With more than 3,600 restaurants combined in 18 countries, more than 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity (DIN, Financial) is one of the largest full-service restaurant companies in the world.
DineEquity has re-energized both brands through enhanced marketing, extensive menu innovation and operational strategies. The company has successfully transformed its IHOP restaurant system into one that is 99% franchised and, as of October 2012, has achieved that goal with Applebee’s as well. DineEquity has refranchised a substantial majority of Applebee’s company-operated restaurants and expects to realize significant cost savings as a result.
It became 99% franchised in 2012. Since 2007, it has reduced its total debt by $1 billion. In the year 2014, DIN announced a new capital allocation strategy and generated approx. $113 million of which nearly $75 million were returned to the shareholders in the form of cash dividends.
Applebee's Grill & Bar offers a lively bar and grill experience with an array of flavorful, handcrafted drinks, appetizers and entrees that constantly evolve. Based in Kansas City, Missouri, Applebee's has more than 2,000 locations in 49 states, 16 countries and one U.S. territory share repurchases. In its 35 years, Applebee's has grown to become the nation's leading casual dining chain.
Strong financials
IHOP's sales rose 6.2% for the second quarter (which is the largest increase in over a decade).
During the second quarter of 2015, adjusted net income available was $28.9 million, representing adjusted earnings per diluted share of $1.53 (which was $22.1 million, representing adjusted earnings per diluted share of $1.16, for the prior year period).
During this quarter GAAP net income available was $54.6 million for the first six months of or earnings per diluted share of $2.88 (which was $39.3 million, or earnings per diluted share of $2.07, for the prior year period).
For the first six months of fiscal 2015, cash flows from operating activities were $48.1 million and free cash flow was $49.7 million.
IHOP's domestic systemwide same restaurant sales increased 6.2% during the second quarter of 2015 compared to the prior year period.
Applebee's domestic system-wide same-restaurant sales increased 1.0% for the second quarter of 2015 compared to the prior year period.
Dividend
The company recently announced a third-quarter cash dividend of $0.875 per share of common stock. The dividend will be payable on October 9, 2015 to the company's stockholders of record at the close of business on September 11, 2015.
Projections for Fiscal 2015
- Applebee's domestic systemwide same-restaurant sales performance is expected to be in the range of 1.0% and positive 3.0%.
- IHOP's domestic system-wide same-restaurant sales performance is expected to range between positive 4.0% and positive 6.0%.
- Applebee's franchisees are expected to open around 30-40 restaurants, with the majority being in the U.S.
- The franchise segment profit is expected to be between $345 million-$358 million.
- Rental and Financing segments are expected to generate approximately $39 million in combined profit.
- DIN expects general and administrative expenses are expected to range of $149 million- $153 million (including depreciation of $18 million).
- Interest expense to around $63 million.
- Non-cash interest expense to approximately $3 million.
- Effective tax rate to be 38%.
- Capex to be about $9 million.
- Weighted average diluted shares outstanding are expected to be approximately around 19 million.
Current focus
- Innovate and evolve strong brands.
- Manage costs.
- Facilitate franchisee development.
- International development and brand building.
Positive attributes
- It reduced G&A by $50 million.
- Tireless focus on making its iconic brands stronger.
- Implemented a Shared Services Model.
- Returning significant cash to shareholders.
A peek into the restaurant industry
Eating out has become a fashion now, and perceptions have changed. There is a constant rise in the disposable income of people around the world, and eating out is comforting, too. There is an improvement in the economy.
According to reports, the U.S. economy surged by 5% in the third quarter of 2014 (since 2003, this was the strongest three-month period). Consumer behavior has changed, and so the restaurants have come up with different marketing strategies – loyalty programs, ordering, etc. According to a market research firm NPD Group, restaurant traffic will increase 1% in 2015, an improvement over a flat 2014 guest count.
As per a report submitted by National Research Association, restaurant industry will reach some landmark numbers in 2015 – more than $709 billion in sales, 1 million locations and 14 million employees.
On a concluding note
DIN is growing with a continued momentum. It is currently focusing on its iconic brands and cost curtailment. This year it generated robust cashflows to its shareholders. DIN is making prudent investments to support their future growth and will incur incremental costs to support its newly securitized debt structure. Its new securitized debt structure locks in an attractive interest rate of 4.28% through 2021.
For the seventh consecutive quarter, both their brands gained number 1 slots according to the latest ranking by Nation’s Restaurant News on the basis of U.S systemwide sales. DIN’s CEO, Julia Stewart, has over 40 years of experience in the restaurant industry, with more than 16 of those years spent in the Applebee’s and IHOP systems. With over 3.5 million likes, IHOP has the most fans on Facebook among the competitive set. IHOP owns approximately 67% of the total breakfast conversations on Twitter among the competitive set.
Restaurant stocks are booming, and this company is no exception. Perceptions have changed as regards the way people eat out. This company posted a solid quarterly report and is expected to create shareholder returns in the near future. Investors may add this company to their portfolio.
