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DineEquity, Inc. Reports Solid Second Quarter Results

Stocks in this article: DIN

DineEquity, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill & Bar and IHOP Restaurants, today announced financial results for the second quarter of 2012.

“During the second quarter, we executed on our disciplined strategy to drive earnings growth, generate free cash flow, and refranchise Applebee’s company-operated restaurants. I am excited about the Company’s new chapter as we complete the refranchising initiative started over four years ago and adjust our cost structure to support our new business model. Pending closures of the previously announced final three deals, we will have successfully completed the transition to a 99% franchised restaurant system,” said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc. “I am proud of our achievements since acquiring Applebee’s in 2007. We have revitalized the brand, reduced total debt by approximately $800 million, generated roughly $487 million in free cash flow, and will exceed our $50 million target in G&A savings.”

Second Quarter 2012 Financial Highlights

  • Adjusted net income available to common stockholders was $19.1 million, representing adjusted earnings per diluted share of $1.06 for 2012. This compares to $16.6 million, or adjusted earnings per diluted share of $0.90, for the same quarter in 2011, an increase of 18%. The increase in adjusted earnings was due to lower cash interest expense and lower general and administrative expenses, partially offset by lower segment profit due to the write-off of certain rental segment receivables. (See “Non-GAAP Financial Measures” below.)
  • GAAP net income available to common stockholders was $15.9 million, or earnings per diluted share of $0.88 for 2012 compared to a net loss of $284,000, or loss per diluted share of $0.02 for the same quarter in 2011. The increase was primarily due to lower impairment and closure charges and lower interest expense. These items were partially offset by higher income tax expense and lower segment profit due to the write-off of certain rental segment receivables.
  • Consolidated general and administrative expenses were $37.2 million compared to $38.5 million in the second quarter of 2011. The decrease was primarily due to lower personnel costs and lower professional services expenses, partially offset by higher occupancy costs.
  • Applebee’s company-operated restaurant operating margin was 16.9% in 2012 compared to 13.4% for the same quarter in 2011, an increase of 350 basis points. The increase was primarily due to a higher average guest check, less depreciation expense, improved control of waste, and the refranchising of lower margin company-operated restaurants. These items were partially offset by commodities inflation.

First Six Months of 2012 Highlights

  • Adjusted net income available to common stockholders was $43.8 million, representing adjusted earnings per diluted share of $2.41. This compares to $42.7 million, or adjusted earnings per diluted share of $2.33, for the same period in 2011, an increase of 3%. The increase in adjusted earnings was due to lower cash interest expense, partially offset by lower segment profit due to refranchising and the write-off of certain rental segment receivables as well as higher income taxes. (See “Non-GAAP Financial Measures” below.)
  • GAAP net income available to common stockholders was $45.8 million, or earnings per diluted share of $2.52, compared to $27.9 million, or earnings per diluted share of $1.53 for the same period in 2011. The increase was primarily due to lower impairment and closure charges, lower interest expense, and the reduced impact from debt extinguishment and debt modification costs. These items were partially offset by higher income taxes, lower segment profit due to refranchising and the write-off of certain rental segment receivables.
  • EBITDA was $162.4 million for the first six months of 2012. (See “Non-GAAP Financial Measures” below.)
  • For the first six months of 2012, cash flows from operating activities were $36.4 million, capital expenditures were $10.7 million, and free cash flow was $32.3 million. (See “Non-GAAP Financial Measures” below.)
  • Total debt was reduced by $88.3 million in the first six months 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 $68.6 million, Senior Notes by $4.0 million, and financing and capital lease obligations by $15.7 million.
  • Applebee’s company-operated restaurant operating margin was 17.3% for the first six months of 2012 compared to 14.5% for the same period in 2011. The increase of 280 basis points was primarily due to higher same restaurant sales, improved control of waste, less depreciation expense, and the refranchising of lower margin company-operated restaurants, partially offset by commodities inflation, changes in product mix, higher labor expense, and incremental local advertising.

Refranchise and Sale of Applebee’s Company-Operated Restaurants

On May 1, 2012, DineEquity announced that it entered into an asset purchase agreement with Potomac Family Dining Group, LLC for the sale of 39 Applebee's company-operated restaurants located in Virginia.

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