Popeye's 2013 Annual Report Download - page 23

7
to open the restaurants required by their agreements. Historically,there have been many instances in which Popeyes
franchisees have not fulfilled their obligations under their development agreements to open new restaurants.
If the cost of chicken increases, our cost of sales will increase and our operating results could be adversely affected.
The principal raw material for Popeyes is fresh chicken. Any material increase in the costs of fresh chicken could
adversely affect our operating results. Our company-operated and franchised restaurants purchase fresh chicken from
various suppliers who service us from various plant locations. These costs are significantly affected by increases in the
cost of chicken, which can result from anumber of factors, including increases in the cost of grain, disease, declining
market supply of fast-food sized chickens and other factors that affect availability. Because our purchasing agreements
for fresh chicken allow the prices that we pay for chicken to fluctuate, a rise in the prices of chicken products could
expose us to cost increases. If we fail to anticipate and react to increasing food costs by adjusting our purchasing
practices or increasing our sales prices, our cost of sales may increase and our operating results could be adversely
affected.
Changes in consumer preferences and demographic trends could result in aloss of customers and reduce our
revenues.
Foodservice businesses are often affected by changes in consumer tastes, national, regional and local economic
conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location of
competing restaurants. In addition, the restaurant industry is currently under heightened legal and legislative scrutiny
related to menu labeling and resulting from the perception that the practices of restaurant companies have contributed
to nutritional, caloric intake, obesity,or other health concerns of their guests. If we are unable to adapt to changes in
consumer preferences and trends, we may lose customers and our revenues may decline.
Because our operating results are closely tied to the success of our franchisees, the failure or loss of one or more
franchisees, operating asignificant number of restaurants, could adversely affect our operating results.
Our operating results are dependent on our franchisees and, in some cases, on certain franchisees that operate a large
number of restaurants. How well our franchisees operate their restaurants and their desire to maintain their franchise
relationship with us is outside of our direct control. In addition, economic conditions and the availability of credit may
have an adverse impact on our franchisees. Any failure of these franchisees to operate their restaurants successfully or
the loss of these franchisees could adversely impact our operating results. As of December 29, 2013, we had 338
franchisees operating restaurants within the Popeyes system and several preparing to become operators. The largest of
our domestic franchisees operates 142 Popeyes restaurants; and the largest of our international franchisees operates
101 Popeyes restaurants. Typically, each of our international franchisees is responsible for the development of
significantly more restaurants than our domestic franchisees. As a result, our international operations are more closely
tied to the success of a smaller number of franchisees than our domestic operations. There can be no assurance that our
domestic and international franchisees will operate their franchises successfully or continue to maintain their franchise
relationships with us.
Currency, economic, political and other risks associated with our international operations could adversely affect
our operating results.
We also face currency, economic, political, and other risks associated with our international operations. As of
December 29, 2013, we had 456 franchised restaurants in Puerto Rico, Guam, the Cayman Islands and 28 foreign
countries. Business at these operations is conducted in the respective local currency. The amount owed to us is based
on aconversion of the royalties and other fees to U.S. dollars using the prevailing exchange rate. In particular, the
royalties are based on a percentage of net sales generated by our foreign franchisees’ operations. Consequently,our
revenues from international franchisees are exposed to the potentially adverse effects of our franchisees’ operations,
currency exchange rates, local economic conditions, political instability and other risks associated with doing business
in foreign countries. We expect that our franchise revenues generated from international operations will increase in the
future, thus increasing our exposure to changes in foreign economic conditions and currency fluctuations.
Our operating results and same-store sales may fluctuate significantly and could fall below the expectations of
securities analysts and investors, which could cause the market price of our common stock to decline.