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Executives

Rebecca Gardy - Director of Finance & Investor Relations

Cheryl A. Bachelder - Chief Executive Officer, President, Director, Member of Executive Committee and President of Popeyes (NYSE:R) Chicken & Biscuits' Brand

Ralph W. Bower - President of U.S. of Popeyes(R) Louisiana Kitchen

H. Melville Hope - Chief Financial Officer

Analysts

Michael W. Gallo - CL King & Associates, Inc., Research Division

Nicole Miller Regan - Piper Jaffray Companies, Research Division

Mark E. Smith - Feltl and Company, Inc., Research Division

AFC Enterprises (AFCE) 2012 Earnings Call February 28, 2013 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the AFC Fiscal 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Rebecca Gardy, Director of Investor Relations. Ma'am, you may begin.

Rebecca Gardy

Thank you, and good morning. AFC Enterprises is pleased to host this conference call regarding results issued yesterday after the market closed for fiscal 2012, which ended December 30, 2012.

Today's audio presentation will be available on the company's website at www.afce.com. To listen to it, please go to the Investor Relations section and follow the link to Webcasts & Presentations. A copy of our press release and all filings with the Securities and Exchange Commission are also available on the website.

Before we begin, I would like to read the following forward-looking statements. Certain statements made on this call by AFC Enterprises' officers and employees regarding future events and developments and our future performance, as well as our management's expectations, beliefs or projections related to the future, are forward-looking statements within the meaning of the federal securities laws. We wish to caution investors to not place undue reliance on any forward-looking statements since those statements speak only to the date they are made. By their nature, forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. These risks and uncertainties have been described in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and in other filings with the Securities and Exchange Commission. We refer you to those sources for more information.

During this call, references may be made to the non-GAAP terms of company-operated restaurant operating profit, operating EBITDA, free cash flow and adjusted earnings per share. The company defines these terms as follows: company-operated restaurant operating profit is defined as sales by company-operated restaurants, minus restaurant food, beverages and packaging, minus restaurant employee, occupancy and other expenses. Operating EBITDA is defined as earnings before interest expense, taxes, depreciation and amortization and other expenses or income net. Free cash flow is defined as net income, plus depreciation and amortization, plus stock compensation expense, minus maintenance capital expenses. Adjusted EPS for the periods presented is defined as reported net income after adjusting for certain nonoperating items consisting of other income net the tax effects of these adjustments. The company's full definitions, computations and reconciliations to GAAP measures of these numbers referenced for these terms are contained in our earnings press release that can be found on the company's website at www.afce.com.

I would now like to turn the call over to our CEO, Cheryl Bachelder. Cheryl?

Cheryl A. Bachelder

Good morning, and welcome to Popeyes fiscal 2012 earnings call. We're pleased to have you with us. We've delivered another quarter of strong results, reflecting the innovation and the disciplined execution of the strategic roadmap we established 5 years ago. Our total revenue increased by over 30% and our net income increased by over 40% in the fourth quarter, led by global same-store sales of 6.2% and our new restaurant unit openings.

We opened 62 restaurants in the fourth quarter, and we delivered adjusted earnings per share of $0.34 compared to $0.24 last year, a 42% increase. These fourth quarter results capped off an excellent year. I'd like to punctuate the following items that reflect the success of our team and our franchise owners for fiscal 2012.

Our adjusted earnings per share were $1.24, up $0.25 over last year, representing a year-over-year growth rate of 25% and an impressive average annual growth rate of 17.5% since 2008. Domestic same-store sales grew for the fourth consecutive year, and international same-store sales grew for the sixth consecutive year. Operating EBITDA exceeded 31% of our revenue.

Free cash flow as a percent of total revenue topped 20% as a result of our strong sales and increased profitability. We opened 141 new restaurants, adding 66 net restaurants to our global footprint for a system growth rate of over 3%. We completed a $13.8 million acquisition of 27 restaurants in Minnesota and California, and we entered the Charlotte, North Carolina market with 2 new company-operated restaurants.

