AFC Enterprises Inc. (AFCE) posted its second quarter 2010 adjusted earnings of approximately 21 cents per share, which surpassed the Zacks Consensus Estimate of 19 cents and soared 16.7% year over year from 18 cents in the prior-year quarter. Including $1.4 million tax benefit in the quarter, AFC Enterprises reported a net income of $6.8 million or 26 cents, well below $6.4 million or 25 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 building 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 Popeyes restaurants reported total revenue of $34.3 million, which tumbled 3.9% from the year-ago quarter due to tough comparison on a year-over-year basis. AFC Enterprises’ total revenue comprises company-operated restaurant sales (down 14.2% from the year-ago quarter to $12.1 million), franchise revenues (rose 3.0% to $21.2 million) and rent and other revenues (flat to $1.0 million).
The company’s total system-wide sales jumped 2.8% from the year-ago quarter. Global same-store sales inched up 0.6%, resulting from a rise of 0.4% in domestic same-store sales and a 2.7% hike in International same-store sales.
The upside in domestic same-store sales was driven by introduction of Popeyes Wicked Chicken. The international sales growth was driven by a strong performance in the region of Canada, Turkey and overseas U.S military bases, partially offset by negative performance in Latin America, Korea and the Middle East.
The company-operated restaurant expenses as a percentage of sales dropped 3.9% year over year due to lower food costs and a decline in restaurant employee, occupancy and other expense. General and administrative cost also declined 2.0% from the prior-year quarter.
Operating profit contracted 10.5% to $10.2 million, as a year-ago operating income included $2.9 million in other income.
The Popeyes system opened 17 restaurants and permanently closed 17 in the second quarter.
Financial Position
AFC Enterprises ended its second quarter with cash and cash equivalents of $4.6 million and shareholders’ deficit of $4.0 million. During the second quarter, the company reduced its outstanding debt by $8.2 million to $67.6 million.
Outlook
Popeyes raised the lower end of fiscal 2010 guidance for global same-store sales to be in a range of flat to positive 2.0% from its previous range of negative 1% to positive 2%. The company also increased its earnings outlook to 75 cents to 79 cents per share in 2010, up from 73 cents to 77 cents per share.
The world’s second largest quick-service chicken restaurant chain expects its global new openings in the range of 120-130 restaurants, up from the previous guidance of 110-130 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%.
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