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DineEquity 4Q loss widens on charge

GLENDALE Calif. DineEquity Inc., parent of the IHOP and Applebee’s chains, reported Wednesday a widened fourth-quarter loss because of $148.3 million in impairment charges related to the Applebee’s brand.

The net loss for the quarter ended Dec. 31 swelled to $137.1 million, or $8.15 per share, from $14.3 million, or 94 cents a share, in the same year-earlier quarter largely because of non-cash, after-tax charges of $148.3 million related to write downs in the value of Applebee’s goodwill and intangible assets.

Excluding those charges, the company reported profits of $5.7 million, or 34 cents per share, for the quarter, beating analysts’ expectations and pushing the stock up more than 13 percent Wednesday to close at $6.67. DineEquity’s stock has traded between $5.24 and $53.50 in the past 52 weeks.

After a difficult 2008, DineEquity officials said they expect challenging times to continue in 2009, with same-store sales at Applebee’s projected to fall between 2 percent and 5 percent. IHOP’s outlook was brighter, however, with same-store sales projected to range between a 1-percent increase and a 1-percent decrease, officials said.

Revenues for both brands, which together boast about 3,400 restaurants worldwide, totaled $355.5 million during the fourth quarter, compared with $213.6 million during the same quarter the prior year.

Continuing refranchising efforts and sale-leaseback deals helped reduce rent expenses and freed cash to reduce debt-leverage levels by about $500 million during fiscal 2008. Other cost-cutting measures have enhanced profitability by about $20 million beyond the roughly $35 million in cost savings to date from the Applebee’s acquisition in 2007 and the sale of corporate-owned locations, officials said.

“Our results for the quarter and full year 2008 reflect the significant contraction of consumer spending in the second half of the year,” said Julia Stewart, DineEquity’s chair and chief executive. “We continue to believe that IHOP is well positioned to extend its lead in family dining, even in this challenging economy, and we are taking significant steps to reposition the Applebee’s brand in order to drive future growth.”

For the IHOP brand, systemwide same-store sales were down 1 percent for the quarter, compared with the prior-year period. Same-store sales for the full year rose 1.5 percent, largely because of higher guest checks and despite a decline in traffic.

IHOP’s franchising business generated revenue of $51.6 million for the fourth quarter, up 5.6 percent from the year-ago quarter.

During the quarter, franchisees and a licensee in Florida opened 26 new IHOP restaurants, bringing new franchise openings in North America to 71 in fiscal 2008. There were 1,396 IHOP units as of Dec. 31.

In fiscal 2009, franchisees and licensees are expected to open between 65 and 75 new IHOP locations, all but about 10 of which will be in the United States.

“Despite a difficult consumer environment, IHOP delivered a solid performance in 2008 due to the successful brand revitalization and operational improvement strategies employed over the past several years,” Stewart said. “These strategies of energizing the brand, improving operations and maximizing development remain as relevant today as they were when initiated in 2003, and will provide the framework for the IHOP team and our franchisees to sustain system momentum.”

Applebee’s systemwide domestic same-store sales were down 4.6 percent for the quarter, and declined 2.2 percent for the full year.

Same-store sales at domestic company-operated restaurants were down 4.2 percent for the quarter, reflecting traffic declines, which offset an increased average check driven by a 4-percent price increase. For the full year, corporate domestic same-store sales were down 1.3 percent.

Revenues for corporate locations declined 18.3 percent to $225 million, primarily because refranchising efforts reduced store counts by 13.2 percent, officials said. During the year, the company sold 103 Applebee’s units.

Stewart said she still expects the company to meet its goal of selling about 200 restaurants to franchisees in 2009. She said the company would work with potential buyers to “overcome obstacles posed by the credit markets and weakness in the broader economy.”

The company expects franchisees to open between 30 to 40 new Applebee’s in fiscal 2009, split evenly between domestic and international locations. There were 2,004 Applebee’s units as of Dec. 31.

Franchised Applebee’s locations saw same-store sales drop 4.7 percent for the quarter, and slip 2.4 percent for the year.

During the fourth quarter, franchisees opened 14 new Applebee’s, bringing the domestic and international total for the year to 48.

Revitalization efforts for the Applebee’s brand will continue, however, with new menu items, the strategic use of value promotions, improved restaurant-level operations and enhanced marketing initiatives, as well as “modest” price increases planned for company-operated locations, officials said.

Contact Lisa Jennings at [email protected].

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