DineEquity, the parent company of Applebee’s Neighborhood Grill & Bar and IHOP Restaurants, today announced financial results for the fourth quarter and fiscal year 2010. DineEquity’s financial performance for the fourth quarter and year ended December 31, 2010 included the following highlights:
- Compared to the same periods in 2009, Applebee’s domestic system-wide same-restaurant sales increased 2.9% for the fourth quarter 2010, representing its second consecutive quarter of positive same-restaurant sales growth, and increased 0.3% for fiscal 2010, representing its first year of sales growth since 2005. IHOP’s domestic system-wide same-restaurant sales increased 1.1% for the fourth quarter 2010, representing its second consecutive quarter of positive same-restaurant sales results, and were flat for fiscal year 2010.
- Applebee’s company-operated restaurant operating margins increased 210 basis points to 15.5% for the fourth quarter 2010, and increased 40 basis points to 14.8% for fiscal 2010 compared to the same periods in 2009. These improvements primarily reflect higher menu prices and favorable promotional and product mix, partially offset by guest count declines and the impact of the 53rd week in 2009.
- Adjusted net income available to common stockholders (see “Non-GAAP Financial Measures” below) was $10.6 million, or $0.59 per diluted share, for the fourth quarter 2010 compared to $13.0 million, or $0.76 per diluted share, for the same quarter in 2009. This decrease was primarily due to the $10.3 million profit before tax impact of a 53rd operating week in 2009 and a $7.7 million charge related to the default of an IHOP franchisee. This was partially offset by lower preferred stock dividends, higher same-restaurant sales for both Applebee’s and IHOP and improved Applebee’s restaurant operating margins.
- For fiscal 2010, adjusted net income available to common stockholders was $61.7 million, or $3.50 per diluted share, compared to $69.7 million, or $4.06 per diluted share, for fiscal 2009. This decrease was primarily due to the impact of a 53rd operating week in 2009 and a charge related to the default of an IHOP franchisee. This was partially offset by lower interest expense and an increase in IHOP’s effective franchise restaurants.
- Net loss available to common stockholders in the fourth quarter 2010 was $58.1 million, or $3.33 per diluted share, and for the full year was $30.0 million, or $1.74 per diluted share. These net losses were primarily due to the extinguishment of debt and the redemption of Series A perpetual preferred stock and related premiums in connection with our successful refinancing. Partially offsetting these charges were gains on the disposition of assets related to the sale of company-operated Applebee’s restaurants in Minnesota and parts of Virginia.
- General & Administrative (G&A) expenses totaled $43.1 million for the fourth quarter 2010 and $159.6 million for the full year. Compared to fiscal 2009, full year G&A expenses increased 0.7% for fiscal 2010.
- For fiscal 2010, cash flows from operating activities increased 13.6% to $179.3 million compared to fiscal 2009, primarily due to the timing of cash interest payments on the Company’s bonds and tax benefits, partially offset by the working capital impact of refranchising 83 restaurants in the fourth quarter 2010 and the impact of the 53rd operating week in 2009. Consolidated capital expenditures were $18.7 million, and free cash flow (see “Non-GAAP Financial Measures” below) was $153.9 million. From the refinancing of its debt in mid-October 2010 through the re-pricing of its bank debt on February 25, 2011, the Company has used available free cash flow and after-tax cash proceeds from the sale of Applebee’s company-operated restaurants to reduce its total debt by $158 million.
Julia A. Stewart, DineEquity’s chairman and chief executive officer, said, “Fiscal 2010 was a successful year for DineEquity. Our performance was a reflection of the strategic work being undertaken by our management teams at Applebee’s and IHOP as well as our Shared Services structure as we execute against our long-term growth plans for our brands and our business. In addition to driving positive momentum at Applebee’s, we successfully refinanced our debt and sold a significant number of Applebee’s company-operated restaurants despite a difficult economic period. Looking ahead, we see 2011 as a year when we will be relentlessly focused on execution as our brands move forward with an integrated marketing, menu and operations approach and an increasing number of remodeled restaurants to deliver unsurpassed guest experiences at both Applebee’s and IHOP.”
Same-Restaurant Sales Performance
Applebee’s domestic system-wide same-restaurant sales increased 2.9% for the fourth quarter 2010 compared to the same quarter in 2009. The improvement was primarily due to ongoing marketing and operational initiatives and menu enhancements. Domestic franchise same-restaurant sales increased 3.4% and company-operated Applebee’s same-restaurant sales increased 0.3% for the fourth quarter 2010 compared to the same quarter in 2009. Fourth quarter 2010 results at Applebee’s company-operated restaurants reflected a higher average guest check partially offset by a decline in guest traffic compared to the same quarter in 2009. Menu pricing at company-operated restaurants for the fourth quarter 2010 increased 2.1%.
For fiscal 2010, Applebee’s domestic system-wide same-restaurant sales increased 0.3% compared to fiscal 2009. Domestic franchise same-restaurant sales increased 0.6% and company-operated Applebee’s same-restaurant sales decreased 1.3% compared to fiscal 2009. The overall improvement in same-restaurant sales was primarily due to ongoing marketing, operational and menu revitalization efforts, which were further enhanced during the quarter by a refreshed Two for $20 value offering including stuffed pastas, Flavor Loaded Steaks starting at $9.99 and the second consecutive year of Applebee’s Veteran’s Day event.
