Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PLKI > SEC Filings for PLKI > Form 10-Q/A on 6-Jun-2014All Recent SEC Filings

Show all filings for POPEYES LOUISIANA KITCHEN, INC.

Form 10-Q/A for POPEYES LOUISIANA KITCHEN, INC.


6-Jun-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis for AFC Enterprises, Inc. ("AFC" or the "Company") should be read in conjunction with our condensed consolidated financial statements included in Part 1, Item 1 of this quarterly report and in conjunction with the Company's Annual Report on Form10-K for the fiscal year ended December 30, 2012 (the "2012 Form 10-K"). Nature of Business
We develop, operate and franchise quick-service restaurants ("QSRs") under the trade names Popeyes ฎ Chicken & Biscuits and Popeyes ฎ Louisiana Kitchen (collectively "Popeyes"). The Company operates two business segments: franchise operations and company-operated restaurants.
As of July 14, 2013, we operated and franchised 2,153 Popeyes restaurants in 47 states, three territories, and 28 foreign countries.
[[Image Removed]]
Total Operating Restaurants as of: 7/14/2013 12/30/2012
Domestic restaurants:
Company-Operated                          47            45
Franchised                             1,674         1,634
International restaurants:
Franchised                               432           425
Total                                  2,153         2,104

Our Business Strategy

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 Bonafideฎ bone-in chicken and
             Handcrafted Tenders, each for $3.99. We also featured Garlic Pepper
             Wicked Chicken and reprised Zatarain'sฎ Butterfly Shrimp.


•            This was Popeyes' 13th 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.


Table of Contents

•            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.

Management Overview of Second Quarter 2013 Operating Results Our second quarter of 2013 results and highlights include the following:

• 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. 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 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, franchise fees associated with the conversion of the restaurants in Minneapolis 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."

• As a result of strong revenue and operating profit, 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."


Table of Contents

A summary of our financial results and key operational metrics is presented below.

                                              12 Weeks Ended                        28 Weeks Ended
(Dollars in millions except per share
data)                                    7/14/2013      7/8/2012               7/14/2013       7/8/2012
Sales by company-operated restaurants   $     17.5     $    14.3              $     41.4     $     34.1
Franchise revenues (a)                        29.1          24.3                    64.3           56.0
Rent and other revenues                        1.3           1.0                     2.6            2.3
Total revenues                          $     47.9     $    39.6              $    108.3     $     92.4

Operating profit                        $     14.5     $    11.4              $     30.7     $     25.6

Net income                              $      8.5     $     6.6              $     18.1     $     14.9

Earnings per common share, basic:       $     0.36     $    0.28              $     0.77     $     0.62
Earnings per common share, diluted:     $     0.35     $    0.27              $     0.75     $     0.61

Global system-wide sales increase             11.6 %        11.5 %                  10.8 %         11.7 %

Same-store sales increase (b)
Company-operated restaurants                   1.7 %         7.8 %                   2.5 %          5.5 %
Domestic franchised restaurants                4.3 %         8.4 %                   4.5 %          8.3 %
Total domestic (company-operated and
franchised restaurants)                        4.3 %         8.4 %                   4.4 %          8.2 %
International franchised restaurants           5.8 %         0.9 %                   4.8 %          1.8 %
Total global system                            4.4 %         7.5 %                   4.5 %          7.5 %

Company-operated restaurants (all
domestic)
Restaurants at beginning of quarter             46            40                      45             40
New restaurant openings                          2             -                       3              -
Permanent closings                              (1 )           -                      (1 )            -
Restaurants at quarter-end                      47            40                      47             40
Franchised restaurants (domestic and
international)
Restaurants at beginning of quarter          2,073         2,004                   2,059          1,995
New restaurant openings                         42            25                      81             51
Permanent closings                             (15 )         (16 )                   (39 )          (33 )
Temporary (closings)/re-openings, net            6            (4 )                     5             (4 )
Restaurants at quarter-end                   2,106         2,009                   2,106          2,009
Total system restaurants                     2,153         2,049                   2,153          2,049

