DineEquity, Inc. Announces Solid First Quarter 2012 Results

Glendale, CA  (RestaurantNews.com)  DineEquity, Inc. (NYSE: DIN), the parent company of Applebee’s Neighborhood Grill & Bar and IHOP Restaurants, reported financial results for the first quarter of 2012.

“We are pleased with our first quarter performance. At DineEquity, we continue to work closely with IHOP and Applebee’s on their respective brand-building strategies to innovate the menu, drive operational performance, and provide value for our guests,” said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity. “Our business fundamentals remain healthy and our unique, highly franchised business model is generating strong free cash flow and enabling debt reduction, which are key measures of our success.”

First Quarter 2012 Financial Highlights

• Total debt was reduced by $85.9 million in the first quarter of 2012 as a result of net cash proceeds and financing obligation reductions from the refranchise and sale of Applebee’s company-operated restaurants and free cash flow. The Company reduced Term Loan balances by $69.0 million, Senior Notes by $4.5 million, and financing and capital lease obligations by $12.4 million.
• Adjusted net income available to common stockholders was $24.6 million, representing adjusted earnings per diluted share of $1.36 for the first quarter of 2012. This compares to $26.0 million, or adjusted earnings per diluted share of $1.42, for the same quarter in 2011. The decrease in adjusted earnings was due to a higher income tax rate and lower segment profit driven by the execution of our strategy to refranchise Applebee’s company-operated restaurants, partially offset by lower cash interest expense. (See “Non-GAAP Financial Measures” below.)
• Net income available to common stockholders was $29.9 million, or earnings per diluted share of $1.64 for the quarter, compared to $28.1 million, or earnings per diluted share of $1.53 for the same quarter in 2011. The increase was primarily due to lower interest expense, a lower loss on debt extinguishment and modification costs, and lower impairment and closure charges. These items were partially offset by a lower gain on the refranchise and sale of Applebee’s company-operated restaurants, lower segment profit due to refranchising, and a higher income tax rate.
• EBITDA was $85.7 million for the first quarter of 2012.
• Cash flows from operating activities were $44.7 million, capital expenditures were $4.2 million, and free cash flow was $44.0 million. (See “Non-GAAP Financial Measures” below.)
• Consolidated general and administrative expenses were $39.6 million compared to $38.0 million for the first quarter of 2011. The increase was mainly attributable to higher stock based compensation and severance charges.
• Applebee’s company-operated restaurant operating margin was 17.8% in the first quarter of 2012 compared to 15.3% for the same quarter in 2011. The increase of 250 basis points was primarily due to lower hourly labor expense, the refranchising of lower margin company-operated restaurants, a reduction in depreciation, and a higher average guest check, partially offset by commodities inflation.

Same-Restaurant Sales Performance

Same-restaurant sales performance for each brand is provided below, but it is important to note that because the Company’s is now over 95% franchised, same-restaurant sales variations do not significantly affect DineEquity’s EBITDA, Adjusted EPS, or free cash flow generation.

• Applebee’s domestic system-wide same-restaurant sales increased 1.2% for the first quarter of 2012 compared to the same period in 2011. The increase in first quarter 2012 domestic system-wide same-restaurant sales was mainly driven by a higher average guest check, partially offset by a decline in traffic.
• IHOP domestic system-wide same-restaurant sales decreased 0.5% for the first quarter of 2012 compared to the same period in 2011. The decline in first quarter 2012 domestic system-wide same-restaurant sales was mainly driven by a decline in traffic, partially offset by a higher average guest check.

Refranchise and Sale of Applebee’s Company-Operated Restaurants

In the first quarter of 2012, DineEquity moved to over 95% franchised as it completed the refranchising of 17 Applebee’s company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee. The transaction resulted in net proceeds after taxes of approximately $16 million and reduced sale-leaseback related financing obligations by $9 million.

2012 Guidance

DineEquity reiterates its fiscal 2012 guidance:

• Applebee’s domestic system-wide same-restaurant sales performance to range between 0.5% and 2.5%.
• IHOP’s domestic system-wide same-restaurant sales performance to range between negative 1.5% and positive 1.5%.
• Restaurant operating margin at Applebee’s company-operated restaurants to range between 15.0% and 15.5%.
• Applebee’s franchisees to develop between 30 and 40 new restaurants, approximately half of which are expected to be opened in the U.S.
• IHOP franchisees and its area licensees to develop between 45 and 55 new restaurants, the majority of which are expected to be opened in the U.S.
• Consolidated general & administrative expense to range between $155 and $158 million, including non-cash stock-based compensation expense and depreciation of approximately $18 million.
• Consolidated interest expense to range between $120 and $124 million, of which approximately $6 million is non-cash interest expense.

• Federal income tax rate to be approximately 36%.
• Weighted average diluted shares outstanding to be approximately 18.5 million shares.

