Popeyes Louisiana Kitchen continues to outpace the quick-serve chicken category as it focuses on improving operations, product innovation and smarter growth, Popeyes CEO Cheryl Bachelder told investors during today's first quarter earnings call.
"Culinary innovation and international growth are two leading business strategies for the brand," Bachelder said. "In today's increasingly competitive, increasingly global marketplace, the more products we bring to market that satisfy our guests evolving taste preferences and desire for new culinary experiences, the greater the opportunity to capitalize on those products for margin lift and increased brand recognition."
The company's latest product developments include two new items set to rollout out Monday: Cane Sweeeet Tea and Wicked Chicken. The new beverage is a blend of black and orange pekoe tea freshly brewed in-restaurant and sweetened with Pure Cane Sugar. Popeyes Cane Sweeeet Iced Tea — also available unsweetened — will launch nationally this summer and continue as a core menu item.
The new chicken product is the company's first global limited-time promotion and features a fried chicken strip modeled after the famed thin, crispy catfish from Middendorf's Seafood Restaurant in Manchac, La. Distinctly different than a tender, the spicy Wicked Chicken features thin strips of white meat chicken marinated with authentic Louisiana seasonings, hand-breaded and deep fried to result in crispy, twisty and curly pieces.
Popeyes Wicked Chicken features a portable box with Wicked Chicken, Cajun fries, a buttermilk biscuit, ranch dipping sauce and a mini bottle of Tabasco Pepper Sauce for $3.99.
The first global launch for Popeyes came after extensive research as well as collaboration with the company's international team. The new offering addresses the QSR food preferences of American consumers while also those of audiences of varied nationalities and ethnicities. Popeyes' international restaurants in particular appeal to a younger, single-serve consumer looking for portable products to purchase in a mall food court or other walk-up location. From a taste perspective, Wicked Chicken is a vehicle for the spicy, highly flavorful food preferences especially popular in countries like Asia and Latin America.
Correctly identifying consumer trends was essential in the development of Popeyes' Cane Sweeeet Iced Tea. Specialty iced tea like Southern sweet tea is a leading QSR beverage trend of the last couple years. The use of pure cane sugar addresses consumers' desire for natural sweeteners over high fructose corn syrup and artificial varieties. And noncarbonated beverage options are gaining popularity with their new sophisticated flavors and health-infused benefits.
Both products are intended to emphasize the brand's Southern heritage.
"It is important to innovate with an eye toward authenticity, and we wanted to pay homage to the cuisine found on menus throughout Louisiana," said Amy Alarcon, Popeyes director of culinary innovation, in an e-mail. "At Popeyes, the foundation of our product innovation is our culinary roots in the Cajun/Creole regions of Louisiana. It provides the recipe inspiration for our food and gives us a unique platform from which to grow and further distinguish our brand."
The company's continued emphasis on speed of service and improving operations has lead to improved guest metrics scores. Popeyes Guest Experience Monitor scores reported "overall delighted" scores were up 2 to 3 percent from the end of 2009. The company's "speed of service" points were up 8 percent from Q3 2009 when the Popeyes initiated the speed of service program.
Global same-store sales were down slightly at negative 0.3 percent, compared to a 0.2 percent increase in the same period last year. Domestic same-store sales decreased 0.4 percent compared to a 0.3 percent decrease last year. International same-store sales increased 1.2 percent compared to a 4.8 percent increase in 2009.
Bachelder said the decrease in comps was due in part to the planned change in the timing of Q1 media compared to the same period last year. National promotion events, including a repeat of last year's extremely successful Pay Day event, was in-line with expectations.
Despite the slight decrease in comps, Popeyes outpaced the chicken QSR category for the eighth consecutive quarter and also grew market share by 4 percentage points, she said.
During the first quarter, the company also continued its strategy to strengthen unit economics. A 6.5 decrease in food costs during the quarter helped improve operating margins by 200 basis points. The company also is seeing significant improvements in average unit volume from its freestanding and prototype stores, from $1 million AUV to $1.3 million or more on stores built in 2008 and 2009.
To protect itself from seafood price increases due to the oil spill in the Gulf of Mexico, the company has identified all its sources for seafood outside of the Gulf, including its shrimp and crawfish. The company also has committed to pricing contracts for the next 12 to 18 months, Bachelder said.
Total revenues were down 8.5 percent to $43.8 million, compared to $47.9 million in the same period last year. The decrease was primarily due to the company's successful re-franchising of 16 company-operated restaurants in Atlanta and Nashville during 2009.
Total system-wide sales increased 2.1 percent compared to a 1.1 percent increase last year, mostly on new store openings.
Net income was up 16 percent at $5.8 million, or $0.23 per diluted share, compared to $5.0 million, or $0.20 per diluted share, in the same period last year.
The Popeyes system opened 17 restaurants in the first quarter, which included five domestic and 12 international restaurants, compared to 14 openings last year. The Popeyes system permanently closed 12 restaurants, resulting in five net openings. These closures included 10 domestic and two international units.
On a system-wide basis, Popeyes had 1,944 restaurants operating at the end of the Q1, compared to 1,909 restaurants at the end of Q1 last year. Total unit count included 1,570 domestic restaurants and 374 international restaurants in 27 foreign countries and two territories. Of this total, 37 were company-operated restaurants.
The company's pipeline has improved every quarter for the last three quarters, Bachelder told analysts during the Q&A session. Domestically, much of the growth is coming from existing operators who have cash for growth and have proven themselves as strong operators.
Internationally, the pipeline is stronger with active growth plans in Popeyes existing markets. The company also expects to enter four new countries this year.
Fiscal 2010 guidance
The company continues to project global same-store sales to be in the range of negative 1.0 to positive 2.0 percent for 2010, given the continuing challenges of the global economic environment and the intensely competitive restaurant sector.
Popeyes expects its global new openings to remain consistent with previous guidance in the range of 110-130 restaurants. The company will continue to close underperforming restaurants and enforce higher operating standards throughout the system.
As a result, the company projects system-wide unit closings to be approximately 100 restaurants, yielding 10-30 net openings in 2010, consistent with the company's previous guidance. Popeyes restaurant closures typically have sales significantly lower than the system average.
The company will continue to tightly manage general and administrative expenses and invest in its international business and core initiatives of its strategic plan. This includes new product innovation to drive traffic, operational tools and training to improve the guest experience, and productivity initiatives to strengthen restaurant profitability.
Consistent with previous guidance, over the course of the next 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 percent; net new unit growth of 4 to 6 percent; and earnings per diluted share growth of 13 to 15 percent.
Bachelder said the company's growth plans for 2011 will be helped by smarter development plans, which includes being significantly more rigorous in its selection of new operators and real estate sites.
A replay of the company's conference call and webcast with its investment community will be available for 90 days at the company's website or through a dial-in number for a limited time following the call.