IHOP Corp. Reports First Quarter 2003 Results
GLENDALE, Calif., May 8 /PRNewswire-FirstCall/ -- IHOP Corp. (NYSE: IHP) today announced results for its first quarter ended March 31, 2003.
First Quarter 2003 Performance
The Company reported a 38.9% decrease in net income to $6.0 million, or a decrease of 39.1% in diluted net earnings per share to $0.28 in the first quarter 2003, compared with net income of $9.8 million, or diluted net income per share of $0.46 in the first quarter 2002. The decreases in net income and diluted net earnings per share were due to approximately $6.7 million in one-time charges associated with the Company's reorganization, announced in January 2003. However, after accounting for these charges, net income increased 4.1% to $10.2 million or 2.2% in diluted net income per share of $0.47. The Company also reiterated its earnings guidance of $1.55 to $1.70 in diluted net income per share for fiscal 2003.
As previously announced, system-wide sales increased 13.1% in the quarter ended March 31, 2003 over the same period in 2002. System-wide comparable store sales increased by 2.2% for the quarter ended March 31, 2003. In the first quarter 2003, total revenues were $94.0 million, an increase of 15.3% over the first quarter 2002. In the first quarter 2003, IHOP franchised 15 restaurants compared to 10 in the first quarter 2002.
Julia A. Stewart, IHOP Corp. President and Chief Executive Officer, said, "Our first quarter performance partially reflects a greater emphasis on marketing, product promotions, including limited time offers, and operations. Specifically, our new advertising campaign and improved media buying strategy along with enticing limited time offers -- "Never Ending" pancakes and a great new product idea, Stuffed French Toast -- translated into improved same-store sales performance. These limited time offers provided both value and exciting new reasons to visit IHOP."
General & Administrative costs increased by $1.6 million or 14.8% as IHOP invested in initiatives related to the move from a Company developed and financing model to a more traditional franchising model with an investment focus on marketing and operations. In addition, the Company's financial statements reflect one-time reorganization charges of $6.7 million related to its decision to change its operating model. The Company anticipates additional reorganization charges of approximately $2.0 million for the remainder of 2003.
Segment Reporting
The Company announced on March 24, 2003, its intention to change its segment reporting effective the first quarter of 2003, as it moved to its new operating model. The new segments reported include franchise operations, rental operations, Company restaurant operations and financing operations.
Segment highlights for the first quarter 2003 versus 2002 include:
* Franchise operations segment profit increased by 12.9% due to an
increase in franchise revenues associated with an increase in the
number of franchise restaurants.
* Rental operations segment profit increased by 28.4% due primarily to
increased revenue from IHOP owned properties.
* Company restaurant operations loss increased by $0.5 million to a loss
of $1.2 million in the first quarter of 2003. This was due primarily
to higher labor related expenses in Company restaurants.
* Segment profit from financing operations decreased by 5.6% due to an
increase in interest expense related to our new private placement debt
partially offset by increased interest income from franchise and
equipment notes.
IHOP has restated 2002 financial results in its new segment reporting format in a table at the end of this press release.
Operating Highlights
First quarter 2003 results reflect the implementation of a number of key operational strategies consistent with the Company's move to a traditional franchising model. IHOP implemented a number of new promotional and media strategies, including the launch of a new advertising campaign supported by its first utilization of National Media. Product promotions -- "Never Ending" Pancakes and Stuffed French Toast -- were the key drivers of the 2.2% same- store sales increase.
Investor Conference Call
IHOP Corp. will host an investor conference call to discuss its first quarter results on Thursday, May 8, 2003 at 11:00 a.m. ET (8:00 a.m. PT). To participate on the call, please dial (877) 356-3747. The Company will webcast the live call with a slide presentation to accompany management's discussion which can be accessed on the Investor Relations section of IHOP's Website 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 and view the slide show.
An audio replay of the call will be available by 2:00 p.m. ET (11:00 a.m. PT) on May 8, 2003, which can be accessed through May 15, 2003 by dialing (800) 642-1687 and referencing pass code 9695931. An online archive of the webcast and slide show will be available approximately four hours following the live call.
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 March 31, 2003, there were 1,118 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.
