Applebee's International Reports Second Quarter 2007 Results
OVERLAND PARK, Kan.--(BUSINESS WIRE)--Aug. 1, 2007--Applebee's International, Inc. (Nasdaq:APPB) today reported net earnings of $24.2 million, or $0.32 per diluted share, for the second quarter ended July 1, 2007. Excluding discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses totaling $2.1 million after-tax or approximately $0.03 per share, net earnings were $26.2 million, or $0.35 per diluted share, for the second quarter of 2007. A reconciliation of non-GAAP measurements to GAAP results is attached to this release.
In March 2007, the company announced the decision to close 24 underperforming restaurants in 11 states. In the first quarter of 2007, 19 of these restaurants were closed, and four restaurants were closed in the second quarter of 2007. The company believes that four of the closed restaurants will have significant sales transfer to other existing restaurants, and in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the results of operations, impairment charges and lease obligations related to these four restaurants have been included in continuing operations. In addition, the write-down of the carrying value of the one restaurant which has not yet been closed is included in impairment charges and other restaurant closure costs in the accompanying consolidated statement of earnings. The results of operations, impairment charges and lease obligations for the remaining 19 closed restaurants are included in discontinued operations in the accompanying consolidated statements of earnings for both 2007 and 2006.
As previously reported, system-wide domestic comparable sales for the second quarter of 2007 decreased 0.9 percent. Company and domestic franchise restaurant comparable sales decreased 1.2 percent and 0.8 percent, respectively, for the quarter. System-wide domestic comparable sales for the year-to-date period through June decreased 2.5 percent, with domestic franchise restaurant comparable sales down 2.4 percent and company comparable sales down 2.9 percent.
The company also reported comparable sales for the July fiscal period, comprised of the four weeks ended July 29, 2007. System-wide domestic comparable sales decreased 0.8 percent for the July period. Comparable sales for company restaurants increased 0.1 percent, reflecting a decrease in guest traffic of between 3.0 and 3.5 percent, combined with a higher average check, while comparable sales for domestic franchise restaurants decreased 1.2 percent.
System-wide domestic comparable sales for the year-to-date period through July have decreased 2.3 percent, with domestic franchise restaurant comparable sales down 2.2 percent and company comparable restaurant sales down 2.5 percent.
On July 16, 2007, IHOP Corp. ("IHOP") and Applebee's International jointly announced a definitive agreement under which IHOP will acquire Applebee's for $25.50 per share in cash, representing a total transaction value of approximately $2.1 billion. The all-cash transaction, which is expected to close in the fourth quarter of 2007, is subject to the approval of Applebee's shareholders, customary closing conditions and regulatory approvals.
Dave Goebel, president and chief executive officer, said, "While the difficult macro environment for casual dining continues, we remain committed to improving sales and guest traffic through continued improvement in our food, evolution of our advertising, and a greater emphasis on communicating our value proposition to our guests. In addition, we are pleased with the early results of our new prototype and remodel designs, which represent the culmination of nearly two years of collaboration with our franchisees. At the same time, our management team has begun working with the IHOP management team to facilitate the integration of the two companies. I'd like to thank all of our associates and franchisees for their focus on delivering results during this transition period."
Other results for the second quarter ended July 1, 2007 included:
-- Total system-wide sales for the quarter increased by 3.4
percent over the prior year. 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 quarter with 1,943 restaurants open
system-wide (508 company and 1,435 franchise restaurants).
During the second quarter of 2007, there were 18 new
Applebee's restaurants opened system-wide, including 3 company
and 15 franchised restaurants.
-- As of July 1, 2007, the company had total debt outstanding of
$144.7 million, with $240.1 million available under its
revolving credit facility.
A conference call to review the second quarter 2007 results will be held on Thursday morning, August 2, 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. As of July 29, 2007, there were 1,945 Applebee's restaurants operating system-wide in 49 states, one U.S. territory and 16 international countries. Additional information on Applebee's International can be found at the company's website (www.applebees.com).
Forward-Looking Statements
Certain statements contained in this release are forward-looking and based on current expectations. There are several risks and uncertainties that could cause actual results to differ materially from those described. These risks include, but are not limited to, our pending merger with IHOP, our ability and the ability of our franchisees to open and operate additional restaurants profitably and generate positive operating cash flows and return on invested capital, the impact of economic and demographic factors on consumer spending, maintaining and growing the value of the Applebee's brand, the impact of intense competition in the casual dining segment of the restaurant industry, the impact of future leverage on our operations, the failure to open the restaurants anticipated, the impact of increases in capital expenditure costs on future development, our ability to attract and retain qualified franchisees, and the impact of further penetration of restaurants in existing markets. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A of our 2006 Annual Report on Form 10-K. We disclaim any obligation to update forward-looking statements.
