Owner AFC to keep Popeyes: Church's, Cinnabon on block

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AFC Enterprises is weighing a sale of its Church's Chicken and Cinnabon chains as the franchiser moves to a holding company format and applies for relisting on the Nasdaq exchange.

AFC has hired Bear, Stearns & Co. to explore the options available for the brands, said CEO Frank Belatti. In 2003, Church's had system-wide sales of $900 million and Cinnabon had $211 million. AFC also owns Popeyes Chicken and Biscuits.

"We're going to take a hard look in the marketplace and find out what options we have in terms of how we can add to the value of the brands in terms of our stakeholders," Mr. Belatti said. By moving to a holding company entity, Mr. Belatti projected the company would save up to $15 million in general and administrative expenses.

chicken overlap

In a conference call last week, he told analysts that having Church's and Popeyes Chicken and Biscuits in the same company portfolio was "preventing our stakeholders from realizing the full value of each brand."

Last year, the company sold the North American assets of its Seattle Coffee Co. chain to Starbucks Corp. for $72 million in cash. In late April, the marketer confirmed it would explore alternatives for Cinnabon. Bids are due next week for Cinnabon, which Mr. Belatti said has attracted 80 to 100 inquiries from a wide scope of companies, including franchise partnerships, grocery, financial firms and other restaurant companies.

"What they're doing is smart, which is taking a hard look at what they have, re-examining their portfolio and clinically evaluating the future prospects of each of their brands to make a decision to spin one or more off," said Alan Hickok, consultant of Hickok McMillan Strategic Advisors. "It doesn't necessarily mean they are not good brands. ... It might mean that the company has concluded that for a variety of factors there is a higher and better use of both their human and financial capital."

AFC last year was forced to restate earnings since going public in 2001, and struggled through management defections and ousters. It was delisted from Nasdaq in August. Now, the Atlanta-based fast-food marketer said it has emerged stronger from its challenges. "While painful in many regards, [the restatement] has allowed us to be a much more ... efficient organization," said Mr. Belatti. "The portfolio adjustment is really a standalone proposition and has nothing do with the filing issues," he said. "If we go out and re-list on Nasdaq, we can do so having a strategic game plan in front of people so they can make their decision on that basis."

Following declines in January and February 2003, Popeyes same-store sales for the same periods in 2004 grew 0.7% and 2.3%, while Church's grew 8.8% and 4.2%, and Cinnabon sales grew 4.2% and 5%. Using a two-year yardstick, same-store sales remained in the negative ranges. AFC projected full-year 2004 same-store sales for Popeyes and Church's to grow 1% to 2%, and Cinnabon to grow 2.5% to 3.5%.

If AFC does sell the two brands, it plans to put all of its resources behind the more profitable Popeyes chain and possibly acquire other compatible brands.

solid brands

And Church's? "It's a strong cash generator, high-margin business with simple operations and a very nimble group," Mr. Belatti said of the chain, which hired Cartel Group, San Antonio, Texas, as agency of record in March.

Despite the post 9/11 declines in high-traffic malls, airports and outlets, Mr. Belatti contends Cinnabon has rebounded from a couple of tough years. He called the brand's grocery launch a success as well as its introductions of several line extentions. "They seem to have found solutions to some of their problems."

But industry insiders feel both Cinnabon and Church's will be a tough sell. "They're not exactly on trend" with the low-carb healthier eating movement, said an executive.

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