Popeyes parent lowers 4Q outlook on declining consumer confidence

Efforts to revitalize the Popeyes Louisiana Kitchen chicken brand continued to pay off in the third quarter, but parent company AFC Enterprises Inc. warned that declining consumer confidence could moderate sales in the fourth quarter and narrowed its expectations for the year.

In a call with Wall Street analysts on Thursday following the report of a 30-percent increase in net profit for the October-ended third quarter, Cheryl Bachelder, chief executive of Popeyes parent AFC Enterprises Inc., said the company expects same-store sales for the year to grow between 3.5 percent and 4 percent. Previously the company had expected same-store sales growth between 3.5 percent and 4.5 percent for the year.

The company does not expect sales in the fourth quarter to be as robust, she said, noting that the government shutdown took a toll — not so much on sales locally but on consumer confidence in general. Domestic sales started to slow at the end of the third quarter.

Still, Bachelder said Popeyes has outperformed the quick-service segment as a whole for the past eight quarters, and the Atlanta-based chain is on track for “a very good year” overall. The momentum stems from the company’s Roadmap to Success, which she initiated about five years ago after stepping into the CEO role in late 2007.

The initiative was built around four pillars: differentiate the brand, run great restaurants, grow profitability and accelerate quality restaurant growth. Last year a fifth pillar was added to establish a philosophy of “servant leadership” to develop talent.

As part of that overall effort the 2,187-unit chain began a remodel program in 2012 that will be 60-percent complete by the end of 2013, said Ralph Bower, Popeyes president. By the end of next year, the company expects 80 percent of domestic units will be reimaged.

Remodeled units are showing an average sales lift of between 3 percent and 4 percent, which is a considerable return on investment given the cost of the reimaging is typically less than $100,000 per unit, Bower said.

The new look includes digital menu boards, which the company expects to be in about half of domestic units before year’s end.

Driving growth

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Improved profitability is also prompting more franchise growth. Company officials have said Popeyes has the potential of doubling in size domestically over the next decade.

Popeyes is 98-percent franchise operated, and the company expects to add between 185 to 195 restaurants globally this year — up from previous projections of 175 to 195 — about 65 of which will be international.

Including closings, net restaurant growth is expected to be between 100 to 120 units, up from previous expectations of 85 to 115. Last year, the chain netted 66 new restaurants.

Eight of the new openings this year will be company restaurants. AFC has been building in company markets of Memphis, New Orleans, Charlotte, N.C., and Indianapolis to prove out real estate strategies, said Bower.

This year the chain shifted from the traditional 48-seat, 2,400-square-foot prototype to a 60-seat, 2,600-square-foot format. And now the company is developing an 80-seat, 2,800-square-foot restaurant designed to handle increased volume.

The average unit volumes of new domestic freestanding restaurants opened in 2012 is $1.6 million, compared with $1.2 million for the system overall, which the company said is mostly the result of smarter real estate selection.

Popeyes has also been working on improving speed of service. Since 2009, the chain has improved equipment and conducted classroom and in-store training to help units reach the goal of service at the drive thru faster than three minutes.

When they started, only 25 units met the goal consistently. Now 70 percent do. But more work needs to be done, said Bower. “That improvement has taken us from bad to average,” he said. “We have a ways to go before we’re good.

Bachelder attributed a 5.1-percent same-store sales increase during the third quarter to promotions that included the Waffle Chicken Tender limited-time offer, which she said was the most successful promotion the chain has seen in five years, based on weekly sales. That promotion was followed by a “Love That Chicken” campaign focused on the core bone-in product and the chain’s well-known jingle, which also helped drive sales.

This week, Popeyes launched its traditional limited-time offer of deep-fried turkeys for Thanksgiving, which typically sell out every year.

Contact Lisa Jennings at [email protected]
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