Applebee's International Reports Fourth Quarter and Fiscal Year 2006 Results
OVERLAND PARK, Kan.--(BUSINESS WIRE)--Feb. 14, 2007--Applebee's International, Inc. (Nasdaq:APPB) today reported net earnings of $18.5 million, or $0.25 per diluted share, for the fourth quarter ended December 31, 2006. This compares to net earnings of $20.5 million, or $0.27 per diluted share, for the fourth quarter of 2005, including the cumulative effect of a change in accounting principle.
Excluding impairment and other restaurant closure costs of $2.3 million ($1.6 million after-tax or approximately $0.02 per share) and stock-based compensation of $5.2 million ($3.6 million after-tax or approximately $0.05 per share), net earnings were $23.7 million, or $0.32 per diluted share, for the fourth quarter of 2006. A reconciliation of non-GAAP measurements to GAAP results is attached to this release. Fourth quarter 2006 results include 14 weeks as compared to 13 weeks in the 2005 quarter. The benefit of the additional week in the fourth quarter of 2006 was approximately $0.05 per diluted share.
For the fiscal year ended December 31, 2006, net earnings were $80.9 million, or $1.08 per diluted share. This compares to net earnings of $101.8 million, or $1.27 per diluted share, for fiscal year 2005, including the cumulative effect of a change in accounting principle.
Excluding impairment and other restaurant closure costs of $8.8 million ($5.8 million after-tax or approximately $0.08 per share), legal expenses related to the pending settlement of a lawsuit of $1.5 million ($1.0 million after-tax or approximately $0.01 per share) and stock-based compensation of $21.8 million ($14.4 million after-tax or approximately $0.19 per share), net earnings were $102.1 million, or $1.36 per diluted share, for fiscal year 2006. Excluding impairment and other restaurant closure costs of $3.9 million ($2.5 million after-tax or approximately $0.03 per share) and stock-based compensation of $2.2 million ($1.4 million after-tax or approximately $0.02 per share), net earnings were $105.8 million, or $1.32 per diluted share, for fiscal year 2005. Fiscal year 2006 results include 53 weeks as compared to 52 weeks in fiscal year 2005. The benefit of the additional week in fiscal year 2006 was approximately $0.05 per diluted share.
As previously reported, system-wide domestic comparable sales for the fourth quarter of 2006 decreased 1.1 percent. Comparable sales for company restaurants decreased 1.4 percent and domestic franchise restaurant comparable sales decreased 1.0 percent for the quarter. System-wide domestic comparable sales for the 2006 fiscal year decreased 0.6 percent, with domestic franchise restaurant comparable sales down 0.5 percent and company comparable restaurant sales down 1.0 percent.
Other results for the fiscal year ended December 31, 2006 included:
- Total system-wide sales for the 2006 fiscal year increased by 9.0 percent over 2005. Excluding the extra week, system-wide sales for the 2006 fiscal year increased by 6.8 percent over 2005. System-wide sales are a non-GAAP financial measure that includes sales at all company and franchise Applebee's restaurants, as reported by franchisees. The company believes that system-wide sales information is useful in analyzing Applebee's market share and growth, and because franchisees pay royalties and contribute to the national advertising pool based on a percentage of their sales.
- Applebee's ended the year with 1,930 restaurants system-wide (521 company and 1,409 franchise restaurants). There were 143 new Applebee's restaurants opened system-wide during fiscal year 2006, the 14th consecutive year of at least 100 new restaurant openings, including 35 company and 108 franchised restaurants.
- During fiscal year 2006, the company repurchased 1,760,500 shares of common stock at an average price of $21.88 for an aggregate cost of $38.5 million. As of December 31, 2006, $240.4 million remained available under the company's previous stock repurchase authorization.
- In December 2006, the company entered into a new five-year $400 million revolving credit facility, which replaced its prior $250 million facility. As of December 31, 2006, the company had total debt outstanding of $175.2 million, with $214.4 million available under its revolving credit facility.
