Popeyes Grows Domestic Share Amid Tough Market

Reports net unit growth of restaurant openings of 6.2% over the last 12 months

p1Popeyes Louisiana Kitchen Inc. (NASDAQ: PLKI) announced its Q2 FY16 financial results on August 16th, 2016.

The Atlanta, Georgia-based Company develops, operates, and franchises quick-service restaurants (QSRs) under the brand names of Popeyes Louisiana Kitchen and Popeyes Chicken & Biscuits. The company operates in two segments, Franchise Operations and Company-operated Restaurants. As of July 10th, 2016, Popeyes had 2,594 operating restaurants in the U.S., the District of Columbia, three territories, and 26 foreign countries. Read more about Popeyes’ financial results below.

Q2 FY16 financial highlights

During Q2 FY16, Popeyes reported total revenue growth of 3.9% to $61.7 million compared to $59.4 million in the year-ago period. Total system-wide sales rose 6.5% in Q2 FY16 as a result of net unit growth and same-store sales performance. Popeyes’ global same-store sales increased 0.7% during the reporting quarter, while total domestic same-store sales were flat in Q2 FY16 compared to a 7.9% rise in domestic same-store sales in Q2 FY15. However, Popeyes increased its U.S. market share in the chicken-QSR category to a record high 26.6% in Q2 FY16 compared to 25.4% in the year-ago period.

Popeyes’ international same-store sales increased 6.4% in Q2 FY16 compared to a 4.3% growth in the year-ago period, marking the 26th consecutive quarter of positive international same-store sales growth.

Popeyes’ sales by company-operated restaurants grew slightly to $25.2 million in Q2 FY16 compared to $25.1 million in Q2 FY15. Company-operated restaurant operating profit decreased to $4.7 million, or 18.7% of sales compared to $4.9 million, or 19.5% of sales, in the year-ago period. The decrease was due to a combination of lower sales in new markets and higher labor costs, partially offset by lower chicken and grocery basket costs.

p2During Q2 FY16, Popeyes’ operating EBITDA was $19.8 million, or 32.1% of total revenue, compared to $19.5 million, or 32.8% of total revenue, in the year-ago period. The increase was due to higher franchise royalties and fees, partially offset by a planned increase in general and administrative expenses to support the Company’s new strategic roadmap along with a decrease in Company-operated restaurant operating profit.

Popeyes’ net income was flat at $10.3 million, or $0.47 per diluted share, in Q2 FY16 compared to $10.3 million, or $0.44 per diluted share, in Q2 FY15. Adjusted diluted EPS was at $0.47 compared to $0.44 in the year-ago period. Both diluted EPS and adjusted diluted EPS reported a Y-o-Y growth of 6.8% during the reporting quarter.

Popeyes generated free cash flow of $6.8 million in Q2 FY16, up from $1.9 million in the year-ago quarter. For H1 FY16, Popeyes generated free cash flow of $23.6 million, up from $19.6 million in the same year-ago period.

Other highlights

p3Restaurant updates: Popeyes opened 43 restaurants, comprising 23 domestic and 20 international restaurants, in Q2 FY16. At the end of Q2 FY16, Popeyes reported a net unit growth of restaurant openings of 6.2% over the last 12 months. The Company currently operates and franchises 2,594 restaurants in 48 states, Washington DC, three territories and 26 countries, compared to 2,443 at the end of Q2 FY15.

Strategic roadmap: Popeyes’ Strategic Roadmap will focus on three pillars: Louisiana Heritage, the company’s key differentiator from competitors; Passionate Teams in which people drive profitability; and Routine Excellence, which entails delivering consistent operational excellence at Popeyes restaurants. As part of this Strategic Roadmap, the Company plans an incremental spending of approximately $2 million towards team members and development of a single technology platform for Popeyes’ restaurants. Popeyes also plans to expand globally by increasing its restaurant count from 2,500 to 4,000 over the next few years.

p4New senior VP of development: On March 2nd, 2016, Popeyes announced that it has selected Steven Fricker as senior vice president of development. Fricker is an industry expert with more than 35 years of experience as a senior corporate executive and a former franchisee with several national restaurant brands. Fricker’s responsibilities include new unit development, franchise sale and development, architecture and design and new construction and restraint opening processes. He is also responsible for seeking and overseeing new franchise and company opportunities in strategic markets.

p5Share repurchases: During Q2 FY16, Popeyes repurchased 532,864 shares of common stock for $30 million, or an average cost of roughly $56.30 per share.

Guidance for FY16

Popeyes expects full-year system-wide 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.

Stock Performance

p6Popeyes’ stock ended the day at $54.53, gaining 0.31%, at the close on Wednesday, August 31st, 2016, having vacillated between an intraday high of $54.81 and a low of $54.25 during the session. The stock’s trading volume was at 139,587 for the day. The Company’s market cap was at $1.18 billion as of Wednesday’s close.

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