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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

H. Melville Hope - Chief Financial Officer

Cheryl Fletcher - Director of Finance & Investor Relations

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

Analysts

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

Michael Halen - Sidoti & Company, LLC

Joshua C. Long - Piper Jaffray Companies, Research Division

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

Kenneth Smith - Lenox Equity Research, LLC

AFC Enterprises (AFCE) Q3 2013 Earnings Call November 14, 2013 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the AFC Third Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Now, I'll turn the conference over to Rebecca Gardy, Director of Investor Relations. Please begin.

Rebecca Gardy

Thank you, and good morning. This is Rebecca Gardy, Director of Finance and Investor Relations. AFC Enterprises is pleased to host this conference call regarding results issued yesterday after the market closed for third quarter 2013, which ended October 6, 2013. 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 management's expectations, beliefs or projections relating 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 these 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 period presented is defined as reported net income after adjusting for certain nonoperating items consisting of: one, other income net; and two, the tax effect of these adjustments.

The company's full definitions, computations and reconciliations to the 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.

Presenting on today's call will be Chief Executive Officer, Cheryl Bachelder; and Chief Financial Officer, Mel Hope. We are also joined by Ralph Bower, President, U.S.

I would now like to turn the call over to Cheryl. Cheryl?

Cheryl A. Bachelder

Thank you, Rebecca. Good morning, everyone, and welcome to Popeyes third quarter earnings conference call. It's appropriate to begin our call this week with a thought around Veterans Day. We want to today recognize one of our largest franchisees around the world, the Army and Air Force Exchange Service. AFES currently operating 79 Popeyes restaurant in 11 countries, including Japan, Italy, Germany and the United Kingdom. We're honored to have a partner like AFES that embraces our service leadership principle and is passionate about providing superior food and service for our military veterans, active-duty troops and their family. We thank you AFES.

As you saw, Popeyes delivered another solid quarter of earnings per share growth, positive same-store sales and strong unit openings. Our adjusted earnings per diluted share were $0.38, a 31% increase over last year. Our system-wide sales increased by 12.4% for a 2-year growth rate of nearly 23%. Our global same-store sales increased 5.1%, compared to 6.3% last year for a 2-year same-store sales growth of 11.4%. We opened 39 new restaurants, adding a net of 33 to our overall footprint. At the end of the third quarter, we had 2,187 restaurants worldwide.

We would like to provide an update on each of the pillars of our strategic roadmap and highlight our key initiatives and metrics. We believe that our disciplined execution of this roadmap remains our strongest competitive advantage.

Let me begin by addressing our first roadmap pillar, Build a Distinctive Brand. In the third quarter, Popeyes continued its strategy of combining innovation with sustained national media. Among the highlights of our third quarter was Popeyes' newest boneless innovation, Chicken Waffle Tenders. This national limited time offer consisted of our signature handcrafted tenders marinated in Louisiana seasoning, then hand battered and breaded in a waffle coating. Cooked up fresh and served with Honey Maple Dipping Sauce. It is the most successful LTO in the last 5 years in terms of average weekly sales.

September followed with Popeyes "Love That Chicken Month", another strong promotion. Our national broadcast offer was 2 pieces of Bonafide bone-in chicken, with a biscuit for $2.99. This offer was promoted in conjunction with the famous Popeyes' jingle, heard over the years, "Love that Chicken from Popeyes. " Our guests and crew members were invited to share their very own version of that jingle in an online contest. It was a lot of fun. These promotions led to the domestic same-store sales of 5.1% in the third quarter. This was our 14th consecutive quarter of positive results. On a 2-year basis, our domestic third quarter same-store sales growth was 11.9%. Popeyes' same-store growth outperformed the domestic Chicken QSR segment for the 22nd consecutive quarter. Our same-store sales growth also surpassed the QSR category by 4.2 percentage points for the comparable period, according to NPD's Sales Track. This represents the 8th consecutive quarter that we've outperformed the overall QSR category. We're quite pleased with sales to the third quarter. However, we do not expect that the growth rate of sales will be as robust in the fourth quarter. As you know, consumer confidence has been negatively impacted recently, and we have seen our growth rate slow since the end of the third quarter.

At Popeyes, we remain focused on market share growth as the measure of our success. According to independent industry research, our share of the Chicken QSR category has climbed to 21.2%, that's up 6.4 percentage points since 2008.