(a) Franchise revenues are principally comprised of royalty payments from franchisees that are based upon franchisee sales. While franchisee sales are not recorded as revenue by the Company, we believe they are important in understanding the Company's financial performance and overall financial health, given the Company's strategic focus on growing its overall business through franchising. For the second quarter of 2013 and 2012, franchisee sales, as reported by our franchisees, were approximately $554.0 million and $497.6 million, respectively. For the twenty-eight weeks ended July 14, 2013 and July 8, 2012, franchisee sales, as reported by our franchisees, were approximately $1,260.6 million and $1,140.9 million, respectively.

(b) Same-store sales statistics exclude temporarily and permanently closed restaurants and stores that have been open for less than 65 weeks.

2013 Same-Store Sales - Second Quarter
Global same-store sales increased 4.4% compared to a 7.5% increase in 2012, for a two-year growth of 11.9%. Total domestic same-store sales increased 4.3% compared to an 8.4% increase last year for a two-year growth of 12.7%. According to independent data, in the second quarter of 2013, Popeyes same-store sales outpaced the Chicken-QSR category for the 21th consecutive quarter


Table of Contents

and the QSR category for the 7th consecutive quarter. International same-store sales increased 5.8% and represented the 14th consecutive quarter of positive same-store sales growth. Second quarter two-year international same-store sales growth was 6.7%.
Looking Forward to the Remainder of 2013

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.

Comparisons of the Second Quarter for 2013 and 2012 Sales by Company-operated Restaurants
Sales by Company-operated restaurants were $17.5 million in the second quarter of 2013, a $3.2 million increase from the second quarter of 2012. The increase was primarily due to a same-store sales increase of 1.7%, five new restaurant openings in 2012 and two net openings in 2013. Franchise Revenues
Franchise revenues have three basic components: (1) royalties that are based on a percentage (typically 5%) of franchisee sales; (2) franchise fees associated with new unit openings and renewals; and (3) development fees associated with the agreement pursuant to which a franchisee may develop new restaurants in a given market. Royalties are the largest component of franchise revenues, generally constituting more than 90% of franchise revenues.
Franchise revenues were $29.1 million in the second quarter of 2013, a $4.8 million increase from the second quarter of 2012. The increase was primarily due to a $2.6 million increase in royalty revenue from positive same-store sales and new franchised restaurants, $1.8 million in one-time franchise fees associated with the conversion and franchising of eight California and Minnesota restaurant properties acquired in 2012 and a $0.4 million increase in other franchise revenues, net.

Company-operated Restaurant Operating Profit Company-operated restaurant operating profit ("ROP") was $3.2 million, or 18.3% of sales, compared to $2.5 million, or 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 margins is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."


Table of Contents

General and Administrative Expenses
General and administrative expenses were $16.8 million, or 2.9% of system-wide sales, compared to $14.6 million, or 2.9% of system-wide sales last year. The $2.2 million increase in general and administrative expenses was primarily attributable to a:
• $0.6 million increase in domestic franchisee restaurant support services and assessments,

• $0.4 million increase in international franchise development and marketing support expenses,

• $0.4 million increase in performance-based incentive compensation expense,

• $0.4 million increase in legal and corporate administrative expenses, and

• $0.4 million increase in marketing, supply chain and other expenses, net.

Depreciation and amortization
Depreciation and amortization was $1.5 million compared to $1.1 million last year. The increase in depreciation and amortization is primarily attributable to depreciation associated with new company-operated restaurants, restaurant reimages, acquired restaurant properties converted and leased to franchisees in Minnesota and California, information technology assets and our corporate support center facility.
Operating Profit
Operating profit was $14.5 million, a $3.1 million increase compared to 2012. The following is an analysis of the fluctuations in operating profit by business segment. Operating profit for each reportable segment includes operating results directly attributable to each segment plus a 5% inter-company royalty charge from franchise operations to company-operated restaurants.