For over 4 decades, Popeyes has been building our brand, our market share and our restaurant footprint around the globe. Five years ago, we developed our strategic roadmap to accelerate results for our franchisees and our investors. Popeyes is now establishing a track record of growth, and we've positioned ourselves to sustain it well into the future. Each of the 5 pillars of our strategic roadmap is a critical underpinning to our performance. Let me begin with a brief discussion of our first roadmap pillar, Build a Distinctive Brand.

Our fourth quarter performance delivered domestic same-store sales of positive 6.4%, rolling over positive 5.9% in the prior year. We finished the year with domestic same-store sales of 7.5%, rolling over 3% in 2011, for a 2 year same-store sales increase of positive 10.5%. Our increased use of national and local media advertising throughout 2012 to promote our famous Bonafide chicken as well as our innovative boneless and seafood products led to our strong sales performance. Some highlights included the national introduction of both Garlic Pepper Wicked Chicken in February, Rip'n Chick'n during June and the introduction of Zatarain's Butterfly Shrimp in July, and the return of our famous fourth annual, always popular Crawfish Festival in November. For the fourth year in a row, our domestic same-store sales outpaced the Chicken QSR category and the entire quick-service restaurant category according to independent data sources.

Over the last 5 years, we've transformed our brand with a fresh logo, new packaging and renewed attention to our culinary roots. A spokesperson, Annie, who resonates with our customers. The results of these efforts is that we continue to see Popeyes share of the Chicken QSR segment increased to 19.2% compared to 14.8% in 2008, a gain of 4.4 percentage points in market share.

Our second roadmap pillar is Run Great Restaurants. This pillar is about the continuous improvement of our guest experience in our restaurants. We have to deliver on the food, we have to deliver on the experience and we have to deliver on the restaurant environment. When we do that, our guests leave our restaurants delighted, we create guest loyalty and more frequent visits. We have always been passionate about food at Popeyes. And our greatest opportunity is to deliver service that matches the quality of that food. In 2012, our enhanced guest survey, which we call GEM, yielded higher response rates from our customer and gave us clear opportunities for improvement. As of the year-end, approximately 70% of our guest respondents rated Popeyes a 5 out of 5 on our guest survey. We are continuing to improve the guest experience and we see opportunity to continue to do so in the future.

The next important piece of the guest experience is the restaurant environment. Our current remodel of our domestic system into the Popeyes Louisiana Kitchen image is transforming our restaurants with a memorable and distinctive design that embraces our Louisiana roots. Ralph Bower, our President, U.S., will elaborate further on the status of our remodels in just a few minutes.

The third pillar of our roadmap is Grow Restaurant Profit. Since our last call, our third quarter 2012 profit loss statements for the majority of our domestic system have been collected and analyzed. The restaurant operating profit of our domestic freestanding franchise restaurants before rent through the third quarter exceeded 20% of sales and increased by approximately $30,000 in absolute dollars over 2011. That's a year-over-year growth rate of 19%. Our fourth quarter 2012 P&Ls are being compiled now, but we expect for fiscal 2012 operating profit before rent for domestic freestanding restaurants will increase for the fourth consecutive year. Our strong sales performance and our continued focus on cost savings are expected to more than offset the commodity inflation of roughly 2% for the full year.

Our fourth pillar is Accelerate Quality Restaurant Openings. Our distinctive brand and our compelling unit economics, coupled with disciplined development, has driven a strong restaurant expansion in the U.S. In 2012, our domestic franchisees opened 79 new restaurants compared to 71 last year. Our domestic openings put Popeyes among the top 3 growing brands in our competitive set in 2012. As a testament to our solid site selection approach and the quality of our franchise operators, the average first-year sales of our new restaurants are approximately 40% higher than the system average. Over 3/4 of our new restaurants in 2012 were opened by existing Popeyes franchisees.

