AFC Enterprises Inc.
) posted adjusted earnings of 27 cents per share in the second
quarter of 2012, surpassing the Zacks Consensus Estimate of 26
cents as well as the year-ago earnings of 23 cents per share.
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 $39.6 million, up 12.2% from the year-ago
quarter on positive same-store sales and unit growth. Revenues also
beat the Zacks Consensus Estimate of $39.0 million.
AFC Enterprises' total revenue primarily comprises
company-operated restaurant sales (up 16.3% year over year at $14.3
million), franchise revenues (up 10.5% at $24.3 million) and rent
and other revenues (flat at $1.0 million).
The company's global comps spiked 7.5% compared with a rise of
0.7% in comps in the year-ago quarter, marking the ninth successive
quarter of positive comps. The solid improvement in comps resulted
from an 8.4% upside in domestic same-store sales and a 0.9% gain in
the international same-store sales.
The company-operated restaurant operating profit escalated 120
basis points to 17.5% buoyed by strong sales coupled with supply
chain as well as cost saving initiatives.
The Popeye's system opened 25 franchised restaurants in the
second quarter of 2012, 13 of which were domestic and 12
international. The company also permanently shut down 16 units. At
the end of the quarter, the company had 2,049 units among which 40
were domestic company-owned outlets, 1,597 franchised domestic
units and 412 franchised international units.
At quarter-end, approximately 14% of the Popeyes domestic system
restaurants had received the new Louisiana Kitchen look. Management
expects to refurbish approximately one-third of the domestic system
by the year-end.
AFC Enterprises ended the quarter with cash and cash equivalents
of $20.6 million and shareholders' equity of $22.9 million.
The company now expects global same-store sales growth in the
range to 5%-6% (previously guided 4%-5%) for 2012. In the preceding
quarter, AFC lifted it comps guidance from 3%-4% to 4%-5%.
Adjusted earnings per share are projected at $1.17-$1.19
(previously guided $1.13-$1.16), including approximately a penny
gain for the 53rd week of operations in fiscal 2012. Prior to this,
the adjusted earnings guidance was raised from $1.09-$1.13 to
$1.13-$1.16 per share.
The world's second largest quick-service chicken restaurant
chain expects to open 135-155 restaurants in 2012, including 4-6
company-owned units, slated to open in the fourth-quarter. It
also expects net restaurant openings to be in the range of 60-90
(previously guided 60-100).
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 per share.
With a strong sales momentum, 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 to perform better
over the rest of 2012. The consecutive raise in guidance amid a
faltering business environment reflects the company's sound
However, management believes that commodity inflation and higher
effective tax rates in 2012 compared with 2011 may weigh on the
company's net earnings. Food costs are expected to increase by
around 3%, adversely impacting the restaurant operating margins by
AFC, which competes with companies like
Kona Grill Inc.
), currently has a Zacks #3 Rank (short-term Hold rating). We are
maintaining our long-term Neutral recommendation on the stock.
AFC ENTERPRISES (AFCE): Free Stock Analysis
KONA GRILL INC (KONA): Free Stock Analysis
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