IHOP Corp. Reports Fourth Quarter and Fiscal 2002 Results
Fourth Quarter and Fiscal 2002 Performance
The Company reported a 3.3% increase of net income to $12.0 million, or an increase of 1.8% in diluted earnings per share to $0.56 in the fourth quarter 2002, compared with net income of $11.6 million, or diluted earnings per share of $0.55 in the fourth quarter 2001. For the twelve months ended December 31, the Company reported a 1.4% increase of net income to $40.8 million, and a decrease of 1.0% in diluted net income per share to $1.92 in 2002, compared with net income of $40.3 million, or diluted net income per share of $1.94 in 2001.
Julia A. Stewart, IHOP Corp. president and chief executive officer, said, "We are pleased with the execution of our business in the fourth quarter. However, 2002 was a year of building the foundation for the future of our Company by investing in branding, operations and corporate infrastructure. With our investment in 2002, and our previously announced new operating model, we have a clear path for 2003 and beyond."
System-wide sales increased 8.9% in the quarter and by 9.9% in the twelve months ended December 31, 2002 over the same periods in 2001. The sales increase is primarily the result of growth in the number of effective restaurants and increases in average per unit sales. Effective restaurants grew by 8.1% in the fourth quarter and by 7.4% for the twelve months ended December 31, 2002 over the same periods in 2001. System-wide comparable store sales decreased by 1.0% for the fourth quarter and increased by 0.7% for the twelve months ended December 31, 2002. In the fourth quarter 2002, total revenues were $107.4 million, an increase of 18.8% over the fourth quarter 2001. For the twelve months ended December 31, 2002 total revenues were $365.9 million, an increase of 12.8% over the same period in 2001.
In the fourth quarter 2002, IHOP franchised 49 restaurants compared to 40 in the fourth quarter 2001. For the twelve months ended December 31, 2002, IHOP franchised 100 restaurants, compared to 95 restaurants over the same period in 2001.
Brand and Operations Update
During the fourth quarter, the Company completed work on its new advertising campaign and revised media and promotional strategies that were launched in January 2003. The completion of these initiatives finalized the initial stage of IHOP's brand revitalization efforts. In addition, the Company developed a number of programs which should better position it for success in 2003 and beyond. An expanded mystery shopper program and improved service and food delivery procedures should increase guest satisfaction.
Outlook for 2003
As previously announced in January 2003, IHOP plans to transition from company-financed development of new restaurants to a traditional franchise development model during 2003. Taking this transition into account, IHOP provided the following performance guidance for fiscal 2003:
* The development of 55 to 60 company-financed restaurants and 20 to
25 franchise developed restaurants, for a total of between 75 to
85 new restaurants. This compares with the development of
86 company-financed restaurants and 15 franchise/area licensed
developed restaurants in 2002.
* System-wide sales to range between $1.55 billion and $1.6 billion.
This compares to system-wide sales of $1.48 billion in 2002.
* Net income per diluted share to range between $1.55 and $1.70. This
compares with diluted net income per share of $1.92 in 2002.
* Free cash flow to improve to between a negative $25 million and
negative $35 million. This compares with negative free cash flow of
$63.5 million in 2002.
Stewart stated, "2003 will be a transition year for IHOP. We will be required to
execute our former business model while making substantive progress to our new
operating model. Our financial targets for this year reflect the transition. As
a result, we believe our full year 2003 net income per share will be between
$1.55 and $1.70, and that our free cash flow targets will improve as we
substantially reduce capital expenditures. In addition, we are still in the
process of considering several strategic financial alternatives, and anticipate
reaching a decision within the next 30 days."
As in prior years, there are a number of factors that influence operating results including primarily the magnitude and timing of new restaurant openings and the number of franchise units reacquired, refranchised or closed by IHOP. Additionally, IHOP noted that the level of quarterly earnings can be dramatically affected by the timing of a relatively small number of franchise sales. For this reason the Company cannot predict earnings on a quarterly basis with precision, nor does it manage its business on such a basis.
Investor Conference Call
IHOP Corp. will host an investor conference call to discuss its fourth quarter and year-end results today at 11:00 a.m. ET (8:00 a.m. PT). To participate on the call, please dial (719) 457-2604 and reference pass code 699254. A webcast of the live call will be available on the Investor Relations section of the Company's Web site located at www.ihop.com. Participants should allow approximately five minutes prior to the call's start time to visit the site and download any streaming media software needed to listen to the webcast.
An audio replay of the call will be available by 2:00 p.m. ET (11:00 a.m. PT) on February 26, 2003, which can be accessed through March 5, 2003 by dialing (719) 457-0820 and referencing pass code 699254. An online archive of the webcast will be available approximately four hours following the end of the live call and will be archived on IHOP's Web site until March 26, 2003.
