AFC Enterprises Inc., parent company of Popeyes restaurants, today reported results for its fiscal second quarter 2012 which ended July 8. The company turned in profits of $6.6 million, compared to $5.5 million last year.
Contributing to the bottom line was a global same-store sales increase of 7.5 percent, versus 0.7 percent during the same period last year. Global systemwide sales jumped 11.5 percent, rolling over a 4.8 percent increase in the second quarter of last year.
Domestically, same-store sales grew 8.4 percent.
AFC Enterprises CEO Cheryl Bachelder said these results outpaced the general QSR category by 3 percent.
"We are growing this brand by broadening our appeal with a pipeline of innovative food at competitive prices. Our strong relationship with our franchisees and our relentless focus on their unit economics is fueling our new unit expansion," she said.
Five pillar focus
Popeyes remains focused on its five-pillared strategy, including building a distinctive brand, running great restaurants, growing restaurant profits, accelerating quality restaurant openings and creating a culture of servant leaders.
During Q2, the chain's branding efforts were boosted by the addition of integrated digital media campaigns and limited-time promotions of bone-in chicken, Rip'n Chick'n and Zatarain's butterfly shrimp, as well as its Summer of Peach promotion.
"Our average weekly sales were among the best ever in June and July for the brand," Bachelder said.
During the first quarter, Popeyes' franchisees recorded their highest average profits since the company began tracking this metric four years ago despite commodity cost inflation of 2.5 percent. Freestanding restaurants made almost $11,000 more in operating profits this year, compared to 2011.
At the end of the second quarter, approximately 14 percent of the Popeyes domestic system had incorporated the new Popeyes Louisiana Kitchen re-image. The company's goal is to have approximately one-third of its domestic system in the new restaurant image by the end of the year. Bachelder said this reimaging investment is about $100,000; "a modest cost with quick returns."
Additionally, the company's speed of service initiatives and Guest Experience Monitor (GEM) scores continue to improve. Bachelder said approximately 75 percent of the Popeyes system is achieving an average drive-in transaction in under 180 seconds.
Popeyes opened 24 domestic restaurants through the end of the second quarter, approximately 70 percent of which have been in top priority development markets. Its international team opened 12 new restaurants in the quarter, including its first free-standing restaurant in San Jose, Costa Rica and the first restaurant in Lima, Peru.
Ralph Bower, president of AFC's U.S. division discussed the current commodities market, admitting that the company expects to see significant increases in corn prices due to the widespread drought.
"Since our core menu item is chicken, corn prices are something we pay very close attention to. Our total food costs are up 1.5 percent in the second quarter," he said.
However, he adds that Popeyes is in a good position because of its supply chain and back-of-house systems, and because the company focuses on franchisee profitability. The company's supply cooperative is locked in corn through most of the rest of the year.
"Popeyes is in an enviable position to navigate through the current commodities situation," Bower said.
The company has raised its 2012 global same-store sales outlook to 5-6 percent, compared to the previous guidance of 4-5 percent.
Throughout the course of the upcoming five years, the company believes the execution of its five-pillared strategic plan will deliver on an average annualized basis the following results: same-store sales growth of 1-3 percent; net unit growth of 4-6 percent; and earnings per diluted share growth of 13-15 percent.
Bachelder said there has been some slowing, as the economy remains fragile and gas prices are on the upswing.
"If gas prices spike, we know the QSR customer base reduces frequency," she said. "We are notably cautious on the externals and notably optimistic on the brand. Our franchisees are very optimistic about our future and the returns they can secure from our brand. Our performance being well above the average industry performance is driving that optimism."
Popeyes had 2,049 restaurants operating at the end of the second quarter, compared to 2,000 at the end of the second quarter of 2011. Total unit count was comprised of 1,637 domestic and 412 international restaurants in 25 foreign countries and three territories. Of this total, 2,009 were franchised and 40 were company-operated restaurants.
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