Dave Goebel, president and chief executive officer, said, "While acknowledging a difficult macro environment for casual dining, all of our company restaurant and support center associates, as well as our valuable franchise partners, are focused on improving the things that are within our control. Our long-term strategies are designed to make Applebee's more relevant to all of our guests with the goal of driving guest traffic and higher average unit volumes through existing restaurants, with less emphasis on new restaurant development. Our key strategic initiatives in 2007 include continued improvement of our food, evolution of our advertising, and a greater emphasis on communicating our value proposition to our guests. I'm very pleased that George Williams has joined the Applebee's team as chief marketing officer and look forward to the impact he can have on our consumer research, messaging and creative direction.
"As we announced yesterday, our Board of Directors has formed a committee of independent directors to explore strategic alternatives for enhancing shareholder value. As we have said in the past, management and our Board of Directors believe it is important to periodically evaluate our operations and capital structure, particularly in times of challenging industry and company performance. While we can't predict the outcome of this process, all strategic alternatives are being reviewed."
A conference call to review the fourth quarter and fiscal year 2006 results will be held on Thursday morning, February 15, 2007, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time). The conference call will be broadcast live over the Internet and a replay will be available shortly after the call on the Investors section of the company's website (www.applebees.com).
Applebee's International, Inc., headquartered in Overland Park, Kan., develops, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar brand, the largest casual dining concept in the world. There are currently 1,942 Applebee's restaurants operating system-wide in 49 states and 17 international countries. Additional information on Applebee's International can be found at the company's website (www.applebees.com).
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
14 Weeks 13 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended
Dec. 31, Dec. 25, Dec. 31, Dec. 25,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Operating revenues:
Company restaurant
sales.............. $305,293 $266,807 $1,196,258 $1,082,641
Franchise royalties
and fees........... 36,274 31,723 139,855 128,813
Other franchise
income............. 453 1,643 1,808 5,196
----------- ----------- ----------- -----------
Total operating
revenues........ 342,020 300,173 1,337,921 1,216,650
----------- ----------- ----------- -----------
Cost of company
restaurant sales:
Food and beverage... 82,528 70,767 319,813 286,522
Labor............... 103,084 89,493 403,516 358,563
Direct and occupancy 84,439 75,545 323,843 287,656
Pre-opening expense. 1,326 1,243 4,348 4,767
----------- ----------- ----------- -----------
Total cost of
company
restaurant sales 271,377 237,048 1,051,520 937,508
----------- ----------- ----------- -----------
Cost of other
franchise income(a).. 958 2,054 2,699 4,892
General and
administrative
expenses............. 37,297 28,513 140,824 109,768
Amortization of
intangible assets.... 159 220 721 878
Impairment and other
restaurant closure
costs................ 2,300 -- 8,800 3,900
Loss on disposition of
property and
equipment............ 881 726 2,573 2,067
----------- ----------- ----------- -----------
Operating earnings.... 29,048 31,612 130,784 157,637
----------- ----------- ----------- -----------
Other income
(expense):
Investment income... 1,423 719 2,768 1,695
Interest expense.... (2,912) (2,162) (11,421) (4,365)
Other income
(expense).......... (522) 150 16 1,762
----------- ----------- ----------- -----------
Total other
expense......... (2,011) (1,293) (8,637) (908)
----------- ----------- ----------- -----------
Earnings before income
