AFC Enterprises Inc.
) posted adjusted earnings of 24 cents per share in the fourth
quarter of 2011, in line with the Zacks Consensus Estimate and
higher than the year-ago quarter level of 19 cents per share. In
full-fiscal 2011, earnings per share were 99 cents versus 86 cents
The year-over-year improvement was driven by strong same-store
sales. Moreover, the company has four strategic plans in place.
These include development of the Popeye's brand, more value-added
services through its restaurant concepts, strengthening of unit
economics with cost-saving initiatives and higher new unit
The operator and franchisor of Popeye's restaurants reported
total revenue of $36.3 million, up 6.1% from the year-ago quarter
on positive same-store sales and unit growth.
AFC Enterprises' total revenue primarily comprises
company-operated restaurant sales (up 1.6% year over year at $12.4
million), franchise revenues (up 9.0% at $22.9 million) and rent
and other revenues (flat at $1.0 million).
The company's global same-store sales spiked 5.8%, resulting
from a 5.9% upside in domestic same-store sales and a 4.6% jump in
international same-store sales. However, in the domestic market,
company-operated same-store sales dipped 1.5% as against a 9.2%
increment in the fourth quarter of last year.
In 2011, international same-store sales were positive for the
fifth consecutive year buoyed by positive sales trends in Canada
and Turkey, partially offset by weaker sales in Korea and
In full-year 2011, total revenue went up 5.1% year over year to
$153.8 million. Commodity inflation of roughly 8% had an adverse
effect on the company's operating profit margins, which declined
about 250 basis points in 2011. The company managed to recover 150
basis points of that margin erosion through strong sales
performance, coupled with cost savings.
The Popeye's system opened 52 restaurants in the fourth quarter
of 2011, 32 of which were domestic and 20 international. At the end
of the fiscal year, the company had 1,627 domestic units among
which 40 were company-owned and 408 international units. In
full-fiscal 2011, the company opened 140 units while shut down 75
AFC Enterprises ended the quarter with cash and cash equivalents
of $17.6 million and shareholders' equity of $13.8 million.
The company now expects global same-store sales growth in the
range to 3% to 4% for 2012. Adjusted earnings per share are
anticipated to be $1.09 to $1.13, including approximately a penny
for the 53rd week of operations in fiscal 2012.
The world's second largest quick-service chicken restaurant
chain expects to open 135 to 155 restaurants in 2012 and net
restaurant openings in the range of 60-100.
In 2012, AFC Enterprises plans to repurchase approximately $15
million in outstanding shares, compared to $22.3 million of share
repurchases in 2011.
With modest sales momentum in fourth-quarter 2011 and solid
pipeline of products, Popeye's is well positioned to perform better
Management plans to partially counter costs through top-line
growth, additional supply chain cost savings, selective menu
pricing and in-restaurant cost controls.
On the commodity front, management sees ongoing pressure to
continue in the first half of 2012 before easing out. However,
management expects a higher effective tax rate in 2012 compared
with 2011 that may in turn weigh on the company's net earnings.
AFC, which competes with the companies like
Kona Grill Inc.
), currently has a Zacks #2 Rank (short-term Buy rating). We are
maintaining our long-term Neutral recommendation on the stock.
AFC ENTERPRISES (
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