DineEquity challenged by price-sensitive consumer in 3QDineEquity challenged by price-sensitive consumer in 3Q

DineEquity Inc., parent to the Applebee’s and IHOP chains, on Tuesday attributed disappointing third-quarter results to a challenging macroeconomic climate and price-sensitive consumers.

Same-store sales declined 5.2 percent at Applebee’s, and dropped 0.1 percent at IHOP during the Sept. 30-ended quarter.

The results were particularly disappointing for 2,028-unit Applebee’s, which earlier this year attempted to revitalize the brand with the rollout of new wood-fired grills and hand-cut steaks.

This fall, the chain attempted to boost consumer interest in the new platform with a $9.99 steak promotion and half-price appetizers.

But Julia Stewart, chairman and CEO of Glendale, Calif.-based DineEquity, said the value message still is not getting through, and consumers continue to keep a tight grip on their wallets.

The wood-fired grills are changing perceptions about Applebee’s, but those changes will take time, she said. Meanwhile, the company is looking for a better way to convey value.

“We believe the need for stronger value messaging is a core factor for Applebee’s, but we’re still in the process of validating the best approach to use,” Stewart said.

Applebee’s is also looking to build off-premise business to boost sales. The chain will begin testing delivery with three franchise operators, although Stewart did not say where. And new initiatives are coming to improve carside to-go service, she said.

And, with franchise growth slowing domestically, Applebee’s is developing a new prototype restaurant and a smaller-format design that will be ready when development picks up again, Stewart said.

For the year, franchisees are expected to open between 25 and 33 new Applebee’s restaurants worldwide.

The macroeconomic climate has also impacted 1,698-unit IHOP, which saw same-store sales turn negative during the quarter, although Stewart described the trend as essentially flat.

“Still, we are not satisfied with the results,” she said.

Some new brand innovations will soon be in test, although Stewart did not offer details.

A new e-learning training platform for the chain has also improved the customer experience in tests, and was rolled out last month to all hourly employees, she said.

IHOP is also in the midst of a remodeling program. Nearly 200 units have been updated with the new design, and the chain expects to reach 300 remodeled locations by the end of the year.

Franchisees are expected to develop between 65 and 77 new restaurants in 2016.

Overall, DineEquity revenue declined nearly 4 percent, to $156 million.

Net income rose 0.7 percent, to $24.27 million, or $1.33 per share, compared with $24.25 million, or $1.28 per share, a year ago.

DineEquity downgraded its outlook for the year, saying Applebee’s same-store sales would likely be down between 4 percent and 5 percent, compared with previous projections of between negative 3 percent and negative 4.5 percent.

IHOP same-store sales for the year are expected to be up between 0.5 percent and 2 percent, although likely near the low end of that range, the company said.

Franchise segment profit is expected to be between $340 million to $345 million, a downgrade from previous projections of between $342 million and $352 million, the company said.

Stewart noted that Applebee’s and IHOP work with franchise operators that are used to navigating macroeconomic headwinds.

“They’re weathering the storm, and we’re working closely with them,” she said.

Contact Lisa Jennings at [email protected]
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