News

Popeyes Q2 revenue up, profits down

August 17, 2011

Popeyes' franchisor AFC Enterprises reported second quarter earnings this morning, which included a drop in net income to $5.5 million from $6.8 million in Q2 2010.

Shares came in at 22 cents each, compared to 26 cents for the same period last year.

However, the company generated an almost 3 percent boost in revenues and positive global same-store sales of 0.7 percent, compared to 0.6 percent last year. This marked the fifth domestic quarter of growth for the brand.

Domestic same-store sales increased 0.5 percent, compared to 0.4 percent in 2010.

International same-store sales increased 2.3 percent compared to a 2.7 percent increase last year. Sales were particularly strong in Turkey and Canada.

Global system-wide sales increased 4.8 percent compared to a 2.8 percent increase last year.

Additionally, the Popeyes system opened 30 restaurants during the second quarter, resulting in 62 new restaurants opened in the first half of 2011. The company permanently closed 39 restaurants through the end of the second quarter, resulting in 23 net openings in 2011 compared to five in the same period of the prior year.

According to independent data, in the second quarter of 2011, Popeyes domestic same-store sales continued to outpace the chicken QSR category, beating the segment for the 13th consecutive quarter.

"The quarter is in line with expectations, with positive same-store sales, new restaurant openings and lower interest expense," said Cheryl Bachelder, CEO of AFC Enterprises. "We continued to grow our market share in a choppy consumer environment. Our strategic plan and 2011 goals remain on track."

Company's Four Pillars approach

The company continues to follow its Strategic Plan built on the foundation of the Four Pillars: building the brand; running great restaurants; strengthening unit economics; and ramping up new unit growth.

Although the quarter's sales were up, the gains were modest. Bachelder attributes the slow gains to higher commodity costs and continued high unemployment rates for heavy QSR users. Box and bundles were soft, reflecting on these factors, however promotions remained strong and were in line with the first "Building the Brand" pillar.

The second quarter's promotions included Bonafide Chicken, Wicked Chicken, Louisiana Leaux and Get Up & Geaux Kids Meal, Naked Chicken Tenders, Firecracker Shrimp and two new sides – green beans and apple sauce. Rip'n Chick'n was also just launched and is currently available in most domestic restaurants.

Popeyes continues to gauge its guest satisfaction through the GEM (guest experience monitor) metric, implemented in 2009. This quarter's results showed that the chain had 76 percent of delighted guests, a steady improvement since tracking began. Since the implementation of the speed of service program, scores are up 10 percentage points.

"We continue to make progressive improvements and better speed of service. Over 90 percent of our drive-thru units reported over 65 percent average drive-thru times of 180 seconds or below. This is an improvement of 5 percentage points since end of 2010," Bachelder said.

Popeyes' international team is now implementing these metrics, and the GEM is currently in place at more than 40 percent of international units.

Bachelder said the company's focus on unit economics was tricky to navigate through Q2, as commodity inflation hovered around 7 percent, and pressure on chicken prices in particular continued.

"This translated into a 250 basis point impact on restaurant operating profits. To offset, most restaurants took modest price increases on select menu items," she said. "For the full year, we expect about a 6 percent increase in commidities, equating to 200 basis points. Our team expects to protect against this by growing top line sales, extracting additional supply chain savings and focusing on in-restaurant cost controls."

Popeyes' goal of ramping up new unit growth was highlighted during the second quarter, with the opening of its 2,000th restaurant.

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