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Upbeat 1Q at AFC, Guidance Upped

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AFC Enterprises Inc. posted adjusted earnings of 35 cents per share in the first quarter of 2012, surpassing the Zacks Consensus Estimate of 31 cents as well as the year-ago earnings of 27 cents per share.

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 $52.8 million, up 12.8% from the year-ago quarter on positive same-store sales and unit growth.

AFC Enterprises' total revenue primarily comprises company-operated restaurant sales (up 12.5% year over year at $19.8 million), franchise revenues (up 13.6% at $31.7 million) and rent and other revenues (flat at $1.3 million).

The company's global same-store sales spiked 7.4%, resulting from an 8.1% upside in domestic same-store sales and a 2.3% jump in international same-store sales.

The company managed to record increased restaurant operating profit despite the adverse effect of 2.5% commodity inflation. Strong sales performance coupled with supply chain as well as cost savings aided the operating profit growth of 13.6%. 

Store Update

The Popeye’s system opened 26 restaurants in the first quarter of 2012, 11 of which were domestic and 15 international. At the end of the quarter, the company had 2,044 units among which 40 were domestic company-owned outlets, 1,589 franchised domestic units and 415 franchised international units.

The company permanently closed 17 units, resulting in 9 net openings in the first quarter of 2012.

Financial Position

AFC Enterprises ended the quarter with cash and cash equivalents of $22.0 million and shareholders' equity of $20.4 million.


The company now expects global same-store sales growth in the range to 4% to 5% (previously guided 3% to 4%) for 2012. Adjusted earnings per share are projected at $1.13 to $1.16 (previously guided $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. It also looks forward to net restaurant openings in the range of 60–100.

AFC Enterprises also reiterated its plan to buy back approximately $15 million in outstanding shares in 2012.

Our Take

With a strong sales momentum, solid pipeline of products, market share gain in the chicken category, revamp of unit’s outlook and acceleration of unit growth AFC Enterprises is well positioned to perform better over the rest of 2012. The increased guidance is a reflective of the company’s steadily improving fundamentals. 

On the commodity front, management foresees the ongoing pressure to relax in 2012 and likely result in flat year-over-year commodity inflation. 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 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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