While we focus on claiming our domestic potential, we're also building a strong foundation for Popeyes future international growth. Our international team has continued to strengthen existing markets, improve our partner selection and build our brand. In the fourth quarter, 20 new restaurants were opened internationally, bringing total openings for the year to 57. As is the case domestically, the initial sales results of our international restaurants are trending higher than the international system average as a result of improved site selection, new restaurant marketing support and a differentiated brand message.

Our investment in the fifth pillar, Create a Culture of Servant Leaders, is to sustain this superior performance for our investors and our franchisees, performance that you have come to expect. Our focus is developing a deep bench of exceptional leaders. We've codified our purpose and principle for all of our employees and franchisees to aspire to. We're now developing the messaging, the tools and the training, which we will use to advance our culture. We expect the outcome of this cultural transformation to be a superior guest experience in our restaurants, thereby a strong competitive advantage. With that, I'll turn the call now over to Ralph Bower, our President, U.S., to update you on 3 areas: the status of our recently completed restaurant acquisitions, the brand's progress on the Popeyes Louisiana Kitchen remodel and our company-operated restaurant growth. Ralph?

Ralph W. Bower

Thank you, Cheryl. This morning, I'd like to start off by expanding on the details of the restaurant acquisition, which we announced in late 2012. As a reminder, we acquired 27 restaurants in Minnesota and California. Through this transaction, our development in these under-penetrated areas will be accelerated, while providing an opportunity for growth for high-performing franchisees.

In December, 2 of these restaurants in California were converted into the Popeyes Louisiana Kitchen image and franchised to an existing franchisee. Of the remaining 25 restaurants, it is our intention to convert 24 in 2013, mostly in the second and third quarters. We intend to sell 1 of the acquired properties. Onetime franchise fees associated with the conversions are expected to be approximately $4.8 million in total, and are recognized as the restaurants open. These fees, net of pre-conversion costs, are expected to contribute approximately $0.10 to adjusted earnings per share in 2013. I'd also like to call to your attention that in 2013, the company expects to incur approximately $400,000 in increased rental expenses and $500,000 in additional depreciation expense, largely associated with these new restaurant sites.

Turning now to company-operated restaurant development. In 2011, we entered Indianapolis with the development of a new company-operated restaurant. In the fourth quarter of 2012, we opened 3 more restaurants in that market. Also in the fourth quarter, we added a new company market, Charlotte, North Carolina, by opening 2 restaurants. During 2013, we expect to open an additional 6 to 10 company-operated restaurants across all of our company markets, bringing our total company restaurant portfolio to 51 to 55 restaurants.

Our investment in new company-operated restaurants is a measured element of our growth strategy. Our new restaurants are meeting or exceeding our performance expectations. The contribution to earnings made by these company-operated restaurants is accretive to our shareholders and fuels our investment in our franchise system as a whole. Company restaurant development also provides us with a vehicle to lead the Popeyes system in the application of our strategic roadmap initiatives. As we've said in prior calls, we intend to remain a highly franchised system, and our business model recognizes franchising as the primary growth driver. The last initiative for which I'd like to provide an update is the remodeling of our domestic restaurants into the Popeyes Louisiana Kitchen image we rolled out in 2011.

By the end of 2012, approximately 25% of our domestic restaurants were in the new image. Our expectation is that by the end of 2013, approximately 60% will be in the new image. We are encouraged by the positive reaction to the refreshed image by our franchisees, team members and guests alike. I'll now turn the call over to Mel Hope, our CFO, who will walk you through our fourth quarter and fiscal year performance. Mel?

H. Melville Hope

Thank you, Ralph. Good morning, everybody. My intention this morning is to quickly review our financial results for the fourth quarter and for all of 2012, and then to frame up our guidance for 2013.

In 2012, our adjusted earnings were $30.4 million for $1.24 per diluted share, including $0.01 from the 53rd week of operations. That $1.24 is compared to $0.99 last year. In 2012, Popeyes' system-wide sales increased 13.5%, driven largely by strong global same-store sales performance and the growth of new restaurants.