IHOP’s domestic system-wide same-restaurant sales increased 1.1% for the fourth quarter 2010 compared to the same quarter in 2009. The improvement was primarily due to the limited-time offer Festival of Flavors along with the promotion of Trick or Treat All-You-Can-Eat Pancakes. IHOP’s same-restaurant sales results for the fourth quarter 2010 reflected a higher average guest check offset by a decline in guest traffic. For fiscal 2010, IHOP’s domestic system-wide same-restaurant sales were flat compared to fiscal 2009.
Applebee’s Restaurant Operating Margins
Applebee’s company-operated restaurant operating margin improved 210 basis points to 15.5% for the fourth quarter 2010 compared to 13.4% for the same quarter in 2009. Applebee’s improved operating margin performance for the quarter was due primarily to positive check growth due to menu price increases of 2.1%, favorable promotional and mix impacts, favorable timing shifts of advertising expenses, and favorable operating results including lower labor and commodity costs, partially offset by guest count declines and the impact of the 53rd operating week in 2009. The sale of 83 Applebee’s company-operated restaurants improved fourth quarter 2010 margins by 20 basis points. Additionally, operating margin improvements reflected lower depreciation expense associated with the accounting treatment related to restaurants held for sale in the first quarter 2011.
Applebee’s company-operated restaurant operating margin improved 40 basis points to 14.8% for fiscal 2010 compared to 14.4% for fiscal 2009. Applebee’s improved restaurant operating margin performance for 2010 was favorably impacted by menu price increases of 1.7% and favorable mix shifts, decreased food and beverage cost due to lower commodity costs and labor savings driven by improvements in hourly labor productivity. These gains were partially offset by guest count declines, increases in facility expenses and gift card program costs. The 53rd operating week in 2009 and the sale of 83 company-operated restaurants decreased Applebee’s fiscal 2010 operating margin by approximately 20 basis points for the year.
Sale of Applebee’s Company Restaurants
In the fourth quarter 2010, DineEquity successfully completed two transactions for the sale of 83 company-operated Applebee’s restaurants located in Minnesota and parts of Wisconsin and Virginia. These transactions resulted in after-tax cash proceeds of $37 million and reduced sale-leaseback related financing obligations by $63 million. Subsequent to the fourth quarter 2010, the Company successfully completed two transactions for the sale of 65 company-operated Applebee’s restaurants located in St. Louis, Missouri and parts of Illinois and in Washington D.C. These transactions resulted in after-tax cash proceeds of $49 million and reduced sale-leaseback related financing obligations by $31 million. The sale of one additional restaurant in the Washington D.C. transaction is expected to be completed shortly due to additional time required to transfer the lease for this property.
The sale of company-operated Applebee’s restaurants furthers DineEquity’s strategic objective of transitioning Applebee’s into a more highly franchised restaurant system over time. The Company believes a more heavily franchised business model requires less capital investment and reduces the volatility of the Company’s cash flow performance, while also providing cash proceeds from franchising of restaurants for the retirement of debt.
Corporate Refinancing and Subsequent Re-pricing Completed
On October 20, 2010, DineEquity successfully completed a $1.8 billion refinancing through a $950 million senior secured credit facility and $825 million of senior unsecured notes. The refinancing was accretive to earnings based on a combined reduction of interest expense and non-deductible preferred dividends. The Company used proceeds from its refinancing activities, cash on hand and asset sales proceeds to fund the retirement of all of its outstanding securitized debt and redeem all of its Series A perpetual preferred stock in the fourth quarter 2010. In conjunction with this transaction, DineEquity recognized a charge of approximately $64 million in the fourth quarter of 2010 related to the write off of deferred financing costs associated with its previous securitized debt structure and Series A perpetual preferred stock. Additionally, the Company recognized a $46 million charge in the fourth quarter of 2010 related to prepayment penalties and tender premiums associated with the refinancing of its previous securitized structure. These charges were exclusive of related income tax benefits.
In the first quarter 2011, DineEquity completed a re-pricing of its senior secured term loan facility on February 25, 2011 to take advantage of lower interest rates available in the current senior secured debt market. This re-pricing transaction established a $742.0 million senior secured credit facility maturing in October 2017. The Company also increased the amount of its $50 million senior secured revolving credit facility, maturing in October 2015, to $75 million. This facility was not drawn on as of the closing date of the completed re-pricing. DineEquity’s bank loans will bear interest at an annual rate equal to LIBOR plus 300 basis points, subject to a floor of 125 basis points floor on LIBOR. Today, this represents a 4.25% interest rate, or a 175 basis point reduction compared to the Company’s previous interest rate. Fees and other costs to re-price its senior secured debt totaled $12.4 million.
DineEquity intends to continue to dedicate its free cash flow, along with cash proceeds generated from the future sales of Applebee’s company-operated restaurants, to the retirement of its senior secured credit facility.
Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee’s Neighborhood Grill & Bar and IHOP brands. With nearly 3,500 restaurants combined, DineEquity is the largest full-service restaurant company in the world. For more information on DineEquity, visit the Company’s Web site located at www.dineequity.com.