IHOP Corp. Reports Second Quarter 2003 Results
GLENDALE, Calif., Aug. 7 /PRNewswire-FirstCall/ -- IHOP Corp. (NYSE: IHP) today announced financial results for its second quarter and six months ended June 30, 2003.
Second Quarter 2003 Financial Results
The Company reported an 18.3% increase in net income to $11.0 million, or an increase of 15.9% in diluted net earnings per share to $0.51 in the second quarter 2003, compared with net income of $9.3 million, or diluted net income per share of $0.44 in the second quarter 2002. IHOP's net income and diluted net earnings per share performance was impacted during the quarter by one-time charges of $811,000, or $0.02 per diluted share, associated with the Company's reorganization announced in January 2003. After accounting for these charges, net income for the second quarter 2003 increased 23.7% to $11.5 million or 20.5% increase in diluted net income per share of $0.53.
For the six months ended June 30, the Company reported an 11.5% decrease of net income to $16.9 million, and a decrease of 13.3% in diluted net income per share to $0.78 in 2003, compared with net income of $19.1 million, or diluted net income per share of $0.90 in the same 2002 period. After accounting for one-time reorganization charges, net income for the first six months of 2003 increased 13.1% to $21.6 million or an 11.1% increase in diluted net income per share of $1.00.
Julia A. Stewart, IHOP Corp. President and Chief Executive Officer, said, "Our system performed extremely well during the quarter. Our focus on brand building, marketing promotions, improved operations and enhanced training efforts are paying off as more guests visit IHOP restaurants more often. The success of our strategies to date is very encouraging. We are confident about our future and look for continuing improvements in the second half of the year."
System-wide sales increased 16.1% in the quarter and by 14.6% in the six months ended June 30, 2003 over the same periods in 2002. The sales increase is primarily the result of growth in the number of effective restaurants and increases in average per unit sales. Effective restaurants grew by 8.8% in the second quarter and by 8.6% for the six months ended June 30, 2003 over the same periods in 2002. In addition, the company franchised five more restaurants in the quarter than in second quarter 2002. As previously announced, system-wide comparable store sales increased by 4.8% for the second quarter, which reflected the highest quarterly growth in 10 years. For the six months ended June 30, 2003, comparable store sales were 3.6%. Both these comparable store sales figures are calculated on a 12-month basis.
IHOP's comparable store sales performance for the second quarter benefited from the carryover effect of national network advertising in the first quarter 2003 and other operational initiatives. Additionally, IHOP provided new reasons for guests to visit with two promotional items, Stuffed French Toast and Paradise Pancakes. During the ten week promotional period for Stuffed French Toast, comparable store sales increased by 5.8%. Five weeks of that promotion took place in the second quarter. For the eight week promotional period of Paradise Pancakes, comparable store sales increased by 4.6%.
Change in Comp-Store Sales Methodology
Beginning with the second quarter 2003, IHOP is changing its methodology for calculating comparable store sales from a 12-month basis to an 18-month basis. The Company believes that changing this methodology, where restaurants opened only 18 months or more will be used for calculation of year-to-year changes, will enable a more accurate view of its system's performance. This is because the calculations will now exclude the effect of high sales levels typically seen during the first months of operation at new restaurants. Accordingly, system-wide comparable store sales increased by 5.1% for the second quarter and 4.1% for the six months ended June 30, 2003 using the 18-month methodology.
Operations Initiatives
IHOP restaurants performed well during the quarter, reflecting several positive operations initiatives during the second quarter 2003.
IHOP completed the process of assessing restaurants as "A" or "B" operations to best leverage and further develop the strongest operators in its system. The Company also worked to identify IHOP restaurants that may not perform at the top of its expectations and encouraged those operators to improve by returning to operations and training basics. The goal is to dramatically improve operations at challenged restaurants.
Mystery Shop evaluations were successfully conducted in the second quarter 2003. IHOP received significant feedback in the areas of service and hospitality, uncovering additional opportunities to improve the guest experience. Based on this feedback, IHOP will continue to augment its operational and training efforts as franchisees implement change at the restaurant level.
IHOP recently launched an initiative to identify high potential locations that could benefit from 24-hour operations. With field consultants trained in the financial operating model, the Company is educating selected franchisees on the profitability and sales growth opportunities of 24-hour operations.
Enhanced training efforts continued with the rollout of Paradise Pancakes during the second quarter 2003. More than 50,000 employees were trained in the promotion's details.
Performance Outlook
In view of the positive momentum in its business, IHOP reiterated its guidance of $1.55 to $1.70 in net income per diluted share for fiscal 2003.
Second Quarter 2003 Conference Call
The Company will host an investor conference call to discuss its second quarter results today, Thursday, August 7, 2003 at 11:00 a.m. ET (8:00 a.m. PT). To participate in the call, please dial (877) 356-3747. A live webcast of the call can be accessed on the Investor Relations section of IHOP's Web site at www.ihop.com . 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.
