Popeyes Louisiana Kitchen Results

Popeyes Louisiana Kitchen, Inc. Reports Results for First Quarter 2016

otal revenues increased 3.4% to $82.2 million, compared to $79.5 million in the first quarter of 2015.

Popeyes

Popeyes Louisiana Kitchen, Inc. (NASDAQ:PLKI) yesterday reported results for its fiscal first quarter of 2016, which ended April 17, 2016. The Company also reaffirmed earnings guidance for fiscal 2016.

“We are on track to deliver our 2016 full year guidance and we are confident in our future outlook as we make progress against our new, next generation Strategic Roadmap. We reported global same-store sales of 1.6% and earnings per diluted share of $0.58 during the first quarter, which was in line with our expectations. Despite the very promotional QSR landscape, our guests continue to value our quality food and innovative new product offerings and respond well to selective promotions of our core products,” said Cheryl Bachelder, Popeyes Chief Executive Officer. “We are excited about our future as we begin executing our key strategies, which will help us to achieve our long term growth goals.”

First Quarter 2016 Highlights:

  • Total revenues increased 3.4% to $82.2 million, compared to $79.5 million in the first quarter of 2015.
  • Reported net income was $12.9 million, or $0.58 per diluted share, compared to $13.6 million, or $0.58 per diluted share in the first quarter 2015. Adjusted earnings per diluted share(1) were $0.58 in both the first quarter of 2016 and 2015.
  • System-wide sales increased 6.4%.
  • Global same-store sales increased 1.6%.
  • Total domestic same-store sales increased 1.1%, compared to a 7.1% increase in the first quarter of 2015, marking our 21st consecutive quarter of positive domestic same-store sales growth. Popeyes has increased its domestic market share of the chicken-QSR category to 26.3%, compared to 24.6% in the first quarter of 2015.
  • International same-store sales increased 6.2%, compared to a 6.1% increase in the first quarter of 2015, marking our 27th consecutive quarter of positive international same-store sales growth.
  • Sales by Company-operated restaurants were $34.6 million in the first quarter compared to $34.7 million last year. Company-operated restaurant operating profit(1) was $7.0 million, or 20.2% of sales, compared to $7.5 million, or 21.6% of sales in 2015. Lower sales and operating profit in new markets and higher labor costs were partially offset by favorable chicken and grocery basket costs.
  • Operating EBITDA(1) was $25.0 million, or 30.4% of total revenues, compared to $26.1 million, or 32.8% of total revenues in the first quarter of 2015. The decrease was primarily due to planned general and administrative investments to support new Strategic Roadmap initiatives.
  • Free cash flow(1) was $16.8 million, compared to $17.7 million in the first quarter of 2015.
  • The Popeyes system opened 44 restaurants, which included 19 domestic and 25 international restaurants. Net restaurant openings were 25.
  • As of the end of the first quarter, the Company operated and franchised 2,569 restaurants, compared to 2,420 at the end of the first quarter in 2015, representing net unit growth of 6.2% over the last twelve months.
  • The Company repurchased 554,086 shares of its common stock for approximately $30 million.

Fiscal 2016 Guidance:

The Company is currently on track to deliver against its fiscal 2016 full year guidance and is confident in its future outlook. The Company reiterates the following guidance:

  • System-wide same-store sales growth in the range of 2.0% to 3.0%.
  • New restaurant openings in the range of 200 to 235, including approximately 85 to 100 internationally and three to five new Company-operated restaurants.
  • Net new restaurant openings in the range of 140 to 185, for a net unit growth rate of approximately 6% to 7%.
  • General and administrative expenses to be approximately 2.9% to 3.0% of system-wide sales, maintaining an investment rate that supports long-term growth.
  • Capital expenditures to be in the range of $10 million to $15 million, including approximately $10 million for Company-operated restaurant development.
  • Earnings per diluted share and adjusted earnings per diluted share to be in the range of $2.10 to $2.15.
  • Share repurchases of $80 to $120 million in outstanding shares, compared to $62 million in 2015, with approximately $60 million purchased from operating cash flows and up to $60 million from additional borrowings.
  • Effective income tax rate in 2016 to be approximately 38%.

Popeyes Louisiana Kitchen, Inc. is the franchisor and operator of Popeyes® restaurants, the world's second-largest Quick- Service Restaurant (“QSR”) chicken concept based on number of units. As of April 17, 2016, Popeyes had 2,569 operating restaurants in the United States, the District of Columbia, 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.

(1) Adjusted earnings per diluted share, operating EBITDA, Company-operated restaurant operating profit, and free cash flow are supplemental non-GAAP measures of performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.”

