IHOP Corp. Reports First Quarter 2005 Results; Company Committed to Driving Higher Same-Store Sales Growth for the Balance of 2005
GLENDALE, Calif.--(BUSINESS WIRE)--April 28, 2005--IHOP Corp. (NYSE:IHP) today announced results for its first quarter ended March 31, 2005. The Company reported that its net income decreased from $10.9 million in the first quarter 2004 to $10.1 million in the first quarter 2005, or 7.7%. As a result of share repurchases, the Company's diluted net income per share remained $0.50, the same as in the first quarter 2004.
Julia A. Stewart, IHOP's President and Chief Executive Officer, said, "This decrease in net income resulted from modest same-store sales growth of 0.6%, which was not enough to offset expected increases in General & Administrative spending during the first quarter 2005. Our commitment is to keep G&A growth at a modest level this year to improve IHOP's financial leverage as revenue is expected to grow faster than G&A. In this regard, we expect G&A to moderate over the balance of the year, while we experience the benefit of stronger anticipated sales for the remainder of 2005. With several positive sales catalysts set to work in our favor, we remain confident of reaching our goal of producing 2% to 4% same-store sales growth in 2005."
System-wide sales increased 4.9% in the first quarter 2005 versus the same quarter in 2004. This sales increase is primarily the result of growth in the number of total effective franchise restaurants during these periods. Total effective franchise restaurants grew by 5.6% in the first quarter 2005 versus the first quarter last year.
Cash Flows from Operating Activities decreased in the first quarter 2005 to $14.9 million compared to $20.3 million in the same quarter in 2004. Capital expenditures were reduced from $4.3 million in the first quarter 2004 to $1.2 million in the first quarter this year, reflecting investment in the development of IHOP's Company market in Cincinnati, Ohio, as well as continued support of Information Technology initiatives.
Performance Highlights
The following are key business highlights for the first quarter 2005 resulting from IHOP's three primary strategic objectives: Energize the Brand, Improve Operations Performance and Maximize Franchise Development.
-- Energize the Brand: Supported by IHOP's Fruit Pocket Pancakes
and Stuffed Crepes national product promotions, system-wide
same-store sales increased by 0.6% in the first quarter 2005.
Same-store sales comparisons were impacted by reduced traffic
levels. Among other reasons, traffic performance reflected the
timing of IHOP's historically strong New Year's holiday, which
was included in the fourth quarter 2004 results due to the
effect of a 53rd operating week in fiscal 2004. While the
benefit of the Easter holiday was included in the Company's
first quarter 2005 same-stores sales results, it was not
enough to offset the negative impact of the absence of the New
Year's holiday in its sales comparison for the quarter.
Looking ahead, IHOP will employ several strategic initiatives
to support improved same-store sales growth and promote a
healthier balance between guest check increases and increased
traffic levels. These initiatives include the addition of a
fourth flight of national advertising, the system-wide roll
out of an enhanced menu in May 2005, the remodeling of 225 to
250 IHOP restaurants in 2005, and the system-wide
introduction of a gift card program in September 2005, as well
as a promising line up of promotional offerings slated for the
balance of 2005.
-- Improve Operations Performance: The Company evaluates each
franchise operator on an "A" through "F" scale based on a
range of objective criteria, including Mystery Shop reports,
operational assessments, participation in training programs,
and the maintenance of required management infrastructure. At
the end of the first quarter 2005, 76% of IHOP's franchisees
were rated an "A" or a "B" based on this rating system. This
reflects an improvement from 60% of IHOP's franchisees rated
as "A" or "B" operators in the first quarter 2004.
Additionally, the number of "C" operators was reduced by
nearly 50% as compared to the first quarter 2004. Operations
improvement at the individual restaurant level continues to be
a key focus for IHOP's Operations group in 2005.
-- Maximize Franchise Development: During the first quarter 2005,
IHOP franchisees and its area licensee opened 12 new IHOP
restaurants, compared to only five restaurants in the same
quarter last year. IHOP also continued to build its pipeline
of franchise development commitments with additional
Multi-Store and Single-Store Development Agreements secured in
the first quarter 2005 for its franchisees to build 63 new
IHOP restaurants over the next ten years. As of the end of the
first quarter 2005, the Company's franchise pipeline included
signed or optioned commitments to develop a total of 317 new
IHOP restaurants over the next 11 years. Currently, IHOP is
finalizing legal agreements for additional franchise
development, which could add up to 51 more IHOP restaurants to
its development pipeline.
