PLKI: World-Class Quarter

Popeyes Louisiana Kitchen, Inc. (PLKI) continues to be on our Investment Ideas list as a long.

 

PLKI delivers time and time again.  For better or worse, it’s precisely what we’ve come to expect from CEO Cheryl Bachelder and the rest of the management team.  But, let’s be clear, no one expected Popeyes to post global, domestic and international same-store sales growth of +7.3%, +7.2% and +8.3%, respectively.  That’s approaching rock star status. 

 

Popeyes has now outperformed the chicken-QSR and overall-QSR segments for 26 and 12 consecutive quarters, respectively.  Perhaps more impressive, the company increased its market share of the domestic chicken-QSR segment by 250 bps year-over-year to 23.7% as menu innovation, media and messaging continue to resonate with consumers.

 

If you’re late to the game (we added PLKI to our Investment Ideas list as a long back in April), the recent run-up in the stock makes for a difficult time to get involved.  After all, no one wants to chase these things.  But, we firmly believe this is a stock you want to own over the long haul.  We’d view any notable selloff as a strong entry point.

 

The fact of the matter is, this is one of the best run companies in our space.  We have ample visibility into the company and its operations given its asset-light model, diversified revenue steam and stable cash flows.  Given 3Q results and current, underlying momentum, we believe Popeyes is well-positioned to outperform in 4Q and deliver upon its annual long-term guidance of 1-3% same-store sales growth, 4-6% unit growth and 13-15% adjusted EPS growth.

 

We believe a considerable growth opportunity lies ahead for the brand, both domestically and internationally, and management has a stringent, calculated plan to capitalize on this.  Franchisee profitability remains at the forefront for Popeyes, an approach that has clearly paid dividends for management, employees and customers.  The day we see the team deprioritize this is the day we turn bearish on the stock.  Fortunately, we don’t see this happening anytime soon.

 

The Good

  • Global SSS +7.3%; two-year +6.2%
  • Domestic SSS +7.2%; two-year +6.2%
  • International SSS +8.3%; two-year +6.7%
  • Domestic SSS have outpaced the chicken-QSR and overall-QSR segments for 26 and 12 consecutive quarters, respectively
  • Menu innovation, value and messaging around the Cracked Pepper Butterfly Shrimp, Tear’N Tenderloin Chicken and Beer Can Chicken offerings were very well-received
  • Popeyes market share of the domestic chicken-QSR segment increased 250 bps y/y to 23.7%
  • 77% of the domestic system is in the new image; 80% will be by year-end
  • Company-operated restaurant operating profit grew 190 bps y/y to 19.6% of sales driven by lower food and commodity costs, improved labor controls and increased leverage on occupancy and other expenses
  • G&A expenses as a % of system-wide sales decreased 20 bps y/y to 2.6%
  • Free cash flow of $35.9 million
  • Company repurchased 247,741 shares of common stock for approximately $10 million
  • Guided up full-year same-store sales, share repurchases and adjusted EPS

The Bad

  • Total revenues of $54.9 million missed estimates of $55.5 million

 

PLKI: World-Class Quarter - 1

 

PLKI: World-Class Quarter - 2

 

PLKI: World-Class Quarter - 3

 

Feel free to call, or email, with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


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