With more than 3,600 restaurants combined in 18 countries, more than 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity (DIN, Financial) is one of the largest full-service restaurant companies in the world.
DineEquity has re-energized both brands through enhanced marketing, extensive menu innovation, and operational strategies. The Company has successfully transformed its IHOP restaurant system into one that is 99% franchised and, as of October of 2012, has achieved that goal with Applebee’s as well. DineEquity has refranchised a substantial majority of Applebee’s company-operated restaurants and expects to realize significant cost savings as a result.
It became 99% franchised in 2012. Ever since 2007, it reduced its total debt by $1 billion. In the year 2014, DIN announced a new capital allocation strategy and generated approx. $113 million of which nearly $75 million were returned to the shareholders in the form of cash dividends and share repurchases.
Quarter Results (First Quarter)
Adjusted Net Income
Adjusted net income was $31.1 million (representing adjusted earnings per diluted share of $1.64) during the first quarter of 2015 (in comparison to $24.0 million, representing adjusted earnings per diluted share of $1.26, for the first quarter of 2014). A reduction in cash interest expense and higher gross profit from strong same-restaurant sales growth across both brands contributed to this increase in adjusted net income.
GAAP net income
In the first quarter of 2015, GAAP net income totalled to $28.0 million (representing earnings per diluted share of $1.47) which was an increase from the prior year period’s $20.5 million, representing earnings per diluted share of $1.08. This increase also resulted mainly due to a decline in interest expense and higher gross profit from strong same-restaurant sales growth across both brands.
Cashflows
During this quarter, cash flows from operating activities and free cash flow both were $41.1 million.
Same-Restaurant Sales Performance
1. IHOP's domestic system-wide same restaurant sales increased by 4.8% for the first quarter of 2015 when compared to the prior year period.
2. Applebee's domestic system-wide same-restaurant sales increased by 2.9% for the first quarter of 2015 when compared to the prior year period.
Financial Performance Guidance for Fiscal 2015:
- Applebee's domestic system-wide same-restaurant sales performance is expected to be in the range of 1.0% -4.0%.
- IHOP's domestic system-wide same-restaurant sales performance is expected to be range between positive 2.0% -5.0%.
- Applebee's franchisees are expected to open around 30-40 restaurants, with majority being in the U.S.
- The franchise segment profit is expected to be between $345 million-$358 million.
- Rental and Financing segments are expected to generate approx $39 million in combined profit.
- DIN expects general and administrative expenses are expected to range of $149 million- $153 million (including depreciation of $18 million).
- Interest expense to around $63 million.
- Non-cash interest expense to approx. $3 million.
- Effective tax rate to be 38%.
- Capex to be about $9 million.
- Weighted average diluted shares outstanding are expected to be approximately around 19 million.
- (Source: Company’s Website)
To put it Together
DIN is growing with a continued momentum. It is currently focusing on its iconic brands and cost curtailment. This year it generated robust cashflows to its shareholders. DIN is making prudent investments to support their future growth and will incur incremental costs to support its newly securitized debt structure. Its new securitized debt structure locks in an attractive interest rate of 4.28% through 2021.
For the seventh consecutive quarter, both their brands gained number 1 slots according to the latest ranking by Nation’s Restaurant News on the basis of U.S system-wide sales. DIN’s CEO, Julia Stewart, has over 40 years of experience in the restaurant industry, with more than 16 of those years spent in the Applebee’s and IHOP systems. With over 3.5 million likes, IHOP has the most fans on Facebook among the competitive set. IHOP owns approximately 67% of the total breakfast conversations on Twitter among the competitive set.
The company focuses mainly on the following:
- Innovate and evolve strong brands.
- Manage costs.
- Facilitate franchisee development.
- International development and brand building.
Restaurant stocks are booming and this company is no exception. Perceptions have changed as regards the way people eat out. This company posted a solid quarterly report and is expected to create shareholder returns in the near future. Investors may add this company to their portfolio.
