AFC Reports Financial Results for Second Quarter 2013; Reiterates Fiscal 2013 Earnings Guidance

AFC Reports Financial Results for Second Quarter 2013; Reiterates Fiscal 2013 Earnings Guidance

ATLANTA--(BUSINESS WIRE)-- AFC Enterprises, Inc. (NAS: AFCE) , the franchisor and operator of Popeyes® restaurants, today reported results for its fiscal second quarter 2013 which ended July 14, 2013. The Company also reiterated earnings guidance for fiscal 2013 and provided an update on its Strategic Plan.

Commenting on the second quarter performance, AFC Enterprises Chief Executive Officer Cheryl Bachelder stated, "Popeyes' team continues to demonstrate a sound strategy for accelerated unit growth fueled by innovation, a compelling new restaurant design, and increasing restaurant operating profit. Given the opportunity for improving our guest experience and growing our global footprint, I believe we have significant runway ahead and the human capital to deliver on that potential."

Second Quarter 2013 Highlights

• Reported net income was $8.5 million compared to $6.6 million last year. Diluted earnings per share were $0.35 compared to $0.27 last year, an increase of 30%. Through the end of the second quarter, adjusted earnings per diluted share were $0.75 compared to $0.62 last year, an increase of 21%. Adjusted earnings per diluted share is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."

• Global same-store sales increased 4.4% compared to 7.5% last year. Year-to-date through the end of the second quarter, global same-store sales were 4.5% compared to a 7.5% increase in the prior year, for a two year same-store sales growth of 12%.

• Global system-wide sales increased 11.6% compared to an 11.5% increase last year.

• The Popeyes system opened 44 restaurants and closed 16 restaurants, resulting in 28 net openings compared to 9 in the prior year. Through the end of the second quarter, the Popeyes system had opened 84 and closed 40 restaurants, for net restaurant openings of 44 compared to 18 last year.

• Through the end of the second quarter, Operating EBITDA increased 19% to $34.1 million at 31.5% of total revenues, compared to the prior year Operating EBITDA of $28.6 million at 31% of total revenues. Operating EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."

• Free cash flow through the end of the second quarter was $21.8 million compared to $18.2 million last year. Free cash flow is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."

Strategic Plan Update

The Company continues to strengthen its competitive position in the restaurant industry and quick service restaurant sector by executing its Strategic Plan which is based on the following pillars:

• Build a Distinctive Brand

  • In the second quarter, Popeyes promoted Three of Kind - three different configurations of our Bonafide® bone-in chicken and Handcrafted Tenders, each for $3.99. We also featured Garlic Pepper Wicked Chicken and reprised Zatarain's® Butterfly Shrimp.

  • This was Popeyes' 13^th consecutive quarter of positive same-store sales. According to independent industry research, Popeyes has outpaced the same-store sales of the entire Chicken-QSR category for 21 consecutive quarters and the same-store sales of the overall QSR category for seven consecutive quarters.

• Run Great Restaurants

  • As of the end of the second quarter, approximately 40% of the domestic system was in the new Popeyes Louisiana Kitchen image. The Company expects approximately 60% of the domestic system to be in the new image by the end of 2013. On average, reimaged restaurants are enjoying a 3% to 4% sales lift.

  • At the end of the second quarter, approximately 70% of the domestic system restaurants attained speed of service below our 180 second standard.

  • The Company's Guest Experience Monitor, or GEM, percent delighted scores were approximately 61% at the end of the second quarter.

• Grow Restaurant Profits

  • Average restaurant operating profit before rent of Popeyes domestic freestanding franchised restaurants increased to 22.2% of total revenues for the first quarter, compared to 21.8% in the first quarter of 2012.

  • Commodity prices were flat for the second quarter versus year ago, and up 1.2% through the end of the second quarter. For full year 2013, we expect commodity costs to be down slightly versus the prior year.

• Accelerate Quality Restaurant Openings

  • The Company further expanded its presence in Indianapolis, IN with the opening of two restaurants. The average annualized sales volumes of our restaurants in this market are significantly out-performing the domestic system average of $1.2 million.

  • In the second quarter, we converted and franchised eight of the 26 restaurants acquired in 2012 in Minnesota and California. One-time franchisee fees of approximately $1.8 million were recognized in the second quarter as franchising of these restaurants was completed. We have converted 13 of the 26 acquired restaurants and the remaining 13 acquired restaurants are expected to be converted at a steady pace over the balance of 2013.

• Create a Culture of Servant Leaders

  • We place great emphasis on our human capital and its proven impact on our guest experience and the sustained long term performance of our Company.

  • In 2013, we are defining the critical elements that will become Popeyes distinctive employee and guest experiences. We are also building the disciplines, tools and processes needed for in-market testing followed by a system launch.

Second Quarter Financial Performance Review

Total system-wide sales increased by 11.6% reflecting the brand's successful product promotions and expanding domestic footprint. System-wide sales were comprised of $554.0 million in franchise restaurant sales and $17.5 million in company-operated restaurant sales.

Global same-store sales increased 4.4% in the second quarter compared to a 7.5% increase in 2012, for a two-year growth of 11.9%.

Total domestic same-store sales increased by 4.3% compared to a 8.4% increase last year for a two-year growth of 12.7%.

Same-store sales growth of our company-operated restaurants was positive 1.7% in the second quarter. The two-year same-store sales growth of Company-operated restaurants was 9.5%.

International same-store sales increased 5.8%, representing the 14^th consecutive quarter of positive same-store sales. Second quarter two-year international same-store sales growth was 6.7%.

As a result of positive same store sales and new restaurant growth, total revenues were $47.9 million compared to $39.6 million last year, an increase of 21% year-over-year.

