IHOP shows signs of turnaround in 2Q

Turnaround efforts at IHOP are taking hold after more than two years of negative sales trends, officials with parent company DineEquity Inc. said Tuesday.

The 1,589-unit family-dining chain’s domestic systemwide same-store sales rose 1.9 percent for the second quarter on increased traffic, its first positive result since the fourth quarter of 2010, the company said.

DineEquity chairwoman and chief executive Julia Stewart credited foundational improvements the company has made over the past year, particularly providing a compelling value proposition for guests, Stewart said in a call with analysts following the quarterly report. “We realize value is not only about price point but a consumer-defined perception that includes price, portion size and customization options,” she said.

New value-focused menu items, like brioche French toast and Griddle Melt sandwiches, have resonated, particularly with budget-minded consumers, Stewart said.

Turnaround initiatives have also included the redesign and streamlining of IHOP’s menu. The company has also been collaborating more with franchisees to improve training, simplify operational processes and improve speed of service, she said.

Additionally, the ad buying process has been tweaked to maximize spend, and ads have been designed to drive traffic and frequency.

At sister brand Applebee’s, similar elements have also been in play, though the casual-dining chain’s traffic declined slightly in the second quarter, Stewart said.

Still, Applebee’s domestic same-store sales rose 1.3 percent for the quarter. Stewart credited advertising of new value-focused lunch options — like the Take Two offer, which lets diners sample two dishes for the price of one, and $6.99 Lunch Combos — as well as ongoing remodeling.

About three-quarters of Applebee’s nearly fully franchised 2,026 units had been remodeled at the end of the second quarter, Stewart said. “I give credit to the franchisees for spending the money, but also the remodels themselves,” she said. “[The new design] resonates with guests and is far more relevant and contemporary.”

Despite the momentum, two large franchise operators of both brands filed bankruptcy earlier this year.

The franchise operator of 33 Applebee’s locations in Illinois filed for bankruptcy protection in April. As a result, 15 restaurants were sold in June to another existing franchisee, and the remaining 18 were closed, though the company said a new franchise agreement has been signed that will bring new restaurants to Illinois.

In a separate case, an IHOP franchisee operating 19 restaurants in Illinois, Wisconsin and Missouri also filed bankruptcy in February. The bankruptcy court handling the case has indicated that two of the 19 units will be returned to DineEquity, but the franchise is still operating the rest, the company said.

Glendale, Calif.-based DineEquity’s second-quarter revenue declined 31 percent to $158.1 million, in part because the company refranchised 137 Applebee’s restaurants during the third and fourth quarters last year. The company has since completed its plan to turn Applebee’s into a nearly fully franchised brand. Net income for the quarter increased more than 4 percent to $16.6 million.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout