Popeyes Louisiana Kitchen feels the heat of a tough US market

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Popeyes Louisiana Kitchen (NASDAQ: PLKI) released second-quarter 2016 results Tuesday after the market close. Similar to last quarter's post-earnings drop, shares fell more than 5% Wednesday as the chicken-centric fast food chain felt the weight of competition bearing down. Let's take a closer look at how Popeyes capped the first half of the year, and what to expect going forward.

Popeyes Louisiana Kitchen results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$61.7 million

$59.4 million

3.9%

Net income

$10.3 million

$10.3 million

0%

Earnings per diluted share

$0.47

$0.44

6.8%

Data source: Popeyes Louisiana Kitchen.

What happened with Popeyes Louisiana Kitchen this quarter?

  • Popeyes hadn't provided specific quarterly financial guidance, but for perspective -- and while we don't pay close attention to Wall Street's quarterly demands -- analysts' consensus estimates called for roughly the same earnings on higher revenue of $63.4 million.
  • Global same-store sales rose 0.7%, including:
    • Flat domestic same-store sales, ending a more than five-year streak of positive domestic same-store sales growth.
    • International same-store sales growth of 6.4%.
  • Popeyes' domestic market share of the chicken quick-service restaurant (QSR) segment rose to 26.6%, up from 25.4% in the same year-ago period, and from 26.3% last quarter.
  • Adjusted earnings also climbed 6.8% year over year, to $0.47 per diluted share.
  • Sales from company-owned restaurants were $25.2 million, up slightly from $25.1 million in last year's second quarter.
  • Company-owned restaurant operating profit was $4.7 million, or 18.7% of revenue, down from $4.9 million, or 19.5% of revenue last year, once again as lower chicken and grocery basket costs were more than offset by higher labor costs and lower revenue in new markets.
  • Opened 43 restaurants during the quarter, including 23 domestic and 20 international locations.
  • Net restaurant openings were 36, bringing Popeyes' total restaurant count to 2,594 company-operated and franchised locations at the end of the quarter, up 6.2% year over year.
  • The company generated free cash flow of $6.8 million during the quarter, up from $1.9 million in last year's second quarter.
  • For the 28 weeks ended July 10, 2016, Popeyes generated free cash flow of $23.6 million, up from $19.6 million in the same year-ago period.
  • Popeyes repurchased 532,864 shares of common stock during the quarter for $30 million, or an average cost of roughly $56.30 per share.

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10 money-saving fast-food hacks

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What management had to say

Popeyes CEO Cheryl Bachelder stated:

The second quarter was a productive one for Popeyes on each of our three strategic pillars, despite the competitive pressures on comparable sales. We have continued to offer our guests a balance of exciting new products and value-oriented promotions, and our share of chicken-QSR grew this quarter. We have successfully implemented our new field visit protocols to advance our operations and we completed the scoping of our One Technology initiative. Our international team is delivering excellent results. So while we are experiencing slower domestic sales, consistent with the sector; we remain highly confident that our bold long term goals are achievable.

Looking forward

As such, Popeyes now expects full-year systemwide same-store sales growth in the range of 1% to 2%, down from its previous expectation for growth of 2% to 3%. In addition, Popeyes will only open two new company-operated restaurants this year, a reduction from previous guidance of three to five.

Meanwhile, Popeyes reiterated its previous outlook for net new restaurant openings of 140 to 185 (including 85 to 100 internationally), share repurchases of $80 million to $120 million (half of which will be funded by operating cash flow), and adjusted earnings per diluted share in the range of $2.10 to $2.15.

As it stands, then, investors can take some solace knowing Popeyes is sustaining its healthy profitability and gaining market share despite challenges in the U.S. market, all while continuing to execute its strategic initiatives and delivering steady international growth. So while it's no surprise to see shares falling today given Popeyes' selected full-year guidance reductions, it appears the company's long-term story remains intact.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Popeyes Louisiana Kitchen. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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