Market Overview

Popeyes Louisiana Kitchen, Inc. Reports Fiscal 2016 Earnings Results

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Popeyes Louisiana Kitchen, Inc. (NASDAQ:PLKI), the franchisor and
operator of Popeyes® restaurants, today reported results for fiscal 2016
that ended December 25, 2016.

PLKI reported net income of $42.8 million, or $1.98 per diluted share,
compared to $44.1 million, or $1.91 per diluted share in 2015. Adjusted
earnings per diluted share(1) were $2.12, compared to $1.91
in 2015, representing an increase of 11%, consistent with previous
guidance.

"We are pleased to report another year of strong performance at
Popeyes," said Cheryl Bachelder, Popeyes Chief Executive Officer.
"Driving the top line through a careful balance of innovative offerings
and core menu value has created momentum in the fourth quarter, despite
challenging market conditions. In 2016, we delivered global same-store
sales growth of 1.7%, our 8th consecutive year of positive same-store
sales growth, and 216 new restaurant openings around the world."

Fiscal 2016 Highlights

System Sales Performance:

  • Global system-wide sales increased 7.4%, for a two-year compounded
    growth rate of over 20%.
  • Global same-store sales increased 1.7% in 2016, compared to a 5.9%
    increase last year, for a two-year compounded growth rate of 7.7%.
    • Total domestic same-store sales increased 1.4%, compared to 5.7%
      last year, the eighth consecutive year of positive same-store
      sales growth.
    • International same-store sales increased 4.4%, compared to 7.0%
      last year, the tenth consecutive year of positive same-store sales
      growth.
  • Popeyes market share of the domestic Chicken-Quick Service Restaurant
    segment reached 26.5% for 2016, an increase from 25.5% in 2015.

Openings:

  • The Popeyes system opened 216 restaurants, which included 118 domestic
    and 98 international restaurants, compared to 219 total openings in
    the prior year.
    • Net restaurant openings were 158, compared to 166 net restaurant
      openings in the prior year.

Key Financial Metrics:

  • Total revenues increased approximately 3.8% to $268.9 million in 2016,
    from $259.0 million in 2015.
  • Company-operated restaurant operating profit(1) was $20.7
    million, or 19.1% of sales, compared to $21.9 million, or 20.0% of
    sales in 2015.
  • Operating EBITDA(1) was $88.7 million, or 33.0% of total
    revenues, compared to $84.0 million, or 32.4% of total revenues in
    2015, a 5.6% increase.
  • Free cash flow(1) was $56.0 million, compared to $49.9
    million in 2015.
  • The Company repurchased approximately 1.8 million shares of its common
    stock for approximately $100.0 million.

Fourth Quarter 2016 Highlights:

  • Reported net income was $9.2 million, or $0.44 per diluted share,
    compared to $9.6 million, or $0.42 per diluted share in the fourth
    quarter 2015. Adjusted earnings per diluted share(1) were
    $0.48, compared to $0.42 in 2015, representing an increase of 14.3%.
  • Global same-store sales increased 2.8%.
    • Total domestic same-store sales increased 3.0%, compared to 2.0%
      in the fourth quarter of 2015, for a two-year compounded growth
      rate of 5.1%.
    • International same-store sales increased 1.6%, compared to 8.5% in
      the fourth quarter of 2015, for a two-year compounded growth rate
      of 10.2%.
  • The Popeyes system opened 89 new restaurants compared to 82 new
    restaurants in the fourth quarter of 2015.

(1) Adjusted earnings per diluted share, operating EBITDA,
operating EBITDA margin, Company-operated restaurant operating profit,
Company-operated restaurant operating profit margin and free cash flow
are supplemental non-GAAP measures of performance. See the heading
entitled "Management's Use of Non-GAAP Financial Measures."

Capital Structure Update

On February 15, 2017, the Company increased the aggregate revolving loan
commitments under its 2016 revolving credit facility to $400 million.
With the $150 million expansion, availability for short-term borrowings
and letters of credit under the amended and restated credit facility is
$244.4 million. There were no changes to any other key terms of the
credit facility.