In a similar fashion, our brand-building efforts abroad, resulted in Popeyes international restaurants delivering positive same-store sales growth of 5.1% in the third quarter, marking the 15th consecutive quarter of international growth. In select international markets, we began using television advertising to communicate the distinctiveness of the Popeyes' brand and we've seen gains in consumer awareness, trial and sale.

Our second roadmap pillar, Run Great Restaurants, is about driving continuous improvement in all aspects of the guest experience. The principal metrics we've used to report our progress over the last 5 years are speed of service at the drive-thru and our Guest Experience Monitor that we refer to as GEM. At the end of the third quarter, approximately 70% of Popeyes' domestic restaurants were consistently achieving service times below 180 seconds at the drive-thru. We are now working on back of house efficiencies, including the installation of new equipment to improve food quality and enable faster service times with the goal of continuous improvement in our guest experience. We measure our guest experience with GEM. You may recall that we made several revisions to the GEM survey this year to derive a more accurate read of our service level. At the end of the third quarter, GEM Delighted scores were approximately 59%. Our service level represents an ongoing opportunity for Popeyes and we will continue to focus on improving our guest experience going forward. The remodeling of our restaurants continues to gain momentum. The Popeyes Louisiana Kitchen image is aligned with our brand heritage and emphasizes our approach to food made fresh. In terms of restaurant count, nearly 400 restaurants have been remodeled in 2013 through the end of the third quarter. And we expect that to climb to over 650 restaurants by year end. Including new and reimaged restaurants, we expect that approximately 60% of our domestic system will be in the new image by year end. The remodeling of our domestic system is also driving sales, with remodeled restaurants realizing an average sales lift of 3% to 4%. An exciting component of the system-wide reimaging is the addition of interior digital menu board, along with improving the guest experience, the digital menu board lead to greater order efficiency and greater promotional flexibility for our restaurants. We plan to have digital menu boards in approximately half of our domestic restaurants by year end.

The third pillar of our roadmap, Grow Restaurant Profit, is centered around our intense focus on strengthening the profitability of our franchisees, while maintaining our high-standards for food quality. Since our last earnings call, second quarter P&L for our domestic system have been collected and analyzed. As a result of Popeyes' strong sales performance and cost savings initiatives, franchisees reported average restaurant operating profit before rent of 21.8% of sales in the second quarter of 2013, up from 20% a year ago. In dollar terms, the average freestanding restaurant made almost 10,000 more dollars in restaurant operating profit in the second quarter.

The compilation of third quarter P&Ls will not be complete for another few weeks, but indications are the trend at increasing profit dollars will continue due to our strong third quarter sales and moderating commodity inflation versus a year ago. Commodity costs in the third quarter were lower by approximately 90 basis points versus year ago, primarily due to the decline in fresh chicken cost. Commodity prices decreased approximately 90 basis points in the third quarter versus 2012. We expect commodity costs to continue to moderate in the fourth quarter, bringing our full year 2013 expectations to slightly below 2012.

That brings me to the fourth pillar of our strategic roadmap, Accelerate Quality Openings. This pillar is about building new restaurants that perform at high sales volumes and provide excellent returns to both the franchisees and the company. In the third quarter, we opened 23 domestic restaurants, compared to a total of 18 the prior year. Through the end of the third quarter, we've opened domestically 75 new restaurants, that is 33 more restaurants than in the same period last year. The domestic freestanding restaurants opened in 2012 are averaging annualized volumes of approximately $1.6 million compared to the domestic freestanding system average of approximately $1.2 million. This continuing trend reflects our selection of superior sites and the extent to which our brand-building efforts have created pent-up demand in new and under-penetrated markets.

We expect to open a total of approximately 8 new company restaurants this year. Through the end of the third quarter, we've opened 5 of the 8 new company restaurants, bringing our total to 49. Also included in the third quarter openings were the conversion of 7 restaurants acquired in 2012 in Minnesota and California. With 20 conversions now completed, we have 6 remaining which we expect to reimage and open in the fourth quarter. Total onetime nonrecurring conversion fees associated with these restaurants were approximately $1.6 million in the third quarter and $4.1 million through the end of the third quarter. On a full year basis, we expect conversion fees associated with these restaurants to total approximately $5.5 million.

