Shares of DineEquity soared early Thursday following its third-quarter earnings, perhaps injecting some much-needed optimism into one of America’s iconic casual dining leaders.
The parent company of Applebee’s and IHOP saw its stock rise as much 10 percent to start the day. This after DineEquity reported a third-quarter loss of $451.7 million, or $24.98 per share versus the prior-year period. The company posted revenue of $144.7 million.
Applebee’s domestic systemwide same-store sales declined 7.7 percent for the quarter and IHOP’s dropped 3.2 percent. There were some signs of optimism, however.
To start, Applebee’s revised its expectations for the year in a positive direction. It said it now expects Applebee’s same-store sales to fall between 5.5–6 percent for fiscal 2017, an improvement from the earlier forecast of 6–8 percent.
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Also, DineEquity did not raise its expected closures, sticking to the 105–135 number it predicted for Applebee’s in the previous review. The company expects franchisees to develop 20–30 new restaurants globally as well, the majority being international.
“I am excited about the road ahead for DineEquity and our two category-leading brands. We have a strong management team, committed franchisees, and talented team members working cohesively to achieve our collective goals of strong performance and sustainable growth," said Stephen P. Joyce, chief executive officer of DineEquity, in a statement. “We are committed to driving shareholder value and ensuring the success of our franchisees.”
DineEquity’s earnings per share of 91 cents beat Wall Street expectations by a cent. Revenue missed the consensus estimate of $146.92 million.
The review was the first for Joyce, the former chief executive officer of Choice Hotels. The company announced he was stepping into the role during its second-quarter recap in August. That quarter was a particularly rough one for the brand, which nearly tripled its outlook for Applebee’s closures from a first-quarter range of 40–60 to the aforementioned 105–135.
“I look forward to working with my management team to execute against our strategic priorities during this challenging period. We are focused on developing a robust performance-based culture, driving sustainable positive sales at both brands and returning DineEquity to a growth company,” Joyce added.
DineEquity did revise IHOP’s closures in the other direction. The company said it now expects between 25–30 IHOPs to shutter, compared to the previous estimate of 20–25. It also said franchise segment profit should range between $297–$303 million instead of $302–$314 million. DineEquity credit the downward revision to additional expected reserves related to the collectability of Applebee’s royalties.
The “timing of fourth quarter 2017 marketing spend and projection for lower franchise segment profit” also led DineEquity to revise expected cash flows provided by operating activities to $64–$74 million from $80–90 million.
“Having just completed our global franchise conferences for Applebee's and IHOP, it is clear our franchise groups are confident about our plan to drive the business forward. The initial progress we have made and the positive same-restaurant sales performance of both brands in October are encouraging. I am very optimistic about realizing the company's full potential," Joyce said.
As of September 30, there were 1,945 Applebee’s (1,791 domestic). DineEquity closed 23 Applebee’s in the third quarter.
There are 1,761 IHOPs (1,655 domestic). The company added nine net IHOP restaurants in the quarter.
Applebee’s also announced Thursday that it promoted Kevin Carroll to senior vice president, chief operations officer. Carroll joined Applebee’s in June as vice president of operations.
Applebee's inked a new franchise development agreement as well, and added two new franchisees, strengthening the brand's presence in the states of Utah and Alaska.
“Kevin is an exceptional leader and operator who understands what it takes to achieve operational excellence," John Cywinski, president, Applebee's, said in a statement. "He shares our passion for our guests and our strong belief in culture, franchisee collaboration, and accountability. I know him well and am pleased to be promoting him to this role."
Before Applebee’s, Carroll spent 27 years with Chili’s, 14 of which he served as senior vice president and led more than 400 company-owned restaurants.