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Popeyes Louisiana Kitchen Inc. Cools After Another Strong Quarter

By Steve Symington - Feb 24, 2016 at 2:54PM

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After ending 2015 on a high note, the chicken-centric fast-food chain outlined a new long-term strategic plan. Here's what investors need to know.

Image source: Popeyes Louisiana Kitchen,

Shares of Popeyes Louisian Kitchen (PLKI) may have dropped more than 6% following its official fourth-quarter 2015 earnings release Wednesday after the market close, but that doesn't mean the report offered any big negative surprises for investors. Keeping in mind that Popeyes had already reported encouraging preliminary fiscal 2015 operating results last month, let's take a look at what the fast-food chain achieved in its latest quarter.

Popeyes Louisiana Kitchen results: The raw numbers

Metric

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$59.0 million

$56.9 million

3.6%

Net Income

$9.6 million

$8.8 million

9.1%

Earnings Per Diluted Share

$0.42

$0.37

13.5%

Data source: Popeyes Louisiana Kitchen. 

What happened with Popeyes Louisiana Kitchen this quarter (and in 2015)?

  • Global same-store sales rose 2.8%, including:
    • Domestic same-store sales growth of 2%, capping seven straight years of outperforming the chicken-QSR segment's domestic same-store sales, according to independent data.
    • International same-store sales growth of 8.5%.
  • Full-year global same-store sales growth came in at 5.9%, in line with preliminary results released last month.
  • To be fair, note that earlier this month, Yum! Brands reported its KFC division -- which includes all but its China market -- saw same-store sales climb 3% globally.
  • Even so, Popeyes' domestic market share of the chicken-QSR segment climbed to 25.5% for 2015, up from 23.2% in 2014.
  • Adjusted earnings rose 10.5% year-over-year to $0.42 per share.
  • Opened 82 new restaurants in Q4, compared to 78 in the year-ago period.
  • Net restaurant openings came to 166 for the full year, up from 148 in 2014, and good for 7% unit growth to 2,539 operating restaurants globally.
  • Generated $13 million in free cash flow in Q4, bringing free cash flow for the fiscal year (ended Dec. 27, 2015) to $58.6 million.
  • Repurchased 1.1 million shares of common stock for $62 million in 2015.

What management had to say 

Popeyes CEO Cheryl Bachelder stated:

We are pleased to report another year of strong performance and continued growth in the Popeyes system. Our powerful brand and collaborative relationship with Popeyes franchise owners continues to drive industry-leading performance. Having established a pattern of delivering superior results, it is now time to introduce new, bold goals for the Popeyes brand and a new, next-generation Strategic Roadmap created to deliver sustained superior results.

Looking forward 

More specifically, because Popeyes has now achieved the objectives originally outlined in its 2008 strategic roadmap, today it introduced a "set of new bold, long-term goals to be achieved over the next seven to 10 years." These goals include driving domestic restaurant average unit volumes from $1.4 million to $2 million, which will in turn increase domestic franchisee profitability nearly 50% to $500,000. In addition, Popeyes intends to grow its unit base to 4,000 restaurants globally.

Popeyes also outlined three new "strategic pillars" central to its new roadmap, including maintaining brand differentiation through its "Louisiana heritage," maintaining "passionate teams" to drive profitability, and demonstrating "routine excellence" through consistent restaurant-level operational efficiency.

As such, while Popeyes continues to target long-term annual adjusted EPS growth of 13% to 15%, it will make an incremental $2 million in investments in 2016 toward supporting these strategic goals. That brings its adjusted EPS growth guidance for 2016 to a range of 10% to 13%, and EPS range of $2.10 to $2.15. Driving this guidance are assumptions for same-store sales growth of 2% to 3%, share repurchases of $80 million to $120 million, net new restaurant openings of 140 to 185 (including three to five new company-owned restaurants), general and administrative expenses equaling between 2.9% and 3% of system-wide sales, and capital expenditures of $10 million to $15 million (including $10 million for company-owned restaurant development). 

In the end, the market may frown upon the near-term negative impact of Popeyes' investments in its business. But if its history of following through on its strategic roadmaps to drive outsized market share and earnings growth are any indication, the pullback should ultimately prove to be short-lived.

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Stocks Mentioned

Popeyes Louisiana Kitchen, Inc. Stock Quote
Popeyes Louisiana Kitchen, Inc.
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