With more than 3,600 restaurants in 18 countries, more than 400 franchisees and about 200,000 team members, DineEquity (DIN, Financial) is one of the largest full-service restaurant companies in the world.
DineEquity has transformed its IHOP restaurant system into one that is 99% franchised and, as of October 2012, achieved that objective with Applebee’s as well. DineEquity has refranchised a substantial majority of Applebee’s company-operated restaurants and expects to realize significant cost savings.
Applebee's Grill & Bar offers a lively bar and grill experience with a variety of constantly changing drinks, appetizers and entrees. Based in Kansas City, Missouri, Applebee's has more than 2,000 locations in 49 states, 16 countries and one U.S. territory. In its 35 years, Applebee's has grown to be the nation's leading casual dining chain.
The company reported second quarter results with EPS in line but missed on revenues. There was growth in adjusted earnings per diluted share for the second quarter despite soft comparable sales at Applebee's and IHOP. The company is confident that despite the lag in revenue, its long-term strategies for both brands will help in gearing momentum.
Second-quarter results
GAAP net income during the quarter was $26.4 million, or earnings per diluted share of $1.45 ($26.5 million, or earnings per diluted share of $1.40, in the prior-year quarter).
Adjusted net income available to common stockholders was $28.8 million, or adjusted earnings per diluted share of $1.59, for the second quarter ($28.9 million, or adjusted earnings per diluted share of $1.53, during the prior-year quarter).
General and administrative expenses were $36.5 million for the second quarter ($34.6 million in the prior-year quarter).
First fiscal six months summary
GAAP net income available to common stockholders was $51.6 million for the first six months of fiscal 2016, or earnings per diluted share of $2.82 ($54.6 million, or earnings per diluted share of $2.88, during the prior-year period).
Adjusted net income available to common stockholders was $58.0 million, or adjusted earnings per diluted share of $3.17, for the first six months of fiscal 2016 ($60.0 million, or adjusted earnings per diluted share of $3.17, in the prior-year period).
General and administrative expenses were $75.9 million for the first six months ($68.8 million during the prior year period).
In the first six months cash flows from operating activities were $53.9 million ($48.1 million in the prior-year period).
Free cash flow was $56.4 million for the first six months ($49.7 million during the prior-year period).
Same-restaurant sales performance
Second quarter of fiscal 2016
- IHOP's domestic systemwide comparable same-restaurant sales increased by 0.2% for the second quarter.
- Applebee's domestic systemwide comparable same-restaurant sales declined by 4.2% for the second quarter.
First six months of fiscal 2016
- IHOP's domestic systemwide comparable same-restaurant sales increased by 0.8% for the first six months.
- Applebee's domestic systemwide comparable same-restaurant sales declined by 3.9% for the first six months.
Expectations for 2016
| Â | Range |
| Applebee's comparable same-restaurant sales | To range between negative 3.0% and negative 4.5% |
| IHOP's comparable same-restaurant sales | To b between positive 0.5% and positive 2.0% |
| Franchise segment profit | To be between $342 million and $352 million. |
| Interest expense | To be approximately $62 million |
| Weighted average diluted shares outstanding | To be approximately 18.2 million shares |
| Income tax rate | To be approximately 37% |
| Cash flows provided by operating activities | To range between $112 million and $120 million. |
| Free cash flow | To range between $113 million and $121 million |
Focus
- It is focusing on its iconic brands and cost curtailment.
- It is making prudent investments to support its future growth.
- Aiming to generate organic growth.
Gearing up for action
By 2020, the company plans to have a substantially remodeled system with a contemporary look for each brand. It is crafting evolution strategies for both the brands. It is planning to increase Applebee’s consumer appeal and restore positive systemwide sales growth. Over the next five years, it envisions creating sustainable, positive sales and traffic at both the brands.
The company’s strategy focuses on several regions, including Latin America, with significant growth potential in Mexico and the launch of IHOP Panama; Middle East, particularly the United Arab Emirates. New launches are scheduled for IHOP India and IHOP Thailand in 2016 or 2017.
(Source: Company’s website)
Conclusion
Eating out has become a fashion now, and perceptions have changed. Consumer behavior has changed, and so restaurants have come up with different marketing strategies – loyalty programs, ordering, etc.
Management is hopeful that its long-term strategies will build its brands across the spectrum of food and beverage innovation, social and digital marketing, development expansion as well as platforms to meet the convenience needs of today's consumer, such as delivery, to-go initiatives and mobile applications to name a few. DineEquity is a stock with momentum and is known to generate robust cashflows to the shareholders in the past. Restaurant stocks are booming, and this company is no exception. Adding this company is going to reap shareholder returns.
Disclosure: I do not hold any position in the company.
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