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AFC Enterprises (AFCE)

2012 Earnings Call

February 28, 2013 9:00 am ET

Executives

Rebecca Gardy - Director of Finance & Investor Relations

Cheryl A. Bachelder - Chief Executive Officer, President, Director, Member of Executive Committee and President of Popeyes (R) Chicken & Biscuits' Brand

Ralph W. Bower - President of U.S. of Popeyes(R) Louisiana Kitchen

H. Melville Hope - Chief Financial Officer

Analysts

Michael W. Gallo - CL King & Associates, Inc., Research Division

Nicole Miller Regan - Piper Jaffray Companies, Research Division

Mark E. Smith - Feltl and Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the AFC Fiscal 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Rebecca Gardy, Director of Investor Relations. Ma'am, you may begin.

Rebecca Gardy

Thank you, and good morning. AFC Enterprises is pleased to host this conference call regarding results issued yesterday after the market closed for fiscal 2012, which ended December 30, 2012.

Today's audio presentation will be available on the company's website at www.afce.com. To listen to it, please go to the Investor Relations section and follow the link to Webcasts & Presentations. A copy of our press release and all filings with the Securities and Exchange Commission are also available on the website.

Before we begin, I would like to read the following forward-looking statements. Certain statements made on this call by AFC Enterprises' officers and employees regarding future events and developments and our future performance, as well as our management's expectations, beliefs or projections related to the future, are forward-looking statements within the meaning of the federal securities laws. We wish to caution investors to not place undue reliance on any forward-looking statements since those statements speak only to the date they are made. By their nature, forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. These risks and uncertainties have been described in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and in other filings with the Securities and Exchange Commission. We refer you to those sources for more information.

During this call, references may be made to the non-GAAP terms of company-operated restaurant operating profit, operating EBITDA, free cash flow and adjusted earnings per share. The company defines these terms as follows: company-operated restaurant operating profit is defined as sales by company-operated restaurants, minus restaurant food, beverages and packaging, minus restaurant employee, occupancy and other expenses. Operating EBITDA is defined as earnings before interest expense, taxes, depreciation and amortization and other expenses or income net. Free cash flow is defined as net income, plus depreciation and amortization, plus stock compensation expense, minus maintenance capital expenses. Adjusted EPS for the periods presented is defined as reported net income after adjusting for certain nonoperating items consisting of other income net the tax effects of these adjustments. The company's full definitions, computations and reconciliations to GAAP measures of these numbers referenced for these terms are contained in our earnings press release that can be found on the company's website at www.afce.com.

I would now like to turn the call over to our CEO, Cheryl Bachelder. Cheryl?

Cheryl A. Bachelder

Good morning, and welcome to Popeyes fiscal 2012 earnings call. We're pleased to have you with us. We've delivered another quarter of strong results, reflecting the innovation and the disciplined execution of the strategic roadmap we established 5 years ago. Our total revenue increased by over 30% and our net income increased by over 40% in the fourth quarter, led by global same-store sales of 6.2% and our new restaurant unit openings.

We opened 62 restaurants in the fourth quarter, and we delivered adjusted earnings per share of $0.34 compared to $0.24 last year, a 42% increase. These fourth quarter results capped off an excellent year. I'd like to punctuate the following items that reflect the success of our team and our franchise owners for fiscal 2012.

Our adjusted earnings per share were $1.24, up $0.25 over last year, representing a year-over-year growth rate of 25% and an impressive average annual growth rate of 17.5% since 2008. Domestic same-store sales grew for the fourth consecutive year, and international same-store sales grew for the sixth consecutive year. Operating EBITDA exceeded 31% of our revenue.

Free cash flow as a percent of total revenue topped 20% as a result of our strong sales and increased profitability. We opened 141 new restaurants, adding 66 net restaurants to our global footprint for a system growth rate of over 3%. We completed a $13.8 million acquisition of 27 restaurants in Minnesota and California, and we entered the Charlotte, North Carolina market with 2 new company-operated restaurants.

For over 4 decades, Popeyes has been building our brand, our market share and our restaurant footprint around the globe. Five years ago, we developed our strategic roadmap to accelerate results for our franchisees and our investors. Popeyes is now establishing a track record of growth, and we've positioned ourselves to sustain it well into the future. Each of the 5 pillars of our strategic roadmap is a critical underpinning to our performance. Let me begin with a brief discussion of our first roadmap pillar, Build a Distinctive Brand.

Our fourth quarter performance delivered domestic same-store sales of positive 6.4%, rolling over positive 5.9% in the prior year. We finished the year with domestic same-store sales of 7.5%, rolling over 3% in 2011, for a 2 year same-store sales increase of positive 10.5%. Our increased use of national and local media advertising throughout 2012 to promote our famous Bonafide chicken as well as our innovative boneless and seafood products led to our strong sales performance. Some highlights included the national introduction of both Garlic Pepper Wicked Chicken in February, Rip'n Chick'n during June and the introduction of Zatarain's Butterfly Shrimp in July, and the return of our famous fourth annual, always popular Crawfish Festival in November. For the fourth year in a row, our domestic same-store sales outpaced the Chicken QSR category and the entire quick-service restaurant category according to independent data sources.

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