Moving now to our international development. We opened 16 restaurants in the third quarter, including 8 in our largest markets, Turkey, Canada and South Korea, bringing our overall international footprint to 442 restaurants. Our current focus is improving unit economics by positioning Popeyes as a distinctive brand and selecting superior real estate. At approximately 20% of the brand's total restaurant count, our international presence is increasing at a deliberate pace and we believe that the opportunity ahead is substantial.

Finally, our pillar of Creating a Culture of Servant Leadership, is about developing a deep bench of leadership capabilities in our employees, our franchisees and our restaurant team members. We see Servant Leadership as a mean to achieving sustainable, superior performance. During this quarter, we made a number of best practice visits to companies across industries to benchmark the needed capabilities and resources to drive the superior employee and guest experience. These learnings will lead to the definition and design of our in-market plans for 2014.

I'll now turn the call over to our CFO, Mel Hope, to discuss the financial highlights in our third quarter. Mel?

H. Melville Hope

Thank you, and good morning, everybody. As Cheryl mentioned, our team and our franchise operators continue to focus on our strategic plan and to deliver solid growth. In the third quarter, our adjusted earnings were $9.1 million or $0.38 per diluted share, compared to $0.29 last year. Through the end of the third quarter, adjusted earnings per share were $1.13, compared to $0.91 last year, an increase of over 24%. Total revenues in the third quarter were $49.3 million. Of these revenues, franchise revenues were $29.2 million, up nearly 20% over the prior year. This increase is the result of our same-store sales of 5.1%, plus revenue from new franchised restaurants. In addition, also included in franchise revenues, were the $1.6 million of conversion fees that Cheryl mentioned and were associated with the restaurants we acquired last year in Minnesota and California. Our investment in new company markets continues. We've built 9 net new company restaurants within the last 12 months and you can see their impact in our sales by company-operated restaurants, which rose to $18.6 million in the third quarter, compared to $13.5 million in 2012. Additionally, company restaurant operating profit increased to $3.3 million, up from $2.2 million last year. The average operating profit margin of our company restaurants was 17.7% in the third quarter, compared to 16.3% last year. The improvement in the operating profit is in part due to the above average sales volumes and profitability of our new company restaurants.

Our third quarter G&A expenses were $16.2 million compared to $14.7 million last year. We continue to efficiently manage our G&A inside our planning goal of 3% of Popeyes' system-wide sales. I'll touch on G&A guidance, again, in just a minute including a reminder about our fourth quarter expenses.

Year-to-date, operating EBITDA grew to $51.2 million, compared to $40.9 million in 2012. Operating EBITDA margin was 32.5% in 2013, compared to 31.2% last year. The 130-basis-point increase in operating EBITDA margin was primarily due to strong same-store sales, the conversion fees recognized on the acquired restaurants in Minnesota and California and improved restaurant operating profit at company-operated restaurants. Through the end of the third quarter, we generated free cash flow of $33.2 million, compared to $26.3 million in the prior year. At 21.1% of total revenue, the company's free cash flow provides for strategic investment in our growth initiatives. Through the end of the third quarter, we've invested $25.2 million in various capital projects. In addition, through the end of the third quarter, the company's retired approximately $15 million of common stock. As we discussed in last quarter's call, we expect to close on a new credit facility before year end and we will be sharing the terms of that new credit facility once it closes.

I'm now going to wrap up my comments with a brief look ahead. We expect the rate of our same-store sales growth to moderate in the fourth quarter. Accordingly, we're narrowing our guidance for fiscal 2013 same-store sales growth to 3.5% to 4%. Popeyes now expects its global new openings will be in the range of 185 to 195 restaurants. This includes approximately 8 company restaurants and 65 international restaurants.

As in prior years, many of the new restaurants are scheduled to open late in December. The company expects net growth of 100 to 120 restaurants. The company is narrowing its adjusted earnings per diluted share range to $1.39 to $1.42. Adjusted earnings per diluted share reported in 2012 were $1.24, including approximately $0.01 for the 53rd week last year. We continue to make incremental investments in our key strategies to drive long-term growth. We now expect full year G&A expenses to be between $74 million and $75 million, which is approximately 3% of our estimated system-wide sales.

