IHOP Corp. Reports Third Quarter 2003 Results
GLENDALE, Calif., Oct. 23 /PRNewswire-FirstCall/ -- IHOP Corp. (NYSE: IHP) today announced financial results for its third quarter and nine months ended September 30, 2003.
Third Quarter 2003 Financial Results
The Company reported a 12.3% increase in net income to $11.0 million, or an increase of 10.9% in diluted net earnings per share to $0.51 in the third quarter 2003, compared with net income of $9.8 million, or diluted net income per share of $0.46 in the third quarter 2002. IHOP's net income and diluted net earnings per share performance was impacted during the quarter by charges of $1.1 million, or $0.03 per diluted share, associated with the Company's reorganization announced in January 2003. Excluding these charges, net income for the third quarter 2003 would have increased 19.3% to $11.7 million or 17.4% in diluted net income per share of $0.54.
For the nine months ended September 30, 2003, the Company reported a 3.2% decrease of net income to $28.0 million, and a decrease of 5.1% in diluted net income per share to $1.29, compared with net income of $28.9 million, or diluted net income per share of $1.36 in the same 2002 periods. Excluding reorganization charges, net income for the first nine months of 2003 would have increased 15.5% to $33.4 million or 13.2% in diluted net income per share of $1.54. Total reorganization charges were $8.6 million year-to-date.
Julia A. Stewart, IHOP Corp. President and Chief Executive Officer, said, "Our performance for the third quarter was strong as increased traffic drove system-wide sales growth and produced comp-store sales increases that continue to lead the family dining segment. We are successfully executing our marketing, operations and training strategies to further establish a leadership role with our franchisees and promote improvements within our restaurants. In addition to comp-store sales growth, we had an excellent quarter in franchising Company developed restaurants."
System-wide sales increased 15.0% in the quarter and 14.7% for the nine months ended September 30, 2003 over the same periods in 2002. The sales increase is primarily the result of growth in the number of effective restaurants and an increase in average per unit sales. Effective restaurants grew by 8.6% in the third quarter and 8.7% for the nine months ended September 30, 2003 over the same periods in 2002. Average per unit sales increased 5.9% in the third quarter and 5.6% for the nine months ended September 30, 2003 over the same periods in 2002. In addition, the Company franchised three more restaurants in the third quarter 2003 than in the same period in 2002.
System-wide comparable store sales increased by 4.7% for the third quarter. For the nine months ended September 30, 2003, comparable store sales increased 4.4%. Both these comparable store sales figures are calculated on an 18-month basis. IHOP's comparable store sales performance for the quarter included the positive impact of the Company's first non-breakfast promotional item for the year, Super Stackers sandwiches. During the 13-week promotional period for Super Stackers, comparable store sales increased by 4.7%.
Change in Comp-Store Sales Methodology
Beginning with the second quarter 2003, IHOP changed 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 18 months or more are used for the calculation of year-to-year changes, will enable a more accurate view of its system's performance. Utilizing an 18-month calculation excludes the effect of high sales levels typically seen during the first few months of operation at new restaurants.
Third Quarter Highlights
The following are business highlights for the third quarter 2003:
-- IHOP continued to build comparable store sales momentum with the
introduction of its Super Stackers lunch and dinner sandwich
promotion. A national network advertising campaign during the month
of July 2003 successfully generated high consumer awareness that
contributed to growing comparable store sales results throughout the
quarter.
-- The Company's mystery shop initiative continued with more than
7,400 restaurant evaluations, as of the end of third quarter, enabling
each restaurant to be shopped six times. This initiative has been
warmly embraced by our franchisees who see this as great input to
target areas of improvement in their own restaurants.
-- The Company's new model franchising efforts secured Multi-Store and
Single-Store Development Agreements to develop 94 new restaurants over
the next several years. IHOP expects to announce several additional
development agreements shortly.
-- IHOP is on track with its previously announced reorganization of
certain departments and processes. Of note, the consolidation of the
Franchise and Development departments as well as Property Management
and Franchise Administration departments are complete.
Updated Performance Outlook
Providing an update to its guidance, IHOP expects to report net income per diluted share of $1.65 to $1.75 for fiscal 2003. This increases the Company's net income per diluted share performance expectations from its previous guidance of $1.55 to $1.70 for fiscal 2003.
