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AFC Enterprises Inc. (AFCE)

Q2 2009 Earnings Call

August 20, 2009 9:00 am ET

Executives

Cheryl Fletcher - Director, Finance & Investor Relations

Cheryl Bachelder - CEO and President

Mel Hope - CFO

Analysts

Michael Gallo - C.L. King

Chris O'Cull - Suntrust

Mark Smith - Feltl & Company

Kenneth Smith - Lenox Equity Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2009 AFC Enterprises Incorporated Earnings Call. (Operator Instructions).

I would now like to turn the call over to Ms. Cheryl Fletcher, Director of Finance and Investor Relations. Please proceed, Ma'am.

Cheryl Fletcher

Before we begin, I would like to read the following forward-looking statements. Certain statements made on this call regarding future events and developments in 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.

These forward-looking statements are subject to a number of risks and uncertainties. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are competition from other restaurant concepts and food retailers, disruptions in the financial market, our ability to franchise new restaurant units and expand our brand, increases in food and labor costs and the risk factors detailed in our 2008 Annual Report on Form 10-K and other documents we file with the Securities and Exchange Commission. You should not place undue reliance on any forward-looking statements. Those statements speak only to the date they are made.

During this call, references maybe made to the non-GAAP terms of EBITDA and free cash flow. The company defines EBITDA as earnings before interest expense, taxes, depreciation and amortization. The company defines free cash flow as net income plus depreciation and amortization plus stock compensation expense, minus maintenance capital expenses. The company's computation and reconciliation to GAAP measures of the numbers referred 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 Cheryl Bachelder, our CEO and President.

Cheryl Bachelder

Thank you for joining us for our second quarter earnings call. We are pleased to report a very good quarter for Popeyes. This quarter was our best same-store sales quarterly performance since the first quarter of 2006. This was accomplished in the face of the weakest domestic QSR traffic trend since the second quarter of 2001. The driver of our US performance was our investment in national media.

Our effective ad spokeswoman Annie offered America the food they love at prices they could afford. This brand and market share building activity was married with a better restaurant experience for our guests due to improving operations. In short, our strategic roadmap is delivering the desired results.

I will now share the detailed results of our quarter and year-to-date, followed by an update on the four pillars of our strategic plans and our updated guidance for the full year 2009. Mel Hope, our CFO, will then review our second quarter and year-to-date financials, as well as provide you an update on the amendment to our credit facility.

Our second quarter performance was good on all measures. Our global same-store sales were positive 4.3%. Excluding non-operating income, our earnings exceeded street expectations at $0.18 per diluted share.

Year-to-date, we generated $14.7 million in free cash flow, and we ended the quarter with cash balance of $19 million. Year-to-date, EBITDA margins remained strong at approximately 29%, and are among the highest in the restaurant industry. As Mel will discuss in more detail, on August 14th, we completed an amendment to our credit facility, giving us more financial flexibility and stability going forward.

Our domestic same-store sales were positive 4.3%, compared to the first quarter, which was slightly negative at negative 0.3%. According to independent data, our second quarter domestic sales continue to outpace chicken QSR by more than two full percentage points.

We also outpaced total QSR category by more than five percentage points. This performance reflects the positive traffic counts we saw in our restaurants. We moved aggressively in this quarter to grow our market share by giving our guests what they want, Superior Louisiana food with compelling value for both the single and family user. We invested in national media with a strong spokesperson, who successfully delivered that message to our core customer.

In the first week of our second quarter, we promoted Popeyes Pay Day on April 22nd. This national one-day event featured 8-pieces of our signature Bonafide chicken for only $4.99. As we indicated in our last call, the guest response was outstanding and it delivered one of the best Wednesdays in our recorded history.

In the month of April, we promoted our Bonafide bone-in chicken two pieces for a $99 or 9 pieces for $7.99. In May our delicious freshly prepared Louisiana tenders with a side and a drink were $2.99 or nine tenders for $7.99, and In June we came back again to the highly successful Bonafide chicken values that we offered in April, giving our guests a reason to come back to Popeyes again and again. These promotions were supported with seven weeks of national media and delivered positive same-store sales.

Our operations team completed the implementation of our restaurant equipment standard this quarter. At the end of June, Popeyes restaurant operators purchased and installed headsets and timers, the essential equipment for delivering great drive-thru service. We are now rolling the training and tools to improve service times to our guests at every restaurant.

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