                                             12 Weeks Ended
(Dollars in millions)                  7/14/2013        7/8/2012       Fluctuation      As a Percent
Franchise operations                 $       14.5     $      11.3     $        3.2             28.3  %
Company-operated restaurants                  1.5             1.3              0.2             15.4  %
Operating profit before unallocated
expenses                                     16.0            12.6              3.4             27.0  %
Less unallocated expenses:
Depreciation and amortization                 1.5             1.1              0.4             36.4  %
Other expenses (income), net                    -             0.1             (0.1 )         (100.0 )%
Operating profit                     $       14.5     $      11.4     $        3.1             27.2  %

The $3.2 million growth in franchise operations was primarily due to the $4.8 million increase in franchise revenue partially offset by increases in general and administrative expenses related to domestic franchisee restaurant support services and assessments, international franchise development and marketing expenses, long-term incentive stock-based compensation expense and other general and administrative expenses, net.

Company-operated restaurants segment operating profit was $1.5 million, a $0.2 million or 15.4% increase from 2012. The increase in company-operated restaurants segment operating profit was attributable to a $0.7 million increase in restaurant operating profit partially offset by higher multi-unit management expenses in new company-operated restaurant markets Indianapolis and Charlotte, inter-company royalties and other general and administrative expenses, net.

Income Tax Expense
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 2012. The effective tax rates differ from statutory rates due to adjustments to estimated tax reserves, tax credits and permanent differences between reported income and taxable income for tax purposes.


Table of Contents

Comparisons of the Twenty-Eight Weeks Ended July 14, 2013 and July 8, 2012 Sales by Company-operated Restaurants
Sales by Company-operated restaurants were $41.4 million in the twenty-eight weeks ended July 14, 2013, a $7.3 million increase from 2012. The increase was primarily due to a same-store sales increase of 2.5%, five new restaurant openings in 2012 and two net openings in 2013. Franchise Revenues
Franchise revenues were $64.3 million in the twenty-eight weeks ended July 14, 2013, a $8.3 million increase from 2012. The increase was primarily due to a $5.6 million increase in royalty revenue from positive same-store sales and new franchised restaurants and $2.5 million in one-time franchise fees associated with the conversion and franchising of eleven California and Minnesota restaurant properties acquired in 2012 and a $0.2 million increase in other franchise revenues, net.
Company-operated Restaurant Operating Profit Company-operated restaurant operating profit ("ROP") was $7.9 million in the twenty-eight weeks ended July 14, 2013, or 19.1% of sales, compared to $6.3 million, or 18.5% of sales, last year. The $1.6 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 margins is a supplemental non-GAAP measure of performance. See the heading entitled "Management's Use of Non-GAAP Financial Measures."
General and Administrative Expenses
General and administrative expenses were $38.8 million in the twenty-eight weeks ended July 14, 2013, or 3.0% of system-wide sales, compared to $35.0 million, or 3.1% of system-wide sales, last year.
The $3.8 million increase in general and administrative expenses was primarily attributable to a:
• $1.2 million increase in international franchise development and marketing support expenses,

• $0.6 million increase in domestic franchisee restaurant support services and assessments,

• $0.5 million in marketing and menu development expenses,

• $0.5 million in multi-unit management expenses in new Company-operated restaurant markets in Indianapolis and Charlotte,

• $0.4 million increase in performance-based incentive compensation expense, and

• $0.6 million increase in leadership development and other expenses, net.

Depreciation and amortization
Depreciation and amortization was $3.3 million compared to $2.4 million last year. The increase in depreciation and amortization is primarily attributable to depreciation associated with new company-operated restaurants, restaurant reimages, acquired restaurant properties converted and leased to franchisees in Minnesota and California, information technology assets and our corporate support center facility.