Third Quarter 2003 Conference Call
IHOP will host an investor conference call to discuss its second quarter results today, Thursday, October 23, 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, sandwiches, 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 September 30, 2003, there were 1,149 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
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Revenues
Franchise revenues $35,761 $30,946 $104,269 $90,933
Rental income 29,581 25,158 86,888 73,548
Company restaurant
sales 19,818 19,634 60,827 55,410
Financing revenues 19,602 16,345 50,053 38,591
Total revenues 104,762 92,083 302,037 258,482
Costs and Expenses
Franchise expenses 16,267 13,673 47,629 41,022
Rental expenses 21,718 18,517 63,857 54,229
Company restaurant
expenses 21,485 20,442 64,886 57,623
Financing expenses 11,335 9,027 28,036 18,944
General and
administrative
expenses 12,744 13,326 38,573 36,676
Other (income) expense,
net 2,440 1,357 5,666 3,757
Reorganization charges 1,104 -- 8,624 --
Total costs and
expenses 87,093 76,342 257,271 212,251
Income before income
taxes 17,669 15,741 44,766 46,231
Provision for income
taxes 6,625 5,903 16,787 17,337
Net income $11,044 $9,838 $27,979 $28,894
Net Income Per Share
Basic $0.51 $0.47 $1.30 $1.38
Diluted $0.51 $0.46 $1.29 $1.36
Weighted Average
Shares Outstanding
Basic 21,497 20,958 21,443 20,878
Diluted 21,721 21,235 21,623 21,248
Dividends Declared
Per Share $0.25 $-- $0.50 $--
Dividends Paid
Per Share $0.25 $-- $0.50 $--
IHOP CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Restaurant Data
Effective
restaurants(a)
Franchise 938 849 920 836
Company 76 78 77 75
Area license 128 125 127 123
Total 1,142 1,052 1,124 1,034
System-wide
Sales(b) $430,273 $374,281 $1,269,631 $1,106,715
Percent change 15.0% 9.3% 14.7% 10.2%
Average sales per
effective
restaurant $377 $356 $1,130 $1,070
Percent change 5.9% 0.3% 5.6% 2.7%
Comparable sales
percentage
change(c) 4.7% (1.2)% 4.4% 1.0%
Franchise
Sales $376,242 $324,263 $1,104,499 $956,003
Percent change 16.0% 9.9% 15.5% 12.4%
Average sales per
effective
restaurant $401 $382 $1,201 $1,144
Percent change 5.0% -- 5.0% 1.8%
Comparable sales
percentage
change(c) 4.7% (1.1)% 4.3% 1.1%
Company
Sales $19,818 $19,634 $60,827 $55,410
Percent change 0.9% 14.1% 9.8% 6.6%
Average sales per
effective
restaurant $261 $252 $790 $739
Percent change 3.6% 1.2% 6.9% 2.4%
Area License
Sales $34,213 $30,384 $104,305 $95,302
Percent change 12.6% 0.6% 9.4% (6.1)%
Average sales per
effective
restaurant $267 $243 $821 $775
Percent change 9.9% (1.6)% 5.9% 3.1%
______________
(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 have been open for at
least 18 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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
RESTAURANT DEVELOPMENT ACTIVITY
IHOP-beginning of period 1,136 1,043 1,103 1,017
New openings
IHOP-developed 12 21 45 45
Franchisee-developed 1 2 7 7
Area license 4 2 4 4
Total new openings 17 25 56 56
Closings
Company and franchise (4) (4) (10) (9)
Area License -- (1) -- (1)
IHOP-end of period 1,149 1,063 1,149 1,063
Summary-end of period
Franchise 952 861 952 861
Company 68 77 68 77
Area license 129 125 129 125
Total IHOP 1,149 1,063 1,149 1,063
RESTAURANT FRANCHISING ACTIVITY
IHOP-developed 21 17 51 39
Franchisee-developed 1 2 7 7
Rehabilitated and refranchised 4 4 6 5
Total restaurants
franchised 26 23 64 51
Reacquired by IHOP (4) (2) (10) (6)
Closed (2) (3) (4) (7)
Net addition 20 18 50 38
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2003 2002
(Unaudited)
Current assets, net $128,410 $159,101
Property and equipment, net 313,330 286,226
Long-term receivables:
Notes receivable 47,996 46,929
Equipment contracts receivable 166,200 153,261
Direct financing leases receivable 130,476 132,602
Other assets 48,821 41,681
Total assets $835,233 $819,800
Current liabilities $48,422 $53,564
Long-term debt 143,971 145,768
Other long-term liabilities 266,800 256,079
Stockholders' equity 376,040 364,389
Total liabilities and stockholders' equity $835,233 $819,800
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2003 2002
Cash provided by operating activities $55,012 $49,390
Cash used in investing activities
Additions to property and equipment (64,993) (87,324)
Investments in short-term marketable securities (43,713) --
Additions to other assets, net (719) 5,162
Cash provided (used) by financing activities (8,656) 49,671
Net change in cash and cash equivalents (63,069) 16,899
Cash and cash equivalents at beginning of period 98,739 6,252
Cash and cash equivalents at end of period $35,670 $23,151
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%) 4.7%
9 Months 1.5% 1.4% 0.8% 1.3% 4.4%
4th Quarter 1.5% 0.7% 1.3% (0.3%)
Full Year 1.6% 1.2% 1.0% 0.9%