AFC Enterprises Inc.
) posted adjusted earnings of 29 cents per share in the third
quarter of 2012, surpassing the Zacks Consensus Estimate of 27
cents as well as the year-ago earnings of 25 cents per share.
AFC ENTERPRISES (AFCE): Free Stock Analysis
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The year-over-year improvement was driven by strong same-store
sales (comps). Moreover, the company has implemented certain
strategic plans in order to achieve better results. 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 growth.
The company which operates and franchises Popeye's restaurants
reported total revenue of $38.9 million, up 9.9% from the
year-ago quarter on positive same-store sales and unit growth.
Revenues, however, missed the Zacks Consensus Estimate of $40.0
AFC Enterprises' total revenue primarily comprises
company-operated restaurant sales (up 9.8% year over year at
$13.5 million), franchise revenues (up 9.9% at $24.4 million) and
rent and other revenues (up 11.1% at $1.0 million).
The company's global comps spiked 6.3% compared with a rise of
1.7% in comps in the year-ago quarter, marking the 10th
successive quarter of positive comps. The solid improvement in
comps resulted from a 6.8% upside in domestic same-store sales
and a 2.5% gain in the international same-store sales. On the
domestic front, franchised restaurant posted 7.0% rise in comps
and company-owned restaurants were up 1.9%.
The company-operated restaurant operating margins declined 80
basis points to 16.3% hurt by many temporary store closings in
New Orleans during Hurricane Isaac. Although many stores were
closed, the company incurred personnel expenses and other fixed
expenses at those units during that closing period led to the
decline in margins.
The Popeye's system opened 28 franchised restaurants in the third
quarter of 2012, 18 of which were domestic and 10 international.
The company also permanently shut down 23 units. At the end of
the quarter, the company had 2,060 units among which 40 were
domestic company-owned outlets, 1,606 franchised domestic units
and 414 franchised international units. Management expects to
refurbish approximately one-third of the domestic system by the
AFC Enterprises ended the quarter with cash and cash equivalents
of $24.8 million and shareholders' equity of $26.9 million.
The company now expects global same-store sales growth in the
range to 6%-6.5% (previously guided 5%-6%) for 2012. AFC had
lifted its comps guidance in the preceding two quarters as well.
Adjusted earnings per share are projected at $1.19-$1.21
(previously guided $1.17-$1.19), including approximately a penny
gain for the 53rd week of operations in fiscal 2012. Prior to
this, the adjusted earnings per share guidance were raised twice.
The world's second largest quick-service chicken restaurant chain
also raised its unit opening guidance from 135-155 restaurants to
140-150 restaurants. The company is likely to open many units,
scheduled for fourth quarter openings, in late December.
However, AFC also expects net restaurant openings to be in the
range of 65-85 (previously guided 60-90).
AFC Enterprises also reiterated its plan to buy back
approximately $15 million in outstanding shares in 2012.
The company's long-term guidance comprises 1%-3% growth in comps,
4%-6% increase in unit openings and 13%-15% expansion in earnings
With a solid pipeline of products, market share gains in the
chicken category, revamp of units' outlook, acceleration of unit
growth and widening of international footprint, AFC Enterprises
is well positioned over the longer term. The consecutive hikes in
guidance amid a faltering business environment inspire optimism
around the stock.
However, higher commodity inflation could weigh on the company's
net earnings. Lower-than-expected revenue in the third quarter
also remains a drawback in the third quarter results. The company
will also face tough comparison in the upcoming fourth quarter.
AFC currently has a Zacks #4 Rank (short-term Sell rating). One
of its competitors
Papa Johns International Inc.
) currently carries a Zacks #2 Rank (short-term Buy rating)