Rio de Janeiro / BR. (bffc) Brazil Fast Food Corporation (BFFC), the second largest fast-food restaurant chain in Brazil with 846 points of sale, operating under (i) the Bob´s brand, (ii) KFC and Pizza Hut São Paulo as franchisee of Yum! Brands and (iii) Doggis as franchisee of Grupo de Empresas Doggis S.A., announced financial results for the third quarter ended September 30, 2011.
Third Quarter 2011 Highlights
System-wide sales totaled 236,8 million BRL, up 20,6 percent from the third quarter 2010. Revenue totaled 60,4 million BRL, up 14,9 percent from the third quarter 2010. Points of sale totaled 846 at September 30, 2011, up from 742 at the end of third quarter 2010. Ebitda was 7,0 million BRL, down 36,9 percent from the third quarter 2010. Operating income was 5,5 million BRL, down 41,8 percent from the third quarter 2010. Net income was a loss of -0,54 million BRL or -0,07 BRL per basic and diluted share, as compared to net income of 5,3 million BRL, 0,65 BRL in the third quarter 2010.
«We are pleased to report a quarter of double-digit top-line growth driven by the expansion of our Bob´s branded franchise base and solid same-store sales performance and operating efficiencies at our company-owned stores. Year-over-year operating income comparisons reflect the non-recurring gain of 6 million BRL in Q3 2010 due to the disposition of certain properties and fixed assets. The net loss in the third quarter of 2011 is primarily due to a 5,6 million BRL non-cash charge resulting from a balance sheet adjustment to our provision for tax loss carry-forwards. We are pleased with the progress of our discussions with the tax authorities and are optimistic we will be able to favorably resolve the 6,7 BRL in contingent tax liabilities once the facts are carefully reviewed», said Mr. Ricardo Bomeny, President and CEO of Brazil Fast Food.
«We believe that the very positive trends in revenues and operating income for the first nine months of 2011 confirm that our business is healthy and on track. We are also pleased to note that our strong operating cash flow enabled us to continue to pay down our debt and strengthen our financial position».
Third Quarter 2011 Results
System-wide sales grew 20,6 percent in the third quarter to 236,8 million BRL, driven by an increase in franchised points of sale, which grew by 17,8 percent to 781 stores in the third quarter of 2011, as well as higher sales from company-owned stores.
Total revenue for the third quarter 2011 increased by 14,9 percent to 60,4 million BRL from 52,6 million BRL in the third quarter 2010. Revenue growth was driven primarily by the continued expansion of Brazil Fast Food´s franchise network and higher sales from company-owned stores.
The Company ended the third quarter of 2011 with 846 points of sale, compared to 742 in the comparable period in 2010.
Net revenue for company-owned and operated outlets was up 18,2 percent year over year to 46,0 million BRL in the third quarter of 2011, reflecting an increase in net revenues across the Company´s Bob´s, KFC and Pizza Hut brands, offset somewhat by a decrease in Doggis net revenues.
Net revenue from franchisees increased 24,2 percent year-over-year to 8,8 million BRL, driven primarily by an increase in number of franchised retail outlets to 781, up from 663 in the same period a year ago. Revenues from trade partners and other income totaled 5,6 million BRL in the third quarter of 2011, as compared to 6,5 million BRL in the third quarter of 2010.
Operating expenses grew 27,4 percent to 54,9 million BRL in the third quarter of 2011, primarily due to higher store costs and expenses and the significant decline in the net result of assets sold and impaired, which was a gain of 0,4 million BRL in the third quarter of 2011, as compared to a net gain of 6,0 million BRL in the prior year period. As a percentage of revenue, operating costs increased from 82,0 percent of total revenue in the third quarter of 2010 to 90,9 percent of total revenue in the third quarter of 2011, mainly attributable to variance in asset sales. Adjusting for this non-recurring item, operating costs continued to decline as a percentage of revenue due to the company´s strategy to limit its direct operations to its most profitable outlets and also due to improved franchise margins.
Operating income for the third quarter of 2011 was 5,5 million BRL, compared to operating income of 9,5 million BRL in the third quarter of 2010, primarily due to the non-recurring items noted above. Operating margin in the third quarter of 2011 was 9,1 percent compared to 18,0 percent in the same period of 2010.
Ebitda in the third quarter of 2011 was 7,0 million BRL, compared to 11,1 million BRL in the third quarter of 2010. Ebitda margin was 11,6 percent in the third quarter of 2011, compared to 21,1 percent in the same period of 2010. A table reconciling Ebitda to its nearest GAAP equivalent is provided elsewhere in this press release.
Interest income was 0,5 million BRL in the third quarter of 2011, compared to interest expense of 0,3 million BRL in the third quarter of 2010. The higher interest income is attributable to lower debt and higher cash balances during the period.
The Company accrued 6,1 million BRL in income taxes, on pre-tax income of 6,0 million BRL in the third quarter of 2011, as compared to 3,7 million BRL in taxes on 9,1 million BRL of pre-tax income in the prior year period. As mentioned above, during the third quarter of 2011 the Company recorded a 5,6 million BRL non-cash deferred income tax expense related to the adjustment in its tax loss carryforward.
Net income for the third quarter of 2011 was a loss of -0,54 million BRL or -0,07 BRL per basic and diluted share, compared to net income of 5,3 million BRL or 0,65 BRL per basic and diluted share, in the same period of 2010.
Nine Months 2011 Results
For the nine months ended in September 30, 2011, total net revenue was 166,3 million BRL, up 10,9 percent from 150,0 million BRL in the comparable period of 2010. Operating income was 14,4 million BRL, up 9,8 percent from 13,1 million BRL in the comparable period in 2010. Operating margin was 8,7 percent for the nine months ended September 30, 2011 compared to 8,8 percent in the comparable period in 2010. Net income for the nine months ended September 30, 2011 was 7,0 million BRL, down 5,8 percent from 7,4 million BRL in the comparable period in 2010. Basic and diluted earnings per share were 0,86 BRL for the nine months ended September 30, 2011 compared to 0,91 BRL for the nine months ended September 30, 2010.
Financial Condition
As of September 30, 2011 the Company had 23,6 million BRL in cash, up from 16,7 million BRL as of December 31, 2010. Working capital was 12,5 million BRL, as compared to a negative 6,4 million BRL as of the end of 2010. Total shareholders´ equity was 40,0 million BRL at the end of the third quarter of 2011, compared to 33,2 million BRL at the end of 2010.
Business Outlook
«During the first nine months of 2011, we made solid progress in expanding our higher margin franchise operations, while focusing our company-owned stores on the most profitable outlets and improving the efficiency of operations. Same store sales at our owned restaurants improved by 8,7 percent for Bob´s, 3,7 percent for KFC and 7,8 percent for Pizza Hut during the nine-month period. Net franchise revenues grew by 22,8 percent during this period, with franchise operating margins improving to 64,9 percent, as compared to 57,6 percent in the first nine months of 2010», said Ricardo Bomeny, President and CEO of Brazil Fast Food. «We see a continuation of the current favorable business environment in 2011 and expect to benefit from, among other factors, increased spending associated with the build-out to support the World Cup and Olympics to be hosted in 2014 and 2016, respectively», concluded Mr. Bomeny.
