Industry News | August 14, 2001
AFC Reports Second Quarter
Second quarter of 2001 versus second quarter of 2000 highlights include:
• Net income from continuing operations increased 53.7 percent to $9.0 million
• Diluted EPS from continuing operations increased 40% to $0.28
• Operating EBITDA margin increased 150 basis points to 18.6 percent
• System-wide sales increased 8.8 percent to $594.1 million
• Franchise revenues increased 23.1 percent
• Wholesale revenues increased 18.9 percent
• The AFC system added 338 new commitments, opened 96 new restaurants, bakeries and cafes, re-imaged over 50 additional restaurants and bakeries, and completed 37 conversions of company-owned units to franchise units.
"We are extremely pleased to report AFC's results for the second quarter of 2001. On a comparable quarterly basis, both system sales and our operating margins reflect record level performance. This performance is consistent with our expectations and demonstrates AFC's ability to execute on its strategy of becoming the Franchisor of Choice®,'' said Frank Belatti, Chairman and CEO of AFC Enterprises.
"AFC's net income from continuing operations increased to $9.0 million up 200 basis points to 5.6 percent of revenue compared with $5.8 million, or 3.6 percent of revenue, in the second quarter of 2000. The improvement in net income was primarily driven by an increase in franchise related revenues, improved EBITDA margins and lower interest expense.
Diluted earnings per share from continuing operations of $0.28 for the second quarter of 2001 reflected an increase of 40 percent over diluted earnings per share from continuing operations of $0.20 for the second quarter of 2000. Income from continuing operations was reduced by one cent due to an extraordinary charge related to the repurchase of $7 million of the company's 10.25 percent senior subordinated notes, resulting in diluted earnings per share of $0.27.
Operating EBITDA** for the second quarter of 2001 increased 7.9 percent to $30.2 million as compared to $28.0 million for the comparable period in 2000. EBITDA margin for the second quarter of 2001 increased by 150 basis points to 18.6 percent, up from 17.1 percent for the second quarter of 2000. The improved operating EBITDA margin was primarily due to the higher profit margin associated with the increased franchise related revenue, which included franchise related fees from the sale of 37 company-owned units to franchisees in conjunction with AFC's conversion strategy.
System-wide sales at AFC's 3,693 restaurants, bakeries and cafes and Seattle Coffee Company's wholesale operations were $594.1 million compared with system-wide sales of $545.7 million during the second quarter of 2000. This 8.8 percent increase was primarily due to new franchise unit growth, domestic system-wide comparable sales growth and wholesale revenue growth.
"Our strategy to add new franchising revenues through new unit growth, comparable sales growth and the conversion of select company owned units to franchise units was successful in the second quarter,'' said Gerald J. Wilkins, AFC's Executive Vice President and CFO. "It is encouraging to see our commitment pool for future development grow to nearly 2,400 units. Our strong brand performance continues to generate investment interest from potential franchisees as well as our existing franchise partners.''
AFC's franchise related revenues increased by 23.1 percent and wholesale revenues increased 18.9 percent. Franchise revenues increased primarily due to the addition of 90 new franchised units, the conversion of 37 company-owned units to franchisees, and a domestic franchised comparable store sales increase of 2.6 percent. AFC's total revenue for the second quarter of 2001 was $162.2 million compared to $163.3 million for the second quarter of 2000. The $1.1 million decline in revenues was due to the conversion of 37 company owned units to franchise units.
The AFC system opened 96 restaurants, bakeries and cafes during the second quarter of 2001, including 41 international openings, compared to 79 total system wide openings in the second quarter of 2000. During the second quarter of 2001, the company received 338 new commitments for future development of franchised units around the world, an increase of 14.6 percent from the 295 new commitments received in the second quarter of 2000. At the end of the second quarter of 2001, AFC had nearly 2,400 outstanding commitments for future development.
For the second quarter of 2001 compared to the second quarter of 2000, overall domestic system-wide comparable sales were up, led by Popeyes Chicken & Biscuits with a 4.1 percent increase. Church's Chicken domestic restaurants posted a 1.0 percent increase and comparable sales at Cinnabon system-wide domestic bakeries increased 0.3 percent. Comparable sales at Seattle Coffee Company's domestic system-wide retail cafes, Seattle's Best Coffee and Torrefazione Italia, remained unchanged. Wholesale coffee revenues grew by 18.9 percent in the second quarter of 2001 compared to the second quarter of 2000. New product introductions, marketing and re-imaging have all been key factors in driving comparable sales.
"Popeyes Chicken & Biscuits, Church's Chicken and Cinnabon all had slight to above average positive comparable sales domestically for the quarter, and Seattle Coffee Company which was flat, had a healthy increase in their wholesale revenue. More importantly, our operating margins are holding up despite a variety of cost pressures on the business. We continue to aggressively strive to deliver strong operating margins and focus on the growth elements of the business,'' said Dick Holbrook, AFC's President & COO.
Total international franchise revenues which represent less than 3 percent of AFC's total revenues, grew by 23.6 percent in the second quarter of 2001. International franchised Popeyes units' comparable sales were down 5.3 percent for the second quarter of 2001 compared to the second quarter of 2000, primarily as a result of revenue from units in Korea stabilizing at lower levels after experiencing double digit growth in the same period of the prior year. International franchised Church's restaurants recorded a comparable sales increase of 0.1 percent. International franchised Cinnabon bakeries had a comparable sales decrease of 19.9 percent for the second quarter of 2001 compared to the second quarter of 2000. The decline was primarily the result of exceptional sales volumes at the two Cinnabon bakeries in Japan during their grand opening year in 2000. Sales at these units, which averaged over $2 million in annualized sales per store last year, are currently at $1.25 million in average annualized sales, more than three times the sales volume in U.S. bakeries. Seattle's Best Coffee cafes recorded a comparable sales increase of 9.1 percent during the second quarter of 2001 compared to the second quarter of 2000.
Earnings Conference Call and Internet Web Cast
The company will host its second quarter conference call and internet web cast with the investment community, at 10:00 a.m. EDT, on Tuesday, August 14. To access the company's web cast, go to www.afce.com, select "Investor Information'' and then select "Q2 2001 AFC Enterprises Earnings Conference Call.''
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