2005 Guidance Reiterated
IHOP reiterated its 2005 performance guidance and expects diluted net income per share for 2005 to range between $2.02 and $2.12. The Company's earning performance outlook is based on IHOP's expectation that it will see positive same-store sales growth within the range of 2% to 4% in 2005, and the addition of a total of 62 to 72 new restaurants to the IHOP system this year.
G&A expenses are expected to be within the range of $61 million to $63 million in 2005. IHOP expects to keep G&A growth moderate as the Company works to improve its financial leverage. The Company's G&A spending will focus on initiatives designed to support same-store sales growth, enhance the IHOP brand and drive operational improvements throughout the IHOP system.
IHOP expects to generate between $55 million and $65 million in Cash Flows from Operating Activities in 2005, while principal receipts from note and equipment contracts receivables are expected to be within the range of $15 million to $20 million. These two combined sources of cash are expected to generate between $70 million and $85 million in 2005. Capital expenditures are expected to be within the range of $11 million to $13 million in 2005.
Investor Call Today
IHOP will host an investor conference call to discuss its first quarter 2005 results today, Thursday, April 28, 2005, at 10:00 a.m. ET (7:00 a.m. PT). To participate on the call, please dial 800-798-2884 and reference pass code 23813395. A live webcast of the call will be available on IHOP's Web site at www.ihop.com, and may be accessed by visiting Conference Calls & Presentations under the site's Investor Information section. 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. A telephonic replay of the call may be accessed through Thursday, May 5, 2005, by dialing 888-286-8010 and referencing pass code 59990949. An online archive of the webcast will also be available on the Investor Information section of IHOP's Web site.
About IHOP Corp.
The IHOP family restaurant chain has been serving a wide variety of breakfast, lunch and dinner selections for more than 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 franchised and operated by Glendale-based IHOP Corp. As of March 31, 2005, the end of IHOP's first quarter, there were 1,198 IHOP restaurants in 48 states and Canada. IHOP Corp. common stock is listed and traded on the New York Stock Exchange 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," "anticipate," "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 strategic growth plan, the availability of suitable locations and terms of the sites designated for development; the ability of franchise developers to fulfill their commitments to build new IHOP restaurants in the numbers and time frames covered by their development agreements; the ability of the Company to franchise its remaining Company-operated restaurants; legislation and government regulation, including the ability to obtain satisfactory regulatory approvals; conditions beyond the Company'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; the Company'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 the Company'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, the Company disclaims any intent or obligation to update these forward-looking statements.
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
---------------------------------
2005 2004
---------------- ----------------
Revenues
Franchise revenues $40,897 $39,129
Rental income 33,038 32,392
Company restaurant sales 3,986 10,555
Financing revenues 7,902 9,808
---------------- ----------------
Total revenues 85,823 91,884
---------------- ----------------
Costs and Expenses
Franchise expenses 19,455 18,298
Rental expenses 24,683 23,420
Company restaurant expenses 4,806 11,956
Financing expenses 3,361 5,213
General and administrative expenses 15,563 13,635
Other expense, net 1,571 735
Impairment and closure charges 54 1,171
---------------- ----------------
Total costs and expenses 69,493 74,428
---------------- ----------------
Income before income taxes 16,330 17,456
Provision for income taxes 6,255 6,546
---------------- ----------------
Net income $10,075 $10,910
================ ================
Net Income Per Share
Basic $0.50 $0.51
================ ================
Diluted $0.50 $0.50
================ ================
Weighted Average Shares Outstanding
Basic 19,991 21,406
================ ================
Diluted 20,213 21,613
================ ================
Dividends Declared Per Share $0.25 $0.25
================ ================
Dividends Paid Per Share $0.25 $0.25
================ ================
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DATA
(Unaudited)
Three Months Ended March 31,
------------------------------
2005 2004
------------------------------
Restaurant Data
Effective restaurants(a)
Franchise 1,034 979
Company 8 41
Area license 148 144
------------------------------
Total 1,190 1,164
==============================
System-wide(b)
Sales percentage change(c) 4.9% 12.4%
Same-store sales percentage change(d) 0.6% 7.1%
Franchise
Sales percentage change(c) 5.9% 15.7%
Same-store sales percentage change(d) 0.6% 6.8%
Company
Sales percentage change(c) (62.2)% (46.4)%
Same-store sales percentage change(d) 3.3% 10.8%
Area License
Sales percentage change(c) 11.4% 12.4%
(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. Information is presented for all
effective restaurants in the IHOP system, which includes IHOP
restaurants owned by the Company as well as those owned by
franchisees and area licensees.