Corporate Profile

Popeyes Louisiana Kitchen, Inc. is the franchisor and operator of
Popeyes® restaurants, the world's second-largest Quick-Service
Restaurant ("QSR") chicken concept based on number of units. As of
December 25, 2016, Popeyes had 2,688 operating restaurants in the United
States, three territories, and 25 foreign countries. The Company's
primary objective is to deliver sales and profits by offering excellent
investment opportunities in its Popeyes brand and providing exceptional
franchisee support systems and services to its owners. Popeyes Louisiana
Kitchen, Inc. can be found at www.popeyes.com.

       

Popeyes Louisiana Kitchen, Inc.

Consolidated Balance Sheets

As of December 25, 2016, and December 27, 2015

(In millions, except share data)

 
2016 2015
Current assets:
Cash and cash equivalents $ 11.6 $ 9.1
Accounts and current notes receivable, net 9.5 9.2
Other current assets 4.9 8.5
Advertising cooperative assets, restricted 33.8   35.4  
Total current assets 59.8   62.2  
Long-term assets:
Property and equipment, net 95.6 97.7
Goodwill 11.0 11.1
Trademarks and other intangible assets, net 93.7 94.2
Other long-term assets, net 2.1   1.5  
Total long-term assets 202.4   204.5  
Total assets $ 262.2   $ 266.7  
Current liabilities:
Accounts payable $ 7.8 $ 6.7
Other current liabilities 13.0 13.1
Current debt maturities 0.5 0.3
Advertising cooperative liabilities 33.8   35.4  
Total current liabilities 55.1   55.5  
Long-term liabilities:
Long-term debt 159.3 112.3
Deferred credits and other long-term liabilities 39.4   39.3  
Total long-term liabilities 198.7   151.6  
Commitments and contingencies
Shareholders' equity:
Preferred stock ($.01 par value; 2,500,000 shares authorized; 0
issued and outstanding)
Common stock ($.01 par value; 150,000,000 shares authorized;
20,727,945 and 22,449,697 shares issued and outstanding at the end
of fiscal years 2016 and 2015, respectively)
0.2 0.2
Capital in excess of par value
Retained earnings 8.3 59.6
Accumulated other comprehensive loss (0.1 ) (0.2 )
Total shareholders' equity 8.4   59.6  
Total liabilities and shareholders' equity $ 262.2   $ 266.7  
     

Popeyes Louisiana Kitchen, Inc.

Consolidated Statements of Operations

(In millions, except per share data)

 
12 Weeks Ended   Fiscal Year Ended
(unaudited)   (unaudited)  
12/25/2016   12/27/2015   12/25/2016   12/27/2015
Revenues:
Sales by Company-operated restaurants $ 22.4 $ 24.3 $ 108.3 $ 109.5
Franchise royalties and fees 37.1 33.4 154.8 144.0
Rent from franchised restaurants 1.5     1.3     5.8     5.5
Total revenues 61.0     59.0     268.9     259.0
Expenses:
Restaurant food, beverages and packaging 7.1 7.7 34.2 35.3
Restaurant employee, occupancy and other expenses 11.3 12.0 53.4 52.3
General and administrative expenses 21.6 20.4 89.5 84.3
Occupancy expenses - franchise restaurants 0.9 0.8 3.1 3.1
Depreciation and amortization 2.4 2.2 10.1 9.7
Other expenses (income), net 0.5     0.1     4.1    

Total expenses

43.8     43.2   194.4     184.7
Operating profit 17.2 15.8 74.5 74.3
Interest expense, net 1.2     0.9   4.6     3.7
Income before income taxes 16.0 14.9 69.9 70.6
Income tax expense 6.8     5.3   27.1     26.5
Net income $ 9.2     $ 9.6   $ 42.8     $ 44.1
 
Earnings per common share, basic: $ 0.45     $ 0.43     $ 2.00     $ 1.94
Earnings per common share, diluted: $ 0.44     $ 0.42     $ 1.98     $ 1.91
 
Weighted-average shares outstanding:
Basic 20.5 22.3 21.4 22.7
Diluted 20.8 22.6 21.6 23.1

     

Popeyes Louisiana Kitchen, Inc.