Additional Information and Where to Find It
In connection with the proposed transaction, IHOP Corp. and Applebee's International will be filing documents with the Securities and Exchange Commission (the "SEC"), and Applebee's intends to file a related preliminary and definitive proxy statement. Investors and security holders are urged to read the related preliminary and definitive proxy when it becomes available because it will contain important information about the proposed transaction. Investors and security holders may obtain free copies of these documents (when they are available) and other documents filed with the SEC at the SEC's website at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by IHOP Corp. by contacting IHOP Investor Relations at 818-240-6055. Investors and security holders may obtain free copies of the documents filed with the SEC by Applebee's by contacting Applebee's Investor Relations at 913-967-4000. In addition, you may also find information about the merger transaction at www.ihopapplebeesacquisition.com.
Applebee's and their directors and executive officers may be deemed participants in the solicitation of proxies from the stockholders of Applebee's in connection with the proposed transaction. Information regarding the special interests of these directors and executive officers in the proposed transaction will be included in the proxy statement of Applebee's described above. Additional information regarding the directors and executive officers of Applebee's is also included in Applebee's proxy statement for its 2007 Annual Meeting of Stockholders, which was filed with the SEC on April 9, 2007, and the supplemental proxy statement filed on May 1, 2007. These documents are available free of charge at the SEC's website at www.sec.gov and from Investor Relations at IHOP and Applebee's as described above.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
13 Weeks Ended 26 Weeks Ended
------------------- -------------------
July 1, June 25, July 1, June 25,
2007 2006 2007 2006
--------- --------- --------- ---------
Operating revenues:
Company restaurant sales $295,650 $289,220 $594,267 $589,892
Franchise royalties and fees 36,235 34,306 73,294 70,241
Other franchise income 271 539 734 984
--------- --------- --------- ---------
Total operating revenues 332,156 324,065 668,295 661,117
--------- --------- --------- ---------
Cost of company restaurant
sales:
Food and beverage 78,923 76,579 157,955 156,870
Labor 102,119 97,424 203,251 195,610
Direct and occupancy 80,721 77,547 160,040 153,652
Pre-opening expense 565 1,157 1,486 1,907
--------- --------- --------- ---------
Total cost of company
restaurant sales 262,328 252,707 522,732 508,039
--------- --------- --------- ---------
Cost of other franchise income 370 281 743 1,047
General and administrative
expenses 32,205 32,320 64,980 67,926
Amortization of intangible
assets 126 204 254 408
Impairment and other restaurant
closure costs 69 32 5,756 1,120
Loss on disposition of property
and equipment 254 422 624 997
--------- --------- --------- ---------
Operating earnings 36,804 38,099 73,206 81,580
--------- --------- --------- ---------
Other income (expense):
Investment income (loss) 1,172 (285) 2,007 460
Interest expense (2,119) (2,985) (4,725) (5,539)
Other income (expense) (32) 101 (92) 237
--------- --------- --------- ---------
Total other expense (979) (3,169) (2,810) (4,842)
--------- --------- --------- ---------
Earnings before income taxes
and discontinued operations 35,825 34,930 70,396 76,738
Income taxes(a) 11,232 12,170 23,130 26,236
--------- --------- --------- ---------
Earnings before discontinued
operations 24,593 22,760 47,266 50,502
Loss from discontinued
operations, net of tax (436) (2,356) (13,642) (2,947)
--------- --------- --------- ---------
Net earnings $24,157 $20,404 $33,624 $47,555
========= ========= ========= =========
Basic net earnings per common
share:
Earnings before discontinued
operations $0.33 $0.31 $0.64 $0.68
Loss from discontinued
operations, net of tax (0.01) (0.03) (0.18) (0.04)
--------- --------- --------- ---------
Basic net earnings per common
share $0.33 $0.28 $0.45 $0.64
========= ========= ========= =========
Diluted net earnings per common
share:
Earnings before discontinued
operations $0.33 $0.30 $0.63 $0.67
Loss from discontinued
operations, net of tax (0.01) (0.03) (0.18) (0.04)
--------- --------- --------- ---------
Diluted net earnings per common
share $0.32 $0.27 $0.45 $0.63
========= ========= ========= =========
Basic weighted average shares
outstanding 74,104 74,112 74,029 74,113
========= ========= ========= =========
Diluted weighted average shares
outstanding 75,438 75,083 75,146 75,161
========= ========= ========= =========
(a) The income tax rate for the second quarter of 2007 benefited from
higher tax credits related to the construction of our new corporate
headquarters.