(b) System-wide sales are retail sales of IHOP restaurants operated by
franchisees, area licensees and the Company, as reported to the
Company. Sales of restaurants that are owned by franchisees and
area licensees are not attributable to the Company.
(c) "Sales percentage change" reflects, for each category of
restaurants, the percentage change in sales in any given fiscal
period compared to the prior fiscal period for all restaurants in
that category.
(d) "Same-store sales percentage change" reflects the percentage
change in sales, in any given fiscal period compared to the prior
fiscal period, for restaurants that have been operated throughout
both fiscal periods that are being compared and have been open for
at least 18 months. Because of new unit openings and store
closures, the restaurants open throughout both fiscal periods
being compared will be different from period to period. Same-store
sales percentage change does not include data on restaurants
located in Florida.
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
(Unaudited)
Three Months Ended March 31,
----------------------------
2005 2004
----------------------------
Restaurant Development Activity
Beginning of period 1,186 1,165
New openings
Company-developed 2 1
Franchisee-developed 11 2
Area license 1 3
-------------- -------------
Total new openings 14 6
Closings
Company and franchise (2) (7)
Area license -- --
-------------- -------------
End of period 1,198 1,164
============== =============
Summary-end of period
Franchise 1,041 988
Company 8 31
Area license 149 145
-------------- -------------
Total 1,198 1,164
============== =============
Restaurant Franchising Activity
Company-developed 3 2
Franchisee-developed 11 2
Rehabilitated and refranchised 3 9
-------------- -------------
Total restaurants franchised 17 13
Reacquired by the Company (2) --
Closed (2) (4)
-------------- -------------
Net addition 13 9
============== =============
IHOP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2005 2004
(Unaudited)
---------------- --------------
Current assets $116,526 $106,614
Property and equipment, net 323,711 326,848
Long-term receivables:
Notes receivable 38,029 39,841
Equipment leases receivable 171,866 172,927
Direct financing leases receivable 123,965 124,410
Other long-term assets 54,197 51,037
---------------- --------------
Total assets $828,294 $821,677
================ ==============
Current liabilities $50,760 $50,353
Long-term debt 133,256 133,768
Other long-term liabilities 298,442 297,792
Stockholders' equity 345,836 339,764
---------------- --------------
Total liabilities and stockholders'
equity $828,294 $821,677
================ ==============
IHOP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
--------------------------------
Cash flows from operating activities
Net income $10,075 $10,910
Adjustments to reconcile net
income to cash flows provided by
operating activities:
Depreciation and amortization 4,914 4,715
Impairment and closure charges 54 1,171
Changes in current assets and
liabilities (120) 3,428
Other 4 38
---------------- --------------
Cash flows provided by
operating activities 14,927 20,262
Cash flows from investing activities
Additions to property and
equipment (1,163) (4,326)
Purchase and redemption of
marketable securities, net 8,192 (7,923)
Proceeds from sale of land and
building 890 1,472
Principal receipts from long-term
receivables 4,878 5,727
Other (1,228) (480)
---------------- --------------
Cash flows provided by (used in)
investing activities 11,569 (5,530)
Cash flows from financing activities
Dividends paid (4,992) (5,351)
Purchase of treasury stock (2,193) (4,171)
Other 797 (724)
---------------- --------------
Cash flows used in financing
activities (6,388) (10,246)
---------------- --------------
Net change in cash and cash
equivalents 20,108 4,486
Cash and cash equivalents at
beginning of period 44,031 27,996
---------------- --------------
Cash and cash equivalents at end of
period $64,139 $32,482
================ ==============
CONTACT: IHOP Corp.
Stacy Roughan, 818-637-3632
SOURCE: IHOP Corp.