Table of Contents

Operating Profit
Operating profit was $30.7 million, a $5.1 million increase compared to 2012.
The following is an analysis of the fluctuations in operating profit by business
segment. Operating profit for each reportable segment includes operating results
directly attributable to each segment plus a 5% inter-company royalty charge
from franchise operations to company-operated restaurants.
                                                  28 weeks ended
(Dollars in millions)                          7/14/13       7/8/12       Fluctuation    As a Percent
Franchise operations                         $    30.3     $   25.1     $         5.2         20.7 %
Company-operated restaurants                       3.8          3.0               0.8         26.7 %
Operating profit before unallocated expenses      34.1         28.1               6.0         21.4 %
Less unallocated expenses:
Depreciation and amortization                      3.3          2.4               0.9         37.5 %
Other expenses (income), net                       0.1          0.1                 -            - %
Operating profit                             $    30.7     $   25.6     $         5.1         19.9 %

The $5.2 million growth in franchise operations was primarily due to the $8.3 million increase in franchise revenue partially offset by increases in general and administrative expenses related to international franchise development and marketing expenses, domestic franchisee restaurant support services and assessments, marketing and menu development expenses, long-term incentive stock-based compensation expense and leadership development and other general and administrative expenses, net.

Company-operated restaurants segment operating profit was $3.8 million, a $0.8 million or 26.7% increase from 2012. The increase in company-operated restaurants segment operating profit was attributable to a $1.6 million increase in restaurant operating profit partially offset by higher multi-unit management expenses in new company-operated restaurant markets Indianapolis and Charlotte, inter-company royalties and other general and administrative expenses, net. Income Tax Expense
Income tax expense was $10.6 million, at an effective rate of 36.9% for the twenty-eight week periods ended July 14, 2013 and July 8, 2012. The effective tax rates differ from statutory rates due to adjustments to estimated tax reserves, tax credits and permanent differences between reported income and taxable income for tax purposes.
Liquidity and Capital Resources
We finance our business activities primarily with:
• cash flows generated from our operating activities, and

• borrowings under our 2010 Credit Facility.

Our franchise model provides diverse and reliable cash flows. Net cash provided by operating activities of the Company was $23.5 million and $16.2 million for the twenty-eight week periods ended July 14, 2013 and July 8, 2012, respectively. See our condensed consolidated statements of cash flows in Part 1, Item 1 to this quarterly report. Based primarily upon our generation of cash flow from operations, our existing cash reserves (approximately $15.2 million available as of July 14, 2013), and available borrowings under our 2010 Credit Facility (approximately $22.6 million available as of July 14, 2013), we believe that we will have adequate cash flow to meet our anticipated future requirements for working capital, including various contractual obligations and expected capital expenditures.
Our cash flows and available borrowings allow us to pursue our growth strategies. Our priorities in the use of available cash are:
• reinvestment in our core business activities that promote the Company's strategic initiatives,

• repurchase shares of our common stock, and

• reduction of long-term debt.

Our investment in core business activities includes our obligation to maintain our company-operated restaurants and provide marketing plans and operations support to our franchise system.
Under the terms of the Company's 2010 Credit Facility, quarterly principal payments of $1.5 million will be due during 2013 and 2014, and $4.5 million during 2015.


Table of Contents

Pursuant to the 2010 Credit Facility, the Company is subject to a Total Leverage Ratio requirement of 2.75 to 1.0 through December 23, 2015. As of July 14, 2013, the Company's Total Leverage Ratio was 1.03 to 1.0. The Total Leverage Ratio is defined as the ratio of the Company's Consolidated Total Indebtedness to Consolidated EBITDA for the four immediately preceding fiscal quarters. Consolidated Total Indebtedness means, as at any date of determination, the aggregate principal amount of Indebtedness of the Company and its Subsidiaries. The Company repurchased 96,028 shares of our common stock for approximately $3.4 million during the second quarter of 2013. Through the end of the second quarter year to date, the Company has used $8.4 million to repurchase and retire . . .

  Add PLKI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PLKI - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.