Consolidated Statements of Cash Flows

For Fiscal Years 2016 and 2015

(In millions)

 
2016   2015
Cash flows provided by (used in) operating activities:
Net income $ 42.8 $ 44.1
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 10.1 9.7
Asset impairments 3.7
Net (gain) loss on sale and disposal of assets 0.4 (0.1 )
Deferred income taxes (2.3 ) 4.2
Non-cash interest expense, net 0.4 0.4
Excess tax benefit from share-based payment arrangements (1.0 ) (7.6 )
Stock-based compensation expense 6.8 6.7
Change in operating assets and liabilities:
Accounts receivable (0.2 ) (0.5 )
Other operating assets 4.8 6.7
Accounts payable and other operating liabilities 0.9     (0.9 )
Net cash provided by operating activities 66.4     62.7  
Cash flows provided by (used in) investing activities:
Capital expenditures (10.4 ) (12.8 )
Proceeds from dispositions of property and equipment 0.2     0.2  
Net cash used in investing activities (10.2 )   (12.6 )
Cash flows provided by (used in) financing activities:
Principal payments — 2013 credit facility (109.0 ) (3.0 )
Borrowings under 2013 credit facility 6.0
Borrowings under 2016 credit facility 155.5
Excess tax benefits from share-based payment arrangements 1.0 7.6
Share repurchases (100.0 ) (62.0 )
Proceeds from exercise of employee stock options 0.5 2.5
Debt issuance costs (1.1 )
Other financing activities, net (0.6 )   (0.5 )
Net cash provided by (used in) financing activities (53.7 )   (49.4 )
Net increase (decrease) in cash and cash equivalents 2.5 0.7
Cash and cash equivalents at beginning of year 9.1     8.4  
Cash and cash equivalents at end of year $ 11.6     $ 9.1  

     

 Popeyes Louisiana Kitchen, Inc.

Summary of System-Wide Data

 
12 Weeks Ended   Fiscal Year Ended
12/25/2016   12/27/2015   12/25/2016   12/27/2015
Same-store sales growth    
Company-operated restaurants (0.7 )% (3.1 )% (2.4 )% (0.4 )%
Domestic franchised restaurants 3.1 % 2.2 % 1.5 % 6.0 %
 
Total domestic (company-operated and franchised restaurants) 3.0 % 2.0 % 1.4 % 5.7 %
International franchised restaurants 1.6 % 8.5 % 4.4 % 7.0 %
Total global system 2.8 % 2.8 % 1.7 % 5.9 %
 
Company-operated restaurants (all domestic)
Restaurants at beginning of period 72 68 70 65
New restaurant openings 2 2 5
Transfer to franchised restaurants (17 )       (17 )    
Restaurants at end of period 55     70     55     70  
 
Franchised restaurants (domestic)
Restaurants at beginning of period 1,964 1,857 1,900 1,805
New restaurant openings 52 52 116 120
Transfer from Company-operated restaurants 17 17
Permanent closings (7 ) (8 ) (16 ) (21 )
Temporary (closings)/re-openings, net (14 )   (1 )   (5 )   (4 )
Restaurants at end of period 2,012     1,900     2,012     1,900  
 
Franchised restaurants (international)
Restaurants at beginning of period 595 550 569 509
New restaurant openings 37 28 98 94
Permanent closings (10 ) (13 ) (42 ) (32 )
Temporary (closings)/re-openings, net (1 )   4     (4 )   (2 )
Restaurants at end of period 621     569     621     569  
 
