Popeyes' Preliminary Earnings Prove Tasty

By Markets Fool.com

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Popeyes has spent millions remodeling its existing locations, Credit: Popeyes Louisiana Kitchen,

Popeyes Louisiana Kitchen won't officially report earnings until next month. But the popular quick-service restaurant chain just couldn't wait to share some great news with shareholders ahead of its presentation at this week's 17th Annual ICR XChange Conference.

In a press release Monday, Popeyes announced encouraging preliminary fiscal 2014 results. Global same-store sales, for one, increased 6.2% during the year, capped by an impressive 9.8% jump during the fourth quarter. By comparison, in November Popeyes told investors to expect2014 global same-store sales to increase somewhere in the range of 5% to 5.5%, which itself was raised from an expected range of 3% to 4% three months earlier.

Popeyes also achieved 148 net new restaurant openings in 2014, compared with previous guidance for net new locations of 100 to 130. When all was said and done in 2014, Popeyes increased its restaurant base by roughly 6.9% to 2,379 locations.

On the bottom line, Popeyes now expects fiscal 2014 adjusted per share earnings to be $1.64 to $1.65, representing approximately 15% growth over 2013 adjusted earnings of $1.43 per share. Previously, Popeyes management guided for 2014 per share earnings of $1.61 to $1.64.

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Curiously, though, analysts were already anticipating this outperformance, as consensus estimates called for fiscal 2014 earnings at the high end of the company's previous range. Combined with the fact shares of Popeyes are up nearly 50% over the past year, this at least partly explains why the stock rose a relatively modest 2% on Monday.

Don't put down your fork just yet
But does that mean it's time for Popeyes investors to put their profits to work elsewhere? Not necessarily.

If management's insight during their ICR XChange presentation Monday is any indication, Popeyes' appears poised to continue its quick-service restaurant domination for the foreseeable future.

In fact, Popeyes' recipe for success is relatively simple, starting with its distinctive brand, unique Lousiana-centric food offerings, and outsized focus on creating "memorable experiences" for consumers. The latter notably includes a comprehensive remodeling effort to achieve a much more contemporary design. According to management, that effort was roughly 80% complete in the U.S. at year-end 2014, and should be 90% complete by the end of 2015.

As the concept has naturally grown to include more locations and, in turn, higher profits, Popeyes has also steadily increased its advertising budget in step, from $61 million in 2008 to $94 million in 2013.Consequently, Popeyes' same-store sales performance has absolutely dominated the chicken quick-service restaurant segment for nearly seven years, and the broader QSR segment for over three years:

Credit: Popeyes Lousiana Chicken.

This also means Popeyes has steadily taken market share from direct competitors in the space, with its domestic share of the chicken QSR segment increasing from 15.8% in 2009, to 23.2% in 2014.

On one hand, however, it's worth noting other smaller, up-and-coming chains have enjoyed recent strong performances as well. Take El Pollo Loco for instance, which last quarter enjoyed an 7.9% comparable-restaurant sales increase, compared with Popeyes' respectable 7.3% gain over the same period. It'll be interesting to see, then, what El Pollo Loco says when it reports its own fourth-quarter results next month.

On the other hand, that both Popeyes and El Pollo Loco have performed so well seems to be bad news for long-entrenched chains like Yum! Brands' Kentucky Fried Chicken, which has struggled mightily the past couple years amid fierce competition from both fellow quick-service chains and higher-priced, higher-quality fast-casual concepts alike. KFC has also had to endure multiple blows -- whether deserved or not -- to its reputation overseas of late, which have certainly done no favors in helping it maintain its stateside rapport with consumers.

Of course, with nearly 19,000 KFC locations worldwide, Popeyes obviously has a long way to go to catch up with Yum! Brands' flagship concept in terms of absolute size. But Popeyes' recent accelerated preformance does seem to indicate that it has had little trouble capitalizing on KFC's woes despite the success of other chains like El Pollo Loco. In the end, if Popeyes can continue executing on its straightforward plans to win over consumers over the long-term, I see no reason patient investors won't be perfectly satisfied if they hold on to their shares from here.

The article Popeyes' Preliminary Earnings Prove Tasty originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends American Express and owns shares of Capital One Financial. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.