taxes and cumulative
effect of change in
accounting principle. 27,037 30,319 122,147 156,729
Income taxes(b)....... 8,527 9,574 41,241 54,702
----------- ----------- ----------- -----------
Earnings before
cumulative effect of
change in accounting
principle............ 18,510 20,745 80,906 102,027
Cumulative effect of
change in accounting
principle, net of tax -- (225) -- (225)
----------- ----------- ----------- -----------
Net earnings.......... $18,510 $20,520 $80,906 $101,802
=========== =========== =========== ===========
Basic net earnings per
common share:
Basic earnings
before cumulative
effect of change in
accounting
principle.......... $0.25 $0.27 $1.09 $1.30
Cumulative effect of
change in
accounting
principle, net of
tax................ -- -- -- --
----------- ----------- ----------- -----------
Basic net earnings per
common share......... $0.25 $0.27 $1.09 $1.29
=========== =========== =========== ===========
Diluted net earnings
per common share:
Diluted earnings
before cumulative
effect of change in
accounting
principle.......... $0.25 $0.27 $1.08 $1.28
Cumulative effect of
change in
accounting
principle, net of
tax................ -- -- -- --
----------- ----------- ----------- -----------
Diluted net earnings
per common share..... $0.25 $0.27 $1.08 $1.27
=========== =========== =========== ===========
Basic weighted average
shares outstanding... 73,883 75,525 74,001 78,650
=========== =========== =========== ===========
Diluted weighted
average shares
outstanding.......... 74,859 76,542 74,936 80,010
=========== =========== =========== ===========
(a) The company recorded an expense of $630,000 and $500,000 in the
fourth quarter of 2006 and 2005, respectively, to increase reserves
for estimated insurance losses incurred by franchise participants of
its captive insurance subsidiary that may not be recovered.
(b) The income tax rate for the fourth quarter of 2006 benefited from
higher employment-related tax credits. Fourth quarter 2005 net
earnings reflected a decrease in income tax expense of $1.1 million
due to the resolution of a state income tax matter.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(Unaudited)
(in thousands, except per share amounts)
In addition to the results provided in accordance with Generally
Accepted Accounting Principles ("GAAP") throughout this document, the
company has provided non-GAAP measurements which present operating
results on a basis before impairment and other restaurant closure
costs, legal expenses related to the pending settlement of a lawsuit,
and stock-based compensation.
The company adopted the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123R, "Share-Based Payment"
("SFAS 123R") at the beginning of fiscal year 2006. SFAS 123R requires
all stock-based compensation, including grants of employee stock
options, to be recognized in the statement of earnings based on fair
value. The company adopted this accounting treatment using the
modified prospective transition method; therefore results for prior
periods have not been restated. Prior to the adoption of SFAS 123R,
the company accounted for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
The company is using earnings before impairment and other restaurant
closure costs, legal expenses related to the pending settlement of a
lawsuit and stock-based compensation as a key performance measure of
results of operations for purposes of evaluating performance
internally. In addition, the company's internal reporting and
budgeting, as well as the calculation of its incentive compensation
payments, includes the use of reported amounts excluding stock-based
compensation. This non-GAAP measurement is not intended to replace the
presentation of our financial results in accordance with GAAP. Rather,
the company believes that the presentation of earnings before
impairment and other restaurant closure costs, legal expenses related
to the pending settlement of a lawsuit and stock-based compensation
provides additional information to facilitate the comparison of past
and present operations.
