CFO quits owner of IHOP, Applebee’s; shares plunge
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It’s never a good time for a company to lose its chief financial officer, but it looks like a particularly bad time for that to happen to the parent of IHOP and Applebee’s restaurants.
Shares of Glendale-based DineEquity Inc. have plunged nearly 25% today, on the heels of the company’s surprise announcement Monday that CFO Thomas G. Conforti had resigned ‘to pursue other opportunities.’
The stock was down $5.99 to $17.98 at about 12:30 p.m.PDT.
Conforti, with CEO Julia Stewart, last year engineered DineEquity’s gamble to buy the Applebee’s chain, dramatically expanding the company from its much smaller base business of franchising IHOP restaurants.
With the takeover, DineEquity’s revenue surged to $866 million in the first half of this year from $179 million in the same period of 2007. The company now owns or franchises 3,300 restaurants nationwide.
But DineEquity took on a massive amount of debt to buy Applebee’s. The company’s long-term debt ballooned from $175 million in mid-2007 to nearly $2 billion as of June 30. As its interest bill surged in the first half the firm lost $5.3 million from continuing operations, compared with a profit of $25.4 million in the same period of 2007.
DineEquity had been counting on paring down its debt by selling many company-owned Applebee’s stores to franchisees, which has long been its strategy with its IHOP chain. But the credit crunch is making it harder for Applebee’s franchisees to get financing. The company in summer scaled back what it expects in after-tax proceeds this year from restaurant sales.
Even before Conforti’s departure investors were increasingly nervous about DineEquity’s prospects. The shares were down 46% from the end of last year through Aug. 31, one of the worst performances of any major restaurant stock.
Many restaurant chains are up against slowing consumer spending. DineEquity faces the added problem of its heavy debt load.
With the Applebee’s deal, ‘They bit off a lot, and the environment is a lot worse now,’ said Jeffrey Bronchick, chief investment officer at money manager Reed, Conner & Birdwell in Los Angeles.
He said he sold the last of his DineEquity shares last week. Although he likes the basic business, Bronchick said, ‘They have an untenable capital structure. There’s too much debt.’
DineEquity said it has hired a search firm to find a replacement for Conforti.