Company-operated restaurant operating profit ("ROP") was $3.2 million at 18.3% of sales, compared to $2.5 million at 17.5% of sales last year. The $0.7 million increase in ROP was primarily due to higher revenues resulting from positive same-store sales and new restaurant openings, and an improvement in food cost margins. Company-operated restaurant operating profit is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."

General and administrative expenses were $16.8 million at 2.9% of system-wide sales, compared to $14.6 million at 2.9% of system-wide sales last year. The $2.2 million increase was primarily attributable to an increase in domestic franchisee restaurant support services, international franchise development and marketing support, an increase in performance-based incentive compensation expense and other general and administrative expenses, net.

Through the end of the second quarter, Operating EBITDA was $34.1 million at 31.5% of total revenues, compared to $28.6 million at 31.0% of total revenues in 2012. The 50 basis point increase was primarily a result of strong same-store sales, one-time franchise fees associated with the conversion of the restaurants in Minnesota and California acquired in 2012 and higher restaurant operating profit at Company-operated restaurants. The Company's Operating EBITDA margin remains among the highest in the QSR industry. Operating EBITDA is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."

Income tax expense was $5.1 million at an effective tax rate of 37.5%, compared to an effective tax rate of 37.1% in the prior year. The effective tax rates differ from statutory rates due to tax credits and permanent differences between reported income before income taxes and taxable income for tax purposes.

Reported net income was $8.5 million, or $0.35 per diluted share, compared to $6.6 million, or $0.27 per diluted share last year. This improvement was primarily due to strong same-store sales, new restaurant openings, one-time franchise fees associated with the conversion of the restaurants in Minnesota and California acquired in 2012 and stronger restaurant operating profit at Company-operated restaurants. Through the end of the second quarter, adjusted earnings per diluted share were $0.75 compared to $0.62 last year, an increase of 21%. Adjusted earnings per diluted share is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."

As a result of strong revenue and operating profit, the Company generated Free cash flow through the second quarter of $21.8 million compared to $18.2 million in 2012. As a percentage of total revenue, Free cash flow increased to 20.1%, compared to 19.7% last year. Free cash flow is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."

During the second quarter, the Company repurchased approximately 96,000 shares of its common stock for approximately $3.4 million. Through the end of the second quarter, the Company has repurchased approximately 234,000 shares of common stock for approximately $8.4 million.

Through the end of the second quarter, the Company invested $6.1 million in the conversion of restaurants acquired in Minnesota and California in 2012, and $7.2 million in the construction and opening of new company restaurants.

The Popeyes system opened 44 new restaurants in the second quarter, which included 29 domestic and 15 international restaurants, compared to 25 openings last year. The Company permanently closed 16 restaurants, resulting in 28 net openings compared to 9 net openings in the second quarter of 2012. The 16 closures in the second quarter included 6 domestic and 10 international restaurants. Through the end of the second quarter, Popeyes had net openings of 44 restaurants compared to 18 the prior year.

On a system-wide basis, Popeyes had 2,153 restaurants operating at the end of the second quarter, compared to 2,049 at the end of the second quarter of 2012. Total unit count was comprised of 1,721 domestic and 432 international restaurants in 28 foreign countries and three territories. Of this total, 2,106 were franchised and 47 were Company-operated restaurants.

Fiscal 2013 Guidance

Given the strong sales performance in the first and second quarters, we are increasing our expectation of global same-store sales growth to 3.5% to 4.5% compared to previous guidance of the upper end of 3% to 4%.

We are also increasing our expectation of full year general and administrative expenses to $73 to $75 million compared to our previous guidance of $72 to $74 million. As a percentage of system-wide sales, general and administrative expenses remain at approximately 3.0%, among the lowest in the industry.

As a result of new company restaurant development in the first half of 2013 and our pipeline, we now expect to open between 8 and 10 total new company restaurants this year, compared to previous guidance of 6 to 10.

The Company reiterates the following guidance for fiscal 2013:

• New restaurant openings in the range of 175 to 195 restaurants, and net restaurant openings in the range of 85 to 115. Included in 2013 total openings are approximately 60 international restaurants.

• Capital expenditures of $24 to $28 million, including the conversion of restaurants acquired in 2012 in Minnesota and California.

• An expected effective income tax rate in 2013 of 37% compared to 36.3% in 2012.

• The Company plans to repurchase approximately $15 to $20 million in outstanding shares, compared to $15.2 million of share repurchases in 2012.

The Company also reiterates adjusted earnings per diluted share to be at the upper end of $1.37 to $1.42 for fiscal 2013.

Long-Term Guidance

Consistent with previous guidance, over the course of the upcoming five years, the Company believes the execution of its Strategic Plan will deliver on an average annualized basis the following results: same-store sales growth of 1% to 3%; net unit growth of 4% to 6%; and earnings per diluted share growth of 13% to 15%.

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 22, 2013, to review the results of the second quarter 2013. To access the Company's webcast, go to www.afce.com, select "Investor relations" and then select "AFC Enterprises Second Quarter 2013 Earnings Conference Call." A replay of the conference call will be available for 90 days at the Company's website or through a dial-in number for a limited time following the call.

Corporate Profile

AFC Enterprises, Inc. is the franchisor and operator of Popeyes® restaurants, the world's second-largest quick-service chicken restaurant concept based on number of units. As of July 14, 2013, Popeyes had 2,153 restaurants operating in the United States, Puerto Rico, Guam, the Cayman Islands and 28 foreign countries. AFC's primary objective is to deliver industry-competitive growth in sales and profits by offering excellent investment opportunities in its Popeyes brand and providing exceptional support systems and services to its franchise owners. AFC Enterprises can be found at www.afce.com.