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AFC Reports Financial Performance for First Quarter 2007 |
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AFC Enterprises, Inc. (NASDAQ:AFCE) , the franchisor and operator of Popeyes(R) Chicken & Biscuits, reported results for its fiscal first quarter which ended April 22, 2007. |
First quarter 2007 results and highlights included:
• Net income was $6.4 million, or $0.22 per diluted share, compared to $0.19 per diluted share for the first quarter of 2006.
• Total system-wide sales increased by 1.7 percent. This increase was primarily driven by sales from new franchised restaurants and the re- opening of company-operated restaurants in New Orleans.
• Total domestic same-store sales decreased 3.4 percent compared to an increase of 6.1 percent for the first quarter of last year.
• 29 restaurants were opened compared to 33 openings in the same period in 2006.
• The Company repurchased 371,300 shares of common stock for $6.8 million and reduced the term loan component of the Company's 2005 Credit Facility by $6.3 million.
AFC Interim Chief Executive Officer Fred Beilstein stated, "We were pleased with the progress we continue to make in the development side of the business. Our first quarter earnings was slightly lower than what we had anticipated primarily due to softer same-store sales. This sales performance was due to a decline in transactions resulting from overall competitive pressures in the marketplace in this challenging economic climate. We believe our transactions and sales will strengthen as we gain traction with our new marketing, value and menu initiatives and continued operational improvements."
First Quarter Performance Review compared to First Quarter Last Year
Total system-wide sales increased by 1.7 percent, including a 0.1 percent increase in global franchise sales to $505.0 million.
Total domestic same-store sales decreased 3.4 percent, compared to an increase of 6.1 percent last year, and global same-store sales decreased 3.1 percent, compared to an increase of 5.1 percent last year. Exclusive of the hurricane relocation markets, which comprise approximately 20 percent of the domestic system, domestic same-store sales for the first quarter would have decreased 3.1 percent. As previously indicated, the Company expected same- store sales to be negative in the first quarter due to the rollover effect of higher same-store sales in the hurricane relocation markets and overall higher domestic same-store sales in the prior year. First quarter results were more negative than expected due primarily to a decline in transactions as a result of aggressive offerings of $0.99 value items and an emphasis on chicken offerings by other quick service restaurant concepts.
Same-store sales for company-operated restaurants decreased 6.2 percent compared to a 24.1 percent increase in the prior year. This decrease reflects the 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.
Total revenues were $51.0 million, an $8.4 million increase over the first quarter of 2006. This increase was comprised of approximately $4.7 million from the 13 franchised restaurants acquired in the Memphis and Nashville markets in the second quarter of 2006, $5.3 million from the re-opening of company-operated restaurants in New Orleans, and a $1.0 million increase in franchise revenues, primarily driven by sales from new franchised restaurants. This increase in revenues was partially offset by a reduction of $1.9 million from the impact of negative same-store sales and a $0.9 million reduction due to the non-consolidation of a franchisee entity in accordance with FIN 46R.
General and administrative expenses of $14.9 million, or 29 percent of total revenues, decreased compared to first quarter of last year at $15.0 million, or 35 percent of total revenues.
Operating profit was $13.1 million, compared to an operating profit of $12.7 million last year.
Net income was $6.4 million, or $0.22 per diluted share, compared to $0.19 per diluted share last year.
The Company reduced its 2005 Credit Facility term loan by $6.3 million to $123.7 million, and repurchased 371,300 shares of its common stock for approximately $6.8 million.
As reported previously, the Company completed a second amendment to its 2005 Credit Facility. Under the terms of the amendment, AFC has the ability over time to repurchase stock up to the amount permitted under its current board-approved multi-year stock repurchase program. From April 23, 2007 through May 20, 2007 (the end of the Company's fifth period for 2007), the Company repurchased and retired an additional 152,900 shares of common stock for approximately $3.1 million. As of May 20, 2007, the remaining value of shares that may be repurchased under the program was $37.4 million. As of May 18, 2007, approximately 29.3 million shares of the Company's common stock were outstanding.
During the quarter, Popeyes opened 29 restaurants, compared to 33 openings last year. New openings for the first quarter included 23 domestic restaurants and 6 international restaurants. Popeyes had 30 restaurant closures in the first quarter, consisting of 15 domestic units and 15 international units, of which 5 were in Korea.
On a system-wide basis, Popeyes had 1,876 units operating at the end of the first quarter of 2007. Total unit count was comprised of 1,559 domestic units and 317 units in two territories and 23 foreign countries. This total unit count included 1,820 franchised and 56 company-operated restaurants, 20 of which were in the New Orleans market.
Fiscal 2007 Guidance
Due to the aggressive product pricing that is expected to persist throughout the QSR segment and the anticipated effects of projected increases in gasoline prices, the Company expects total domestic same-store sales for full year 2007 to be flat to slightly negative compared to previous guidance of positive 1.5-2.5 percent. In the second quarter, same-store sales growth is expected to be slightly negative; however, same-store sales growth is expected to be positive 2.0-3.0 percent in the second half of the year. The Company will be expanding its value menu offerings and marketing messaging to counter the continued aggressive pricing strategies from the competition. As these new marketing, value and menu initiatives gain traction and as the Company rolls-over softer sales in the latter half of 2006, the Company expects same-store sales performance to strengthen.
Guidance for new openings remains at 165-175 restaurants, with domestic openings comprising more than 60 percent of the total. Excluding company- operated restaurants that remain temporarily closed due to Hurricane Katrina, total restaurant closures are estimated to be 80-90, compared to previous guidance of 70-80. It is expected that 30-40 closures will be in Korea. This increase in the total estimated closure rate is primarily due to the first quarter closure of 10 franchised restaurants by a franchise group in south Texas as previously disclosed in the Company's press release dated February 28, 2007. As a result, net new openings in fiscal 2007 are expected to be in the range of 75-95, compared to previous guidance of 85-105.
As previously indicated, the Company anticipates re-opening 2-3 additional restaurants in the New Orleans market during fiscal 2007. The Company will continue to assess New Orleans market conditions to determine if or when additional restaurants will be re-opened. The Company continues to be actively engaged in discussions with its insurance carriers to recover its remaining hurricane losses related to business interruption and property losses.
The Company's general and administrative expenses in fiscal 2007 are expected to be consistent with previous guidance of $48-$50 million.
As a result of expected softness in same-store sales, net earnings per diluted share for fiscal 2007 are projected to be $0.81-$0.85, compared to previous guidance of $0.87-$0.91.
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