You're going to note that for us to reach that target, that as in the prior year, we expect our G&A spending will elevate in the fourth quarter, as our teams complete their 2013 projects or begin to get a jump on 2014. As we're increasing -- we're also increasing the pace of our planned capital investments to support our strategic investment in company restaurants. In 2013, we plan to invest a total of $34 million to $36 million, compared to previous guidance of $24 million to $28 million. Of the total capital invested in 2013, approximately $21 million will be invested in new and existing company-operated restaurants and another $13 million will be invested in the restaurants that we acquired in Minnesota and California.

I want to emphasize, as I did last quarter, that our depreciation and amortization expense reflects the significant investment of capital in restaurants during the year and we've narrowed the estimated range of our 2013 depreciation and amortization expense to $6.5 million to $7 million.

The company's effective tax rate is expected to be approximately 37.5%, compared to our previous guidance of approximately 37%, which reflects higher state income tax liability as we develop company restaurants in new markets. The company plans to repurchase approximately $15 million to $20 million in outstanding shares, compared to $15.2 million of share repurchases in 2012.

Over the course of the next 5 year, the company believes the execution of its strategic plan will deliver on the following results: Same-store sales growth of 1% to 3% annually; cumulative average growth in net new units of 4% to 6%; and cumulative average growth in earnings per diluted share of 13% to 15%. We will be releasing our 2014 guidance with the filing of our annual report in late February.

AFC is growing steadily and we believe that our plan in 2014 will continue to show growth inside the 13% to 15% long-term range.

That concludes our prepared comments. Ralph Bower, our President, U.S., is also here with Cheryl and I in Atlanta and will be helping us to take questions.

And I'm going to turn the call back over to Tyrone now to open the lines.

Question-and-Answer Session

Operator

[Operator Instructions] First question is from Michael Gallo of CL King.

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

I just wanted to dig in a little bit on the comps. I, guess, by looking, you had increased the guidance range, slightly, coming out of the second quarter. But when I look, I -- in the fourth quarter, on a 2-year basis, it was -- I think in the fourth quarter of '11, where you saw the real acceleration in -- and are now starting to the cycle 2 straight years of 6% comps. So given that the comparison was -- is about 400 basis points more difficult on a 2-year basis, Q4 over Q3, I guess, I'm a little surprised not that things are decelerating in Q4 but the guidance coming out of Q2 implied that you'll be able to maintain same-store sales, kind of in that same 4%, 4.5% range. So, is there something you're seeing that's really different, because it would seem a 1% to 2% kind of comp would basically maintain the same trend that you'd had looking at what it happened in the last couple of years?

Cheryl A. Bachelder

So, Mike, it's November 15 (sic) [14], so we're giving you the benefit of our -- where we stand on the year, and what I said is that we've seen a moderation of the growth rate in the fourth quarter. And we reflected that in our guidance of 3.5% to 4%, to be more precise. I think it's fair to say that when consumer confidence falls 9 months -- 9 points in 30 days in October. There's a little bit of a response among the QSR customer, and I'm sure you've heard that from other people. So we expect to land this year in a very good place despite some fragileness with our customer, despite a slightly moderated trend in the fourth quarter but we feel good about a year landing at 3.5% to 4% comps in the environment we're competing in with growing market share. So that's how I describe it to you.

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

Great, helpful. Question then for Mel. I think, if I heard the comments right, you indicated that the G&A higher in the fourth quarter as you get a jump start on 2014. I guess, when I look year-on-year, last year, you had the extra week and even with the extra week, it looks like from your guidance that SG&A is going to be up about $2 million year-on-year.

H. Melville Hope

Right.

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

Is that how much -- how much is the pull forward from -- of what you would have spent in '14?

H. Melville Hope

Our projects are not always calendar based, and so, I would tell you that there's a few hundred thousand that we're beginning to lean into as we launch into that. But for the most part, it's really the wrap-up of things associated with this year. We annually had a increase in our G&A spending, associated with year end stuff like audits and that sort of thing. So you always -- we have an annual phenomenon of increasing G&A during the fourth quarter.

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

All right. But, I guess, just last year, you had the extra week, so even allowing for that, seemed like, it would still up at a healthy clip.

Operator

Next question is from Michael Halen of Sidoti.

