Franchisor and operator of Popeyes restaurants, AFC Enterprises Inc. (AFCE) reported strong third quarter results for the period ended Oct 6, 2013. Adjusted earnings for the quarter were 38 cents per share, which beat the Zacks Consensus Estimate of 31 cents by 22.5%. The quarterly figure was also up 31.0% from the year-ago profit of 29 cents per share. The results were driven by stronger same-store sales and higher average new restaurant sales.
Revenue Discussion
AFC Enterprises’ quarterly revenues were $49.3 million, beating the Zacks Consensus Estimate of $46 million by 7.2%. The reported number also surged 26.7% year over year. The top-line growth was mainly driven by positive same-store sales and new restaurant growth. However, it also includes $1.6 million of one-time fees associated with the conversion of restaurants acquired in Minnesota and California.
Total domestic same-store sales were up 5.1%; however, it was lower than the year ago sales of 7.0%. Meanwhile, International same-store sales were up 5.1% better than the year ago sales growth of 2.5%.
Operational Highlights
Restaurant employee, occupancy and other expenses were up 34.3% year over year to $9.0 million. Total expenses were $33.9 million, up 21.9% year over year. Increase in operating expenses was offset by increase in revenue, resulting in an operating profit of $15.4 million that edged up 38.7% year over year.
Company-operated restaurant operating profit (ROP) increased 50% year over year to $3.3 million.
During the quarter, 39 restaurants were opened, which include 23 domestic and 16 international units. As many as 6 restaurants were shut down, which includes 1 domestic unit and 5 international units. Taking into account, the total number of openings and shutdowns, net openings stood at 33 restaurants.
Financial Condition
As of Oct 6, 2013, cash and cash equivalents were $13.2 million, down from $17.0 million as of Dec 31, 2012. Long-term debt was $60.5 million, down from $66.8 million as of Dec 31, 2013.
During the quarter, the company repurchased approximately 0.16 million shares of its common stock for approximately $6.5 million.
Guidance
For fiscal 2013, the company narrowed its adjusted earnings per share to $1.39 to $1.42 versus its prior expectation of $1.37 to $1.42. The narrowed guidance reflects muted comp sales growth and expenses related to restaurant openings.
With comps expected to moderate in fourth quarter, the company expects same-store sales growth for 2013 in the range of 3.5% to 4.0% versus its prior expectation of 3.5% to 4.5%. The company now expects global new openings in the range of 185 to 195 compared to its previous expectation of 175-195 restaurants.
The company plans to invest $34 million to $36 million for its new and existing company-operated restaurants and the restaurants acquired in Minnesota and California.
Over the next five years, the company expects earnings per share growth of 13% to 15% and same-store sales growth of 1% to 3% on an annualized basis driven by its Strategic Plan. This Strategic Plan focuses on building a unique brand, operating good restaurants, and enhancing the quality of restaurants while emphasizing on human capital management.
Zacks Rank
AFC Enterprises currently has a Zacks Rank #3 (Hold). Stocks that look better positioned are Buffalo Wild Wings Inc. (BWLD), Bob Evans Farms Inc. (BOBE) and Burger King Worldwide Inc. (BKW). While Buffalo Wild Wings carries a Zacks Rank #1 (Strong Buy), Bob Evans Farms and Burger King Worldwide hold a Zacks Rank #2 (Buy).
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