By Lisa  Jennings

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GLENDALE, Calif. (July  28, 2009) Value-oriented promotions and cost controls helped DineEquity Inc., the parent company of the IHOP and Applebee’s Neighborhood Grill & Bar chains, turn a profit in the second quarter, officials said Tuesday, but deep discounting by competitors continues to take a toll on sales.

Shares in the Glendale, Calif.-based company dropped more than 10 percent on Tuesday after officials also filed a shelf registration statement with the Securities and Exchange Commission that would allow the company to sell up to $200 million of common and preferred stock, as well as debt and other securities.

Julia Stewart, DineEquity chairman and chief executive, said no offering is being made yet, but the move “gives us the opportunity to access the market if we need to,” reportedly sparking fears among investors of diluting shares.

For the quarter ended June 30, the company recorded net income of $24.8 million, or $1.09 per share, compared with a loss of $19.4 million, or $1.42 per share, a year ago. Excluding gains and impairment charges, earnings grew to 74 cents per share from 2 cents per share.

Second-quarter revenue fell 18 percent to $349.7 million, the company reported.

Same-store sales dipped 0.6 percent for IHOP, reflecting a decline in guest traffic offset by a higher average check, officials said. During the quarter, IHOP's limited-time offers included the Loaded Country Hash Browns and the Strawberry Festival.

Applebee’s domestic same-store sales dropped 4.3 percent for the quarter systemwide, which reflected a 4.2-percent decline at domestic franchise units and a 4.8-percent drop at company-operated locations. Guest traffic was also down at Applebee’s but was offset by a cumulative price increase of about 3 percent, the company said.

By Lisa  Jennings

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In a call to investors Tuesday, Stewart said the consumer landscape was even more challenging during the second quarter than it was in the first quarter.

At Applebee’s, successful promotions included the Two for $20 offer, a promotion that now accounts for about 20 percent of sales, which Stewart described as “pretty high.” The program will be expanded during the third quarter to include more options, she said, including the debut this week of a new barbecued chicken salad.

IHOP is also planning to launch a new partnership with the National Football League aimed at building dinner sales. The campaign will feature Philadelphia Eagles quarterback Donovan McNabb and Larry Fitzgerald of the Arizona Cardinals.

Stewart said the company remains committed to avoiding the giveaways used by competitors, such as Denny’s, to drive traffic.

“I think our brands attract a good, positive halo,” she said. “We don’t have to give it away.”

Stewart noted that the company had planned to refranchise another 200 Applebee’s locations by the end of this year, with the goal of turning the brand into an all-franchise operation, like IHOP. However, a lack of financing has delayed those plans, and the company said it doesn’t expect to close any deals by year-end — though Stewart said it’s possible a sale may be announced.

Refranchising is key to DineEquity's plan to reduce debt from the $2.1 billion purchase of the Applebee’s chain in 2007. The sale of 108 company-owned Applebee’s units to franchisees since last year has helped the company significantly reduce expenses. Officials said the company is up to date with meeting debt covenants, however.

For the year, the company reiterated projections that same-store sales will be down between 2 percent and 5 percent for Applebee’s, and between down 1 percent to up 1 percent for IHOP.

Contact Lisa Jennings at ljenning@nrn.com.