DineEquity Inc. downgraded its outlook for the year after Applebee’s Neighborhood Bar & Grill’s same-store sales took a downward turn in the third quarter, the company reported Thursday.
For the Sept. 30-ended quarter, Applebee’s domestic systemwide same-store sales dipped 0.5 percent, the first negative result in five quarters. As a result, the Glendale, Calif.-based company revised its performance expectations for the year, saying same-store sales would be flat to up 1 percent for Applebee’s. Earlier projections estimated increases between 1 percent to 3 percent for the casual-dining chain.
Sister brand IHOP, meanwhile, reported a solid 5.8-percent increase in same-store sales in the third quarter, with sales and traffic growth across all dayparts and all regions of the country, said Julia Stewart, DineEquity Inc. chairman and CEO. For the year, IHOP’s same-store sales are projected to increase between 4 percent and 6 percent.
The company hopes to translate some of the improvements made at IHOP to its sister-brand Applebee’s as the company reworks the 2,016-unit bar-and-grill chain, which is almost entirely franchised.
In September, the company consolidated some core restaurant functions for both brands at the company headquarters in Glendale, moving Applebee’s support staff out of the previous headquarters in Kansas City, Mo.
As a result, Applebee’s former president Steven Layt stepped down and Stewart replaced him as brand president, a position she said she will keep to steer the chain back on course.
“We simply have to move faster, think bigger and differently,” she said in a call with analysts. “We’re going to change the story at Applebee’s.”
Stewart said the company has been conducting comprehensive research into the Applebee’s brand to set up aggressive change that will set the chain apart in the crowded casual-dining space.
“We’re taking a deep look at where we are, where we need to be and what it will take to get there,” she said. “We have to be much bolder. We are so big and we produce so much that we have to think differently about how we step out of the box of incremental menu items and the like.”
That change, expected to begin next year, will likely focus on revitalization of the bar, a new building prototype and remodel, as well as work on the menu and atmosphere, she said.
Applebee’s will remain focused on its value positioning, Stewart said. “There’s an opportunity at Applebee’s to give people a $20 experience for $10.”
Customer-enabling technology will also play a bigger role, she said. “We know that today’s guest is more tech savvy than ever before.”
DineEquity is also focused on both domestic and international growth for both brands, and the company is developing smaller footprint units that will allow the chains to move into both traditional and nontraditional locations, although more detail on that is coming at the end of the fiscal year, Stewart said.
“It’s all about bringing our brands to guests where, when and how they want to enjoy them,” she said.
During the third quarter, the 1,660-unit IHOP chain benefited from promotions of Summer Stack pancakes and Double-Dipped French Toast.
The chain also may have seen a boost from McDonald’s Corp.’s launch of all-day breakfast. Stewart noted that IHOP has offered breakfast all day for 57 years, and the positive same-store sales across all dayparts indicate that consumers are loving traditional morning dishes around the clock.
In fact, Stewart said IHOP has room to expand the dinner daypart further with more breakfast items.
For the quarter, net income increased by 29 percent, to $24.3 million, or $1.28 per share, compared with $18.9 million, or 99 cents per share, a year ago.
The results reflected the completed refranchising and sale of 23 Applebee’s company-operated restaurants in Kansas City, which added $9 million to gross proceeds from the sale. The company saw a $2 million gain on the transaction.
Revenue was flat, at $162.4 million, compared with $162.9 million a year ago, also reflecting lost sales from the refranchising.