For the fourth quarter, our domestic same-store sales were 6.4% on top of a 5.9% increase last year. International same-store sales for the fourth quarter were positive 4.3% on top of 4.6% last year. As Cheryl mentioned earlier, for the full year of 2012, global same-store sales increased 6.9% compared to a 3.1% increase last year for a 2-year same-store sales growth rate of 10%. For the fourth consecutive year, Popeyes domestic system earned positive same-store sales with a 7.5% comp in 2012 on top of a 3% increase in 2011. And for international, Popeyes same-store sales were positive for the sixth consecutive year at 2.6%, rolling over at 3.3% in 2011.

2012 revenues were $178.8 million versus $153.8 million in the prior year. Of these revenues, franchise revenues were $110.5 million, up $15.5 million over the prior year. This is the result of our positive same-store sales plus new restaurant openings. In the fourth quarter, our franchise revenues were $30.1 million, up $7.2 million from last year. To remind you, our fourth quarter franchise revenues included a $1.8 million in fees related to 2 significant transfers, which we discussed on our third quarter call. You may remember from that call that we also increased our G&A spending in the fourth quarter by that same amount.

Our company-operated restaurants had sales of $16.4 million in the fourth quarter and $64 million for the full year compared to $54.6 million in 2011. The 53rd week in 2012 contributed approximately $1.2 million to the sales by company-operated restaurants.

Restaurant operating profit in our company restaurants was $11.1 million in 2012 compared to $10.2 million last year. The $900,000 increase in company-operated restaurant operating profit was primarily due to same-store sales of 5.3% and the addition of 2 new profitable restaurant openings in 2011.

Restaurant operating profit margins were 17.3% compared -- in 2012 compared to 18.7% last year. However, excluding the effects of preopening costs in 2012 and a $0.5 million favorable insurance adjustment in '11, the restaurant operating margins would've been 17.8% in both 2012 and 2011.

For your models, it's important to note that we expect company-operated restaurant operating profit margins to be 17.8% in 2013 before preopening costs. And our preopening costs in new markets run about $40,000 to $50,000 per restaurant.

Our fourth quarter G&A expenses were $17.9 million compared to $15.1 million last year. For the full year, our G&A expenses were $67.6 million compared to $61.3 million last year. The increase in 2012 primarily reflects continued strategic investment in people and resources to accelerate global sales and restaurant development and remodeling.

At 3% of systemwide sales in 2011, the company's G&A expenses remain among the most efficient performance metrics in the restaurant industry.

Other income was $0.5 million in 2012 compared to other expenses of $500,000 last year. Fiscal 2012 resulted in -- results included $900,000 in gains on sale of real estate assets, net of a $400,000 loss on the disposal of property and equipment and other expenses.

Our effective tax rate for the fourth quarter was 37.2%. For the full year of 2012, our effective tax rate was 36.3% compared to an effective tax rate of 34.6% in the prior year. We expect our effective tax rate for 2013 will be approximately 37%.

In 2012, we generated free cash flow of $36.7 million compared to $28.5 million in the prior year. At 20.5% of total revenue, free cash flow continues to be the strength of our highly franchised business model. In 2013, our intention is to use cash as follows: we estimate that approximately $24 million to $28 million will be invested in capital expenditures, including the 6 to 10 company-operated restaurants and the conversion of the 24 acquired restaurants in Minnesota and California. We also expect to continue to repurchase and retire our common stock under our share repurchase program. On February 13, 2013, the Board of Directors approved an additional $50 million for share repurchases, and we expect to repurchase 15 million to 20 million of our common stock in 2013.

During the year, we opened 141 new restaurants and closed 75, resulting in net openings of 66 restaurants in 2012 compared to 65 net openings in 2011. I'd like to spend a minute on the composition of the 66 net openings to the Popeyes system. Domestic restaurant openings were comprised of 79 franchise restaurants and 5 company-operated restaurants, as Ralph discussed earlier. Domestic closings of 29 represented approximately 2% of the total domestic system. Internationally, we opened 57 new restaurants and closed 46. Similar to the United States, our international restaurants are opening at average unit volumes significantly higher than the volumes of closed restaurants.

