DineEquity Inc., the parent to the Applebee’s Neighborhood Grill & Bar and IHOP chains, reported a 60-percent drop in second-quarter profit, but said sales were continuing to improve at Applebee's.
Net income for the quarter ended June 30 totaled $7.4 million, or 42 cents per share, compared with $18.8 million, or $1.09 per share for the second quarter last year. The Glendale, Calif.-based company blamed the declines on fewer gains in 2010 with respect to debt repurchases and asset sales related to Applebee’s corporate locations.
DineEquity's adjusted income, which excludes interest expense and other one-time charges, was $15.7 million, or 90 cents per share, compared with adjusted earnings of $20.1 million, or $1.16 a share, a year ago.
The company's adjusted earnings fell short of the average analyst projection of 96 cents a share, according to Thomson Financial. The news sent the company's stock price down nearly 8 percent Thursday to close at $34.72.
DineEquity's second-quarter revenue slipped 2.8 percent to $339.9 million, reflecting negative same-store sales at both brands.
IHOP’s domestic systemwide same-store sales were down 1 percent for the quarter, reflecting a higher check average offset by declines in traffic, the company said. The sales decline was higher than the 0.4-percent drop reported during the first quarter this year, despite promotions for the 1,466-unit chain that included Loaded Country Potatoes and Pancake Stackers as limited-time offers, as well as a Kids Eat Free dinner offer.
Applebee’s domestic same-store sales dropped 1.6 percent for the quarter, an improvement over the first quarter decline of 2.7 percent this year. It was the third consecutive quarter of improving same-store sales for the 2,001-unit Applebee’s, officials said.
Among Applebee’s domestic franchised locations, same-store sales dropped 1.3 percent. Same-store sales for corporate stores dipped 2.6 percent during the quarter — the latter a result of increased check averages boosted by a 1.6-percent pricing increase.
Still, sales were hurt by declining foot traffic, despite marketing efforts during the quarter such as the chain’s Great Tasting and Under 550 Calories menu, a line of regionally themed Realburgers, and new Sizzling Skillet offerings.
“We are pleased with our second quarter 2010,” said Julia Stewart, DineEquity’s chair and chief executive. “Same-restaurant sales results at both brands were encouraging, with Applebee’s experiencing a third sequential quarter of improvement, as IHOP’s performance continued to be strong relative to the family-dining category.”
Stewart said the company has retired more than $80 million in debt so far this year, including a $25.8 million debt reduction during the second quarter.
Earlier this week, the company announced the sale of 63 company-operated Applebee’s locations as part of an ongoing refranchising program. The deal, scheduled to close in the fourth quarter, is expected to bring in another $105 million.
Stewart said the company will focus on marketing, menu offerings, operational and remodeling initiatives to differentiate the brands.
“Looking ahead, we remain focused on executing our revitalizing plans for Applebee’s and ensuring that IHOP creates an insurmountable lead in family dining,” she said.
The company reiterated earlier projections for the year, saying Applebee’s’ domestic systemwide same-store sales will be between flat and down 3 percent, and between up 1 percent and down 1 percent at IHOP.
Franchisees are expected to open 25 to 30 Applebee’s locations and 60 to 70 IHOPs this year, DineEquity said.
Contact Lisa Jennings at [email protected]