DineEquity Inc., parent to the IHOP and Applebee’s chains, reported on Wednesday a 34-percent drop in fourth-quarter profit as the company completed its move to a 99-percent franchised model, saying the focus this year will be on reversing declining traffic and sales for both brands.
In a call with analysts following the report Julia Stewart, chair and chief executive of Glendale, Calif.-based DineEquity, brought to rest speculation that the company might be poised to bring on a third brand, saying they have “no immediate interest” in another acquisition.
Instead, she said the company is “maniacally focused” on turning around sales and traffic trends at both chains through brand differentiation and improving the perception of value.
Like other public companies this month, Stewart said this year’s change to the payroll tax has had a negative impact on consumer spending, but she said it’s not clear how long that will last. “The length and the duration of the impact, it’s just too soon to tell,” she said.
At Applebee’s, the strategy to build traffic has focused on menu quality improvements such as more healthful, under-550-calorie offerings and the “spirited cuisine” platform, as well as new social and digital media efforts.
Applebee’s domestic systemwide same-store sales increased 0.9 percent during the quarter, reflecting a higher average check that was offset by a decline in traffic.
Stewart said the chain’s late night and dinner dayparts are strong, but the company is working to invigorate lunch. Applebee’s has been testing the option of fast-casual-style “express” lunch service at corporate locations around Kansas City, for example.
At IHOP, the focus has been on menu innovation with value, such as the new line of Griddle Melt sandwiches, which are available as a half-sandwich with a side for $4.99.
Also new during the quarter was oatmeal with three flavor options, whole-wheat pancakes and waffles, and Stewart said more new daypart-crossing dishes are coming with a June 1 menu launch.
IHOP has long struggled with its value message, but Stewart said the chain’s value perception scores are improving. “We know value remains a high priority for our guests,” she said.
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During the fourth quarter at IHOP, domestic systemwide same-store sales dropped 2.6 percent, reflecting a decline in traffic and a lower guest check average.
“We are clearly not satisfied with the results and we’re working harder to drive both sales and traffic,” Stewart said. The turnaround at IHOP, however, will take time, she argued.
She expressed optimism that new, “bolder” advertising efforts planned this year — like the Griddle Melt commercials filmed in New York’s Times Square — will drive guests to the restaurants, where they will experience improved service and a better menu.
For the quarter ended Dec. 31, the company reported net income of $18.8 million, or 97 cents per share, compared with $28.6 million, or $1.51 per share, a year ago, a 34-percent decrease blamed in part on the refranchising of Applebee’s restaurants and higher taxes.
Revenue for the quarter totaled $158.6 million, a decline of 34 percent compared with $242.2 million the prior year.
For the year, net income was $127.7 million, or $6.63 per share, compared with $75.2 million, or $3.89 per share, in fiscal 2011.
Revenue for the year totaled $849.9 million, compared with $1.07 billion a year ago.
Applebee’s’ same-store sales rose 1.2 percent for the year, also largely because of a higher guest check despite a decline in traffic. IHOP ended the year with same-store sales falling 1.6 percent on declining traffic.
In its outlook for 2013, Stewart said domestic same-store sales at both Applebee’s and IHOP are expected to range between a decrease of 1.5 percent to an increase of 1.5 percent. Franchise segment profit is projected to range between $312 million and $325 million.
Franchisees are expected to open between 40 to 50 new Applebee’s in 2013, and between 50 to 60 new IHOP locations, all mostly in the U.S.
The company also announced a first-quarter dividend of 75 cents per share of common stock, as well as a $100 million share repurchase authorization, effective immediately, replacing the existing $45 million share repurchase authorization announced in 2011.
DineEquity ended the year with 23 company-owned and 2,034 Applebee’s restaurants; as well as 12 company-owned and 1,581 IHOP units.