Popeyes Louisiana Kitchen, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(In millions, except share and per share data)

 
    4/17/2016   12/27/2015
Current assets:        
Cash and cash equivalents   $ 13.4     $ 9.1  
Accounts and current notes receivable, net   10.5     9.2  
Other current assets   4.0     8.5  
Advertising cooperative assets, restricted   35.5     35.4  
Total current assets   63.4     62.2  
Long-term assets:        
Property and equipment, net   98.1     97.7  
Goodwill   11.1     11.1  
Trademarks and other intangible assets, net   94.1     94.2  
Other long-term assets, net   0.7     0.8  
Total long-term assets   204.0     203.8  
Total assets   $ 267.4     $ 266.0  
Current liabilities:        
Accounts payable   $ 6.7     $ 6.7  
Other current liabilities   7.6     13.1  
Current debt maturities   0.5     0.3  
Advertising cooperative liabilities   35.5     35.4  
Total current liabilities   50.3     55.5  
Long-term liabilities:        
Long-term debt   133.9     111.6  
Deferred credits and other long-term liabilities   39.9     39.3  
Total long-term liabilities   173.8     150.9  
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; 21,974,727 and 22,449,697 shares issued and outstanding at April 17, 2016 and December 27, 2015, respectively)   0.2     0.2  
Capital in excess of par value        
Accumulated earnings   43.6     59.6  
Accumulated other comprehensive loss   (0.5 )   (0.2 )
Total shareholders’ equity   43.3     59.6  
Total liabilities and shareholders’ equity   $ 267.4     $ 266.0  
 

Popeyes Louisiana Kitchen, Inc.

Condensed Consolidated Statements of Operations (unaudited)

(In millions, except per share data)

 
    16 Weeks Ended
    4/17/2016   4/19/2015
Revenues:        
Sales by Company-operated restaurants   $ 34.6     $

34.7

 

Franchise royalties and fees   45.7     43.1  
Rent from franchised restaurants   1.9     1.7  
Total revenues   82.2     79.5  
Expenses:        
Restaurant food, beverages and packaging   10.9     11.3  
Restaurant employee, occupancy and other expenses   16.7     15.9  
General and administrative expenses   28.7     25.3  
Occupancy expenses - franchise restaurants   0.9     0.9  
Depreciation and amortization   3.0     2.9  
Other expenses (income), net   (0.1 )   0.1  
Total expenses   60.1     56.4  
Operating profit   22.1     23.1  
Interest expense, net   1.3     1.1  
Income before income taxes   20.8     22.0  
Income tax expense   7.9     8.4  
Net income   $ 12.9     $ 13.6  
         
Earnings per common share, basic:   $ 0.58     $ 0.59  
Earnings per common share, diluted:   $ 0.58     $ 0.58  
         
Weighted-average shares outstanding:        
Basic   22.1     22.9  
Diluted   22.4     23.3  
 

Popeyes Louisiana Kitchen, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(In millions)

 
    16 Weeks Ended
    4/17/2016   4/19/2015
Cash flows provided by (used in) operating activities:        
Net income   $ 12.9     $ 13.6  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Depreciation and amortization   3.0     2.9  
Net (gain) loss on sale and disposal of assets   (0.1 )   (0.1 )
Deferred income taxes   (0.4 )   0.7  
Non-cash interest expense, net   0.2     0.2  
Provision for credit losses   0.1      
Excess tax benefits from stock-based payment arrangements   (1.2 )   (4.9 )
Stock-based compensation expense   2.0     1.7  
Change in operating assets and liabilities:        
Accounts receivable   (1.4 )   (0.8 )
Other operating assets   5.8     5.7  
Accounts payable and other operating liabilities   (6.1 )   (9.8 )
Net cash provided by operating activities   14.8     9.2  
Cash flows provided by (used in) investing activities:        
Capital expenditures   (3.4 )   (5.7 )
Proceeds from dispositions of property and equipment   0.2      
Net cash used in investing activities   (3.2 )   (5.7 )
Cash flows provided by (used in) financing activities:        
Principal payments — 2013 credit facility   (109.0 )    
Borrowings under 2016 credit facility   131.5      
Share repurchases   (30.0 )   (11.0 )
Proceeds from exercise of employee stock options   0.2     0.6  
Excess tax benefits from stock-based payment arrangements   1.2     4.9  
Debt issuance costs   (1.1 )    
Other financing activities, net   (0.1 )   (0.1 )
Net cash used in financing activities   (7.3 )   (5.6 )
Net increase (decrease) in cash and cash equivalents   4.3     (2.1 )
Cash and cash equivalents at beginning of year   9.1     8.4  
Cash and cash equivalents at end of quarter   $ 13.4     $ 6.3  
 

Popeyes Louisiana Kitchen, Inc.

