AFCE Beats Q2 Earnings & Rev - Analyst Blog

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Atlanta, Ga.-based quick-service restaurant chain AFC Enterprises Inc. 's ( AFCE ) second-quarter 2013 adjusted earnings of 35 cents per share beat the Zacks Consensus Estimate of 33 cents by 6.1% and the year-ago quarter figure of 27 cents by 29.6%. Earnings in the quarter received a boost from the company's higher top line and margin expansion.

AFC Enterprises' total revenue came in at $47.9 million in the second quarter, up 21% from the year-ago quarter, thanks to higher sales gain at the company-operated and franchised restaurants, positive global same-store sales (comparable sales) and unit growth. The revenues in the quarter also surpassed the Zacks Consensus Estimate of $46 million by 4.1%.

Behind the Headline Numbers

AFC Enterprises' total revenue primarily comprises company-operated restaurant sales, franchise revenues as well as rent and other revenues.

Company-operated restaurant sales were up 22.4% year over year to $17.5 million, driven by unit growth in the domestic market. Although comparable sales (comps) were positive at 1.7%, this was much lower than the year-ago quarter's comps of 7.8%. Franchise revenues increased 19.8% year over year to $29.1 million, driven by higher comps growth at franchise restaurants. Rent and other revenues also grew 30% year over year to $1.3 million.

In the second quarter, the company's global same-store sales rose 4.4%, resulting from a 4.3% upside in domestic same-store sales and a 5.8% jump in international franchisee same-store sales.

In the quarter, operating profit was $14.5 million, up 27.2% year over year. Company-operated restaurants' operating margin expanded 80 basis points (bps) to 18.3% with the rise in revenues and higher food cost margins. 

Store Update

The Popeyes system opened 44 restaurants in the second quarter, of which 29 were domestic and 15 international. At the end of the quarter, the company had 2,153 restaurants, among which 1,674 were company-owned and 432 international units. During the quarter, AFC Enterprises shut down 16 restaurants.

The quick-service chicken restaurant chain expects to open 175 to 195 restaurants, of which 60 will be located abroad. Net restaurant openings will likely range from 85-115 in 2013. In 2013, the company also intends to launch 8-10 company-owned restaurants, higher than the prior guidance of 6-10.

Share Repurchase

The company bought back nearly 1 million shares worth $3.4 million during the quarter.  

Outlook

Following solid sales results in the past two quarters, the company has raised its comps guidance for 2013. AFC Enterprises now expects same-store sales to grow in the range of 3.5%-4.5% in 2013, up from the previous estimates of 3.0%-4.0%.

However, the company reaffirmed its earnings guidance for 2013. It continues to expect adjusted earnings per share to be within $1.37 and $1.42. For 2013, AFC Enterprises set a target of approximately $15 million to $20 million for share buyback.

In the long term, the company continues to expect comps to be positive, ranging from 1% to 3% and net unit to grow in the range of 4%-6%, whereas earnings per share are projected to improve 13%-15%.

Our Take

The company has been consistently posting solid earnings and revenue growth in the past two quarters on the back of its domestic expansion and unit growth. The company's five strategic plans including development of the Popeyes brand, providing more value-added services through its restaurant concepts, strengthening of restaurant profit margin with cost-saving initiatives, higher new unit growth and improving its work culture are expected to spur growth. Moreover, AFC Enterprises with its solid product pipeline and better operational strategy is well positioned to perform better in the future. However, higher commodity inflation could weigh on the Zacks Rank #3 (Hold) company's results, going ahead.

Other players in the restaurant industry that are expected to perform well include Domino's Pizza, Inc. ( DPZ ), Yum! Brands, Inc. ( YUM ) and Cracker Barrel Old Country Store, Inc. ( CBRL ). All these stocks carry a Zacks Rank #2 (Buy).



AFC ENTERPRISES (AFCE): Free Stock Analysis Report

CRACKER BARREL (CBRL): Free Stock Analysis Report

DOMINOS PIZZA (DPZ): Free Stock Analysis Report

YUM! BRANDS INC (YUM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AFCE , CBRL , DPZ , YUM

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