Popeyes On Growing Sales, Franchisee Relations

Fueled by improvement in key metrics and growing franchisee confidence, Popeyes Louisiana Kitchen is tracking favorably with its long-term growth plans, officials of parent AFC Enterprises Inc. said today.

Cheryl A. Bachelder, AFC chief executive and president, and H. Melville Hope, the company's senior vice president and chief financial officer, gave that news to analysts on a conference call Thursday covering results for the third quarter, which were released Wednesday.

Bachelder also spoke separately with NRN about results for the quarter that saw global systemwide sales climb 5.5 percent to $450.6 million.

Before recapping quarterly and year to date results, Bachelder told analysts, "Our culinary innovations and Bonafide [bone-in] chicken promotions continue to resonate with our guests in our restaurants."

Popeyes' menu additions most recently have included boneless and portable limited-time chicken products like Wicked Chicken and Rip'n Chick', as well as the ongoing Dip 'n Chick'n promotion.

AFC said Wednesday said that third-quarter net income totaled $5.8 million, or 24 cents a share, compared with $5.9 million, or 23 cents a share in the same 2010 quarter.

Revenue rose 3.8 percent to $35.4 million, on flat company-owned restaurant sales of $12.3 million and a 6.7-percent increase in franchising revenue, to $22.2 million.

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Global systemwide same-store sales rose 1.7 percent in the latest quarter, lapping year-ago growth of 5.2 percent, AFC said. While third-quarter domestic systemwide same-store sales grew 1.7 percent, AFC-owned restaurants saw a same-store sales decline of 1.9 percent, which the company attributed to tough comparisons against 8.5-percent growth in 2010.

Popeyes ended the third quarter Oct. 2 with 1,998 restaurants worldwide, up 2.5 percent from the same quarter a year ago. Domestically, the chain ended the quarter with 38 company and 1,560 franchised restaurants, or 1,598 total locations, for year-over-year growth of 1.8 percent.

"Popeye's strategic plan remains the organizing principle of our growth initiative and serves us well in this challenging economy," Bachelder told analysts.

Over the next four to five years, AFC expects to deliver an average annualized basis same-store sales growth of between 1 percent and 3 percent; net unit growth of between 4 percent and 6 percent; and earnings per share growth of between 13 percent and 15 percent.

Bachelder explained that the four pillars of the plan are: "build the Popeyes brand;" "run great restaurants;" "strengthen unit economics;" and "ramp up new unit growth."

Related to that last charge, in speaking with NRN, she noted that revised guidance on global restaurant openings and closings in fiscal 2011 had the Popeyes chain on track to open a net 60 locations for the year, which, if achieved, would almost double 2010's net number of 34 and nearly triple 2009's 21 new units.

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"Our marketing effort is to build the brand by balancing innovative new product news with compelling promotions of our core bone-in chicken," Bachelder told analysts.

She added, "In the third quarter, this resulted in our sixth consecutive quarter of positive same-store sales for our domestic restaurants, and seventh consecutive quarter for our international restaurants."

Related to the chain's goal of improving restaurant operations and service, Bachelder said that in the third quarter, 76 percent of the guests of domestic restaurants who took part in the chain's receipt-initiated survey program gave Popeyes the highest – or "delighted" – rating. That marked an improvement of 3 percentage points over 2010's third quarter, she said.

"Our [in-restaurant] speed-of-service score, at the end of the third quarter, was over 70 percent 'delighted' – a gain of 15 percentage points since we rolled out the initiative in 2008," Bachelder said. "Approximately 65 percent of our restaurants were reporting drive-thru [service] times at our goal of 180 seconds or less."

Among other information shared by Bachelder:

• Third quarter commodity inflation at Popeyes was about 9 percent compared to last year, helping to force down restaurant operating profits by 2 points, to 18.3 percent of sales. The company said it would work to mitigate higher costs through restaurant efficiencies and supply chain savings

• Popeyes reported significant improvement its third annual franchisee survey. "Our franchisees let us know that despite these commodity challenges, the overwhelming majority of them feel good about the quality of the Popeyes franchising opportunity," Bachelder said.

• To boost new unit growth, Popeyes, among other moves, has become more proactive in recruitment of franchisees, through such actions as holding seminars in priority markets, such as Florida and Southern California.

• Bachelder said Popeyes' "strong brand," "rigorous site selection" and high performing new units – which are generating averaging volumes of about $1.4 million, compared with the systemwide average of approximately $1 million, are "are strengthening our new unit development pipeline."

Contact Alan Liddle at alan.liddle@penton.com.
Follow him on Twitter: @AJ_NRN