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In Line 4Q at AFC Enterprises

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AFC Enterprises Inc. posted adjusted earnings of 24 cents per share in the fourth quarter of 2011, in line with the Zacks Consensus Estimate and higher than the year-ago quarter level of 19 cents per share. In full-fiscal 2011, earnings per share were 99 cents versus 86 cents in 2010.

The year-over-year improvement was driven by strong same-store sales. Moreover, the company has four strategic plans in place. These include development of the Popeye’s brand, more value-added services through its restaurant concepts, strengthening of unit economics with cost-saving initiatives and higher new unit growth.

Quarter Highlights

The operator and franchisor of Popeye’s restaurants reported total revenue of $36.3 million, up 6.1% from the year-ago quarter on positive same-store sales and unit growth.

AFC Enterprises' total revenue primarily comprises company-operated restaurant sales (up 1.6% year over year at $12.4 million), franchise revenues (up 9.0% at $22.9 million) and rent and other revenues (flat at $1.0 million).

The company's global same-store sales spiked 5.8%, resulting from a 5.9% upside in domestic same-store sales and a 4.6% jump in international same-store sales. However, in the domestic market, company-operated same-store sales dipped 1.5% as against a 9.2% increment in the fourth quarter of last year. 

In 2011, international same-store sales were positive for the fifth consecutive year buoyed by positive sales trends in Canada and Turkey, partially offset by weaker sales in Korea and Singapore.

In full-year 2011, total revenue went up 5.1% year over year to $153.8 million. Commodity inflation of roughly 8% had an adverse effect on the company’s operating profit margins, which declined about 250 basis points in 2011. The company managed to recover 150 basis points of that margin erosion through strong sales performance, coupled with cost savings.  

Store Update

The Popeye’s system opened 52 restaurants in the fourth quarter of 2011, 32 of which were domestic and 20 international. At the end of the fiscal year, the company had 1,627 domestic units among which 40 were company-owned and 408 international units. In full-fiscal 2011, the company opened 140 units while shut down 75 units.

Financial Position

AFC Enterprises ended the quarter with cash and cash equivalents of $17.6 million and shareholders' equity of $13.8 million.


The company now expects global same-store sales growth in the range to 3% to 4% for 2012. Adjusted earnings per share are anticipated to be $1.09 to $1.13, including approximately a penny for the 53rd week of operations in fiscal 2012.

The world's second largest quick-service chicken restaurant chain expects to open 135 to 155 restaurants in 2012 and net restaurant openings in the range of 60–100.

In 2012, AFC Enterprises plans to repurchase approximately $15 million in outstanding shares, compared to $22.3 million of share repurchases in 2011.

Our Take

With modest sales momentum in fourth-quarter 2011 and solid pipeline of products, Popeye’s is well positioned to perform better in 2012.

Management plans to partially counter costs through top-line growth, additional supply chain cost savings, selective menu pricing and in-restaurant cost controls.

On the commodity front, management sees ongoing pressure to continue in the first half of 2012 before easing out. However, management expects a higher effective tax rate in 2012 compared with 2011 that may in turn weigh on the company’s net earnings.

AFC, which competes with the companies like Kona Grill Inc. , currently has a Zacks #2 Rank (short-term Buy rating). We are maintaining our long-term Neutral recommendation on the stock.

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