Michael Halen - Sidoti & Company, LLC

You took company-owned unit guidance down to 8% from 8% to 10%. Should we expect strong company-owned unit expansion in the first quarter of 2014?

H. Melville Hope

Yes. We're going to continue to be growing our company restaurants.

Michael Halen - Sidoti & Company, LLC

No, I guess so...

Cheryl A. Bachelder

Again, Mike, we're basically at November 15, we pretty much know what where we're going to land. So we try to be very accurate with you but those -- that restaurant development pipeline is full and good.

Michael Halen - Sidoti & Company, LLC

Okay. So, I guess, just a couple of restaurants maybe pushed back into the first quarter here?

H. Melville Hope

We always have some -- this time of the year, late in the year, we always have some projects that are shuffling around as we're getting permitting and contractors over in the winter months, that sort of thing and so we see projects slide forward and backward.

Michael Halen - Sidoti & Company, LLC

Okay. I guess, regarding the fourth quarter sales growth moderation, was domestic traffic still positive in October?

Cheryl Fletcher

Mike, we've never talked about traffic in our call for ticket. We've never spoken to those metrics, and what I always say is traffic should be positive in a healthy chain and that's what our goal always is, is to have healthy positive traffic.

Michael Halen - Sidoti & Company, LLC

Okay. And can you point to any particular regions of the U.S. that might have been soft in October?

Cheryl A. Bachelder

No.

Operator

Our next question is from Nicole Miller Regan of Piper Jaffray.

Joshua C. Long - Piper Jaffray Companies, Research Division

This is Josh on for Nicole. I wonder if you might be able to provide some color on what you're seeing on the commodity side. I know you mentioned that chicken was probably going to come in a little bit more favorable. But perhaps what you're seeing on the seafood or the shrimp side, to the extent that, that's going to be showing up in the promotion cycle going forward?

Cheryl A. Bachelder

Right. Yes. We certainly have seen the market move in shrimp but we are in a good position. We're prepared for our promotion calender and don't anticipate that being a major factor, Joshua.

Joshua C. Long - Piper Jaffray Companies, Research Division

And then, could you also talk about or provide some color on the investments that are earmarked in CapEx for the company's stores this year? So it sounds like you're going to be putting in some digital menu boards. Are there some other items that we'll be noticing as we make our way out to the field, and if you could elaborate on those please?

H. Melville Hope

I think, in general, the -- if you're referring to our increase, it's really in a couple of categories. One is we have -- we're starting to spend into CapEx this year for projects that will not open in 2014 as we're securing properties and sites for those. Then we've also -- and Ralph, you can elaborate on this, but our new restaurants are enjoying such high volumes that we -- you may see some restaurants with larger dining rooms or choosing some of the larger equipment in the back of the house, including larger banks of friers and freezer storage space. Those sort of things.

Ralph W. Bower

Yes. I would just say that we've run up upon a really good problem to have and that is that our new restaurants are doing volumes higher than ever before. And so where you see in a lot of places, folks may be looking to take cost out of the buildings or actually making our buildings bigger. 2 years ago, our standard prototype was a 48C prototype. Today, it's a 60C prototype and in some of our company markets, we're looking at building restaurants even larger than that. And that's front of house. And as Mel mentioned, back of house, we're adding friers to keep up with the capacity and we're pretty excited about what we're seeing.

Joshua C. Long - Piper Jaffray Companies, Research Division

And then, on the franchise support side, you've all done a very nice job investing in and then also managing the overall G&A spend from a dollar and percentage basis. Do you feel pretty good about the franchisee support system where it is as far as being able to support growth over the next several years or should we expect any sort of -- are we looking for any sort of investment that need to occur to support that over the next couple of years?

H. Melville Hope

Josh, the reason we guide to a percentage of our system-wide sales is because we expect as the size of our system grows that we're going to increase our support staff, so there will be increases. It plateaus off here and there for a season but we think about the long-term growth of the company and they continue to grow, continue to be attentive to our partnership with our franchisees. We're going to continue to grow our staff and increase the complement of people that we have in the field serving them.