[Financial Information to Follow]
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD ENDED MARCH 31, 2003
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2003 2002
Revenues
Franchise revenues $33,786 $30,040
Rental income 28,314 23,974
Company restaurant sales 19,674 17,790
Financing revenues 12,217 9,736
Total revenues 93,991 81,540
Costs and Expenses
Franchise expenses 15,401 13,757
Rental expenses 19,985 17,488
Company restaurant expenses 20,908 18,554
Financing expenses 6,833 4,035
General and administrative expenses 12,267 10,685
Other (income) expense, net 2,347 1,411
Reorganization charges 6,709 --
Total costs and expenses 84,450 65,930
Income before taxes 9,541 15,610
Provision for income tax 3,578 5,854
Net income $5,963 $9,756
Net Income Per Share
Basic $0.28 $0.47
Diluted $0.28 $0.46
Weighted Average Shares Outstanding
Basic 21,313 20,771
Diluted 21,443 21,169
Dividends Declared Per Share $0.25 $--
IHOP CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2003 2002
Restaurant Data
Effective restaurants(a)
Franchise 903 823
Company 76 74
Area license 125 121
Total 1,104 1,018
System-wide
Sales(b) $413,825 $365,840
Percent change 13.1% 10.6%
Average sales per effective restaurant $375 $359
Percent change 4.5% 5.0%
Comparable sales percentage change(c) 2.2% 2.0%
Franchise
Sales $358,373 $314,723
Percent change 13.9% 14.4%
Average sales per effective restaurant $397 $382
Percent change 3.9% 3.2%
Comparable sales percentage change(c) 2.4% 2.1%
Company
Sales $19,674 $17,790
Percent change 10.6% 6.0%
Average sales per effective restaurant $259 $240
Percent change 7.9% 4.3%
Area License
Sales $35,778 $33,327
Percent change 7.4% (13.9%)
Average sales per effective restaurant $286 $275
Percent change 4.0% 7.8%
(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. 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
March 31,
2003 2002
RESTAURANT DEVELOPMENT ACTIVITY
IHOP-beginning of period 1,103 1,017
New openings
IHOP-developed 17 10
Franchisee-developed 3 1
Area license -- 1
Total new openings 20 12
Closings
Company and franchise (5) (1)
IHOP-end of period 1,118 1,028
Summary-end of period
Franchise 913 830
Company 80 75
Area license 125 123
Total IHOP 1,118 1,028
RESTAURANT FRANCHISING ACTIVITY
IHOP-developed 11 9
Franchisee-developed 3 1
Rehabilitated and refranchised 1 --
Total restaurants franchised 15 10
Reacquired by IHOP (2) (2)
Closed (2) (1)
Net addition 11 7
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2003 2002
(Unaudited)
Current assets, net $145,893 $159,101
Property and equipment, net 300,153 286,226
Long-term receivables:
Notes receivable 45,713 46,929
Equipment contracts receivable 155,395 153,261
Direct financing leases receivable 132,379 132,602
Other assets 43,873 41,681
Total assets $823,406 $819,800
Current liabilities $54,181 $53,564
Long-term debt 145,259 145,768
Other long-term liabilities 258,121 256,079
Stockholders' equity 365,845 364,389
Total liabilities and stockholders' equity $823,406 $819,800 IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2003 2002
Cash provided by operating activities $13,322 $16,227
Cash used in investing activities
Additions to property and equipment (27,306) (20,857)
Investments in short-term marketable
securities (21,123) --
Additions to other assets, net 1,020 1,747
Cash provided by financing activities 741 13,632
Net change in cash and cash equivalents (33,346) 10,749
Cash and cash equivalents at beginning
of period 98,739 6,252
Cash and cash equivalents at end of period $65,393 $17,001 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.
2002 2002 2002 2002
Revenues
Franchise revenues $30,040 $29,947 $59,987 $30,946
Rental income 23,974 24,416 48,390 25,158
Company restaurant
sales 17,790 17,986 35,776 19,634
Financing revenues 9,736 12,510 22,246 16,345
Total revenues 81,540 84,859 166,399 92,083
Costs and Expenses
Franchise expenses 13,757 13,592 27,349 13,673
Rental expenses 17,488 18,224 35,712 18,517
Company restaurant
expenses 18,554 18,627 37,181 20,442
Financing expenses 4,035 5,882 9,917 9,027
General and
administrative
expenses 10,685 12,665 23,350 13,326
Other (income)
expense, net 1,411 989 2,400 1,357
Total costs and
expenses 65,930 69,979 135,909 76,342
Income before taxes 15,610 14,880 30,490 15,741
Provision for
income tax 5,854 5,580 11,434 5,903
Net income $9,756 $9,300 $19,056 $9,838
Net Income Per Share
Basic $0.47 $0.44 $0.91 $0.47
Diluted $0.46 $0.44 $0.90 $0.46
Weighted Average Shares
Outstanding
Basic 20,771 20,904 20,838 20,958
Diluted 21,169 21,340 21,254 21,235
IHOP CORP. AND SUBSIDIARIES
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
9 Mos. 4th Qtr. 12 Mos.
2002 2002 2002
Revenues
Franchise revenues $90,933 $32,117 $123,050
Rental income 73,548 26,047 99,595
Company restaurant
sales 55,410 19,023 74,433
Financing revenues 38,591 30,205 68,796
Total revenues 258,482 107,392 365,874
Costs and Expenses
Franchise expenses 41,022 14,117 55,139
Rental expenses 54,229 19,583 73,812
Company restaurant
expenses 57,623 20,799 78,422
Financing expenses 18,944 19,241 38,185
General and
administrative
expenses 36,676 12,850 49,526
Other (income)
expense, net 3,757 1,676 5,433
Total costs and
expenses 212,251 88,266 300,517
Income before taxes 46,231 19,126 65,357
Provision for
income tax 17,337 7,172 24,509
Net income $28,894 $11,954 $40,848
Net Income Per Share
Basic $1.38 $0.57 $1.95
Diluted $1.36 $0.56 $1.92
Weighted Average Shares
Outstanding
Basic 20,878 21,152 20,946
Diluted 21,248 21,334 21,269