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 discontinued operations, impairment and other restaurant closure costs and strategic alternative expenses.
The company is using earnings before discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses as a key performance measure of results of operations for purposes of evaluating performance internally. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the company believes that this presentation provides additional information to facilitate the comparison of past and present operations.
13 Weeks Ended 26 Weeks Ended
------------------- --------------------
July 1, June 25, July 1, June 25,
2007 2006 2007 2006
--------- --------- ---------- ---------
Discontinued operations $(870) $(3,658) $(21,183) $(4,576)
Impairment and other
restaurant closure costs (69) (32) (5,756) (1,120)
Strategic alternative and
proxy contest expenses (2,431) -- (3,614) --
Income taxes 1,299 1,313 10,727 2,015
--------- --------- ---------- ---------
Discontinued operations,
impairment and other
restaurant closure costs,
and strategic alternative
and proxy contest expenses,
net of tax $ (2,071) $ (2,377) $ (19,826) $ (3,681)
========= ========= ========== =========
Diluted weighted average
shares outstanding 75,438 75,083 75,146 75,161
========= ========= ========== =========
Diluted earnings per share
impact of discontinued
operations, impairment and
other restaurant closure
costs, and strategic
alternative and proxy contest
expenses $ (0.03) $ (0.03) $ (0.26) $ (0.05)
========= ========= ========== =========
Reconciliation of earnings
before discontinued
operations, impairment and
other restaurant closure
costs, and strategic
alternative and proxy contest
expenses to net earnings:
Earnings before
discontinued operations,
impairment and other
restaurant closure costs,
and strategic alternative
and proxy contest expenses$ 26,228 $ 22,781 $ 53,450 $ 51,236
Discontinued operations,
impairment and other
restaurant closure costs,
and strategic alternative
and proxy contest
expenses, net of tax (2,071) (2,377) (19,826) (3,681)
--------- --------- ---------- ---------
Net earnings $24,157 $20,404 $33,624 $47,555
========= ========= ========== =========
Reconciliation of earnings per
share before discontinued
operations, impairment and
other restaurant closure
costs, and strategic
alternative and proxy contest
expenses to reported earnings
per share:
Diluted earnings per share
before discontinued
operations, impairment and
other restaurant closure
costs, and strategic
alternative and proxy
contest expenses $ 0.35 $ 0.30 $ 0.71 $ 0.68
Diluted earnings per share
impact of discontinued
operations, impairment and
other restaurant closure
costs, and strategic
alternative and proxy
contest expenses (0.03) (0.03) (0.26) (0.05)
--------- --------- ---------- ---------
Reported diluted earnings
per share $0.32 $0.27 $0.45 $0.63
========= ========= ========== =========
The following table contains information derived from the company's consolidated statements of earnings expressed as a percentage of total operating revenues, except where otherwise noted. Percentages may not add due to rounding.
