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AFC Enterprises (AFCE)

Q1 2013 Earnings Call

May 30, 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

H. Melville Hope - Chief Financial Officer

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

Analysts

Michael Halen - Sidoti & Company, LLC

Nicole Miller Regan - Piper Jaffray Companies, Research Division

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

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

Kenneth Smith - Lenox Equity Research, LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the AFC First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I now like to turn the conference over to your host for today, Ms. 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 close for first quarter 2013, which ended April 21, 2013. 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 management's expectations, beliefs or projections relating 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 these 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, restaurant 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 CapEx.

Adjusted EPS for the period presented is defined as reported net income after adjusting for certain nonoperating items consisting of: one, other income net; and two, the tax effects of these adjustments. The company's full definitions, computations and reconciliations to GAAP measures of the 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.

Presenting on today's call with our Chief -- will be our Chief Executive Officer, Cheryl Bachelder; and our Chief Financial Officer, Mel Hope. Cheryl is calling in from New York today. Mel Hope is here in Atlanta with me; as is Ralph Bower, our President, U.S. And I would now like to turn the call over to Cheryl. Cheryl?

Cheryl A. Bachelder

Thank you, Rebecca. Good morning, and thank you, all, for joining our call. Our solid first quarter results demonstrate the acceleration and staying power of the Popeyes brand. Our system-wide sales increase of 10.2% was driven by our innovative menu promotions and our expanding domestic footprint.

During the first quarter, our global sales increased 4.5% compared to 7.4% last year for a 2-year first quarter same-store sales growth of 11.9%. Operating EBITDA through the end of the first quarter grew by over 13% versus last year. At 30% of total revenue, our operating EBITDA margin remains among the highest in the industry.

We delivered $0.40 of adjusted earnings per diluted share, reflecting a 14% increase over last year. This EPS performance was in line with analysts' expectations and is consistent with our EPS guidance of $1.37 to $1.42 for fiscal 2013.

We opened 40 new restaurants, adding a net of 16 to our overall footprint. At the end of the first quarter, we had 2,119 restaurants around the globe versus 2,044 last year.

Finally, during the quarter, we generated $11.5 million in free cash flow, which represented 19% of total revenue. We used that cash for investment in the conversion of restaurants acquired in 2012 in Minnesota and California, as well as company-operated restaurant development and share repurchases to return value to our shareholders over the long-term. Our emphasis on our strategic roadmap continues to drive consistent results and growth for our franchisees and investors.

With respect to our first roadmap pillar, Build a Distinctive Brand, Popeyes has now achieved positive domestic same-store sales growth for 12 consecutive quarters, outperformed the Chicken QSR category for 20 consecutive quarters and outpaced the broader QSR category for the last 6 quarters. Our same-store sales growth for the first quarter exceeded the overall QSR industry by 4.8 percentage points for the comparable period, according to NPD Sales Track Weekly data. Our record of consistent performance demonstrates that Popeyes continues to advance among leading brands in a very competitive landscape.

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