AFC Enterprises Outperforms in 4Q

AFC Enterprises Inc. ( AFCE - Snapshot Report ) posted adjusted earnings of 34 cents per share in the fourth quarter of 2012, outpacing the Zacks Consensus Estimate of 31 cents and the year-ago quarter level of 24 cents per share. In full year 2012, earnings per share were $1.24 versus 99 cents in 2011.

The year-over-year improvement was driven by the company’s strong top line and comparable sales growth. Moreover, the company has five strategic plans in place. These include development of the Popeye’s brand, more value-added services through its restaurant concepts, strengthening of restaurant profit margin with cost-saving initiatives, higher new unit growth and improving its work culture.

Behind the Headline Numbers

The operator and franchisor of Popeye’s restaurants reported total revenues of $47.5 million in the fourth quarter, up 30.9% from the year-ago quarter on positive global same-store sales and unit growth. The revenues in the quarter surpassed the Zacks Consensus Estimate of $45 million. In full year 2012, total revenues went up 16% year over year to $178.8 million on positive same-store sales of 6.9%.

AFC Enterprises' total revenues primarily comprise company-operated restaurant sales (up 32.3% year over year at $16.4 million), franchise revenues (up 31.4% at $30.1 million) and rent and other revenues (flat at $1.0 million).

In the fourth quarter, the company's global same-store sales spiked 6.2%, resulting from a 6.4% upside in domestic same-store sales and a 4.3% jump in international franchisee same-store sales.

In the quarter, operating profit was $14.6 million, up 55.3% year over year.

Store Update

The Popeye’s system opened 62 restaurants in the fourth quarter of 2012; 42 of which were domestic and 20 international. At the end of the fiscal year, the company had 2,104 restaurants, among which 1,679 were company-owned and 425 international units. In full fiscal 2012, the company opened 141 units and shut down 75 units.

Share Repurchase

During the fourth quarter, the company bought back 144,000 shares worth $3.7 million. In 2012, the company repurchased nearly 741,000 at the cost of $15.2 million. Moreover, management has also recently authorized an extra $50 million for the existing share repurchase program.

Financial Position

AFC Enterprises ended the quarter with cash and cash equivalents of $17 million versus $24.8 million in the previous quarter. Shareholders' equity in the quarter was $34.2 million compared with $26.9 million in the third quarter of 2012.

Outlook

The company expects same-store sales to grow in the range of 3% to 4% in 2013. Adjusted earnings per share are anticipated to be $1.37 to $1.42.

The quick-service chicken restaurant chain expects to open 175 to 195 restaurants and net restaurant openings will likely range from 85–115 in 2013. For 2013, AFC Enterprises sets a target of nearly $15 million to $20 million for share buyback.

In the long-term, the company expects comps to be positive ranging from 1% to 3% and net unit will grow within the range of 4% and 6%, whereas earnings per share will improve 13% to 15%.

Our Take

The company with its solid product pipeline, improving top line, better operational strategy and unit growth is well positioned to perform better in the future. However, higher commodity inflation could weigh on the company’s results, going ahead.

AFC currently retains a Zacks Rank #4 (Sell). Another restaurateur Red Robin Gourmet Burgers Inc.’s ( RRGB - Analyst Report ) adjusted earnings in the fourth quarter of 2012 were way ahead of the Zacks Consensus Estimate as well as the year-ago quarter’s earnings. Red Robin Gourmet currently carries a Zacks Rank #1 (Strong Buy).

Other restaurant companies like Krispy Kreme Doughnuts, Inc. ( KKD - Snapshot Report ) and Burger King Worldwide, Inc ( BKW - Snapshot Report ) both with a Zacks Rank #2 (Buy) are expected to perform well, going ahead.