AFC Enterprises Inc. (AFCE) posted its fourth quarter 2010 earnings of 18 cents per share, in line with the Zacks Consensus Estimate, but increased 12.5% year over year from 16 cents in the prior-year quarter.
The earnings results were driven by positive same-store sales and the company’s four strategic plans, which focus on developing the brand, offering more value services to guests and introduce new products along with cost saving initiatives to improve margins and ramp up new unit growth.
The company’s full-year adjusted earnings per share were 86 cents versus 74 cents in full fiscal 2009.
Quarter Highlights
The operator and franchisor of Popeye’s restaurants reported total revenue of $34.2 million, which spiked up 5.2% from the year-ago quarter, attributable to positive same-store sales. However, the company missed the Zacks Consensus Estimate of $35.0 million.
AFC Enterprises’ total revenue comprises company-operated restaurant sales (down 8.9% from the year-ago quarter to $12.2 million), franchise revenues (rose 4.0% to $21.0 million) and rent and other revenues (dipped 9.0% to $1.0 million).
The company’s global same-store sales upped 6.0%, resulting from a rise of 6.2% in domestic same-store sales and a 4.3% hike in international same-store sales. The comparable restaurant sales at company-owned units jumped 9.2% as compared to negative 1.3% in the prior-year quarter.
The operating margin contracted 220 basis points to 24% in the reported quarter attributable to higher cost of expense.
Financial Highlights
In 2010, revenues were $146.4 million, representing a year-over-year drop of 1.1%, due to refranchising of 16 company-owned restaurants in 2009. Company-owned restaurant sales dipped 8.2% to $52.7 million and rent and other revenues decreased 6.5% to $4.3 million, but franchise revenue rose 4% to $89.4 million.
The company’s global same-store sales climbed 2.6%, resulting from a leap of 2.5% in domestic same-store sales and 3.1% growth in international same-store sales. The comparable restaurant sales at company-owned units inched up 4.0% as compared to negative 0.8% in the prior year.
The upside in domestic same-store sales was driven by the success of its Bonafide bone-in chicken and sea food value offerings as well as successful introduction of Popeye’s Wicked Chicken. The international sales growth was driven by strong performance in Canada and Turkey, partially offset by negative performance in Korea, Latin America and the Middle East.
Company-operated restaurant margin expanded 350 bps to 19.2% driven by cost-saving initiatives and higher same-store sales.
Store Update
The Popeye’s system opened 106 restaurants in 2010, lower than the company’s goal of 120-130 units due to delay in construction. The company closed 67 restaurants in 2010.
At the end of the year, the Popeye’s system had 1,977 restaurants, out of which 1,939 were franchised restaurants and 38 were company-operated restaurants.
Financial Position
AFC Enterprises ended 2010 with cash and cash equivalents of $15.9 million and shareholders’ equity of $9.2 million. In fiscal 2010, the company reduced its long-term debt by $19.3 million to $62.0 million.
In fiscal 2011, the company expects to use its cash for investments in its core business, share repurchases and debt repayments.
Outlook
Popeye’s expects its fiscal 2011 guidance for global same-store sales to be in a range of 1.0% to 3.0%. The company estimates adjusted earnings outlook to be in the range of 91 cents to 95 cents per share in 2011. The Zacks Consensus Estimate for fiscal 2011 is pegged at 99 cents.
The world’s second largest quick-service chicken restaurant chain expects its global new openings in the range of 120–140 restaurants in 2011.
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 from 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 continues its two-year positive momentum.
One of AFC’s primary competitors, Red Robin Gourmet Burgers, Inc (RRGB) posted fourth quarter 2010 adjusted earnings of 12 cents per share, which surpassed the Zacks Consensus Estimate of 5 cents. Results benefited from an upside in revenue driven by comparable sales growth.
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