About IHOP Corp.
The IHOP family restaurant chain has been serving a wide variety of breakfast, lunch and dinner selections for 45 years. Offering more than 16 types of pancakes, as well as omelettes, breakfast specialties, burgers, chicken and steaks, IHOP's diverse menu appeals to people of all ages. IHOP restaurants are developed, operated and franchised by Glendale, California based IHOP Corp. As of June 30, 2003, there were 1,136 IHOP restaurants in 48 states and Canada. IHOP is publicly traded on the NYSE under the symbol "IHP." For more information, call the Company's headquarters at (818) 240-6055 or visit the Company's Website located at www.ihop.com .
Forward-Looking Statements
There are forward-looking statements contained in this news release. They use such words as "may," "will," "expect," "believe," "plan," or other similar terminology. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include, but are not limited to: risks associated with the implementation of the Company's new strategic growth plan, the availability of suitable locations and terms of the sites designated for development; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; conditions beyond IHOP's control such as weather, natural disasters or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the International House of Pancakes brand and concepts by guests and franchisees; IHOP's overall marketing, operational and financial performance; economic and political conditions; adoption of new, or changes in, accounting policies and practices; and other factors discussed from time to time in IHOP's filings with the Securities and Exchange Commission. Forward-looking information is provided by IHOP pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. In addition, IHOP disclaims any intent or obligation to update these forward-looking statements.
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD ENDED JUNE 30, 2003
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues
Franchise revenues $34,722 $29,947 $68,508 $59,987
Rental income 28,993 24,416 57,307 48,390
Company restaurant
sales 21,335 17,986 41,009 35,776
Financing revenues 18,234 12,510 30,451 22,246
Total revenues 103,284 84,859 197,275 166,399
Costs and Expenses
Franchise expenses 15,961 13,592 31,362 27,349
Rental expenses 21,320 18,224 42,139 35,712
Company restaurant
expenses 22,493 18,627 43,401 37,181
Financing expenses 9,868 5,882 16,701 9,917
General and
administrative
expenses 13,562 12,665 25,829 23,350
Other (income)
expense, net 1,713 989 3,226 2,400
Reorganization charges 811 -- 7,520 --
Total costs and
expenses 85,728 69,979 170,178 135,909
Income before income
taxes 17,556 14,880 27,097 30,490
Provision for income
taxes 6,584 5,580 10,162 11,434
Net income $10,972 $9,300 $16,935 $19,056
Net Income Per Share
Basic $0.51 $0.44 $0.79 $0.91
Diluted $0.51 $0.44 $0.78 $0.90
Weighted Average
Shares Outstanding
Basic 21,520 20,904 21,417 20,838
Diluted 21,705 21,340 21,574 21,254
Dividends Declared
Per Share $-- $-- $0.25 $--
Dividends Paid
Per Share $0.25 $-- $0.25 $--
IHOP CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Restaurant Data
Effective
restaurants(a)
Franchise 919 834 911 829
Company 79 75 77 74
Area license 125 123 125 122
Total 1,123 1,032 1,113 1,025
System-wide
Sales(b) $425,533 $366,594 $839,358 $732,434
Percent change 16.1% 10.7% 14.6% 10.7%
Average sales per
effective
restaurant $379 $355 $754 $715
Percent change 6.8% 2.6% 5.5% 4.1%
Comparable sales
percentage
change (c) 4.8% 1.8% 3.6% 1.9%
Franchise
Sales $369,884 $317,017 $728,257 $631,740
Percent change 16.7% 13.0% 15.3% 13.7%
Average sales per
effective
restaurant $402 $380 $799 $762
Percent change 5.8% 2.2% 4.9% 2.7%
Comparable sales
percentage
change(c) 4.7% 1.8% 3.6% 1.9%
Company
Sales $21,335 $17,986 $41,009 $35,776
Percent change 18.6% (0.1)% 14.6% 2.9%
Average sales per
effective
restaurant $270 $240 $533 $483
Percent change 12.5% (1.2)% 10.4% 1.5%
Area License
Sales $34,314 $31,591 $70,092 $64,918
Percent change 8.6% (3.2)% 8.0% (9.0)%
Average sales per
effective
restaurant $275 $257 $561 $532
Percent change 7.0% 2.4% 5.5% 5.1%
(a) "Effective restaurants" are the number of restaurants in a given
fiscal period adjusted to account for restaurants open for only a
portion of the period. It is calculated by dividing total
restaurant operating days by 91 days for a quarterly calculation.
(b) "System-wide sales" are retail sales of franchisees, area licensees
and Company-operated restaurants, as reported to IHOP.
(c) "Comparable sales percentage change" reflects the percentage change
in sales for restaurants that are operated for the entire fiscal
period in which they are being compared and are open for at least
12 months. Because of new unit openings and store closures, the
restaurants opened for an entire fiscal period being compared will
be different from period to period. Comparable average sales do not
include data on restaurants located in Florida.