For timing the 2013 openings in your models, I'd like to highlight that historically approximately 40% of our annual new restaurant openings occur in the fourth quarter, and in fact mostly in December. This past year was no exception as we opened 62 new restaurants in the fourth quarter compared to 52 in the prior year. Included in the fourth quarter openings were our 5 company restaurants and the conversion of 2 acquired restaurants in California. In 2013, we expect that this trend will continue for franchise and company-operated restaurants. With respect to the conversion and refranchising of the 24 remaining acquired restaurants in Minnesota and California, we expect that the majority will be completed in the second and the third quarters of the year. I'm now going to turn the call back over to Cheryl for a brief discussion of our 2013 and long-term guidance. Cheryl?

Cheryl A. Bachelder

Thank you, Mel. Let me wrap up our call with a look ahead. We are pleased to present the following guidance for 2013. We expect our same-store sales to be in the range of 3% to 4% for the full year. We would expect that trend to be ahead of Chicken QSR and QSR sales trends. We expect new restaurant openings in the range of 175 to 195, including approximately 6 to 10 company-operated restaurants, the remaining 24 acquired restaurants in Minnesota and California and 55 to 65 international restaurants.

Net restaurant openings are expected to be 85 to 115. This will represent a 4% to 5.5% net unit growth rate year-over-year.

We expect our general and administrative expenses to be $72 million to $74 million as we continue our investment in strategic growth initiatives and human capital. As a percent of system-wide sales, G&A expenses are expected to remain at approximately 3%, which is among the most efficient in the industry.

In 2013, the company expects to repurchase $15 million to $20 million in common stock compared to $15.2 million of share repurchased in 2012. We expect to invest $24 million to $28 million in capital expenditures, including the conversion of acquired restaurants in Minnesota and California and our company-operated restaurant development. These factors culminate in the expectation that adjusted earnings per share will be in the range of $1.37 to $1.42. This EPS growth of approximately 10% to 14% will continue to be largely driven through growth in operating profit and EBITDA.

Consistent with previous guidance, over the course of the next 5 years, the company believes the execution of this plan will deliver an average annualized basis the following results: same-store sales growth of 1% to 3%, net unit growth of 4% to 6% and earnings per share growth of 13% to 15%. With that said, I'll wrap up our conference call. I want to let you know that on March 19, we'll be presenting at Sidoti's 17th Annual Institutional Investor Conference in New York. We will post our conference material on our website immediately following this presentation. Our next call will be in May, when we announce our first quarter results. I'll now turn over the call to Sandra for our Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Michael Gallo of CL King.

Michael W. Gallo - CL King & Associates, Inc., Research Division

I just wanted to understand a little bit on the logistics of the refranchising. Well, you stay -- will Popeyes stay on the lease as the landlord? Or will you sell the units in its entirety? Would you expect to get the capital you put into them back to basically like a turnkey? Or just help me understand the logistics of kind of how you outlay the cash, how that's going to come back and then also whether you'll stay as the landlord or not as you go forward?

H. Melville Hope

Yes, Mike, this is Mel. Our plan is to own the restaurants. So we'll invest in the conversion, we'll own the restaurants, we'll remain on the lease as the landlord and then the franchisees will operate it, operate the restaurants under our standard franchise agreement and with a lease.

Michael W. Gallo - CL King & Associates, Inc., Research Division

So I guess, shouldn't you then, I guess once for you to get converted, wouldn't you then basically get a rent factor in addition to what you're getting in terms of essentially, rent and royalties?

H. Melville Hope

Yes. We get a rent factor.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Okay. Okay, great. Second question I have is just on the remodels. You had a number of these done. I mean, obviously, we see stores in the new image opening up at much higher volumes. Can you talk a little bit about what kind of sales list do you see when you do a remodel? Obviously, you have about 400 of them done and another 100 in process. So give us a feel for what you see there?

