FINANCE: Popeye's Talks Franchisee Profit

Popeye's (NYSE:AFCE) had a nice first quarter. Same store sales were up materially in both the U.S. and international markets. And it beat revenue and earnings per share targets. They are building both company stores and opening net new franchisee units, while AFCE is culling the field by closing lower performing units. 

Popeye's beat KFC at the Chapter 11 game and successfully reflagged old KFC units to Popeyes units in two US markets last year.

In a first for restaurant franchisors, Popeye's discussed franchisee store level EBITDAR (EBITDA exluding rent) in its quarterly earnings call. The number was $40,000 improved from year to year, to 20.4% of sales. The U.S. domestic AUV base was about $1.2 million.

Other than scattered McDonalds and partial system Dunkin Donuts (DNKN) disclosure, no franchisor talks so specifically, in recent memory.

Even though rents have to be subtracted, and EBITDA has to cover debt service and CAPEX, thats a pretty good number. And great disclosure on the part of CEO Cheryl Bachelder and team.

See Restaurant Finance Monitor's article on this.

John, is there real profit for franchisees here?

John, can you present the earnings information in plain English? If I have to still pay interest, taxes, depreciation, rent after that number - what is left? Are franchisees walking away with actual profits (cash in hand) after paying everything? If so, can you make an educated guess as to how much?

"Are franchisees walking away

"Are franchisees walking away with actual profits (cash in hand) after paying everything?"

Sounds like this individual wants an ROI calculation of net present value of cash flow. I'm surprised more investors don't do that. Before getting fancy, calculating EBITDA is a first step. Simpler.

BTW, walking away with cash in hand is not 'actual profits'.

re: franchisees walking away

No, but cash in hand AFTER paying everything is (just like what was said in the post)

what you pay

You don't "pay" your depreciation line, it's a "non-cash" expense.

BUT: You DO pay your loan principal.  AND depending on the type of business, what you bought with the loan (like restaurant equipment) really does go down in value. Or you made leasehold improvements that you can't take with you when your franchise is up and you don't renew. Depending on the structuref the franchised business you may never get those Principal payments back so if you've added back Depreciation you need to subract your loan.... (not just the interest).

The franchise owner does need to figure out what he projects cash in hand will be every month even if it is not technically "profit". No matter what it is, that's what he and his family will be living on.

Is there any profit for franchisees here?

It you can imagine...on alot of factors. Call me and a particular brand and situation can be scoped out.