Cheryl A. Bachelder

And Josh, I'd add to that, we just -- we always do our midsummer franchisee survey and our franchisee satisfaction with Popeyes is at an all-time high. And, yet, we always work with them to make sure in every aspect of support we're providing what they need. So as we -- the kinds of things that we do with our G&A is make sure that we're providing good counsel on profitability, good counsel on choosing real estate, good support on business reviews, and today, our ratings are strong in those areas.

Operator

Our next question is from Mark Smith of Feltl and Company.

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

Just real quick, Cheryl, you started by talking a little bit about military bases. Was there any impact in October from government shutdown on any of the restaurants that are operated there?

Cheryl A. Bachelder

No. I think the impact of the shutdown was on consumer confidence. I think it's far broader than the City of Washington D.C. or anything of that nature. So, no, we didn't see it as an issue, a local market issue. We see it as a consumer confidence issue.

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

Perfect. And then still looking international, somebody previously, asked about any regions of weakness domestically. Have you guys seen anything internationally that you should call out that may be a stronger-than-expected or any pockets of weakness?

Cheryl A. Bachelder

From macro factors, I would say, we've seen no shift in trend in the third quarter. Our own -- the things we control, we have been really investing and getting our brand well-positioned to build awareness and trial, and that is reflected in the comps that you see in international which have improved nicely.

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

And, I guess, that's my question kind of trying to back end a little bit on your guidance here for the year. Do you feel like the -- any issues or the moderations that you're seeing is purely domestic and not international?

Cheryl A. Bachelder

That's my sense of it.

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

Okay. Perfect. And then, maybe a question for Mel. Just as we look at G&A expense, I don't know if you can break out or talk about any G&A, maybe on this year and that's in the guidance that's onetime in nature or any guidance you can give us into 2014 on kind of a good run rate on G&A?

H. Melville Hope

Yes. I think the best guidance that we've given and we stayed to the last few years has been that 3% of system-wide sales. We have projects that we spend into inside our G&A each year and they're replaced by new projects next year. So I wouldn't want you to indicate that there's a lot of onetime costs in our G&A. We're a growing company. We're investing in that growth. We're investing with the expectation that there's going to be returns, and I think that 3% of system-wide sales, we put that out there, so that people would have a good peg on where we were -- where we expected to take the company long-term.

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

And then, as we look at that, you guys have spent a lot of effort and time on these conversions in California and Minnesota and its been a great project. Maybe, as that project rolls to an end, your -- is that efforts spent more on company development or do you roll maybe some of that effort into franchise support and more unit growth franchisees in international?

Ralph W. Bower

Yes. I think that now that those restaurants are predominantly constructed, I think that it becomes more of a franchise support effort. But as far as new store development goes, it's company restaurant development.

Cheryl A. Bachelder

And, I'd make the same comment, I made earlier, that the pipeline on franchisee interest in developing Popeyes remains very robust. So as we complete Minnesota and California, we have plenty to do to support their interest and open these -- opening these high-volume, high-performing restaurants.

Operator

[Operator Instructions] Next question is from Kenneth Smith of Lenox Equity Research.

Kenneth Smith - Lenox Equity Research, LLC

I wanted to ask a bit further on the step-up in the CapEx plans for this year. It sounds like some of it is to prepare for next year. Are you -- by doing that, intending to maybe accelerate the development of the company units, time-wise into earlier in the year or spread them out more and then could you also be looking to actually -- you have even more new units opening next year. I know you're not giving specifics to next year but just sort of seems like that what you might be doing in...

Ralph W. Bower

Ken, I think the way to think about it is that we expect our company restaurants to be a little bit more evenly spread next year than we saw this year. There will be, I think, more in the first quarter because of some projects that rolled over from this year into next year, and then I think, that it will level off a bit. But most of that increase is for projects that we've already started doing development on and it's the expenses associated with those.

H. Melville Hope

Ken, you've been following us for a long time and you know that we annually have the fourth quarter rush to open restaurants. And so, I guess, I'd say, we'd like to do our part to try and more evenly distribute them through the year.

Operator

Thank you. There are no further questions at this time. I'd like to turn the call over to Cheryl Bachelder for any closing remarks.

Cheryl A. Bachelder

Well, as always, we thank you for joining us this morning and for your good questions. We appreciate your continued support of Popeyes and our growth. We're going to be presenting at the Wedbush Securities Conference in New York on December 10, and our next call will be in March when we present full year 2013 results and share guidance for 2014. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.

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