Total restaurant count at end of period 2,688     2,539     2,688     2,539  
 

Management's Use of Non-GAAP Financial Measures

Adjusted earnings per diluted share, operating EBITDA, operating EBITDA
margin, Company-operated restaurant operating profit, Company-operated
restaurant operating profit margin and free cash flow are supplemental
non-GAAP financial measures. The Company uses adjusted earnings per
diluted share, operating EBITDA, operating EBITDA margin,
Company-operated restaurant operating profit, Company-operated
restaurant operating profit margin, free cash flow and consolidated
total leverage ratio, in addition to earnings per share, net income,
operating profit and cash flows from operating activities to assess its
performance and believes it is important for investors to be able to
evaluate the Company using the same measures used by management. The
Company believes these measures are important indicators of its
operational strength and the performance of its business. Adjusted
earnings per diluted share, operating EBITDA, operating EBITDA margin,
Company-operated restaurant operating profit, Company-operated
restaurant operating profit margin, free cash flow and consolidated
total leverage ratio as calculated by the Company are not necessarily
comparable to similarly titled measures reported by other companies. In
addition, adjusted earnings per diluted share, operating EBITDA,
operating EBITDA margin, Company-operated restaurant operating profit,
Company-operated restaurant operating profit margin, free cash flow and
consolidated total leverage ratio: (a) do not represent earnings per
share, net income, operating profit, cash flows from operating
activities as defined by GAAP; (b) are not necessarily indicative of
cash available to fund cash flow needs; and (c) should not be considered
as an alternative to earnings per share, net income, operating profit,
cash flows from operating activities or other financial information
determined under GAAP.

Adjusted Earnings Per Diluted Share: Calculation and
Definition

The Company defines adjusted net income for the periods presented as the
Company's reported net income after adjusting for certain non-operating
items consisting of the following:

i. other expense (income), net, as follows:

  • fourth quarter 2016 includes $0.5 million net loss on sale and
    disposal of assets in other expense (income), net.
  • fourth quarter 2015 includes $0.1 million for executive transition
    expenses.
  • fiscal 2016 includes $3.7 million in asset impairments and $0.4
    million net loss of the sale and disposal of assets;
  • fiscal 2015 includes $0.4 million for recoveries under Deepwater
    Horizon Economic and Property Damages Settlement Program and $0.2
    million net gain on the sale of assets offset by $0.5 million related
    to executive transition expenses and $0.1 million net loss on the sale
    and disposal of assets;

ii. for fiscal 2016, $0.5 million in income tax expense for an
out-of-period adjustment to the Company's valuation allowance on a
deferred tax asset associated with a non-operating property held for
sale as discussed in Note 18 to the Consolidated Financial Statements;
and

iii. the tax effect of these adjustments at the effective statutory
rates.

Adjusted earnings per diluted share provides the per share effect of
adjusted net income on a diluted basis. The following table reconciles
on a historical basis for fiscal years 2016 and 2015, the Company's
adjusted earnings per diluted share on a consolidated basis to the line
on its consolidated statement of operations entitled net income, which
the Company believes is the most directly comparable GAAP measure on its
consolidated statement of operations:

     
12 weeks ended   Fiscal Year Ended
(In millions, except per share data)     12/25/2016   12/27/2015   12/25/2016   12/27/2015
Net income $ 9.2   $ 9.6 $ 42.8   $ 44.1
Other expense (income), net 0.5 0.1 4.1
Deferred tax asset valuation allowance 0.5 0.5
Tax effect     (0.2 )   (0.1 )   (1.6 )   $
Adjusted net income     $ 10.0     $ 9.6     $ 45.8     $ 44.1
Adjusted earnings per diluted share     $ 0.48     $ 0.42     $ 2.12     1.91
Weighted average diluted shares outstanding     20.8     22.6     21.6     23.1
 

Operating EBITDA: Calculation and Definition

The Company defines operating EBITDA as "earnings before interest
expense, taxes, depreciation and amortization, and other expenses
(income), net." The following table reconciles on a historical basis for
the fiscal years 2016 and 2015, respectively, the Company's operating
EBITDA on a consolidated basis to the line on its consolidated statement
of operations entitled net income, which the Company believes is the
most directly comparable GAAP measure. Operating EBITDA margin is
defined as operating EBITDA divided by total revenues.