Ralph W. Bower

I think that by the end of next quarter, we'll have enough information. We'll have a long enough run rate to talk a little bit more specifically about what we're seeing. But we'd like to get a little bit -- we're pleased with what we've seen so far, but we'd like to get a little bit more time under our belts before we talk about that specifically.

Cheryl A. Bachelder

Mike, most of those remodels were right at the end of the year. So by next call, we'll have more facts.

Michael W. Gallo - CL King & Associates, Inc., Research Division

Okay, great. And then just final question. I mean, I know we've been through a long period here internationally with the closures, particularly around the cleanup of Korea. Are we at the point where we're kind of at the tail end of that? Are there still more to go? When you look at the portfolio of international restaurants now, I know it's been kind of in a churn period for a few years, where you've had some openings and you've had some closures. But are we at the point where you start to see the lines cross and start to see accelerating openings combined with some of the legacy cleanup issues where you see greater net unit growth there?

Cheryl A. Bachelder

A couple of facts for you, Mike, the focus is on accelerating the opening of new units. We believe that there will always be a somewhat higher churn rate in international because they're largely in malls and in-line leases that churn at a faster clip than in the U.S. But what I want to remind you of, just like in the U.S. when we first started this journey of accelerated growth, the markets we're opening and the restaurants we're opening in international are dramatically outperforming the restaurants we're closing. So we're building a higher quality system at the base, and you'll start to see us accelerating the unit growth at the top. I do want to correct one perception. There's really been no change in the Korea market. That is not driving the closing rate any differently than it has in the past. We have made a conscious decision to exit some restaurants that were underperforming in other markets outside of Korea.

Operator

Our next question comes from Nicole Miller of Piper Jaffray.

Nicole Miller Regan - Piper Jaffray Companies, Research Division

Is there anything that we should take into consideration when you look at the comp guidance? It looks like 2012 now being able to look back with consistent within a couple hundred basis points globally, but there is a big domestic company owned, as an example saw more fluctuations quarter-to-quarter, making for, obviously, different compares as we go forward. So I guess like in the first quarter as an example, were there any issues? Some of your peers have talked about taxes, expiration of that and down [ph]. And the delay in the tax refund. So I guess the question is, do you want us to take anything into consideration, on a quarter-to-quarter basis in terms of that comp guidance?

Cheryl A. Bachelder

Nicole, I agree that a lot of our competitors have been talking about external factors. We basically are focusing on making sure our innovation, our media plans and that are setup to continue to lead in the category. And so we believe our guidance is our 4-year guidance for 2013. If the category in fact becomes stronger in later quarters, I think we'll be the beneficiary of that. But our guidance is based on what we see today and the beliefs that we will grow market share and outperform our competitors.

Nicole Miller Regan - Piper Jaffray Companies, Research Division

That's very helpful. And can you also talk about marketing? You're getting more impressions. What do you plan to do with marketing? Is it going to be a continuation of the platform that you have today and what kind of messaging around value? And also remind us of your approach to price, please.

Cheryl A. Bachelder

Yes, Nicole, we internally say that we're in what we like to call a virtuous cycle. We are growing awareness of our brand, that's driving growth in sales. When sales grow, our marketing fund grows because it's tied to sales. We reinvest that back in innovation. And again, sales grow as more customers come in. All of that strong performance in our existing units drives accelerated new units and those new units contribute to the ad front [ph] and accelerate what we're able to do. So I would tell you our strategy will continue to be what it has been, which is to use those dollars to drive increased awareness, to drive the distinctiveness of our brand and continue to build our brand with innovative, limited time offers like you've seen us do, and periodic value offerings on our core Bonafide chicken. That balance will continue, and we will have increased dollars to put against it.

Nicole Miller Regan - Piper Jaffray Companies, Research Division

And the last question, in terms of health care, how are you helping and working with your franchisees to absorb those costs or the potential of those costs?

