News
Deep-discount offering, national media plan pays off for Popeyes
August 19, 2009
Popeyes' deep-discount PayDay promotion in April and a new national advertising plan helped the company fight off competition as it worked aggressively to increase market share during the second quarter ended July 12.
AFC Enterprises Inc., franchisor and operator of Popeyes Louisiana Chicken, reports that global same-store sales were up 4.3 percent, compared to a decline of 1.4 percent last year. In comparison, global Q1 comps were up only 0.2 percent and net income was down 22 percent.
Domestic same-store sales were up 4.3 percent for Q2, compared to a decline of 1.7 percent in the same period last year. International same-store sales were positive for the 11th consecutive quarter, with an increase of 3.9 percent, compared to an increase of 1.7 percent last year.
Popeyes' CEO Cheryl Bachelder said in a news release that the company worked aggressively to grow its market share in the second quarter by focusing on offering superior quality Louisiana-style food at a compelling value. The company also benefited from seven weeks of national media during the quarter.
"Our decision to use national media to deliver our message drove ad awareness increases of 14 percentage points over a year ago, bringing positive traffic increases to our restaurants," she said. "As a result, our second quarter same-store sales performance was strong, and our earnings performance year-to-date is on track. This was accomplished in the face of the weakest QSR traffic quarter since the second quarter of 2001 and significant new product activity from our competition. Going forward we will continue to implement the strategic plan that has led to these results."
The most significant product introduction for the chicken segment during the fiscal quarter was No. 1 chicken chain KFC's introduction of its Kentucky Grilled Chicken.
Revenues were down 9.2 percent at $35.7 million for the quarter, compared to $39.3 million in the same period last year. Total revenues were lower primarily due to the company's successful re-franchising of 27 company-operated restaurants in the Atlanta and Nashville markets. The company then benefited from an increase in franchise royalty revenue as a result of positive same-store sales.
Year to date, revenues were down 9.7 percent at $83.6 million, compared to $92.6 million last year.
Net income was down 3 percent at $6.4 million for the quarter, compared to $6.6 million in the same period last year. Excluding the impact from other non-operating income, net income was $4.7 million, compared to $4.3 million last year.Year to date, net income was down 12.3 percent at $11.4 million, compared to $13.0 million last year.
During the quarter, the company opened 16 restaurants and closed 22 restaurants, resulting in net closings of six restaurants. At the end of the second quarter, total unit count was 1,905 compared to 1,901 at the end of the second quarter last year.
Initiatives to implement the company's strategic plan during the quarter include:
- Value promotions — During the second quarter Popeyes promoted its Bonafide bone-in chicken and Louisiana tenders at compelling price points for both its single and family-user. In the first week of the quarter, the chain promoted "Popeyes Pay Day," a national one-day promotion featured eight-pieces of Popeyes signature Bonafide chicken for only $4.99. These promotions, which were supported with seven weeks of national media advertising, delivered strong positive guest counts, resulting in positive same-store sales for the quarter.
- Operations improvement — At the end of June, Popeyes restaurant operators purchased and installed new headsets and timers to improve drive-thru times. The company also is rolling out training and tools to facilitate speed of service initiatives.
- Improve profitability — The company has completed a full diagnostic analysis of its supply chain system and has identified further cost savings that are expected to benefit the system in 2010 and beyond.
- Poised for growth — The company continues to focus on readying restaurant operators and identifying market opportunities, so the Popeyes system will be ready to accelerate new unit development with quality operators and sites as the credit markets recover.
Amendment to 2005 credit facility
On Aug. 14, AFC Enterprises completed an amendment and restatement of its 2005 Credit Facility to extend the maturity dates of its revolving credit facility and term loan and to make other changes described herein. The maturity dates for the revolving credit facility and the term loan have been extended for two years to May 2012 and to May 2013, respectively.
The amended facility also provides the company greater financial flexibility with its Total Leverage Ratio covenant which will remain at 3.00 to 1.00 until May 2012 and 2.75 to 1.00 thereafter.
The company reduced its outstanding term loan from $110.5 million to $103.5 million and the revolving credit facility commitment from $60 million to $48 million. Based on the company's available borrowings and the strong cash flow generation from operations, management believes it has adequate cash flow to meet its anticipated future requirements. The rate of interest for borrowings under the credit facility, as amended, is LIBOR plus 4.50 percent, with a minimum LIBOR of 2.50 percent.
In the third quarter of 2009, the company expects to expense $1.1 million for consent fees and write-off approximately $800,000 for debt issuance costs and realization of derivative losses. Approximately $1.8 million for fees related to the amendment are expected to be paid and recorded as deferred debt issuance costs and will be amortized over the remaining life of the facility.
Fiscal year guidance improves
Given its year-to-date same-store sales performance, the company is improving its projection for global same-store sales for fiscal 2009 to be in the range of 0.0 percent to positive 2.0 percent, an increase from the company's previous guidance of negative 1.0 percent to positive 1.0 percent.
Consistent with previous guidance, the company expects its global new openings to be in the range of 90-110 restaurants. Due to improved restaurant performance and a favorable year-to-date restaurant closure rate, the company now expects its closures to be 110-120 restaurants resulting in 0-30 net restaurant closings, compared to previous guidance of 140-160 restaurant closures and 30-70 net restaurant closings. Popeyes restaurant closures typically have sales significantly lower than the system average.
Earnings conference call
The company will host a conference call and Internet webcast with the investment community at 9 a.m. Eastern time on Aug. 20 to review the results of the second quarter. A replay of the conference call will be available for 90 days at the company's Web site or through a dial-in number for a limited time following the call.
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