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AFC Enterprises, Inc. (AFCE)

Q2 2008 Earnings Conference Call

August 21, 2008

Executives

Cheryl Bachelder – CEO and President

Ms. Cheryl Fletcher – Director of Finance and Investor Relations

H. Melville Hope – Chief Financial Officer

Analysts

Michael Gallo – C.L. King & Associates, Inc.

Chris O'Cull – Suntrust Robinson Humphrey

Kenny Smith – Lenox Equity Research

Adrian Mice - Corsare

Presentation

Operator

Good day ladies and gentlemen and welcome to the second quarter 2008 AFC Enterprises Incorporated Earnings Conference call. My name is Heather and I'll be your coordinator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I'll now turn the presentation over to your host for today's conference Ms. Cheryl Fletcher Director of Finance and Investor Relations. Please proceed.

Cheryl Fletcher

Thank you Heather and good morning everyone. Before we begin, I'd like to read the following forward-looking statements. Certain statements made on this call 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.

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 restaurants concepts and food retailers, our ability to franchise new restaurant units and expand our brand, increases in food and labor cost, effects of increased gasoline prices and other general economic conditions.

And the risk factors detailed in our 2007 annual report on form 10K and other documents we file with the Securities and Exchange Commission. You should not place any undue reliance on any forward-looking statements. Such statements speak only as the date they are made. During this call references may be made to 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 appreciation and amortization, plus stock compensation expense, minus maintenance capital expenses. The company's computations and reconciliation’s to GAAP measures of the numbers referenced for this term are contained in our earning's press release and can be found on the company's website at www.afce.com.

I would now like to turn our call over to Cheryl Bachelder, our CEO and President.

Cheryl Bachelder

Thank you Cheryl and good morning everyone. Welcome to our second quarter earnings conference call. Today I'm going to review our second quarter financial and operational highlights, our full year guidance and update you on the four pillars of our strategic plan. Mel Hope, our CFO will review the second quarter and second quarter year-to-date financials in more detail.

First we are pleased with our earning's performance for the second quarter at $6.6million or $0.26 per diluted share. During the second quarter, our earnings benefited from $3.8 million or $0.09 per diluted share from the settlement of a previous DNO insurance claim, which was partially offset by an impairment charge for certain company operated restaurants. We now expect our full year earnings to be $0.75 to $0.80 per diluted share, which includes $0.09 per diluted share from other income we realized in the second quarter.

Our highly franchised business model continues to generate solid cash flows at $16.8 million for the second quarter year-to-date and our EBITDA margins at 32.3% for the second quarter year-to-date, remain at the high end of our industry.

During the second quarter, we opened 32 restaurants, bringing our year-to-date restaurant openings to 69 units compared to 53 restaurants in the same time period a year ago. The second quarter openings included 17 domestic and 15 international restaurants in existing markets. With our progress year-to-date, we remain confident in our full year guidance of 115 to 130 global openings.

We had 31 closures in the quarter, which included 13 domestic units and 18 international units. In 2008, we expect our closures to be similar to prior years. As a result, net openings for fiscal 2008 are expected to be consistent with previous guidance of 5 to 15 units.

Our international same-store sales increased 1.7% during the second quarter, due to strong same-store sales in the Middle East, Latin America and Canada, partially offset by negative performance in Korea, Mexico and U.S Military bases.

Our international franchisees are facing similar economic conditions to the U.S, including high commodity cost. They are responding with similar strategies, raising prices where necessary due to the commodity cost and continuing to offer strong value in to promotion events.

Our total domestic same-store sales were negative 1.7 for the quarter. This trend is comparable to our first quarter same-store sales of negative 1.8%.

During the second quarter, Popeye’s promoted offerings with competitive price points in the three to five dollar range.

In May and June we featured 8 piece Buffalo Nuggets for $2.99 and in July, the restaurants promoted a Popeye’s fire cracker butterfly shrimp combo for $4.99.

We believe our marketing and messaging during the second quarter helped us withstand some of the continued pressures we are seeing in the market. According to NPD Sales Track Weekly, our same-store sales performance during the quarter continued to out-pace chicken QSR by approximately 9/10 of a percentage point. As we move into the second half of 2008, our business plan has significant new marketing and menu news and we expect these initiatives to start gaining traction as we enter the fourth quarter. As such we remain committed to our previous guidance of domestic same-store sales at - 1.0% to -2.0% for the full year. I would now like to update you on the progress we've made in the four pillars of our strategic plan. As a reminder those pillars are building a distinct and relevant brand, running great restaurants, strengthening our unit economics and aligning people and resources to the deliver results.

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