 %
    International franchised restaurants 2.2 % 5.8 % 4.1 % 4.8 %
    Total global system 3.6 % 4.4 % 4.1 % 4.5 %
     
    Company-operated restaurants (all domestic)
    Restaurants at beginning of quarter 53 46 53 45
    New restaurant openings 3 2 4 3
    Permanent closings -   (1 )   (1 )   (1 )
    Restaurants at end of quarter 56 47 56 47
     
    Franchised restaurants (domestic)
    Restaurants at beginning of quarter 1,735 1,650 1,716 1,634
    New restaurant openings 17 27 35 49
    Permanent closings (3 ) (5 ) (11 ) (12 )
    Temporary (closings)/re-openings, net (4 ) 2     5     3  
    Restaurants at end of quarter 1,745 1,674 1,745 1,674
     
    Franchised restaurants (international)
    Restaurants at beginning of quarter 460 423 456 425
    New restaurant openings 16 15 24 32
    Permanent closings (12 ) (10 ) (19 ) (27 )
    Temporary (closings)/re-openings, net (3 ) 4     -     2  
    Restaurants at end of quarter 461 432 461 432
     
    Total restaurant count at end of quarter 2,262   2,153     2,262     2,153  
     

    Management’s Use of Non-GAAP Financial Measures

    Adjusted earnings per diluted share, operating EBITDA, Company-operated restaurant operating profit 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 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. Adjusted earnings per diluted share, operating EBITDA, Company-operated restaurant operating profit and free cash flow as calculated by the Company are not necessarily comparable to similarly titled measures reported by other companies. In addition, Adjusted earnings per diluted share, operating EBITDA, Company-operated restaurant operating profit and free cash flow: (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, which included $0.1 million in asset write-downs net of gains on disposals of fixed assets for the second quarter year-to-date 2014 and 2013; and $1.4 million in transition expenses associated with a former executive in the second quarter and second quarter year-to-date 2014, and

    (ii) the tax effect of these adjustments at the effective statutory rates.

    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 for second quarter 2014, second quarter 2013, second quarter year-to-date 2014, and second quarter year-to-date 2013, the Company’s adjusted earnings per diluted share on a consolidated basis to the line on its condensed consolidated statement of operations entitled net income, which the Company believes is the most directly comparable GAAP measure on its condensed consolidated statement of operations.

      12 weeks ended     28 weeks ended
    (in millions, except per share data)   7/13/2014     7/14/2013     7/13/2014     7/14/2013
    Net income $ 8.3     $ 8.5

    $

    19.4     $ 18.1
    Other expense (income), net 1.4 - 1.5 0.1
    Tax effect     (0.5 )       -       (0.6 )       (0.1 )
    Adjusted earnings   $ 9.2       $ 8.5     $ 20.3       $ 18.1  
    Adjusted earnings per diluted share   $ 0.39       $ 0.35     $ 0.85       $ 0.75  
    Weighted average diluted shares outstanding     23.7         24.1       23.8         24.2  
     

    Operating EBITDA: Calculation and Definition

    The Company defines operating EBITDA as earnings before interest expense, taxes, depreciation and amortization, and other expenses (income), net. The following table reconciles on a historical basis for second quarter year-to-date 2014 and second quarter year-to-date 2013, the Company’s operating EBITDA on a consolidated basis to the line on its condensed consolidated statement of operations entitled net income, which the Company believes is the most directly comparable GAAP measure on its condensed consolidated statement of operations. Operating EBITDA margin is defined as operating EBITDA divided by total revenues.

      28 weeks ended
    (in millions)   7/13/2014   7/14/2013
    Net income $ 19.4     $ 18.1
    Interest expense, net 1.6 2.0
    Income tax expense 11.8 10.6
    Depreciation and amortization 4.6 3.3
    Other expenses (income), net     1.5         0.1  
    Operating EBITDA   $ 38.9       $ 34.1  
    Total revenues  

    $

    123.8

          $ 108.3  
    Operating EBITDA margin     31.4 %       31.5 %
     

    Company-operated restaurant operating profit: Calculation and Definition

    The Company defines adjusted Company-operated restaurant operating profit as sales by Company-operated restaurants minus restaurant food, beverages and packaging minus restaurant employee, occupancy and other expenses. The following table reconciles on a historical basis for second quarter 2014, second quarter 2013, second quarter year-to-date 2014, and second quarter year-to-date 2013 Company-operated restaurant operating profit to the line item on its condensed consolidated statements of operations entitled sales by Company-operated restaurants, which the Company believes is the most directly comparable GAAP measure on its condensed consolidated statements of operations to Company-operated restaurant operating profit. Company-operated restaurant operating profit margin is defined as Company-operated restaurant operating profit divided by sales by Company-operated restaurants.

       

    12 weeks ended

     

    28 weeks ended

    (in millions)    

    7/13/2014

     

    7/14/2013

     

    7/13/2014

     

    7/14/2013

    Sales by company-operated restaurants $ 22.3   $ 17.5 $ 51.7   $ 41.4
    Restaurant food, beverages and packaging 7.3 5.8 16.9 13.7
    Restaurant employee, occupancy and other expenses       10.8       8.5       24.6       19.8  
    Company-operated restaurant operating profit     $ 4.2     $ 3.2     $ 10.2     $ 7.9  
    Company-operated restaurant operating profit margin       18.8 %     18.3 %     19.7 %     19.1 %
     

    Free Cash Flow: Calculation and Definition

    The Company defines free cash flow as net income plus depreciation and amortization plus stock-based compensation expense, minus maintenance capital expenditures which includes: for second quarter year-to-date 2014: $0.6 million in company restaurant reimages; $1.4 million of information technology and corporate office expansion; and $0.7 million in other capital assets to maintain, replace and extend the lives of company-operated restaurant facilities and equipment; and for second quarter year-to-date 2013, $1.2 million in Company-operated restaurant reimages, $0.6 in other capital assets to maintain, replace and extend the lives of Company-operated restaurant facilities and equipment and $0.5 million of information technology and other corporate assets.

    The following table reconciles on a historical basis for second quarter year-to-date 2014 and second quarter year-to-date 2013, the Company’s free cash flow on a consolidated basis to the line on its consolidated statements of operations entitled net income, which the Company believes is the most directly comparable GAAP measure on its consolidated statements of operations.

    28 weeks ended
    (dollars in millions) 7/13/2014   7/14/2013
    Net income $ 19.4     $ 18.1
    Depreciation and amortization 4.6 3.3
    Stock-based compensation expense 2.9 2.9
    Maintenance capital expenditures(1)   (2.7 )      

    (2.3

    )
    Free cash flow $ 24.2       $

    22.0

     
     

    (1) For the second quarter year-to-date 2013, maintenance capital expenditures have been revised to conform with the current year presentation. Information technology expenditures decreased $0.2 million which increased free cash flow by $0.2 million.



    Logos, product and company names mentioned are the property of their respective owners.

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