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
RESTAURANT DEVELOPMENT ACTIVITY
IHOP-beginning of period 1,118 1,028 1,103 1,017
New openings
IHOP-developed 16 14 33 24
Franchisee-developed 3 4 6 5
Area license -- 1 -- 2
Total new openings 19 19 39 31
Closings
Company and franchise (1) (4) (6) (5)
Area License -- -- -- --
IHOP-end of period 1,136 1,043 1,136 1,043
Summary-end of period
Franchise 932 843 932 843
Company 79 76 79 76
Area license 125 124 125 124
Total IHOP 1,136 1,043 1,136 1,043
RESTAURANT FRANCHISING ACTIVITY
IHOP-developed 19 13 30 22
Franchisee-developed 3 4 6 5
Rehabilitated and refranchised 1 1 2 1
Total restaurants
franchised 23 18 38 28
Reacquired by IHOP (4) (2) (6) (4)
Closed -- (3) (2) (4)
Net addition 19 13 30 20
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
2003 2002
(Unaudited)
Current assets, net $139,620 $159,101
Property and equipment, net 310,795 286,226
Long-term receivables:
Notes receivable 46,852 46,929
Equipment contracts receivable 160,564 153,261
Direct financing leases receivable 131,304 132,602
Other assets 47,199 41,681
Total assets $836,334 $819,800
Current liabilities $42,652 $53,564
Long-term debt 144,694 145,768
Other long-term liabilities 269,262 256,079
Stockholders' equity 379,726 364,389
Total liabilities and stockholders' equity $836,334 $819,800 IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2003 2002
Cash provided by operating activities $32,182 $31,210
Cash used in investing activities
Additions to property and equipment (49,634) (48,163)
Investments in short-term marketable securities (33,367) --
Additions to other assets, net (332) 2,687
Cash provided by financing activities 6,097 23,749
Net change in cash and cash equivalents (45,054) 9,483
Cash and cash equivalents at beginning of period 98,739 6,252
Cash and cash equivalents at end of period $53,685 $15,735 IHOP CORP. AND SUBSIDIARIES
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
1st Qtr. 2nd Qtr. 6 Mos. 3rd Qtr. 9 Mos. 4th Qtr. 12 Mos.
2002 2002 2002 2002 2002 2002 2002
Revenues
Franchise
revenues $30,040 $29,947 $59,987 $30,946 $90,933 $32,117 $123,050
Rental
income 23,974 24,416 48,390 25,158 73,548 26,047 99,595
Company
restaurant
sales 17,790 17,986 35,776 19,634 55,410 19,023 74,433
Financing
revenues 9,736 12,510 22,246 16,345 38,591 30,205 68,796
Total
revenues 81,540 84,859 166,399 92,083 258,482 107,392 365,874
Costs and
Expenses
Franchise
expenses 13,757 13,592 27,349 13,673 41,022 14,117 55,139
Rental
expenses 17,488 18,224 35,712 18,517 54,229 19,583 73,812
Company
restaurant
expenses 18,554 18,627 37,181 20,442 57,623 20,799 78,422
Financing
expenses 4,035 5,882 9,917 9,027 18,944 19,241 38,185
General and
administrative
expenses 10,685 12,665 23,350 13,326 36,676 12,850 49,526
Other (income)
expense, net 1,411 989 2,400 1,357 3,757 1,676 5,433
Total costs
and expenses 65,930 69,979 135,909 76,342 212,251 88,266 300,517
Income before
taxes 15,610 14,880 30,490 15,741 46,231 19,126 65,357
Provision for
income tax 5,854 5,580 11,434 5,903 17,337 7,172 24,509
Net income $9,756 $9,300 $19,056 $9,838 $28,894 $11,954 $40,848
Net Income
Per Share
Basic $0.47 $0.44 $0.91 $0.47 $1.38 $0.57 $1.95
Diluted $0.46 $0.44 $0.90 $0.46 $1.36 $0.56 $1.92
Weighted
Average
Shares
Outstanding
Basic 20,771 20,904 20,838 20,958 20,878 21,152 20,946
Diluted 21,169 21,340 21,254 21,235 21,248 21,334 21,269
IHOP CORP.
18 MONTH SAME STORE SALES
PERCENT INCREASES (DECREASES) OVER PRIOR PERIOD
1999 2000 2001 2002 2003
1st Quarter 0.5% 0.2% 2.2% 2.6% 3.1%
2nd Quarter 2.1% 1.1% 0.0% 1.9% 5.1%
6 Months 1.4% 0.8% 1.2% 2.3% 4.1%
3rd Quarter 1.4% 2.1% 0.0% (0.7%)
9 Months 1.5% 1.4% 0.8% 1.3%
4th Quarter 1.5% 0.7% 1.3% (0.3%)
Full Year 1.6% 1.2% 1.0% 0.9%