DineEquity’s earnings per share and revenue beat analyst estimates Thursday, but it came with the news that flagship brand Applebee’s will shutter up to 135 restaurants in fiscal 2017. This expectation from the company, which also operates IHOP, is more than three times the lower end of its first-quarter range of 40–60 restaurants.
DineEquity revised that prediction to 105–135 closures, while also expecting franchisees to develop between 20–30 new restaurants globally—the majority being international openings. DineEquity said the closures will be based on several criteria, including franchisee profitability, operational results, and meeting of its brand quality standards.
"We are investing in the empowerment of our brands by improving overall franchisee financial health, closing underperforming restaurants and enhancing the supply chain. We are focusing on operations and elevating the guest experience, whether in our restaurants or off-premise. We believe 2017 will be a transitional year for Applebee's and we are making the necessary investments for overall long-term brand health and expect to see improvement over the next year," said Richard J. Dahl, chairman and interim chief executive officer of DineEquity, Inc., in a statement.
DineEquity is also now predicting 20–25 IHOPs to close, up from about 18 previously, although it sees between 80–95 being developed globally, and, in this case, mostly in the U.S. That’s up from the previous expectation of 75–90 openings.
There were 1,752 total IHOP units (1,646 domestically) as of June 30, and 1,968 (1,811 in the U.S) Applebee’s. In the three months leading to that date, 38 franchised Applebee’s closed and eight opened. Trailing six months, the brand has shuttered 57 units and opened nine.
“IHOP remains on solid ground, despite soft sales this quarter,” Dahl added. “I am optimistic about the growth in both effective franchise restaurants and system-wide sales. IHOP is currently rolling out initiatives to address the convenience needs of our guests, which are inclusive of online ordering as well as accelerating tests for delivery and development of an IHOP mobile application. We believe these will create enhanced revenue channels."
IHOP’s domestic same-store sales declined 2.6 percent year-over-year in the second quarter. They were down 1.7 percent in the first quarter.
At Applebee’s, sales dropped 6.2 percent versus the prior year quarter. For the first six months of fiscal 2017, Applebee’s same-stores sales declined 7 percent compared to 2016.
In the second quarter, on a per-share basis, DineEquity reported adjusted earnings per share of $1.30, 13 cents better than Wall Street estimates of $1.17. Revenue for the quarter was $155.2 million, topping the consensus estimate of $155.33 million. Shares soared 14 percent on the stock market Thursday following the profit beat.
DineEquity said it expects Applebee’s domestic same-store sales to perform in the range of negative 6–8 percent. The previous guidance was 4–8 percent decline.
IHOP also was revised to negative 1-3 percent from the previous expectation of flat to 3 percent growth.
DineEquity announced Thursday that Stephen P. Joyce, the former chief executive officer of Choice Hotels, was named to the same role for the casual dining company. Dahl, who was serving as interim CEO following the resignation of Julia Stewart in March, will remain as chairman and continue to hold the CEO position until September 12.
“Steve has a long and proven track record of successfully leading global consumer franchised businesses,” said Caroline W. Nahas, lead director of DineEquity, Inc., in a statement. “While serving as chief executive officer of Choice Hotels, Steve was instrumental in developing a robust performance-based culture, placing an emphasis on agility and innovation and creating momentum and opportunity for the company, franchisees and shareholders.”
“He was also responsible for driving significant growth during one of the most challenging markets in the industry's history,” Nahas said. “Throughout his three decades of senior leadership in the hospitality and restaurant industries, Steve has accumulated a wealth of experience in franchising, marketing, operations, finance and development. These skills ideally position him to execute upon and enhance our turnaround initiative for Applebee's and our growth plans for IHOP."
Choice Hotels operates more than 6,500 franchised hotels in over 40 countries. Joyce served as CEO since 2008. Previously, Joyce was the executive vice president, global development/owner and franchise services for Marriott International, Inc. He has been a member of the board of directors for DineEquity since 2012.
“During my time as a director, I've come to understand many of the strengths, weaknesses and opportunities before us. I guess you could say I'm coming into this eyes wide open and what I see is a future filled with tremendous possibilities. With a talented management team, a committed franchisee base, and a strong group of shareholders, I look forward working to stabilize performance at Applebee's and identify new pathways to growth for IHOP,” he said in a statement. “I am committed to creating increased shareholder value at DineEquity and financial success for our franchisees and team members. I am thrilled at the opportunity to lead this company and its iconic brands into their next chapter."