Anyone who likes fried chicken should know the name Popeye's. Personally, I love spicy food, so Popeye's chicken and biscuits are a favorite of mine. Unfortunately, there aren't too many locations where I live, so I go long periods without the Louisiana cooking. My loss I guess.

Popeye's owner AFC Enterprises (Nasdaq:AFCE) was once a brand conglomerate, operating Seattle's Best Coffee, Cinnabon and Church's Chicken. Those entities were sold so it could focus on its oldest and best restaurant concept. We're midway through CEO Cheryl Bachelder's revitalization, and the chips are still very much in the air. The latest plan is to re-brand Popeye's to focus on its New Orleans heritage. I think the company will make it, but it's not going to be easy.

Flamboyant Founder
Al Copeland, the founder of Popeye's, came from nothing, building his chicken and biscuit shop he started in 1972 into the third largest chicken restaurant in the U.S. By the end of the 1980s, he was running an 800-store empire. Unfortunately, Copeland took one bite too many, acquiring Church's in 1989 (the second biggest chain at the time), assuming a boatload of debt in the process and going bankrupt as a result. He lost most of the empire shortly thereafter.

Known for extravagant parties in his native New Orleans, he went on to found a chain of restaurants with his name right on the door. Copeland liked to take chances and he often did with his personal powerboat racing team. He died of cancer in March 2008.

Life After Church
The experiment with Church's ended in 2005, when it was sold to Crescent City Capital for approximately $386 million. AFC made $158 million on the deal. This was a bright light in an otherwise dreary situation. With Church's included in the income statement, it lost varying amounts of money between 2003 and 2005. That changed in 2006 once Popeye's was on its own.

The difficulties earlier in the decade certainly didn't help its stock price. One hundred dollars invested at the end of 2002 was worth $91 at the end of 2007. In comparison, the same amount invested in the S&P 500 was worth $185. It's not been a good time to be a shareholder. In November 2007, board member Cheryl Bachelder became the CEO, hired to continue its transformation. Her previous experience includes marketing stints with Yum Brands' (NYSE:YUM) KFC unit and Domino's Pizza.

Ten Months Later
On August 25, 2008, Popeye's announced it was re-branding both the image of the restaurant and its food. Out was chicken and biscuits (not the food, just the name), replaced by Louisiana Kitchen. The company is looking to emphasize the quality of its food, including the process of marinating the chicken for 12-plus hours before cooking. Once known for this, it is moving back in that direction.

To promote the re-branding, an ad campaign is rolling out that will emphasize the quality of its fast food and its Louisiana heritage. I for one think it's a good thing. Cutting corners will save money for companies but it can sometimes take away from the quality which made the business popular.

Buy the Numbers
AFC Enterprises' EBITDA margin in 2007 was 31.4%, one of the best in the industry. Revenue was up 9.3% to $167.3 million and earnings per share 6.7% to 80 cents. Free cash flow was $28.5 million and it repurchased $39.4 million of its shares in 2007. It's generating cash and reinvesting those funds in the business.

It currently has 1,900 restaurants worldwide and room for at least double that number with controlled expansion. Consumers consider Popeye's the leading chicken chain according to a Quick Service Restaurant survey. With per capita pounds of chicken eaten up 27% in the last 10 years, America's love for poultry protein bodes well for the future.

While Popeye's is emphasizing its quality food and Louisiana heritage, it is also introducing three items at $1.49 including a chicken wrap, a chicken tender and a rice-filled cheddar tortilla. These products will attract sales in the late-night and late-afternoon slower periods and hopefully more 18-to-24 year-olds who are reducing their visits to quick service restaurants.

Bottom Line
The quick service restaurant market is a fierce battle. With competitors like McDonald's (NYSE:MCD) and Burger King (NYSE:BKC) in addition to KFC, Popeye's certainly has its work cut out for it. AFC's stock is down 35% in the past year, on top of its poor performance since 2002. However, if Keeley Asset Management, which owns more than 5% of its stock thinks the long-term prospects are good, so do I. Since August 1, 2008, the stock is up about 20%.

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