News
Popeyes Q3 comps nearly flat
November 12, 2009
AFC Enterprises Inc., franchisor and operator of Popeyes, has reported that global same-stores sales were nearly flat for the fiscal third quarter ended Oct. 4.
Global same-store sales were down 0.3 percent for the quarter, an improvement over a 1.9 percent decrease last year. Domestic same-store sales decreased 0.3 percent versus a decrease of 2.8 percent last year. According to independent data obtained by the company, domestic same-store sales have continued to outpace the chicken quick-service category for the sixth consecutive quarter.
International same-store sales were down 1.0 percent compared to an increase of 7.4 percent last year. The elevated sales in the third quarter of 2008 were primarily related to restaurants in the Middle East that benefited from the timing of the Islamic holiday of Eid, marking the end of the fasting period of Ramadan. The third quarter 2009 same-store sales decrease primarily reflects weaker sales in the Middle East due to economic slowdown.
Total revenues for the quarter were down 17 percent at $31.9 million compared to $38.3 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. Year to date, revenues were down 12 percent at $115.5 million compared to $130.9 million last year.
Net income for the quarter was down 15 percent at $3.4 million, or 13 cents per diluted share, compared to $4.0 million, or 16 cents per diluted share, last year. Excluding $1.9 million, or 5 cents per diluted share, of charges associated with the company's recent credit facility amendment, adjusted earnings were 18 cents per diluted share. Year to date, net income was down 13 percent at $14.8 million compared to $17 million last year.
On Aug. 14, the company completed an amendment and restatement of its 2005 credit facility to extend the maturity dates of its revolving credit facility and term loan by two years to May 2012 and May 2013, respectively. Additionally, the company available cash to reduce its outstanding debt by $26.2 million, bringing its total debt to $88.6 million at the end of the third quarter. At the end of the third quarter last year, the total outstanding debt was $131.3 million.
The Popeyes system opened 21 restaurants and closed 8 restaurants, resulting in 13 net openings. At the end of the third quarter, total unit count was 1,918 compared to 1,905 at the end of the third quarter last year.
AFC Enterprises CEO Cheryl Bachelder said, "Our relatively flat same-store sales in the third quarter met our expectations and outpaced the QSR category. Guest traffic continued to increase in our restaurants at a time of steep traffic declines in QSR. We believe this positive momentum was driven by our famous Louisiana food offered through compelling national advertising with a competitive value proposition.
"As we move into 2010, our attention will remain focused on growing market share and enhancing restaurant profitability in support of our strategy of accelerating our growth in the U.S. and around the globe," she said.
Strategic plan update
The company's achievements as part of its strategic plan for the quarter include:
- In September, Popeyes promoted its Bonafide chicken, featuring 5 wings for $2.99 and 11 pieces of bone-in chicken for $9.99. These promotions, which were supported with three weeks of national media advertising, delivered strong positive guest counts.
- Popeyes is currently running national media advertising promoting its First Annual Crawfish Festival, featuring its spicy, crispy Crawfish Tackle Box with Cajun fries and a buttermilk biscuit for only $4.99.
- Popeyes continues to see steady improvement in its Guest Experience Monitor (GEM) scores, with Overall Delighted scores at the end of the third quarter up 15 percentage points since the implementation of the program last year.
- With new drive-thru equipment in place throughout the system, the company is now rolling out new speed-of-service training and tools and expects to have the programs in place system-wide by the beginning of 2010. Longer-term, management believes this speed-of-service initiative will provide significant improvement to Popeyes system-wide sales performance.
- The company remains committed to lowering restaurant operating costs and improving profitability while maintaining excellent food quality for its guests. During the third quarter, Popeyes restaurants benefited from a 5 percent decline in commodity costs over a year ago. The company expects to see additional commodity cost savings in the fourth quarter of 2009, as it continues to lap record highs from last year.
- The company also is evaluating other supply chain cost savings such as packaging and shipping alternatives, which will benefit the system in 2010 and beyond.
- The company is continuing to generate a stronger pipeline of current and new franchise developers to open new restaurants, both in the United States and abroad, so the brand will be better positioned to accelerate new unit development as the credit markets and economy recover.
- At the beginning of October, more than 100 Popeyes franchisees and operators met for its first Best Practices Conference held in Atlanta. The interactive sessions featured a panel of top-performing franchisees who shared their best practices on delivering value, driving speed of service and running profitable restaurants.
Amendment to 2005 Credit Facility
As previously indicated, on Aug. 14, the company completed an amendment and restatement of its 2005 credit facility to extend the maturity dates of its revolving credit facility and term loan for two years to May 2012 and to May 2013, respectively.
In conjunction with the amendment, the company reduced its outstanding term loan by $7.0 million and reduced the revolving credit facility commitment to $48 million from $60 million. The rate of interest for borrowings under the credit facility is LIBOR plus 4.50 percent, with a minimum LIBOR of 2.50 percent. To reduce the company's exposure to interest rate increases, management put in place interest rate swaps on $30 million of its outstanding debt at a fixed rate of approximately 7.4 percent.
In the third quarter, the company recognized a total of $1.9 million of additional interest expense, including $1.1 million of fees and $0.8 million of old debt issuance costs and losses on terminated swaps. In addition, approximately $1.8 million of fees related to the new amendment were paid and recorded as deferred debt issuance costs and will be amortized over the remaining life of the facility.
Fiscal 2009 guidance
The company's projection for global same-store sales for fiscal 2009 is at the lower end of the range of its previous guidance at 0.0 percent to positive 2.0 percent.
The company now expects its global new openings to be in the range of 100-110 restaurants compared to previous guidance in the range of 90-110 restaurants. Due to the year-to-date restaurant closure rate, the company now expects closures to be approximately 100 restaurants, compared to previous guidance of 110-120 restaurants. Net restaurant openings are now expected to be in the range of 0 to positive 10, compared to previous guidance of 0 to negative 30. Popeyes restaurant closures typically have sales significantly lower than the system average.
The company expects fiscal 2009 general and administrative expenses to be consistent with its previous guidance of 3.1-3.2 percent of system-wide sales, among the lowest in the restaurant industry. The company will continue to tightly manage its G&A expenses and invest in key strategic initiatives, including its continued commitment to national media advertising and operations improvements, which management believes are essential for the long-term growth of the brand.
Given the improved expectations for net restaurant openings, the company expects 2009 earnings to be at the upper end of its guidance of 66-70 cents per diluted share. Adjusted earnings per diluted share are expected to be at the upper end of its guidance of 65-69 cents in 2009 as compared to 65 cents in the prior year.
Conference call
A replay of the company's conference call with its investment community to review the results of the third quarter of fiscal 2009 will be available for 90 days at the company's Web site. To access the webcast, select "Investor Relations" and then select "Q3 2009 AFC Enterprises, Inc. Earnings Conference Call."
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