           
(Dollars in millions)     2016   2015
Net income     $ 42.8   $ 44.1
Interest expense, net 4.6 3.7
Income tax expense 27.1 26.5
Depreciation and amortization 10.1 9.7
Other expenses (income), net     4.1      
Operating EBITDA     $ 88.7     $ 84.0  
Total revenues     $ 268.9     $ 259.0  
Operating EBITDA margin     33.0 %   32.4 %
 

Company-operated Restaurant Operating Profit: Calculation and
Definition

The Company defines Company-operated restaurant operating profit as
sales by Company-operated restaurants minus restaurant food, beverages
and packaging minus restaurant employee, occupancy and other expenses.
The following table reconciles on a historical basis for fiscal years
2016 and 2015, Company-operated restaurant operating profit to the line
item on its consolidated statement of operations entitled sales by
Company-operated restaurants, which the Company believes is the most
directly comparable GAAP measure on its consolidated statement of
operations. Company-operated restaurant operating profit margin is
defined as Company-operated restaurant operating profit divided by sales
by Company-operated restaurants.

       
    Fiscal Year Ended
(Dollars in millions)     12/25/2016   12/27/2015
Sales by Company-operated restaurants $ 108.3   $ 109.5
Restaurant food, beverages and packaging (34.2 ) (35.3 )
Restaurant employee, occupancy and other expenses     (53.4 )   (52.3 )
Company-operated restaurant operating profit     $ 20.7     $ 21.9  
Company-operated restaurant operating profit margin     19.1 %   20.0 %

Free Cash Flow: Calculation and Definition

The Company defines "free cash flow" as net cash provided by operating
activities less capital expenditures. Free cash flow is an important
measure utilized by management in determining the amount of cash
available for reinvestment in our strategic initiatives, share
repurchases, and reduction of long-term debt. We believe it provides a
more representative assessment of operating cash flows and that it is
important for investors to be able to evaluate the Company using the
same measures as management. Free cash flow is not a term defined by
GAAP, and as a result, our measure of free cash flow might not be
comparable to similarly titled measures used by other companies and does
not represent residual cash available for discretionary investments.
Free cash flow should be considered as supplemental in nature and not be
considered in isolation or as a substitute for our liquidity as reported
in the Company's consolidated statements of cash flows prepared in
accordance with GAAP.

The following table reconciles on a historical basis for fiscal years
2016 and 2015, the Company's free cash flow on a consolidated basis to
the line on its consolidated statement of operations entitled net
income, which the Company believes is the most directly comparable GAAP
measure on its consolidated statement of operations.

       
    Fiscal Year Ended
(Dollars in millions)     12/25/2016   12/27/2015
Net cash provided by operating activities $ 66.4   $ 62.7
Capital expenditures (a)     (10.4 )   (12.8 )
Free cash flow     $ 56.0     $ 49.9  

(a) Our capital expenditures consist primarily of new restaurant
construction, equipment replacements, re-imaging activities associated
with Company-operated restaurants, investments in information technology
and other capital assets.

Consolidated Total Leverage Ratio: Calculation and Definition

The Company uses Consolidated Total Leverage Ratio ("total leverage
ratio") to measure compliance with its covenants and borrowing capacity
under its revolving credit facility. The Company also believes that its
total leverage ratio is a helpful measure for investors to assess its
overall debt leverage which affects its ability to refinance its
long-term debt as it matures, the cost of existing debt, the capacity to
incur additional debt to invest in its strategic initiatives, and the
ability to repurchase and retire its common shares.

