IHOP takes a hit in 4th-Q on Applebee's purchase

GLENDALE Calif. IHOP Corp.’s purchase of Applebee’s last November led to a loss for the pancake specialist’s latest quarter and year, but company officials on Wednesday predicted more positive results for 2008 as the newly acquired brand moves to an almost all-franchised model and same-store sales turn positive.

IHOP reported a net loss of $16 million, or 94 cents per share, for the fourth quarter ended Dec. 31, compared with a profit of $10.3 million, or 57 cents per share, for the year-earlier period. The loss in the most recent quarter was attributed mainly to charges of $16.1 million related to the financing of IHOP’s $2.1 billion Applebee’s acquisition. The company’s interest expense for the latest quarter also surged to $19.8 million from just $1.8 million a year earlier.

Revenues for the most recent quarter, which included one month of sales from Applebee’s 509 corporate locations and fees and royalties from about 1,450 franchised locations, more than doubled from a year ago, to $213.6 million. IHOP’s system includes 1,344 locations, almost all of which are franchised. Systemwide same-store sales grew 3.7 percent at IHOP, but fell 2.9 percent at Applebee’s domestic locations, IHOP reported.

For the year, IHOP swung to a net loss of $2.2 million, or 13 cents per share, versus a year-earlier profit of $44.6 million, or $2.43 per share. Fiscal 2007 revenue grew 39 percent to $484.6 million.

The company’s rosy outlook for the current year included expected same-store sales growth of between 2 percent and 4 percent for the IHOP system and between 1 percent and 2 percent for Applebee’s.

IHOP chairman and chief executive Julia Stewart reiterated plans for sale-leaseback transactions of 190 corporate Applebee’s locations and the Lenexa, Kan.-based brand headquarters, which together are expected to generate about $390 million in cash. IHOP also plans to sell about 100 corporate Applebee’s units to franchisees, which officials predict will raise another $90 to $100 million. The proceeds will be used to repay debt, pay acquisition fees, and to fund dividend payments to shareholders, IHOP said.

Both brands also will continue franchise growth, with 65 to 70 new IHOP restaurants expected to open this year, mostly in the United States, as well as 50 to 65 new Applebee’s restaurants, of which 30 to 40 will be domestic locations and 20 to 25 international restaurants.