Same-store Sales and Restaurant Count

 
    16 Weeks Ended
    4/17/2016   4/19/2015

Same-store sales increase

       
Company-operated restaurants   (2.4

)%

  1.0 %
Domestic franchised restaurants   1.2 %   7.4 %
Total domestic (Company-operated and franchised restaurants)   1.1 %   7.1 %
International franchised restaurants   6.2 %   6.1 %
Total global system   1.6 %   7.0 %
         

Company-operated restaurants (all domestic)

       
Restaurants at beginning of period   70     65  
New restaurant openings       1  
Restaurants at end of quarter   70     66  
         

Franchised restaurants (domestic)

       
Restaurants at beginning of period   1,900     1,805  
New restaurant openings   19     28  
Permanent closings   (2 )   (7 )
Temporary (closings)/re-openings, net   4     7  
Restaurants at end of quarter   1,921     1,833  
         

Franchised restaurants (international)

       
Restaurants at beginning of period   569     509  
New restaurant openings   25     24  
Permanent closings   (17 )   (11 )
Temporary (closings)/re-openings, net   1     (1 )
Restaurants at end of quarter   578     521  
         
Total restaurant count at end of quarter   2,569     2,420  
 

Management’s Use of Non-GAAP Financial Measures

Adjusted earnings per diluted share, operating EBITDA, Company-operated restaurant operating profit, free cash flow and consolidated total leverage ratio are supplemental non-GAAP financial measures. The Company uses adjusted earnings per diluted share, operating EBITDA, Company-operated restaurant operating profit, free cash flow and consolidated total leverage ratio, 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, free cash flow and consolidated total leverage ratio 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, free cash flow and consolidated total leverage ratio: (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 net gain on sales of assets for the 16 weeks ended April 17, 2016 and April 19, 2015,
    ii.   $0.2 million in executive transition expenses in the sixteen weeks ended April 19, 2015, and
    iii.   the tax effect of these adjustments at the effective statutory rates.
     
 
    16 Weeks Ended
(In millions, except per share data)   4/17/2016   4/19/2015
Net income   $ 12.9     $ 13.6  
Other expense (income), net   (0.1 )   0.1  
Tax effect   0.1     (0.1 )
Adjusted earnings   $ 12.9     $ 13.6  
Adjusted earnings per diluted share   $ 0.58     $ 0.58  
Weighted average diluted shares outstanding   22.4   23.3
 

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 the sixteen week periods ended April 17, 2016 and April 19, 2015, respectively, 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. Operating EBITDA margin is defined as operating EBITDA divided by total revenues.

 
    16 Weeks Ended
(Dollars in millions)   4/17/2016   4/19/2015
Net income   $ 12.9     $ 13.6  
Interest expense, net   1.3     1.1  
Income tax expense   7.9     8.4  
Depreciation and amortization   3.0     2.9  
Other expenses (income), net   (0.1 )   0.1  
Operating EBITDA   $ 25.0     $ 26.1  
Total revenues   $ 82.2     $ 79.5  
Operating EBITDA margin   30.4 %   32.8 %
 

Company-operated restaurant operating profit: Calculation and Definition

The Company defines 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 the sixteen week periods ended April 17, 2016 and April 19, 2015, respectively, Company-operated restaurant operating profit to the line item on its condensed consolidated statement of operations entitled sales by Company-operated restaurants, which the Company believes is the most directly comparable GAAP measure. Company-operated restaurant operating profit margin is defined as Company-operated restaurant operating profit divided by sales by Company-operated restaurants.

 
    16 Weeks Ended
(Dollars in millions)   4/17/2016   4/19/2015
Sales by Company-operated restaurants   $ 34.6     $ 34.7  
Restaurant food, beverages and packaging   10.9     11.3  
Restaurant employee, occupancy and other expenses   16.7     15.9  
Company-operated restaurant operating profit   $ 7.0     $ 7.5  
Company-operated restaurant operating profit margin   20.2 %   21.6 %
 

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 the sixteen weeks ended April 17, 2016, $0.8 million of information technology and other corporate assets and $0.3 million in other capital assets to maintain, replace and extend the lives of Company-operated restaurant facilities and equipment; and for the sixteen weeks ended April 19, 2015, $0.3 million of information technology and other corporate assets and $0.2 million in other capital assets to maintain, replace and extend the lives of Company-operated restaurant facilities.

The following table reconciles on a historical basis for the sixteen week periods ended April 17, 2016 and April 19, 2015, respectively, 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.

 
    16 Weeks Ended
(Dollars in millions)   4/17/2016   4/19/2015
Net income   $ 12.9     $ 13.6  
Depreciation and amortization   3.0     2.9  
Stock-based compensation expense   2.0     1.7  
Maintenance capital expenditures   (1.1 )   (0.5 )
Free cash flow   $ 16.8     $ 17.7  
 



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