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DineEquity to push value amid rising costs

Applebee's and IHOP have room to "price for inflation" this year, though value will continue to be the message pushed by both brands, parent company DineEquity Inc. said Thursday.

After reporting a wider loss for the fourth quarter, DineEquity officials said in a call to analysts Thursday that results may be “lumpy and bumpy” in 2011 as high unemployment levels across the country continue to challenge consumer confidence.

In addition, market basket commodity costs in 2011 are expected to increase about 1.5 percent for Applebee’s, including seafood, oil, pork and dairy; and about 3 percent at IHOP, including pork, eggs, coffee and dairy, the company said.

Julia Stewart, DineEquity chairman and chief executive, said Applebee’s and IHOP franchisees likely will have room to raise menu prices to meet rising commodity costs.

“This is not doom and gloom,” she said. “We’re comfortable that franchisees who are pricing to cover those increases will do just fine” given the chains’ “brand cachet.”

Menu prices at corporate locations rose 2.1 percent in the fourth quarter ended Dec. 31, resulting in higher guest checks, despite traffic declines at both brands, DineEquity said.

Applebee’s, however, has benefited from promotions of lower-calorie menu options as well as ongoing restaurant remodels.

The chain’s value-oriented 2 for $20 menu also is performing well, having growing to 17 percent of sales and as much as 20 percent when mentioned in national advertising, Stewart said.

The addition of late-night hours — with more than 80 percent of Applebee’s open until midnight or later all week — also accounted for about 13 percent of sales in 2010. And efforts to enhance bar business have grown alcohol sales to 14 percent, the highest in Applebee’s history, she said.

Applebee’s domestic systemwide same-store sales increased 2.9 percent for the fourth quarter, representing the second consecutive quarter of same-store sales growth. For the full year, Applebee’s domestic same-store sales were up 0.3 percent, the first year of sales growth since 2005.

At IHOP, domestic systemwide same-store sales increased 1.1 percent for the quarter and were flat for the full year.

The family-dining chain benefited from limited-time offers, such as its “Festival of Flavors” promotion and “Trick or Treat All-You-Can-Eat Pancakes,” the company said.

However, Stewart said IHOP’s all-you-can-eat pancake promotion in January and February “didn’t really resonate with guests.” Officials are hopeful that a chicken-and-waffles promotion launched Monday will return momentum.

For the first two months of the first quarter, however, IHOP’s same-store sales were down by low single digits, Stewart said.

Meanwhile, the company is making progress on its ongoing plan to refranchise corporate Applebee’s locations, which has helped the company pay down debt from its acquisition of Applebee’s in 2007.

DineEquity sold 83 Applebee’s to franchisees during the fourth quarter and completed two transactions to sell another 65 corporate locations in St. Louis, Illinois and Washington, D.C.

For the fourth quarter, DineEquity reported a loss of $50.8 million, or $3.33 per share, compared with a loss of $44.1 million, or $2.84 per share a year ago. The loss included the impact of debt extinguishment, which was offset by gains resulting from the sale of the 83 corporate Applebee’s in Minnesota and Virginia. Revenue fell 16 percent to $299.8 million.

For the full year, DineEquity’s posted a net loss of $30 million, or $1.74 per share, compared with a year-ago profit of $9.2 million, or 55 cents per share. Revenue for 2010 declined 5.7 percent to $1.4 billion.

In its outlook for 2011, DineEquity estimated Applebee’s domestic same-store sales would increase between 1 percent and 3 percent. IHOP’s domestic systemwide same-store sales are projected to range between down 2 percent to up 1 percent.

Applebee’s franchisees are expected to develop 24 to 28 new restaurants, about half of which will be opened internationally.

IHOP franchisees and licensees will open 55 to 65 new restaurants, most of which will be in the United States.

At the end of the fourth quarter, Glendale, Calif.-based DineEquity operated, franchised or licensed 1,489 IHOP and 2,005 Applebee’s.

Contact Lisa Jennings at [email protected].


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