ATLANTA, Aug. 22 /PRNewswire-FirstCall/ -- AFC Enterprises, Inc. , the franchisor and operator of Popeyes(R) Chicken & Biscuits, reported results for its fiscal second quarter which ended July 15, 2007.
Second quarter 2007 results and highlights included: -- Net income was $6.6 million, or $0.22 per diluted share, compared to $0.17 per diluted share for the second quarter of 2006. -- Total system-wide sales increased by 2.9 percent, compared to an increase of 4.0 percent for the second quarter of last year. -- Total domestic same-store sales decreased 2.1 percent, compared to an increase of 2.2 percent for the second quarter of last year. -- The Popeyes system opened 24 restaurants in the second quarter, bringing total unit count to 1,878, compared to 1,846 at the end of the second quarter of last year. -- The Company repurchased 675,391 shares of common stock for approximately $12.4 million.
AFC Interim Chief Executive Officer Fred Beilstein stated, "Despite the difficult competitive and economic climate, Popeyes' highly franchised model was able to grow earnings and operating cash flow versus the prior year performance. Our management team remains focused on specific marketing, menu and operations initiatives to drive transactions, and we are encouraged by the initial test results of our new value offerings and new menu board."
Second Quarter Performance Review compared to Second Quarter Last Year
Total system-wide sales increased by 2.9 percent, including a 2.0 percent increase in global franchise sales to $382.0 million.
Total domestic same-store sales decreased 2.1 percent, compared to an increase of 2.2 percent last year, and global same-store sales decreased 1.7 percent, compared to an increase of 1.7 percent last year. Second quarter same-store sales results were more negative than expected due to lower traffic resulting primarily from continued competitive pressures from value and boneless chicken offerings by competitors, and other economic factors adversely impacting the discretionary income of Popeyes customers.
Same-store sales for company-operated restaurants decreased 7.3 percent compared to a 13.1 percent increase last year. This decrease reflects the continued rollover effect of unusually high same-store sales of re-opened company-operated restaurants in New Orleans in the prior year during the periods following Hurricane Katrina, as well as softer same-store sales in the Atlanta and Tennessee markets.
Total revenues were $38.3 million, a $3.9 million increase over the second quarter of 2006. This increase was comprised of approximately $3.3 million from the re-opening of company-operated restaurants in New Orleans, $0.6 million from the 13 franchised restaurants acquired by the Company in the Memphis and Nashville markets in the second quarter of 2006, and a $0.8 million increase in franchise revenues, primarily driven by sales from new franchised restaurants. This increase in total revenues was partially offset by a reduction of $1.3 million from negative same-store sales.
General and administrative expenses of $9.5 million, at 25 percent of total revenues, represent a decrease from last year's second quarter of $11.1 million, at 32 percent of total revenues. This decrease of $1.6 million was primarily due to lower professional and legal fees and a reduction in equity incentive payments to management due to lower sales performance.
Other income was $0.9 million, including a $1.8 million gain from hurricane insurance recoveries, compared to other income of $1.4 million last year.
Operating profit was $12.7 million, representing an approximately 20 percent increase, compared to an operating profit of $10.6 million last year. This improvement was primarily driven by the reduction in general and administrative expenses described above and 32 more open restaurants compared to the end of the second quarter last year.
Net income was $6.6 million, or $0.22 per diluted share, compared to net income of $5.1 million, or $0.17 per diluted share last year.
During the second quarter, the Company repurchased 675,391 shares of its common stock for approximately $12.4 million. Year-to-date through August 12, 2007 (the end of the Company's eighth fiscal period), AFC repurchased 1,456,105 shares of common stock for approximately $25.7 million. The remaining value of shares that may be repurchased under the current board- approved, multi-year stock repurchase authorization is approximately $21.5 million. As of August 12, 2007, approximately 28.4 million shares of the Company's common stock were outstanding.
During the quarter, Popeyes opened 24 restaurants, compared to 33 openings last year. New openings for the second quarter included 16 domestic restaurants and 8 international restaurants. Popeyes had 28 restaurant closures in the second quarter, consisting of 11 domestic units and 17 international units, of which 8 were in Korea.
On a system-wide basis, Popeyes had 1,878 units operating at the end of the second quarter, compared to 1,846 units at the end of the second quarter last year. Total unit count was comprised of 1,568 domestic units and 310 units in two territories and 23 foreign countries. Of this total, 1,817 were franchised and 61 were company-operated restaurants, of which 22 were in the New Orleans market.
