IHOP, Applebee’s parent gets a lift from move to sell stores
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From Times staff writer Jerry Hirsch:
Shares of DineEquity Inc., parent of the Applebee’s and IHOP restaurant chains, were up sharply today after the Glendale-based firm said it had agreements to sell 66 company-owned Applebee’s restaurants in Texas and New Mexico to franchisees.
The deals helped calm investor fears that the company was falling behind in cutting the heavy debt load from its $1.9-billion purchase of Applebee’s a year ago.
Concern over the company’s debt, amid a tough environment for financing sales of restaurant franchises as banks tighten credit, had pushed DineEquity shares down 91% through Friday from their record high of $68.40 in September 2007. The unexpected resignation of Chief Financial Officer Thomas G. Conforti on Sept. 8 also spooked Wall Street.
At about 12:45 p.m. PDT today the stock had rebounded $3.77, or 64%, to $9.67.
‘We have exceeded our 2008 refranchising goal for company-operated Applebee’s restaurants, and now have a total of 110 locations that have been sold or are under agreement to be sold,’ Julia A. Stewart, DineEquity’s CEO, said in a statement.
Stewart said the deals remove from company ownership ‘the majority of Applebee’s lowest-profit-performing markets,’ which she said should benefit DineEquity’s financial performance.
The company also said the Texas and New Mexico sales don’t contain financing contingencies that could leave it on the hook.
DineEquity is doing with Applebee’s what it did with IHOP, which is to control the brand but put ownership of individual stores in the hands of the franchisees. There are 3,400 stores, in all, between the two chains.
The firm recently completed the sale of 15 company-operated Applebee’s restaurants in Nevada. Earlier this year, the company sold 29 stores in Southern California and Delaware.
All told, the sales should reduce DineEquity’s debt by $113 million, the company said. The firm’s total long-term debt was $1.9 billion as of Sept. 30, down from $2.26 billion at the end of last year.
DineEquity still has to deal with the difficult restaurant environment, as strapped consumers eat out less often.
In its third-quarter earnings report, also released today, DineEquity said the IHOP chain’s same-store sales inched up 0.2% in the third quarter, the 23rd consecutive quarter of growth. But Applebee’s same-store sales fell 3.1%, which the company blamed on ‘declining consumer spending and somewhat disappointing guest response to value promotions.’
DineEquity had a net loss of $16.4 million, or 98 cents a share in the quarter, after paying preferred-stock dividends. That compares to a loss of $11.6 million, or 69 cents, a year earlier.
The company said its latest loss stemmed from a $50.5-million rise in interest expenses related to the Applebee’s acquisition and a charge of $28.3 million related to the sale of the Applebee’s stores in Texas, New Mexico and Nevada
Revenue jumped to $391.2 million in the quarter from $91.4 million a year earlier, reflecting the Applebee’s purchase.