Cheryl A. Bachelder

Right. As you know, the health care law and all the regulations attached to it, of which there are hundreds, is slowly coming to become a reality, meaning we're starting to get a handle on what it actually means and what we actually have to do. I'll tell you what I'm pleased about is our team had been very proactive in providing to our franchisees' education on what they need to do when. We have a franchise council doing webinars every quarter to our franchisees, explaining to them things like how you look at the backlog period and how you work with your brokers to prepare for 2014. I will tell you that I am personally feeling that 2014 is not going to be as problematic as some once forecasted. And it's very simply this: I think that you will see benefit programs that are competitively priced that allow us to take care of our employees, and I think you will see that the initial impact of this has less P&L impact in some of the people early-onset. So for 2014, we feel well-prepared to navigate it. We believe the #1 way you navigate is to keep your sales growing, to keep your market share growing and outperform your competitors.

Operator

[Operator Instructions] Our next question comes from Mark Smith of Feltl and Company.

Mark E. Smith - Feltl and Company, Inc., Research Division

First off, I just wanted to dig a little deeper in the restaurant-level margins. If we exclude some of the preopening here in Q4, it looks like maybe you still had a little bit of pressure. Is there anything that was really happening in the quarter? Is some of that new restaurant openings maybe a little bit more inefficiently than those in the comp mix or...

H. Melville Hope

Are you talking about the company-operated restaurants?

Mark E. Smith - Feltl and Company, Inc., Research Division

Exactly, yes.

H. Melville Hope

We generally run a little bit higher G&A or over the store cost in our company stores than our franchisees do. And particularly when we're breaking into new markets, you have a little bit of extra training costs in the preopening costs, but 17.8% for our company stores that I think that's a pretty reliable margin for ongoing operations of restaurants.

Ralph W. Bower

As Mel mentioned in his comments, if you exclude the preopening expenses and then exclude the insurance rebate that we got in 2011, our margins were flat year-over-year.

Mark E. Smith - Feltl and Company, Inc., Research Division

And then second, just looking at your guidance and commentary on commodities, when looking for kind of flat commodities in 2013, I'm not hearing many restaurants talking about flat commodities in 2013. How confident are you in that outlook? And how much could that change maybe with upside or downside?

Cheryl A. Bachelder

Well, the underlying side is that commodities will be higher in the first half and moderate in the second half. As you know, the commodities we rely on depend on a cross-year that's in the summer. So that will become clearer as we get into spring and summer. But our current economic forecast and data suggests that by year-end, it will be roughly flat. As I mentioned last year, it was plus 2. So we've had a couple years that we've had to navigate much stronger commodity costs than we think we'll face for this year.

H. Melville Hope

It's flat in a high market.

Cheryl A. Bachelder

Flat in a high market.

Mark E. Smith - Feltl and Company, Inc., Research Division

And then looking at the acquisition, the restaurants in California and Minnesota, have those been pushed back now on the openings as we look more in Q2 and Q3 as our -- anything that's happening there that's maybe causing some delays in getting those opened?

H. Melville Hope

Not really. I mean, we got 2 of them actually ahead of pace that were opened right at the end of last year.

Cheryl A. Bachelder

The key factor that you may not think about is we're training the people up to be ready. So you've got some lead time in hiring and training them to Popeyes standards. We want to open these at fabulous AUVs with fabulous crew members. So as Mel mentioned, most of them will be in the second, third quarter because by the second quarter, we'll have enough training restaurants to really start filling the pipeline for the rapid opening of those that come after that.

H. Melville Hope

And you may be used to -- we're having to get used to doing construction in Minnesota in the dead of winter.

Mark E. Smith - Feltl and Company, Inc., Research Division

It looks like out of the gate in December. You got us some painting and some stuff done up here. But yes, I'm guessing the weather over the last 60 days has maybe slowed things down so...

Ralph W. Bower

Yes, I actually would, to Cheryl's point, I think that the main thing, the main limiting factor would be making sure that your crews are prepared to have fantastic restaurant openings operationally. We have not encountered anything from a construction process that has been unexpected.