13 Weeks Ended 26 Weeks Ended
----------------- -----------------
July 1, June 25, July 1, June 25,
2007 2006 2007 2006
-------- -------- ------- ---------
Operating revenues:
Company restaurant sales 89.0% 89.2% 88.9% 89.2%
Franchise royalties and fees 10.9 10.6 11.0 10.6
Other franchise income 0.1 0.2 0.1 0.1
-------- -------- ------- ---------
Total operating revenues 100.0% 100.0% 100.0% 100.0%
======== ======== ======= =========
Cost of sales (as a percentage of
company restaurant sales):
Food and beverage 26.7% 26.5% 26.6% 26.6%
Labor 34.5 33.7 34.2 33.2
Direct and occupancy 27.3 26.8 26.9 26.0
Pre-opening expense 0.2 0.4 0.3 0.3
-------- -------- ------- ---------
Total cost of sales 88.7% 87.4% 88.0% 86.1%
======== ======== ======= =========
Cost of other franchise income (as
a percentage of other franchise
income) 136.5% 52.1% 101.2% 106.4%
General and administrative
expenses 9.7 10.0 9.7 10.3
Amortization of intangible assets -- 0.1 -- 0.1
Impairment and other restaurant
closure costs -- -- 0.9 0.2
Loss on disposition of property
and equipment 0.1 0.1 0.1 0.2
-------- -------- ------- ---------
Operating earnings 11.1 11.8 11.0 12.3
-------- -------- ------- ---------
Other income (expense):
Investment income (loss) 0.4 (0.1) 0.3 0.1
Interest expense (0.6) (0.9) (0.7) (0.8)
Other income -- -- -- --
-------- -------- ------- ---------
Total other expense (0.3) (1.0) (0.4) (0.7)
-------- -------- ------- ---------
Earnings before income taxes and
discontinued operations 10.8 10.8 10.5 11.6
Income taxes 3.4 3.8 3.5 4.0
-------- -------- ------- ---------
Earnings before discontinued
operations 7.4 7.0 7.1 7.6
Loss from discontinued operations,
net of tax (0.1) (0.7) (2.0) (0.4)
-------- -------- ------- ---------
Net earnings 7.3 6.3% 5.0% 7.2%
======== ======== ======= =========
The following table sets forth certain financial information and other restaurant data relating to company and franchise restaurants, as reported to us by franchisees:
13 Weeks Ended 26 Weeks Ended
--------------------- ---------------------
July 1, June 25, July 1, June 25,
2007 2006 2007 2006
---------- ---------- ---------- ----------
Number of restaurants:
Company:
Beginning of period 509 497 521 486
Restaurant openings 3 10 10 19
Restaurant closings (4) -- (23) (2)
Restaurants acquired
from franchisees -- -- -- 4
---------- ---------- ---------- ----------
End of period 508 507 508 507
---------- ---------- ---------- ----------
Franchise:
Beginning of period 1,421 1,332 1,409 1,318
Restaurant openings 15 25 28 45
Restaurant closings (1) (4) (2) (6)
Restaurants acquired
by franchisor -- -- -- (4)
---------- ---------- ---------- ----------
End of period 1,435 1,353 1,435 1,353
---------- ---------- ---------- ----------
Total:
Beginning of period 1,930 1,829 1,930 1,804
Restaurant openings 18 35 38 64
Restaurant closings (5) (4) (25) (8)
---------- ---------- ---------- ----------
End of period 1,943 1,860 1,943 1,860
========== ========== ========== ==========
Weighted average weekly
sales per restaurant:
Company(1) $44,922 $45,245 $44,886 $46,650
Domestic franchise $49,217 $50,127 $50,037 $51,863
Domestic total $48,033 $48,736 $48,597 $50,383
Change in comparable
restaurant sales(2)
Company(3) (1.2)% (2.0)% (2.9)% (0.4)%
Domestic franchise (0.8)% (1.7)% (2.4)% 0.7%
Domestic total (0.9)% (1.8)% (2.5)% 0.4%
Total operating revenues
(in thousands):
Company restaurant
sales(4) $295,650 $289,220 $594,267 $589,892
Franchise royalties
and fees(5) 36,235 34,306 73,294 70,241
Other franchise
income(6) 271 539 734 984
---------- ---------- ---------- ----------
Total $332,156 $324,065 $668,295 $661,117
========== ========== ========== ==========
(1) Includes restaurants presented as discontinued operations.
Excluding the restaurants presented as discontinued operations,
company average weekly sales were $45,062 and $45,923 in the 2007
quarter and the 2006 quarter, respectively, and $45,288 and $47,366
in the 2007 year-to-date period and the 2006 year-to-date period,
respectively.
(2) When computing comparable restaurant sales, restaurants open for
at least 18 months are compared from period to period.
(3) Includes restaurants presented as discontinued operations.
Excluding the restaurants presented as discontinued operations,
company comparable restaurant sales were (1.2)% and (1.9)% in the
2007 quarter and the 2006 quarter, respectively, and (2.8)% and
(0.3)% in the 2007 year-to-date period and the 2006 year-to-date
period, respectively.
(4) Excludes restaurants presented as discontinued operations. Sales
for these restaurants, in thousands, were $564 and $6,908 in the 2007
quarter and 2006 quarter, respectively, and $7,298 and $14,135 in the
2007 year-to-date period and the 2006 year-to-date period,
respectively.
