Popeyes Louisiana Kitchen Inc. (NASDAQ:PLKI) is Kentucky Fried Chicken’s largest competitor. It develops, operates, and franchises quick-service restaurants specializing in Louisiana-style fried chicken and side dishes. The company operates in two business segments, Franchise Operations and Company-Operated Restaurants.
It operates and franchises Popeyes restaurants under the trade names Popeyes Chicken & Biscuits and Popeyes Louisiana Kitchen in 47 states, the District of Columbia, three territories, and 28 foreign countries. The company was formerly known as AFC Enterprises Inc. and changed its name to Popeyes Louisiana Kitchen Inc. in January 2014. It has been a wonderful stock in the past two years, rising over 80 percent in two short years. This excellent return on investment has come from the company’s continued success in generating increased revenues and sales.
The company reported another blowout quarter. It reported net income of $11.1 million, or 46 cents per diluted share. Adjusted earnings per diluted share were 46 cents compared to 40 cents in 2013, representing a 15 percent increase year over year. Global same-store sales increased 4.5 percent in 2014 for a two-year growth rate of 9 percent. Total domestic same-store sales increased 4.3 percent compared to 4.5 percent last year. International same-store sales increased 5.8 percent compared to 4.1 percent last year.
Popeyes has also increased its market share in the fried chicken space to 22 percent, up from 20 percent last year. Total systemwide sales increased by 10.9 percent while total revenues increased 16 percent to $70.1 million in 2014 from $60.4 million in the prior year. Free cash flow was strong at $14.2 million in 2014 compared to $11.7 million in 2013, and the company repurchased approximately 240,000 shares of its common stock for approximately $10 million.
Average restaurant operating profit margins of Popeyes domestic freestanding franchised restaurants before rent was 21.3 percent in fourth-quarter 2013 compared to 20.1 percent the year before and 21.6 percent for full-year 2013 compared to 20.4 percent in 2012. Further, the Popeyes system opened 27 restaurants, which included 19 domestic and eight international restaurants, compared to 40 openings in the prior year.
Speaking about the quarter, CEO Cheryl Bachelder said: “The strength of the Popeyes brand was once again demonstrated in our first quarter results. Despite the weather, our freshly remodeled restaurants, our superior food at sharp price points, and our national advertising served up strong performance. In this quarter, we saw positive same-store sales, continued gains in market share, and higher restaurant profitability. We are excited about the growth Popeyes is experiencing, and so are our franchisees.
“Our momentum continued with 27 new restaurants added to our system this quarter, on top of the 194 restaurants opened in 2013. These new units are averaging volumes higher than the system average, and are delivering record franchisee profitability. These unit economics are fueling the growth of the brand.”
Looking ahead, the company has increased its guidance. The company sees same-store sales growth of 3 percent to 4 percent compared to previous guidance of 2 percent to 3 percent. It sees adjusted earnings per diluted share in the range of $1.58 to $1.63 compared to previous guidance of $1.57 to $1.62. Look for the company to open 180 to 200 new restaurants for a system growth rate of approximately 5 percent.
One piece of negative news is an anticipated higher effective income tax rate in 2014 of approximately 38 percent compared to 37.4 percent in 2013. Finally, the company expects to conduct share repurchases of approximately $20 million to $30 million. Given the blowout quarter, rising guidance, and share buybacks, Popeyes Louisiana Kitchen is a strong investment in the restaurant space.
Disclosure: Christopher F. Davis holds no position in Popeyes and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $50 price target.