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AFC Enterprises (AFCE)

Q2 2013 Earnings Call

August 22, 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 W. Gallo - CL King & Associates, Inc., Research Division

Michael Halen - Sidoti & Company, LLC

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

Kenneth Smith - Lenox Equity Research, LLC

Joshua C. Long - Piper Jaffray Companies, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the AFC Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Rebecca Gardy. You may begin.

Rebecca Gardy

Thank you, and good morning. This is Rebecca Gardy, Director of Finance and Investor Relations. AFC Enterprises is pleased to host this conference call regarding results issued yesterday after the market closed for second quarter 2013, which ended July 14, 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 links 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 these 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 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 period presented is defined as reported net income after adjusting for certain nonoperating items consisting of: one, other income net; and two, the tax effect 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.

Presenting on today's call will be our Chief Executive Officer, Cheryl Bachelder; and our Chief Financial Officer, Mel Hope. Cheryl is calling in from New York today. Here in Atlanta with me is Mel Hope, and we are also joined by Ralph Bower, President, U.S.

I would now like to turn the call over to Cheryl. Cheryl?

Cheryl A. Bachelder

Thank you, Rebecca, and good morning, everyone. As we reported in last night's earnings release, our momentum continued into the second quarter. Popeyes delivered another solid quarter of earnings per share growth, positive same-store sales and strong unit opening. Our adjusted earnings per diluted share were $0.35, a 30% increase over last year. Our system-wide sales increased by 11.6%, rolling over 11.5% in the second quarter last year for a 2-year growth rate of 23.1%. Our global same-store sales increased 4.4% compared to 7.5% last year for a 2-year second quarter same-store sales growth of 11.9%. We opened 44 new restaurants, adding a net of 28 to our overall footprint. At the end of the second quarter, we had 2,153 restaurants worldwide versus 2,049 last year. Operating EBITDA through the end of the second quarter increased 19% to $34.1 million from $28.6 million in 2012.

For the last 5 years, we've discussed the outcomes and activities associated with each pillar of our strategic roadmap. These pillars described the planned goals which are essential to sustaining the growth that we've set out to create for Popeyes.

Let me begin by addressing our first roadmap pillar building a distinctive brand. Strong marketing is critical to capitalizing on the distinctive culinary heritage of Popeyes. We have a vibrant pipeline of innovative new menu items, a compelling advertising message and continued strong media presence. We began the second quarter by promoting 3 of a Kind, which featured 3 different configurations of our Bonafide bone-in chicken and our Handcrafted Tenders, each for $3.99. We then offered Garlic Pepper Wicked Chicken and repriced our Popeyes Zatarain's Butterfly Shrimp. These promotions, supported by national media, led to domestic same-store sales growth of 4.3.% in the second quarter, marking our 13th consecutive quarter of positive results. On a 2-year basis, our domestic second quarter same-store sales growth was 12.7%.

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