IHOP updates Applebee’s condition, recovery plan

NEW YORK Outlining turnaround plans for the newly acquired Applebee’s Neighborhood Grill & Bar brand, executives of IHOP Corp. stressed the opportunities but acknowledged to a roomful of financial analysts that proceeds from the sale of company-operated Applebee’s units may fall short of expectations.

Refranchising most of the 475 corporate stores was cited by IHOP during its pursuit of the casual-dining company as a key means of realizing Applebee’s value. Speaking at the Cowen and Co. investment conference in New York City, IHOP chief financial officer Thomas Conforti said the company would “seek to get every dollar of proceeds that we can” despite evidence of some erosion in the margins of corporate Applebee’s restaurants.

Some 39 of Applebee’s 43 existing franchisees have expressed interest in buying the company stores, IHOP chairman and chief executive Julia Stewart said at the conference. IHOP also is looking to private-equity buyers, she said. IHOP said at the time of the $2.1 billion deal’s closing that Stewart would oversee day-to-day operations of Applebee’s on an interim basis.

Stewart revealed during the meeting that IHOP would recruit new franchisees for 2000-unit Applebee’s, a strategy not employed by the casual-dining chain for the past 12 years.

Stewart, a one-time president of Applebee’s domestic operations, cited other changes for the acquired brand. She vowed to upgrade food quality, which she described as “not what it used to be”; enhance the beverage program to promote higher sales; improve customer service; significantly reduce capital expenditures; evaluate the effectiveness of Applebee’s $2 million-a-year advertising program; and increase consumer research.

IHOP expects to complete a sale-leaseback of real estate of 198 company Applebee’s stores by the second quarter, Stewart said. As for development, she said the current management team would take a hard look at the prior regime’s plans to open 1,000 more domestic units. Except for a handful of new company units already in the pipeline, “after this year we won’t build any more,” she said. She also indicated that 32 units near Applebee’s longtime headquarters of Overland Park, Kan., would remain company operated. Last week, Applebee’s opened its new headquarters in nearby Lenexa, Kan.

Outside of the United States, Stewart said, there are development opportunities in Canada, Mexico and the U.S. Virgin Islands.

With the Applebee’s acquisition last November, IHOP is now the largest full-service restaurant operator in the United States with almost 3,300 restaurants. Virtually all of the IHOP family restaurants in that mix are franchised.