• Consolidated cash from operations to range between $110 and $122 million.
• Approximately $13 million is expected to be generated from the structural run-off of the Company’s long-term receivables.
• Consolidated capital expenditures to range between $18 and $20 million.
• Consolidated free cash flow (see “Non-GAAP Financial Measures” below) to range between $103 and $117 million. The Company currently expects its primary use of excess cash will be to fund further debt reduction.

The Company’s fiscal 2012 financial performance guidance reflects the full-year impact of Applebee’s company-operated restaurants refranchised in 2011 and January 2012. Fiscal 2012 financial performance guidance excludes any impact from future sales of Applebee’s company-operated restaurants, the timing of which could be highly variable due to factors including the economy, the availability of buyer financing, acceptable valuations, and the operating wherewithal of the acquiring franchisee. Should additional Applebee’s company-operated restaurants be sold this year, DineEquity plans to update its performance guidance accordingly, upon the transaction’s close.

Investor Conference Call Today

The Company will host an investor conference call to discuss its first quarter 2012 financial results on Tuesday, May 1, 2012 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time). To participate on the call, please dial (888) 713-4211 and reference pass code 94552505. International callers, please dial (617) 213-4864 and reference pass code 94552505. Participants may also pre-register to obtain a unique pin number to join the live call without operator assistance by visiting the following Web site:

https://www.theconferencingservice.com/prereg/key.process?key=P6KFBXJPV

A live webcast of the call will be available on DineEquity’s Web site at www.dineequity.com, and may be accessed by visiting Calls & Presentations under the site’s Investor Information section. Participants should allow approximately ten minutes prior to the call’s start time to visit the site and download any streaming media software needed to listen to the webcast. A telephonic replay of the call may be accessed through 11:59 p.m. Eastern Time (8:59 p.m. Pacific Time) on May 8, 2012 by dialing (888) 286-8010 and referencing pass code 10975076. International callers, please dial (617) 801-6888 and reference pass code 10975076. An online archive of the webcast also will be available on the Investor Information section of DineEquity’s Web site.

About DineEquity, Inc.

Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee’s Neighborhood Grill & Bar and IHOP brands. With more than 3,500 restaurants combined in 18 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), we believe DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company’s Web site located at www.dineequity.com.

Forward-Looking Statements

Statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. These factors include, but are not limited to: the effect of general economic conditions; the Company’s substantial indebtedness; risk of future impairment charges; the Company’s results in any given period differing from guidance provided to the public; the highly competitive nature of the restaurant business; the Company’s business strategy failing to achieve anticipated results; risks associated with the restaurant industry; shortages or interruptions in the supply or delivery of food; changing health or dietary preferences; our dependence upon our franchisees; our engagement in business in foreign markets; harm to our brands’ reputation; litigation; environmental liability; liability relating to employees; failure to comply with applicable laws and regulations; failure to effectively implement restaurant development plans; concentration of Applebee’s franchised restaurants in a limited number of franchisees; credit risk from IHOP franchisees operating under our previous business model; termination or non-renewal of franchise agreements; franchisees breaching their franchise agreements; insolvency proceedings involving franchisees; changes in the number and quality of franchisees; inability of franchisees to fund capital expenditures; third-party claims with respect to intellectual property assets; heavy dependence on information technology; failure to protect the integrity and security of individually identifiable information; failure to execute on a business continuity plan; inability to attract and retain talented employees; risks associated with retail brand initiatives; failure of our internal controls; and other factors discussed from time to time in the Company’s Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Company’s other filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.

Non-GAAP Financial Measures

This news release includes references to the Company’s non-GAAP financial measures “adjusted net income available to common stockholders (adjusted EPS),” “EBITDA,” “free cash flow,” and “segment EBITDA.” “Adjusted EPS” is computed for a given period by deducting from net income (loss) available to common stockholders for such period the effect of any impairment and closure charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any debt modification costs, any gain or loss related to the disposition of assets and any income tax impact of operational restructuring incurred in such period. This is presented on an aggregate basis and a per share (diluted) basis. The Company defines “EBITDA” for a given period is defined as income before income taxes less interest expense, loss on retirement of debt, depreciation and amortization, impairment and closure charges, non-cash stock-based compensation, gain/loss on disposition of assets and other charge backs as defined by its credit agreement. “Free cash flow” for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable (“long-term notes receivable”), less dividends paid and capital expenditures. “Segment EBITDA” for a given period is defined as gross segment profit plus depreciation and amortization as well as interest charges related to the segment. Management utilizes EBITDA for debt covenant purposes and free cash flow to determine the amount of cash remaining for general corporate and strategic purposes after the receipts from long-term notes receivable, and the funding of operating activities, capital expenditures and preferred dividends. Management believes this information is helpful to investors to determine the Company’s adherence to debt covenants and the Company’s cash available for these purposes. Adjusted EPS, EBITDA, free cash flow and segment EBITDA are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with United States generally accepted accounting principles.