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