14 Weeks 13 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended
Dec. 31, Dec. 25, Dec. 31, Dec. 25,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Impairment and other
restaurant closure costs. $(2,300) $-- $(8,800) $(3,900)
Legal expenses related to
lawsuit.................. -- -- (1,500) --
Stock-based
compensation(a).......... (5,210) (566) (21,794) (2,231)
Income taxes.............. 2,369 208 10,904 2,182
---------- ---------- ---------- ----------
Impairment and other
restaurant closure
costs, legal expenses
and stock-based
compensation, net of
tax.................... $(5,141) $(358) $(21,190) $(3,949)
========== ========== ========== ==========
Diluted weighted average
shares outstanding....... 74,859 76,542 74,936 80,010
========== ========== ========== ==========
Diluted earnings per share
impact of impairment and
other restaurant closure
costs, legal expenses and
stock-based compensation. $ (0.07) $ -- $ (0.28) $ (0.05)
========== ========== ========== ==========
Reconciliation of earnings
before impairment and
other restaurant closure
costs, legal expenses and
stock-based compensation
to net earnings:
Earnings before
impairment and other
restaurant closure
costs, legal expenses
and stock-based
compensation........... $ 23,651 $ 20,878 $ 102,096 $ 105,751
Impairment and other
restaurant closure
costs, legal expenses
and stock-based
compensation, net of
tax.................... (5,141) (358) (21,190) (3,949)
---------- ---------- ---------- ----------
Net earnings............ $18,510 $20,520 $80,906 $101,802
========== ========== ========== ==========
Reconciliation of earnings
per share before
impairment and other
restaurant closure costs,
legal expenses and stock-
based compensation to
reported earnings per
share:
Diluted earnings per
share before impairment
and other restaurant
closure costs, legal
expenses and stock-
based compensation..... $ 0.32 $ 0.27 $ 1.36 $ 1.32
Diluted earnings per
share impact of
impairment and other
restaurant closure
costs, legal expenses
and stock-based
compensation........... (0.07) -- (0.28) (0.05)
---------- ---------- ---------- ----------
Reported diluted
earnings per share... $0.25 $0.27 $1.08 $1.27
========== ========== ========== ==========
(a) Stock-based compensation for the fourth quarter of 2006 includes
$227,000 in cost of company restaurant sales and $4,983,000 in
general and administrative expenses. Stock-based compensation for the
53 weeks ended December 31, 2006 includes $930,000 in cost of company
restaurant sales and $20,864,000 in general and administrative
expenses. Stock-based compensation for both periods in 2005
represents restricted stock expense which was included entirely in
general and administrative expenses.
The following table sets forth, for the periods indicated, information
derived from the company's unaudited consolidated statements of
earnings expressed as a percentage of total operating revenues,
except where otherwise noted. Percentages may not add due to
rounding.
14 Weeks 13 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended
Dec. 31, Dec. 25, Dec. 31, Dec. 25,
2006 2005 2006 2005
---------- ---------- ---------- ----------
Operating revenues:
Company restaurant sales 89.3% 88.9% 89.4% 89.0%
Franchise royalties and
fees................... 10.6 10.6 10.5 10.6
Other franchise income.. 0.1 0.5 0.1 0.4
---------- ---------- ---------- ----------
Total operating
revenues............ 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========
Cost of sales (as a
percentage of company
restaurant sales):
Food and beverage....... 27.0% 26.5% 26.7% 26.5%
Labor................... 33.8 33.5 33.7 33.1
Direct and occupancy.... 27.7 28.3 27.1 26.6
Pre-opening expense..... 0.4 0.5 0.4 0.4
---------- ---------- ---------- ----------
Total cost of sales.. 88.9% 88.8% 87.9% 86.6%
========== ========== ========== ==========
Cost of other franchise
income (as a percentage
of other franchise
income).................. 211.5% 125.0% 149.3% 94.1%
General and administrative
expenses................. 10.9 9.5 10.5 9.0
Amortization of intangible
assets................... -- 0.1 0.1 0.1
Impairment and other
restaurant closure costs. 0.7 -- 0.7 0.3
Loss on disposition of
property and equipment... 0.3 0.2 0.2 0.2
---------- ---------- ---------- ----------