Mark E. Smith - Feltl and Company, Inc., Research Division

Okay. And then lastly, on these acquisitions, I just want to see if we can dig deeper in kind of how and when these are more accretive. So if we, I guess if we strip out the $4.8 million in the upfront fees or a positive $0.10 or so on EPS, how do you expect these to really open and be accretive? Is that $0.10 kind of net of what you're -- any P&L impact that you're dumping into them? I don't know if you can give us any more insight into how you expect these restaurants to operate in, in kind of first year and the impact in 2013 excluding...

H. Melville Hope

The only thing that's in that $0.10 is the upfront fee that Ralph mentioned, the $4.8 million conversion fee that we're charging.

Cheryl A. Bachelder

So after that, you go to steady state with royalties and rent.

H. Melville Hope

Yes, yes. So 5% royalties, the rent factor, as I said, with the operations thereafter.

Mark E. Smith - Feltl and Company, Inc., Research Division

Okay. And can you give us a reminder on kind of the G&A spend, what you've got for kind of people boots on the ground on people getting these opened in 2013?

H. Melville Hope

I don't think I know it off the top of my head.

Cheryl A. Bachelder

No, it's inside of our guidance of the 3%, so it's within that number. And it's primarily the supervisors to handle the new company growth, those 6 to 10 restaurants.

Ralph W. Bower

Yes, it's -- there is -- it's not a tremendously high number. There's a small amount for overseeing the construction of those restaurants but it would not be a meaningful number in your model. And as Cheryl mentioned, it's included within our 3% guidance.

Mark E. Smith - Feltl and Company, Inc., Research Division

I guess what I'm trying to feel into is if we stripped out this $0.10 positive impact from fees kind of digging through the rest of the model this year, the earnings growth then turns into kind of single digits, mid-single-digit growth this year on EPS. I'm just trying to figure out if we didn't have these acquisitions, what's the steady-state of the system?

Cheryl A. Bachelder

Yes, I think the one thing -- one of the reasons we called out G&A this year is we are a rapid growth company, and we are still investing in infrastructure to grow faster. So a chunk of that G&A that we put forward in this -- in the expectations is to continue to grow our development function with real estate people and construction people, et cetera, to accelerate new units. We're also having to catch up, if you will, in the infrastructures support of human resources, legal, et cetera, because we've been a rapid growth company now for 4 years and not changed the size of our corporate Support Center. So the reason I'm so intentional about keeping you focused on the 3% is that there are no growth companies with 3% G&A and our interest rate. So we're growing as efficiently as possible, but we do have to invest to assure you that we can meet those midteens earnings growth over the 5-year horizon. You have to get a little in front of that with your development G&A to make sure you nail it in the 5-year time horizon. Last 5 years, the CAGR is 17.5%. Next 5 years, we want the CAGR to be at least 13% to 15%. So we continue to make the step-changes in G&A to assure that we can deliver that.

Mark E. Smith - Feltl and Company, Inc., Research Division

[indiscernible]. '13 on a G&A basis is kind of an investment year to get everything shored up to -- continue on a strong growth path.

Cheryl A. Bachelder

Well, and I'd say a pretty modest investment. We're still that 3% rate. But yes, it results in the 10% to 14% guidance on earnings with the longer-term being 13% to 15%.

Operator

[Operator Instructions] And at this time, I'm not showing any further questions. I'd like to turn the call back to Cheryl Bachelder for any closing remarks.

Cheryl A. Bachelder

Thank you. We are looking forward to 2013 and expect it to be another good year for Popeyes. As always, we're glad that you joined us this morning. We think that we will look forward to delivering on the expectations we've set for you today. Two quick things. Next week's our international franchise conference in San Diego, where we put our next 5-year plan into action with our franchisees. We're excited to go forward with that. And we want you to get out in our restaurants for a new product called Popeyes Surf & Turf done Cajun, that's 2 of our fabulous Handcrafted Tenders and 4 Butterfly Shrimp served up with our signature dipping sauces and your favorite sides for just $4.99. So we invite you to enjoy, and we'll look forward to talking with you again in May when we report our first quarter performance. Thank you. Have a great day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does concludes today's program. You may all disconnect. Everyone, have a great day.

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