GLENDALE Calif. Increased expenses related to the acquisition of Applebee’s -- and not the economy -- were blamed for a 24-percent decline in quarterly profit for IHOP Corp., although the macroeconomic climate may hinder the company’s refranchising plans, it said Monday.
For the first quarter ended March 31, IHOP reported net income available to common stockholders of $8.6 million, or 50 cents per share, down from $11.3 million, or 63 cents per share, in the year-earlier period.
Officials said the decrease was primarily due to a $48.4 million increase in interest expense related to the financing of the $2 billion purchase of Applebee’s last November. Also contributing to the profit drop were an increase of $31.5 million in costs associated with running the casual-dining chain and dividends on preferred stock issued to finance the deal.
Corporate revenue for the franchisor or operator of 1,353 namesake restaurants and 1,986 Applebee’s locations increased to $442.8 million in the latest quarter, up from $90.1 million last year, prior to the Applebee’s acquisition. Quarterly same-store sales for IHOP rose 3.7 percent, and Applebee’s saw its first same-store sales growth in two years with a 0.5 percent quarterly increase.
Despite reporting positive sales that have eluded most chains, the parent company would indeed be affected by the macroeconomic headwinds when it comes to its planned sale-leaseback deals on Applebee’s 191 corporate locations, said Julia Stewart, IHOP Corp. chairman and chief executive. The transactions, which were originally expected to gross IHOP at least $350 million, have been “challenged by weakening credit market conditions,” she said. Further negotiations will “determine if the deal terms available are in the best economic interests of the company to move forward” during the current second quarter.
In March the company had reached an agreement with Apple American Group LLC for the sale of 41 Applebee’s locations in Southern California and Nevada. Terms of that deal were not disclosed.
Looking forward, the IHOP chain is expecting same-store sales to grow between 2 percent and 4 percent for the full year with 65 to 70 franchise units opening. Applebee’s is expecting to see same-stores sales increase between 1 percent and 2 percent for the year, with 50 to 65 franchise stores opening. Just one corporate location is planned to open this year.