GLENDALE Calif. DineEquity Inc., parent to the IHOP and Applebee’s brands, said Tuesday that its first-quarter profit more than tripled on gains from asset sales and debt retirement, as well as a return to positive same-store sales at IHOP and margin improvement at Applebee’s.
The operator or franchisor to nearly 3,400 restaurants was the latest restaurant company to beat Wall Street expectations with a focus on cost controls, and in Applebee’s case, improved — although still negative — sales trends. Last week such companies as The Cheesecake Factory Inc., Brinker International Inc. and BJ’s Restaurants Inc. posted improved financial results leading some analysts to speculate the beginning of a turnaround for the casual-dining sector and the industry at large.
For the quarter ended March 31, Applebee’s domestic systemwide same-store sales fell 3.0 percent from the same quarter a year ago. The result still reflected negative same-store guest traffic of about 6 percent, according to an analyst, but also included increased menu prices and average checks. In the previous fourth quarter, Applebee’s had posted a same-store sales decline of 4.6 percent.
At IHOP, same-store sales for the first quarter rose 2.0 percent, a sequential uptick from its negative same-store sales drop of 1.0 percent in the fourth quarter.
“We are pleased with our same-store sales performance in the first quarter … at both IHOP and Applebee’s as our brands focused on appealing, value offerings that resonated with our guests and performed at a meaningfully higher level than just one quarter ago,” said Julia Stewart, DineEquity’s chairman and chief executive.
At Applebee’s, margin improvement also was the main driver of the parent company’s improved results. The chain posted a 4.7-percent margin gain in the first quarter, to 16.4 percent, which analyst Steven Rees at J.P. Morgan said was segment-leading. DineEquity said the improvement was based on food and labor cost management, as well as changed menu pricing. In comparison, Brinker posted a 2.5 percent margin gain, P.F. Chang’s posted a 1.3 percent margin gain and Cheesecake posted a 1.4 percent margin decline, according to Rees.
Rees noted concern about whether the cost controls at Applebee’s would be sustainable.
“We question whether store-level cost cuts at Applebee’s have gone too deep,” he said Tuesday in a research note. “The bar-and-grill category looks to becoming much more price competitive ($5 sandwiches and salads at Friday’s and “10 under $7” at Chili’s) and, therefore, sustaining relative [same-store sales] and margin improvement will be increasingly challenging.”
DineEquity’s first-quarter profit available to common shareholders rose to $30.6 million, or $1.80 per share, from $8.3 million, or 50 cents per share, in the same quarter a year ago. Excluding corporate gains on the extinguishment of debt and asset sales, net income would have totaled 72 cents per share in the latest quarter.
The company said its securitized debt was reduced by $87.8 million mainly from the retirement of $78.4 million of debt at a discount to face value, and proceeds from the sale of Applebee’s corporate restaurants in New Mexico. DineEquity said the sale efforts surrounding corporate Applebee’s would continue, but that because of the lending environment deals are difficult to close.
Latest-quarter revenue fell 16 percent to $374.2 million, on fewer corporate locations and reduced financing revenue.
Contact Sarah Lockyer at [email protected].
