DineEquity, Inc. (NYSE: DIN), the parent company of Applebee’s Neighborhood Grill & Bar and IHOP Restaurants, reported financial results for the first quarter of 2012.
“We are pleased with our first quarter performance. At DineEquity, we continue to work closely with IHOP and Applebee’s on their respective brand-building strategies to innovate the menu, drive operational performance, and provide value for our guests,” said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity. “Our business fundamentals remain healthy and our unique, highly franchised business model is generating strong free cash flow and enabling debt reduction, which are key measures of our success.”
First Quarter 2012 Financial Highlights
- Total debt was reduced by $85.9 million in the first quarter of 2012 as a result of net cash proceeds and financing obligation reductions from the refranchise and sale of Applebee’s company-operated restaurants and free cash flow. The Company reduced Term Loan balances by $69.0 million, Senior Notes by $4.5 million, and financing and capital lease obligations by $12.4 million.
- Adjusted net income available to common stockholders was $24.6 million, representing adjusted earnings per diluted share of $1.36 for the first quarter of 2012. This compares to $26.0 million, or adjusted earnings per diluted share of $1.42, for the same quarter in 2011. The decrease in adjusted earnings was due to a higher income tax rate and lower segment profit driven by the execution of our strategy to refranchise Applebee’s company-operated restaurants, partially offset by lower cash interest expense. (See “Non-GAAP Financial Measures” below.)
- Net income available to common stockholders was $29.9 million, or earnings per diluted share of $1.64 for the quarter, compared to $28.1 million, or earnings per diluted share of $1.53 for the same quarter in 2011. The increase was primarily due to lower interest expense, a lower loss on debt extinguishment and modification costs, and lower impairment and closure charges. These items were partially offset by a lower gain on the refranchise and sale of Applebee’s company-operated restaurants, lower segment profit due to refranchising, and a higher income tax rate.
- EBITDA was $85.7 million for the first quarter of 2012.
- Cash flows from operating activities were $44.7 million, capital expenditures were $4.2 million, and free cash flow was $44.0 million. (See “Non-GAAP Financial Measures” below.)
- Consolidated general and administrative expenses were $39.6 million compared to $38.0 million for the first quarter of 2011. The increase was mainly attributable to higher stock based compensation and severance charges.
- Applebee’s company-operated restaurant operating margin was 17.8% in the first quarter of 2012 compared to 15.3% for the same quarter in 2011. The increase of 250 basis points was primarily due to lower hourly labor expense, the refranchising of lower margin company-operated restaurants, a reduction in depreciation, and a higher average guest check, partially offset by commodities inflation.
Same-Restaurant Sales Performance
Same-restaurant sales performance for each brand is provided below, but it is important to note that because the Company’s is now over 95% franchised, same-restaurant sales variations do not significantly affect DineEquity’s EBITDA, Adjusted EPS, or free cash flow generation.
- Applebee’s domestic system-wide same-restaurant sales increased 1.2% for the first quarter of 2012 compared to the same period in 2011. The increase in first quarter 2012 domestic system-wide same-restaurant sales was mainly driven by a higher average guest check, partially offset by a decline in traffic.
- IHOP domestic system-wide same-restaurant sales decreased 0.5% for the first quarter of 2012 compared to the same period in 2011. The decline in first quarter 2012 domestic system-wide same-restaurant sales was mainly driven by a decline in traffic, partially offset by a higher average guest check.
Refranchise and Sale of Applebee’s Company-Operated Restaurants
In the first quarter of 2012, DineEquity moved to over 95% franchised as it completed the refranchising of 17 Applebee’s company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee. The transaction resulted in net proceeds after taxes of approximately $16 million and reduced sale-leaseback related financing obligations by $9 million.
2012 Guidance
DineEquity reiterates its fiscal 2012 guidance:
- Applebee’s domestic system-wide same-restaurant sales performance to range between 0.5% and 2.5%.
- IHOP’s domestic system-wide same-restaurant sales performance to range between negative 1.5% and positive 1.5%.
- Restaurant operating margin at Applebee’s company-operated restaurants to range between 15.0% and 15.5%.
- Applebee’s franchisees to develop between 30 and 40 new restaurants, approximately half of which are expected to be opened in the U.S.
- IHOP franchisees and its area licensees to develop between 45 and 55 new restaurants, the majority of which are expected to be opened in the U.S.
- Consolidated general & administrative expense to range between $155 and $158 million, including non-cash stock-based compensation expense and depreciation of approximately $18 million.
- Consolidated interest expense to range between $120 and $124 million, of which approximately $6 million is non-cash interest expense.
- Federal income tax rate to be approximately 36%.
- Weighted average diluted shares outstanding to be approximately 18.5 million shares.
- Consolidated cash from operations to range between $110 and $122 million.
- Approximately $13 million is expected to be generated from the structural run-off of the Company’s long-term receivables.
- Consolidated capital expenditures to range between $18 and $20 million.
- Consolidated free cash flow (see “Non-GAAP Financial Measures” below) to range between $103 and $117 million. The Company currently expects its primary use of excess cash will be to fund further debt reduction.
The Company’s fiscal 2012 financial performance guidance reflects the full-year impact of Applebee’s company-operated restaurants refranchised in 2011 and January 2012. Fiscal 2012 financial performance guidance excludes any impact from future sales of Applebee’s company-operated restaurants, the timing of which could be highly variable due to factors including the economy, the availability of buyer financing, acceptable valuations, and the operating wherewithal of the acquiring franchisee. Should additional Applebee’s company-operated restaurants be sold this year, DineEquity plans to update its performance guidance accordingly, upon the transaction’s close.
Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee’s Neighborhood Grill & Bar and IHOP brands. With more than 3,500 restaurants combined in 18 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), we believe DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company’s Web site located at www.dineequity.com.
