DineEquity, Inc. (NYSE: DIN), the parent company of Applebee’s Neighborhood Grill & Bar and IHOP Restaurants, today announced financial results for the fourth quarter and fiscal 2011.
“I am pleased with our results for the fourth quarter and fiscal 2011. The Company continued to generate robust free cash flow, pay down debt, manage G&A and differentiate our brands,” said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity. “Today, at 95% franchised, we are unique in the full-service restaurant segment. Our business model generates strong free cash flow with substantially reduced volatility. We remain focused on delivering value, innovation and operational excellence to our guests.”
Fiscal 2011 Financial Highlights
- Total debt was reduced by $308.6 million, or 15%, in fiscal 2011 as a result of net cash proceeds and financing obligation reductions from the refranchise and sale of 132 Applebee’s company-operated restaurants, free cash flow, and the termination of the sublease for the Applebee’s restaurant support center in Lenexa, Kansas. The Company paid down term loan balances by $161.5 million, repurchased $59.3 million of the 9.5% Senior Notes, and reduced $87.9 million of financing and capital lease obligations during fiscal 2011.
- Adjusted net income available to common stockholders was $78.2 million, or $4.29 per diluted share, excluding a one-time tax benefit, compared to $61.7 million, or $3.50 per diluted share, for fiscal 2010. The increase in adjusted net income was primarily due to the elimination of the dividend on the Series A Perpetual Preferred stock as a result of the redemption of this security in the fourth quarter of 2010, lower cash interest expense and income taxes. These items were partially offset by lower segment profit largely driven by the refranchising of 132 Applebee’s company-operated restaurants. (See “Non-GAAP Financial Measures” below.)
- Net income available to common stockholders was $70.7 million, or $3.89 per diluted share, compared to a net loss of $30.0 million, or $1.74 per diluted share, for fiscal 2010. The increase in net income was due in part to a lower loss on the extinguishment of debt, the elimination of the dividend on the Series A Perpetual Preferred stock, lower interest expense, and a higher gain on the refranchise and sale of Applebee’s company-operated restaurants. These items were partially offset by higher income taxes and impairment and closure charges primarily related to the termination of the sublease for the Applebee’s restaurant support center in Lenexa, Kansas, and lower segment profit largely driven by refranchising.
- Cash flows from operating activities were $121.7 million, capital expenditures were $26.3 million, and free cash flow was $108.5 million. (See “Non-GAAP Financial Measures” below.)
- Consolidated general and administrative expenses were $155.8 million compared to $160.3 million for fiscal 2010.
- Applebee’s company-operated restaurant operating margin was 14.5% compared to 14.8% for fiscal 2010. The main drivers for the decrease were higher labor expense, commodities inflation, and incremental local advertising costs. These items were partially offset by a higher average guest check.
- IHOP franchisees and its area licensees opened 58 new restaurants worldwide in fiscal 2011, in line with our full-year IHOP development outlook.
Fourth Quarter 2011 Financial Highlights
- Adjusted net income available to common stockholders was $16.4 million, or $0.91 per diluted share, excluding a one-time tax benefit, for the fourth quarter of 2011. This compares to $10.6 million, or $0.59 per diluted share, for the same quarter in 2010. The increase in adjusted net income was primarily due to lower cash interest expense and income taxes, partially offset by lower profit due to the refranchising of 132 Applebee’s company-operated restaurants. (See “Non-GAAP Financial Measures” below.)
- Net income available to common stockholders was $27.3 million, or $1.51 per diluted share, for the fourth quarter of 2011 compared to a net loss of $58.1 million, or $3.33 per diluted share, for the same quarter in 2010. The increase was primarily due to a higher loss on the extinguishment of debt in 2010 from our refinancing, the elimination of the dividend on the Series A Perpetual Preferred stock, and higher interest expense. These items were partially offset by higher income taxes and lower segment profit due to refranchising.
- Applebee’s company-operated restaurant operating margin was 14.8% in the fourth quarter of 2011 compared to 15.5% for the same quarter in 2010. The decrease was primarily due to incremental local advertising costs and higher labor expense, partially offset by the refranchising of lower margin company-operated restaurants and a higher average guest check.