By the end of the second quarter, the Popeyes system had approximately 80 percent of restaurants in the new Heritage image. The Company continues to anticipate substantially completing its system-wide re-imaging project by year-end 2008.
Fiscal 2007 Guidance Update
Given the continued softness in same-store sales and the challenging business and competitive environment, the Company now expects total domestic same-store sales for full year 2007 to be negative approximately 2.0 percent compared to previous guidance of flat to slightly negative. In the third quarter, same-store sales growth is expected to be negative 1.0-2.0 percent and is expected to be relatively flat in the fourth quarter. The Company expects the same-store sales trend to strengthen as the system introduces a combination of new value menu offerings and new products.
For fiscal 2007, new restaurant openings are expected to be in the range of 155-165 restaurants, compared to previous guidance of 165-175. This revised guidance reflects anticipated delays in fourth quarter domestic restaurant development projects in response to the challenging sales environment and the continued competitive real estate market. In addition, the Company now expects restaurant closures to be in the range of 100-110, compared to previous guidance of 80-90. The increased closures result from the Company's ongoing initiatives to strengthen operational performance standards, coupled with the unexpected early lease terminations of six restaurant leases of a domestic franchisee, and the closure of additional underperforming international restaurants. It is expected that 30-40 of these closures will be in Korea. As a result, net new openings in fiscal 2007 are expected to be 45-65, compared to previous guidance of 75-95.
The Company's general and administrative expenses in fiscal 2007 are expected to be consistent with previous guidance of $48-$50 million.
Net earnings per diluted share for fiscal 2007 are expected to be at the lower end of the previously announced range of $0.81-$0.85. This guidance reflects the impact of softer same-store sales which is partially offset by the net insurance recoveries related to Hurricane Katrina.
Conference Call
The Company will host a conference call and internet webcast with the investment community at 9:00 A.M. eastern time on August 23, 2007, to review the results of the second quarter of 2007 and to provide an update on the overall business. To access the Company's webcast, go to http://www.afce.com/, select "Investor Information" and then select "AFC Enterprises Second Quarter 2007 Earnings Conference Call."
Corporate Profile
AFC Enterprises, Inc. is the franchisor and operator of Popeyes(R) Chicken & Biscuits, the world's second-largest quick-service chicken concept based on number of units. As of July 15, 2007, Popeyes had 1,878 restaurants in the United States, Puerto Rico, Guam and 23 foreign countries. AFC has a primary objective to be the world's Franchisor of Choice(R) by offering investment opportunities in its Popeyes Chicken & Biscuits brand and providing exceptional franchisee support systems and services. AFC Enterprises can be found at http://www.afce.com/.
AFC Contact Information
Investor inquiries:
Cheryl Fletcher, Director, Finance & Investor Relations
(404) 459-4487 or
Forward-Looking Statement: Certain statements in this release contain "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's current expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties. Examples of such statements in this press release include discussions regarding the Company's ability to repurchase shares of its common stock under its share repurchase program and the number of shares that may actually be repurchased (if any), projections and expectations regarding same-store sales for the second quarter and the remainder of fiscal 2007, guidance for new openings and restaurant closures, and projections regarding general and administrative expenses and net earning per diluted share. Among the important factors that could cause actual results to differ materially from those indicated by such forward- looking statements are: competition from other restaurant concepts and food retailers, the loss of franchisees and other business partners, labor shortages or increased labor costs, increased costs of our principal food products, changes in consumer preferences and demographic trends, as well as concerns about health or food quality, instances of avian flu or other food- borne illnesses, the need to continue to improve our internal controls, adverse effects on operations from Hurricane Katrina, the Company's ability to recover related losses from its insurers and the economic impact on consumer spending in markets affected by Hurricane Katrina, the loss of senior management and the inability to attract and retain additional qualified management personnel, limitations on our business under our 2005 Credit Facility, failure of our franchisees, a decline in the number of franchised units, a decline in our ability to franchise new units, slowed expansion into new markets, unexpected and adverse fluctuations in quarterly results, increased government regulation, adverse effects of regulatory actions arising in connection with the restatement of our previously issued financial statements, effects of increased gasoline prices, general economic conditions, supply and delivery shortages or interruptions, currency, economic and political factors that affect our international operations, inadequate protection of our intellectual property and liabilities for environmental contamination and the other risk factors detailed in our 2006 Annual Report on Form 10-K and other documents we file with the Securities and Exchange Commission. Therefore, you should not place undue reliance on any forward- looking statements.