Popeyes Louisiana Kitchen Inc., the franchisor and operator of Popeyes restaurants, reported results for fiscal 2014, which ended December 28, 2014. The company also provided guidance for fiscal 2015 and an update on its long-term guidance.
Popeyes CEO Cheryl Bachelder says, "I want to take the opportunity to publicly thank our franchise owners, our restaurant teams, and our support center and field employees for the outstanding performance they achieved in 2014. Their efforts delivered industry leading global same-store sales growth of 6.2 percent and the opening of 201 new Popeyes restaurants. Looking ahead, our growth plans for 2015 remain strong, as evidenced by our guidance. Beyond 2015, we envision two investment areas that are intended to accelerate our unit economics and unit expansion: human capital and international. We believe these investments will yield excellent returns to our shareholders."
The reported net income in 2014 was $38.0 million, or $1.60 per diluted share. Adjusted earnings per diluted share were $1.65, compared to $1.43 in 2013, an increase of approximately 15 percent, consistent with previous guidance. Global same-store sales increased 6.2 percent in 2014, compared to a 3.7 percent increase last year, for a two-year growth of 9.9 percent. Domestic same-store sales increased 6.3 percent, compared to 3.6 percent last year, the sixth consecutive year of positive same-store sales growth. International same-store sales increased 5.1 percent, compared to 4.7 percent last year, the eighth consecutive year of positive same-store sales growth.
Popeyes domestic same-store sales have outpaced the chicken-QSR and the entire QSR categories for six consecutive years according to independent data. Popeyes market share of the domestic chicken-QSR segment reached 23.2 percent for 2014, an increase from 20.8 percent in 2013. The Popeyes system opened 201 restaurants, which included 121 domestic and 80 international restaurants, compared to 194 total openings in the prior year.
Included in domestic openings in 2014 were 13 company-operated restaurants. Net restaurant openings were 148, compared to 126 net restaurant openings last year.Global system-wide sales increased 12.3 percent, for two-year growth of over 20 percent. Total revenues increased approximately 14 percent to $235.6 million in 2014, from $206.0 million in 2013.
Total revenues in 2013 included approximately $5.5 million in one-time, non-recurring franchise fees associated with the conversion and franchising of restaurant properties acquired in Minnesota and California in 2012. Company-operated restaurant operating profit was $18.4 million, or 18.9 percent of sales, compared to $14.7 million, or 18.7 percent of sales in 2013.
Operating EBITDA was $74.7 million, or 31.7 percent of total revenues, compared to $65.2 million, or 31.7 percent of total revenues in 2013, a 15-percent increase. Free cash flow was $48.0 million, compared to $42.5 million in 2013. The company repurchased 891,931 shares of its common stock for approximately $40.0 million. The company purchased the recipes and formulas it uses in the preparation of many of its core menu items for $43.0 million from Diversified Foods and Seasonings L.L.C.
In the 2014 fourth quarter, reported net income was $8.8 million, or $0.37 per diluted share. Adjusted earnings per diluted share were $0.38 compared to $0.30 in the fourth quarter of 2013. Global same store sales increased 9.8 percent. Domestic same-store sales increased 10.7 percent, compared to 0.3 percent in the fourth quarter of 2013. International same-store sales increased 4.0 percent, compared to 4.2 percent in the fourth quarter of 2013.
Popeyes domestic same-store sales have outpaced the chicken-QSR category for 27 consecutive quarters and the entire QSR category for 13 consecutive quarters according to independent data. The Popeyes system opened 78 new restaurants compared to 71 new restaurants in the fourth quarter of 2013.
Globally, in 2015, the company expects same-store sales growth in the range of 3.5 percent to 4.5 percent.
New restaurant openings in the range of 200 to 225, including approximately 85 to 95 internationally. Net restaurant openings are expected to be in the range of 115 to 150, for a net unit growth rate of approximately 5 percent to 6 percent. During 2015, the company expects to open three to five new company-operated restaurants.
General and administrative expenses are expected to be approximately 2.9 percent of system-wide sales, maintaining an investment rate that supports long-term growth. Capital expenditures for the year are expected to be $15 to $20 million, including approximately $12.5 million for company-operated restaurant development. Adjusted earnings per diluted share in the range of $1.83–$1.88, reflecting growth of approximately 11 percent to 14 percent.
In 2015, the company expects to repurchase $40 to $50 million in outstanding shares, compared to $40 million in 2014.
The company’s effective income tax rate in 2015 is expected to be approximately 38 percent, compared to 38.5 percent in 2014.
Over the course of the upcoming five years, the company believes the execution of its Strategic Roadmap will deliver the following results on an average annualized basis: Same-store sales growth of 2 percent to 4 percent, an increase from previous guidance of 1 percent to 3 percent.
Net unit growth of 5 percent to 7 percent, an increase from previous guidance of 4 percent to 6 percent. Earnings per diluted share growth of 13 percent to 15 percent.
In 2008, the Company's strategic roadmap was launched with four organizing pillars to its strategy, which are used to set priorities and allocate resources. These pillars are: build a distinctive brand, create memorable experiences, grow restaurant profits, and accelerate quality restaurant openings.
"Our consistent execution against these four pillars has delivered strong, sustainable results over the last seven years. We believe our decision to invest in the business in 2008-09 when others were retrenching set Popeyes on a course to outperform its competitors. We will continue to execute against these core strategies as we evaluate future strategic investments in the areas of human capital and international expansion," Bachelder says.
“Human capital investments will reside in a new fifth pillar to our roadmap entitled, Develop Servant Leaders. This pillar will focus on providing top-tier support to our restaurants while growing the capabilities of restaurant leaders throughout our global system. Our goal is to create a culture of servant leadership to improve employee engagement, and, in turn, provide a guest experience as legendary as our food.
We will also make additional international investments to accelerate our unit growth. Our primary focus will be the traditional franchising model, supported with an investment in brand-building media to create strong Popeyes brand awareness and trial. This media investment has proved to deliver strong results and returns. We will also consider direct capital investments where opportunities exist to jump-start new international markets and to unlock new unit growth, as we have done previously in the U.S. markets of Indianapolis and Charlotte.
Additionally, we will continue to make select, strategic investments in domestic company-operated restaurants to lead the system on matters such as real estate selection, store design and layout, and people practices.
When these investments are thoroughly planned and validated, we will provide updated long-term guidance to reflect their impact on growth and shareholder returns.
"After funding our strategic initiatives, we expect to return excess operating cash flow to our shareholders. We also have the opportunity to adjust our capital structure and take greater advantage of our borrowing capacity to first fuel our strategic growth opportunities and then to opportunistically repurchase shares of our common stock. We envision moving our consolidated total leverage ratio from the current 1.4 to a range of 2.5-3.5 over the course of the next two to three years," says CFO Will Matt.
On February 20, 2015, the company's board of directors approved a multi-year share repurchase authorization of a total of $100 million.
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