Same-Restaurant Sales Performance
Fiscal 2011
- Applebee’s fiscal 2011 domestic system-wide same-restaurant sales increased 2.0% compared to fiscal 2010. The increase in fiscal year same-restaurant sales was mainly driven by a higher average guest check with essentially flat traffic.
- IHOP’s fiscal 2011 domestic system-wide same-restaurant sales declined 2.0% compared to fiscal 2010. The decline in fiscal year same-restaurant sales reflected a decline in traffic, partially offset by a higher average guest check compared to fiscal 2010.
Fourth Quarter 2011
- Applebee’s domestic system-wide same-restaurant sales increased 1.0% for the fourth quarter of 2011 compared to the same period in 2010. This marked sequential improvement from the third quarter of 2011.
- IHOP domestic system-wide same restaurant sales decreased 1.0% for the fourth quarter of 2011 compared to the same period in 2010. This also marked sequential improvement from the third quarter of 2011.
Refranchise and Sale of Applebee’s Company-Operated Restaurants
In the fourth quarter of 2011, DineEquity successfully completed the refranchise and sale of 66 Applebee’s company-operated restaurants located in the New England area. The transaction resulted in net proceeds after taxes of approximately $49 million and reduced sale-leaseback related financing obligations by $7 million.
In the first quarter of 2012, DineEquity completed the refranchise and sale 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.
About DineEquity, Inc.
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.
Forward-Looking Statements
Statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. These factors include, but are not limited to: the effect of general economic conditions; the Company’s substantial indebtedness; risk of future impairment charges; the Company’s results in any given period differing from guidance provided to the public; the highly competitive nature of the restaurant business; the Company’s business strategy failing to achieve anticipated results; risks associated with the restaurant industry; shortages or interruptions in the supply or delivery of food; changing health or dietary preferences; our dependence upon our franchisees; our engagement in business in foreign markets; harm to our brands’ reputation; litigation; environmental liability; liability relating to employees; failure to comply with applicable laws and regulations; failure to effectively implement restaurant development plans; concentration of Applebee’s franchised restaurants in a limited number of franchisees; credit risk from IHOP franchisees operating under our previous business model; termination or non-renewal of franchise agreements; franchisees breaching their franchise agreements; insolvency proceedings involving franchisees; changes in the number and quality of franchisees; inability of franchisees to fund capital expenditures; third-party claims with respect to intellectual property assets; heavy dependence on information technology; failure to protect the integrity and security of individually identifiable information; failure to execute on a business continuity plan; inability to attract and retain talented employees; risks associated with retail brand initiatives; failure of our internal controls; and other factors discussed from time to time in the Company’s Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Company’s other filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.
Non-GAAP Financial Measures
This news release includes references to the Company’s non-GAAP financial measures “adjusted net income available to common stockholders (adjusted EPS),” “EBITDA,” “free cash flow,” and “segment EBITDA.” “Adjusted EPS” is computed for a given period by deducting from net income (loss) available to common stockholders for such period the effect of any impairment and closure charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any debt modification costs, any gain or loss related to the disposition of assets and any income tax impact of operational restructuring incurred in such period. This is presented on an aggregate basis and a per share (diluted) basis. The Company defines “EBITDA” for a given period is defined as income before income taxes less interest expense, loss on retirement of debt and Series A preferred stock, depreciation and amortization, impairment and closure charges, non-cash stock-based compensation, gain/loss on disposition of assets and other charge backs as defined by its credit agreement. “Free cash flow” for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable (“long-term notes receivable”), less dividends paid and capital expenditures. “Segment EBITDA” for a given period is defined as gross segment profit plus depreciation and amortization as well as interest charges related to the segment. Management utilizes EBITDA for debt covenant purposes and free cash flow to determine the amount of cash remaining for general corporate and strategic purposes after the receipts from long-term notes receivable, and the funding of operating activities, capital expenditures and preferred dividends. Management believes this information is helpful to investors to determine the Company’s adherence to debt covenants and the Company’s cash available for these purposes. Adjusted EPS, EBITDA, free cash flow and segment EBITDA are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with United States generally accepted accounting principles.
