ATLANTA–(BUSINESS WIRE)– AFC Enterprises, Inc. (NASDAQ:AFCE), the franchisor and operator of Popeyes®, today announced that members of the Company’s management will present at the following conferences in June 2013 to provide an update on Popeyes’ strategy and business:

All interested parties are invited to listen to the live presentation, beginning at 12:00 P.M. ET on the day of each conference, at http://wsw.com/webcast/clk10/afce/ or at the investor section of the Company’s website at www.afce.com. A replay of the webcast will be available on the site for 90 days following the conclusion of the conference.

Corporate Profile

AFC Enterprises, Inc. is the franchisor and operator of Popeyes® restaurants, the world’s second-largest quick-service chicken restaurant concept based on number of units. As of April 21, 2013, Popeyes had 2,119 restaurants operating in the United States, Puerto Rico, Guam, the Cayman Islands and 28 foreign countries. AFC’s primary objective is to deliver industry-competitive growth in sales and profits by offering excellent investment opportunities in its Popeyes brand and providing exceptional support systems and services to its franchisee owners. AFC Enterprises can be found at www.afce.com.

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Buy AFC Enterprises: primed for future growth

By Nathaniel Matherson, Seeking Alpha

Earlier this week, AFC Enterprises, Inc. (AFCE), the franchiser and operator of Popeyes® restaurants reported its first quarter earnings. The company reported $0.40 earnings per share which represented a adjusted 14% year of year increase in earnings. Total revenue came in strong with $60.4 million which represented just over a 14% increase year over year. I would like to outline why this small-cap company may get a whole lot bigger in the years ahead.

Building A Distinctive Brand

Recently, the company has worked hard to reshape its brand identity through logo changes, store renovations, and product innovation. These changes went into effect in order to improve the brand identity and image to maximize the results of its marketing campaigns. The company boldly changed its restaurant names and logos to reflect an increase in product quality and service. Popeyes Chicken & Biscuits is no more, the company now refers to itself and, more importantly, markets itself as Popeyes Louisiana Kitchen. After these changes were implemented the company launched a national advertising campaign to both strengthen brand awareness and plow the pastures for franchisees in the years ahead. As a result of this progress, AFC drastically increased its domestic market share in the growing quick service chicken industry.

Throughout a broad category slowdown, AFC has been able to outpace the growth of the CQSR industry for the last five years. As seen above, the company is growing globally(+7.5%) at twice the growth rate of entire sector(+3.8%) as reported by a third party.

Currently, the company holds over a 20% market share up from 15.8% just a few years ago. This market share is being driven by terrific domestic same store sales growth far above the industry average. The company reported a 4.5% domestic same store sales growth year over year, or 12.6% two year domestic same store sales growth, on the back of a strong response to its national media campaigns. The national promotions in the first quarter included some very distinct offerings such as the Butterfly Shrimp Tackle Box, the Cajun Surf & Turf, and my personal favorite the Rip’n Chick’n.

Unfortunately for consumers, Popeyes has not yet infiltrated many potential markets. Personally, the closest Popeyes location is 30 minutes away, and guess what, I drive 30 minutes to get that Wicked chicken basket with fries and a biscuit for only $3.99. I can’t be alone, and Cheryl A. Bachelder, President and Chief Executive Officer doesn’t think so either. She has made some bold statements as of late, both on CNBC and in investor presentations, predicting the company will double its store base in the years ahead to accommodate the rising demand for its products.

There are currently 1,679 Popeyes locations throughout 47 different states. At this time, the majority of these locations are clumped together in most states. The company has the potential to expand its southern presence in those states which are not yet saturated, or have less than 50 locations. The company should look to fill markets in this region which have significant gaps as the products have been received very so far. Next, the company should look to the western half of the country. California and Texas are only full established markets, while Wyoming and South Dakota have zero locations. Washington, Oregon, Nevada, Arizona, and New Mexico all have great expansion room before saturation sets in.

Going forward, the company must place its focus on rolling out the drive through options at these new restaurants. The quick serve restaurant industry has renewed its focus on this option as generally stores which offer the drive-through option pull a majority share of revenues from this channel. By focusing on drive-through, AFC has improved the customer experience, the company has been able to bring its average service times below the critical three minute wait. While not the fastest in the industry, the company has improved its company reported customer rated speed score for the last two years. In addition to the drive through expansion, the company’s focus has been placed on improving all aspects of the customer experience including food safety, friendliness, and manager experience.

In the years ahead, I expect the company to see increased demand for franchisee licenses as potential franchisees discover the potential profitability of operating a Popeyes restaurant. Over the last four years the company has drastically increased its profitability for its franchisees even during times of rising input costs. Over the last year alone, profitability per restaurant has risen over $40,000 to $250,000 per location before rental costs. Rising margins has been key for rising profits for franchisees. As of the most recent quarter, restaurant operating profit margin has risen to 20.5% which represents a 10% year over year increase. Margins have risen as a result of decreased suppliers costs, commodity hedging, energy improvements, and logistical innovation. I fully expect margins to continue to strength on the back of store count growth. Being such small company, there is no way AFC has reached its minimum efficient scale, or the lowest production point where the company’s average long term costs are minimized. As the company expands, economies of scale will take over and pull gross margins even higher as negotiating power between the company and suppliers improves.

Breakfast Potential

Earlier this month, the company took a huge step forward by initiating a trial of a new line of breakfast offerings in a popular North Carolina location. The new breakfast menu includes tasty Breakfast Grits, Country Fried Steak Biscuit, Sausage, Egg & Cheese Biscuit, Bacon, Egg & Cheese Biscuit and Popeyes signature Louisiana’s Best Chicken Biscuit. The breakfast menu also offers Bacon, Sausage or Chicken Breakfast Wraps, and a sweet Blackberry’n Cream Cheese Turnover. By offering consumers the breakfast option the company will increase brand loyalty, spur higher revenues, lower average total costs, and produce higher earnings per share. Popeyes would not be the first chicken company to offer breakfast, Chick-Fil-A has proven consumers respond well chicken based menu offerings throughout the day. Hopefully, the company will test trial these offerings across a broad selection of locations during the remainder of the year.

International Potential

Over the last 13 quarters the company has been able to grow its international business in the midst of many closures. The closures have begun to slow as the company has worked with franchisees to establish better business plans as of late. Many closures were a direct result of poor real estate planning, in the future only the best locations will be eligible. It is expected this year the company will grow its international business by 60 locations while maintaining above 4% same store sales growth. The company currently has 435 international locations in 26 different international markets. These numbers pale in comparison to it largest competitor KFC (YUM) which has over 13,000 international locations in 120 different markets. As KFC struggles to maintain its product quality abroad, AFC is position well to step in and offer an even better product. Over the last decade, the company has successfully deleveraged its balance sheet, which will allow the company room to spend on growth going forward. While the $73 million in total debt isn’t negligible, the weighted average interest rate of this debt is manageable at only 3.7%. In addition to lowering debt, the company has been growing its cash flows substantially at 17% year over year. Increasing cash flows will serve to fuel strategic investment and shareholder value creation in the future.

Summary

AFC Enterprises, Inc. is primed for future growth as a result of brand distinction, product innovation, breakfast potential, international growth, and a strong financial position. Going forward, I fully expect the company to dominate the quick serve chicken industry and take market share domestically and internationally from its main competitor KFC. Earnings should rise on the back of higher revenues and rising margins.

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