(5) Franchise royalties are generally 4% of each franchise
restaurant's reported monthly gross sales. Reported unaudited
franchise sales, in thousands, were $898,635 and $859,557 in the 2007
quarter and the 2006 quarter, respectively, and $1,815,943 and
$1,764,201 in the 2007 year-to-date period and the 2006 year-to-date
period, respectively. Franchise fees typically are $35,000 for each
restaurant opened.
(6) Other franchise income includes revenue from information
technology products and services provided to certain franchisees.
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
July 1, December 31,
2007 2006
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $7,666 $22,309
Short-term investments, at market value 298 293
Receivables, net of allowance 41,666 48,224
Inventories 11,083 11,524
Prepaid income taxes 4,994 55
Prepaid and other current assets 19,923 15,255
Assets held for sale 5,289 7,633
Current assets related to discontinued
operations 4,935 2,569
----------- -------------
Total current assets 95,854 107,862
Property and equipment, net 622,348 618,492
Goodwill 138,950 138,950
Restricted assets related to captive
insurance subsidiary 12,289 13,356
Other intangible assets, net 6,155 6,408
Other assets, net 35,698 34,351
Non-current assets related to discontinued
operations 2,558 18,606
----------- -------------
$913,852 $938,025
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $1,894 $265
Accounts payable 36,102 43,235
Accrued expenses and other current
liabilities 93,847 113,641
Loss reserve related to captive insurance
subsidiary 4,702 6,094
Accrued dividends -- 16,299
Accrued income taxes -- 9,954
Current liabilities related to discontinued
operations 1,022 --
----------- -------------
Total current liabilities 137,567 189,488
----------- -------------
Non-current liabilities:
Long-term debt, less current portion 142,772 174,920
Deferred income taxes 26,671 24,944
Other non-current liabilities 68,499 61,837
Non-current liabilities related to
discontinued operations 6,576 182
----------- -------------
Total non-current liabilities 244,518 261,883
----------- -------------
Total liabilities 382,085 451,371
----------- -------------
Stockholders' equity:
Preferred stock - par value $0.01 per
share: authorized - 1,000,000 shares; no
shares issued -- --
Common stock - par value $0.01 per share:
authorized - 125,000,000 shares; issued -
108,503,243 shares 1,085 1,085
Additional paid-in capital 270,907 265,122
Retained earnings 806,958 774,884
----------- -------------
1,078,950 1,041,091
Treasury stock - 33,603,728 shares in 2007
and 34,393,331 shares in 2006, at cost (547,183) (554,437)
----------- -------------
Total stockholders' equity 531,767 486,654
----------- -------------
$913,852 $938,025
=========== =============
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
26 Weeks Ended
-----------------
July 1, June 25,
2007 2006
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $33,624 $47,555
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 33,989 31,577
Amortization of intangible assets 254 408
Stock-based compensation 7,681 11,412
Other amortization 166 156
Deferred income tax benefit (2,086) (1,046)
Impairment and other restaurant closure costs 25,520 4,600
Loss on disposition of property and equipment 36 1,007
Income tax benefit from stock-based compensation 409 1,403
Changes in assets and liabilities, exclusive of
effect of acquisition:
Receivables 6,558 1,357
Inventories 351 7,906
Prepaid and other current assets (3,585) (7,262)
Accounts payable (6,422) (18,985)
Accrued expenses and other current liabilities (20,416) (17,509)
Loss reserve and unearned premiums related to
captive insurance subsidiary (1,392) (3,132)
Income taxes (14,204) 3,708
Other non-current liabilities 4,694 4,138
Other (1,823) (1,461)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 63,354 65,832
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (41,979) (59,976)
Change in restricted assets related to captive
insurance subsidiary 1,067 2,062
Acquisition of restaurants -- (8,040)
Proceeds from sale of property and equipment 4,784 242
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (36,128) (65,712)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (999) (16,134)
Dividends paid (16,299) (14,840)
Issuance of common stock upon exercise of stock
options 3,473 7,856
Shares issued under employee benefit plans 1,998 2,318
Excess tax benefits from stock-based compensation 477 1,154
Net debt proceeds (payments) (30,519) 13,382
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (41,869) (6,264)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,643) (6,144)
CASH AND CASH EQUIVALENTS, beginning of period 22,309 13,040
-------- --------
CASH AND CASH EQUIVALENTS, end of period $7,666 $6,896
======== ========
CONTACT:
Applebee's International, Inc.
Carol DiRaimo, 913-967-4109
Vice President of Investor Relations
SOURCE:
Applebee's International, Inc.