Operating earnings........ 8.5 10.5 9.8 13.0
---------- ---------- ---------- ----------
Other income (expense):
Investment income....... 0.4 0.2 0.2 0.1
Interest expense........ (0.9) (0.7) (0.9) (0.4)
Other income (expense).. (0.2) -- -- 0.1
---------- ---------- ---------- ----------
Total other expense.. (0.6) (0.4) (0.6) (0.1)
---------- ---------- ---------- ----------
Earnings before income
taxes and cumulative
effect of change in
accounting principle..... 7.9 10.1 9.1 12.9
Income taxes.............. 2.5 3.2 3.1 4.5
---------- ---------- ---------- ----------
Earnings before cumulative
effect of change in
accounting principle..... 5.4 6.9 6.0 8.4
Cumulative effect of
change in accounting
principle, net of tax.... -- (0.1) -- --
---------- ---------- ---------- ----------
Net earnings.............. 5.4% 6.8% 6.0% 8.4%
========== ========== ========== ==========
The following table sets forth certain unaudited financial information
and other restaurant data relating to company and franchise
restaurants, as reported to us by franchisees:
14 Weeks 13 Weeks 53 Weeks 52 Weeks
Ended Ended Ended Ended
Dec. 31, Dec. 25, Dec. 31, Dec. 25,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Number of restaurants:
Company:
Beginning of
period.......... 512 473 486 424
Restaurant
openings........ 10 13 35 52
Restaurant
closings........ (1) -- (4) (1)
Restaurants
acquired from
franchisees..... -- -- 4 11
----------- ----------- ----------- -----------
End of period.... 521 486 521 486
----------- ----------- ----------- -----------
Franchise:
Beginning of
period.......... 1,372 1,282 1,318 1,247
Restaurant
openings........ 41 40 108 92
Restaurant
closings........ (4) (4) (13) (10)
Restaurants
acquired from
franchisees..... -- -- (4) (11)
----------- ----------- ----------- -----------
End of period.... 1,409 1,318 1,409 1,318
----------- ----------- ----------- -----------
Total:
Beginning of
period.......... 1,884 1,755 1,804 1,671
Restaurant
openings........ 51 53 143 144
Restaurant
closings........ (5) (4) (17) (11)
----------- ----------- ----------- -----------
End of period.... 1,930 1,804 1,930 1,804
=========== =========== =========== ===========
Weighted average
weekly sales per
restaurant:
Company............ $42,226 $42,723 $44,637 $45,552
Domestic franchise. $47,162 $46,833 $49,521 $49,564
Domestic total..... $45,762 $45,678 $48,134 $48,462
Change in comparable
restaurant sales:(1)
Company............ (1.4)% (0.9)% (1.0)% (0.9)%
Domestic franchise. (1.0)% 1.5 % (0.5)% 2.6 %
Domestic total..... (1.1)% 0.9 % (0.6)% 1.7 %
Total operating
revenues (in
thousands):
Company restaurant
sales(2).......... $305,293 $266,807 $1,196,258 $1,082,641
Franchise royalties
and fees(3)....... 36,274 31,723 139,855 128,813
Other franchise
income(4)......... 453 1,643 1,808 5,196
----------- ----------- ----------- -----------
Total.............. $342,020 $300,173 $1,337,921 $1,216,650
=========== =========== =========== ===========
(1) When computing comparable restaurant sales, restaurants open for
at least 18 months are compared from period to period.
(2) The 2006 fiscal year included 53 weeks as compared to 52 weeks in
the 2005 fiscal year. There were 14 weeks in the fourth quarter of
2006 as compared to 13 weeks in the fourth quarter of 2005. The extra
week in 2006 contributed $24.3 million to company restaurant sales.
(3) Franchise royalties are generally 4% of each franchise
restaurant's reported monthly gross sales. Reported franchise sales
(including international restaurants), in thousands, were $904,308
and $779,076 in the 2006 quarter and the 2005 quarter, respectively,
and $3,498,967 and $3,223,505 in the 2006 fiscal year and the 2005
fiscal year, respectively. The extra week in 2006 contributed $73.5
million to franchise restaurant sales, or approximately $2.9 million
in franchise royalties. Franchise fees typically are $35,000 for each
restaurant opened.
(4) Other franchise income includes revenue from information
technology products and services provided to certain franchisees. In
addition, the 2005 quarter and 2005 fiscal year included insurance
premiums from franchisee participation in our captive insurance
program.
CONTACT: Applebee's International, Inc. Carol DiRaimo, 913-967-4109 Vice President of Investor Relations SOURCE: Applebee's International, Inc.