The Company calculates Consolidated Total Leverage Ratio, Consolidated
Total Indebtedness and Consolidated EBITDA in accordance with its
revolving credit facility. Consolidated Total Leverage Ratio is defined
as the ratio of Consolidated Total Indebtedness divided by Consolidated
EBITDA. Consolidated Total Indebtedness is generally defined as total
indebtedness reflected on our balance sheet plus outstanding letters of
credit. Consolidated EBITDA is defined as earnings before interest
expense, taxes, depreciation and amortization, other expenses (income),
net, and stock-based compensation expense for the four immediately
preceding fiscal quarters.

Set forth below is the calculation of Consolidated Total Leverage Ratio
as of December 25, 2016 and December 27, 2015 and the reconciliations of
Consolidated Total Indebtedness and Consolidated EBITDA to their most
comparable GAAP measures: current debt maturities and long-term debt,
for Consolidated Indebtedness, and net income, for Consolidated EBITDA.

       
    52 weeks ended
(dollars in millions)     12/25/2016   12/27/2015
Current debt maturities $ 0.5   $ 0.3
Long-term debt     159.3     112.3
Total indebtedness 159.8 112.6
Plus: outstanding letters of credit     0.1     0.1
Consolidated Total Indebtedness     $ 159.9     $ 112.7
 
Net income $ 42.8 $ 44.1
Interest expense, net 4.6 3.7
Income tax expense 27.1 26.5
Depreciation and amortization 10.1 9.7
Other expenses (income), net 4.1
Stock-based compensation expense     6.8     6.7
Consolidated EBITDA     $ 95.5     $ 90.7
           
Consolidated Total Leverage Ratio     1.7   1.2
 

Forward-Looking Statements:

This Press Release contains "forward-looking statements" within the
meaning of the federal securities laws. Statements regarding future
events and developments and our future performance, as well as
management's current expectations, beliefs, plans, estimates or
projections relating to the future, are forward-looking statements
within the meaning of these laws. These forward-looking statements are
subject to a number of risks and uncertainties. Examples of such
statements in this Press Release include discussions regarding the
Company's planned implementation of its strategic plan, expectations
regarding future growth, planned share repurchases, projections and
expectations regarding same-store sales for fiscal 2017 and beyond,
expected capital expenditures, guidance for new restaurant openings and
closures, effective income tax rate, and the Company's anticipated 2017
and long-term performance, including projections regarding general and
administrative expenses, net earnings per diluted share, and similar
statements of belief or expectation regarding future events. Among the
important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements are: competition
from other restaurant concepts and food retailers, disruptions in the
financial markets, the loss of franchisees and other business partners,
labor shortages or increased labor costs, increased costs of our
principal food products, changes in consumer preferences and demographic
trends, as well as concerns about health or food quality, instances of
avian flu or other food-borne illnesses, general economic conditions,
the loss of senior management and the inability to attract and retain
additional qualified management personnel, limitations on our business
under our credit facility, our ability to comply with the repayment
requirements, covenants, tests and restrictions contained in our credit
facility, failure of our franchisees, a decline in the number of
franchised units, a decline in our ability to franchise new units,
slowed expansion into new markets, unexpected and adverse fluctuations
in quarterly results, increased government regulation, the reliability
of our information technology systems and network security, effects of
volatile gasoline prices, supply and delivery shortages or
interruptions, cyber security risks, currency, economic and political
factors that affect our international operations, inadequate protection
of our intellectual property and liabilities for environmental
contamination, uncertainties as to the timing of the proposed
transaction with RBI, uncertainties as to the percentage of the
Company's shareholders tendering shares in the proposed transaction with
RBI, the possibility that competing offers will be made, the possibility
that various closing conditions for the proposed transaction with RBI
may not be satisfied or waived, the effects of disruption caused by the
proposed transaction with RBI making it more difficult to maintain
relationships with employees, franchisees, vendors and other business
partners, the risk that shareholder litigation in connection with the
proposed transaction with RBI may result in significant costs of
defense, indemnification and liability, the risk that the transaction
with RBI may not be completed and the other risk factors detailed in our
Annual Report on Form 10-K and other documents we file with the
Securities and Exchange Commission. Therefore, you should not place
undue reliance on any forward-looking statements.

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