AFC Enterprises Inc. (AFCE) posted its third quarter 2010 adjusted earnings of approximately 23 cents per share, which surpassed the Zacks Consensus Estimate of 18 cents and soared 27.8% year over year from 18 cents in the prior-year quarter.
AFC Enterprises reported a net income of $5.9 million or 23 cents, well above $3.4 million or 13 cents recorded in the year-earlier quarter.
The better-than-expected results were driven by positive same-store sales and the company’s 4 strategic plans, which focus on developing the brand, offering more value service to guests and introduce new product innovation along with cost saving initiatives to improve margins and ramp-up new unit growth.
Quarterly Performance
The operator and franchisor of Popeye’s restaurants reported total revenue of $34.1 million, which spiked up 6.9% from the year-ago quarter, attributable to positive same store sales. The company also outperformed the Zacks Consensus Estimate of $33.0 million.
AFC Enterprises’ total revenue comprises company-operated restaurant sales (down 8.8% from the year-ago quarter to $12.3 million), franchise revenues (rose 6.7% to $20.8 million) and rent and other revenues (dipped 9.0% to $1.0 million).
The company’s total system-wide sales jumped 8.2% from the year-ago quarter. Global same-store sales upped 5.2%, resulting from a rise of 5.3% in domestic same-store sales and a 4.3% hike in International same-store sales.
The upside in domestic same-store sales was driven by success of its Bonafide bone-in chicken value offerings. The international sales growth was driven by a strong performance in the region of Canada, Turkey, Korea and Latin America, partially offset by negative performance in the Middle East and overseas U.S. military bases.
The company-operated restaurants margin expanded 210 basis points to 17.1%, driven by higher same-store sales.
Store Update
The Popeyes system opened 24 restaurants and permanently closed 18 in the third quarter.
At the end of the quarter, the Popeyes system had 1,949 restaurants, out of which 1,912 were franchised restaurants and 37 were company-operated restaurants.
Financial Position
AFC Enterprises ended its third quarter with cash and cash equivalents of $11.8 million and shareholders’ deficit of $3.0 million. During the quarter, the company reduced its outstanding debt by $21.3 million to $67.3 million. Total Leverage Ratio was reduced from 2.14 to 1.24. At the end of the quarter, the company generated free cash flow of $22.3 million.
In fiscal 2011, the company expects to use its cash for investments in its core business, share repurchases and debt repayments.
Outlook
Popeyes raised its fiscal 2010 guidance for global same-store sales to be in a range of 2% to 2.5% from its previous range of flat to positive 2.0%. The company also increased its earnings outlook to 81 cents to 83 cents per share in 2010, up from 75 cents to 79 cents range. The Zacks Consensus Estimate for fiscal 2010 is 80 cents and for 2011 is 94 cents.
The world’s second largest quick-service chicken restaurant chain continues to expect its global new openings in the range of 120–130 restaurants.
Based on the execution of the company’s strategic plan, in the next five years, the company expects same-store sales growth of 1% to 3%; net new unit growth of 4% to 6%; and earnings to grow double digit i.e. 13% to 15%.
Our Take
We expect estimates to go up in the coming days, as the economy is showing signs of improvement, and the company provided better-than-expected results and projected a positive guidance.
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