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 omelets, 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 December 31, 2002, there were 1,103 IHOP restaurants in the chain in 45 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 Web site 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
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
Revenues
Franchise
operations
Rent $21,582 $18,047 $82,007 $65,780
Service fees
and other 39,582 36,173 156,415 142,850
61,164 54,220 238,422 208,630
Sale of franchises
and equipment 27,205 19,367 53,019 46,996
Company operations 19,023 16,822 74,433 68,810
Total revenues 107,392 90,409 365,874 324,436
Costs and Expenses
Franchise operations
Rent 13,584 10,576 50,562 37,867
Other direct costs 14,117 12,206 55,139 48,269
27,701 22,782 105,701 86,136
Cost of sales of
franchises and
equipment 18,012 12,800 35,294 31,086
Company operations 19,256 16,312 72,275 66,330
Field, corporate and
administrative 12,516 10,705 48,253 40,621
Depreciation and
amortization 4,183 3,920 15,967 14,818
Interest 5,948 5,257 21,575 21,107
Other (income)
expense, net 650 121 1,452 (123)
Total costs
and expenses 88,266 71,897 300,517 259,975
Income before
income taxes 19,126 18,512 65,357 64,461
Provision for
income taxes 7,172 6,942 24,509 24,173
Net income $11,954 $11,570 $40,848 $40,288
Net Income Per Share
Basic $0.57 $0.56 $1.95 $1.98
Diluted $0.56 $0.55 $1.92 $1.94
Weighted Average
Shares Outstanding
Basic 21,152 20,701 20,946 20,398
Diluted 21,334 21,057 21,269 20,762
IHOP CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
Restaurant Data
Effective
restaurants(a)(d)
Franchise 866 796 843 767
Company 79 72 76 72
Area license 125 122 123 131
Total 1,070 990 1,042 970
System-wide
Sales(b)(d) $371,852 $341,537 $1,478,567 $1,345,757
Percent change 8.9% 7.7% 9.9% 8.0%
Average sales per
effective
restaurant(d) $348 $345 $1,419 $1,387
Percent change 0.9% 3.0% 2.3% 2.6%
Comparable sales
percentage
change (c) (1.0%) 0.6% 0.7% 0.8%
Franchise
Sales $322,100 $295,422 $1,278,103 $1,146,124
Percent change 9.0% 13.0% 11.5% 11.6%
Average sales per
effective restaurant $372 $371 $1,516 $1,494
Percent change 0.3% 1.6% 1.5% 1.3%
Comparable sales
percentage
change(c) (1.0%) 0.8% 0.7% 0.9%
Company
Sales $19,023 $16,822 $74,433 $68,810
Percent change 13.1% (13.3%) 8.2% (5.5%)
Average sales per
effective restaurant $241 $234 $979 $956
Percent change 3.0% (3.7%) 2.4% (0.2%)
Area License
(with Japan)
Sales (d) $30,729 $29,293 $126,031 $130,823
Percent change 4.9% (19.5%) (3.7%) (10.7%)
Average sales per
effective
restaurant (d) $246 $240 $1,025 $999
Percent change 2.5% (0.4%) 2.6% 2.3%
Area License
(without Japan)
Sales (d) $30,729 $29,293 $126,031 $122,351
Percent change 4.9% 0.1% 3.0% 6.3%
Average sales per
effective
restaurant (d) $246 $240 $1,025 $1,011
Percent change 2.5% (2.4%) 1.4% 2.7%
(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.
(d) During the second quarter of 2001, the Company's area licensee in
Japan negotiated an early termination of its area license agreement.
As part of this early termination, the area licensee discontinued
operations of its 32 IHOP restaurants. Sales for the twelve months
ended 2001, include sales in Japan until their closing. Excluding
the units in Japan, system-wide sales increased 8.9% for the quarter
and 10.6% for the twelve months ended December 31; effective
restaurants grew by 8.1% for the quarter and 8.5% for the twelve
months ended December 31; and average sales per effective restaurant
increased by 0.9% for the quarter and 1.9% for the twelve months
ended December 31, in each case over the same period in 2001. In the
fourth quarter of 2001, excluding the units in Japan, system-wide
sales increased 10.2% for the quarter and 10.1% for the twelve
months ended December 31; effective restaurants grew by 8.2% for the
period and 8.0% for the twelve months ended December 31; and average
sales per effective restaurant increased by 1.8% for the quarter and
2.0% for the twelve months ended December 31, in each case over the
same periods in 2000.
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
RESTAURANT DEVELOPMENT
ACTIVITY
IHOP-beginning
of period 1,063 982 1,017 968
New openings
IHOP--developed 41 34 86 76
Franchisee--developed 3 5 10 12
Area license 1 -- 5 5
Total new openings 45 39 101 93
Closings
Company and franchise (4) (3) (13) (11)
Area license (1) (1) (2) (33)
IHOP-end of period 1,103 1,017 1,103 1,017
Summary-end of period
Franchise 902 823 902 823
Company 76 72 76 72
Area license 125 122 125 122
Total IHOP 1,103 1,017 1,103 1,017
RESTAURANT FRANCHISING
ACTIVITY
IHOP-developed 41 31 80 74
Franchisee-developed 3 5 10 12
Rehabilitated and
refranchised 5 4 10 9
Total restaurants
franchised 49 40 100 95
Reacquired by IHOP (4) (5) (10) (12)
Closed (4) (1) (11) (7)
Net addition 41 34 79 76
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
December 31, December 31,
2002 2001
Current assets, net $159,101 $59,160
Property and equipment, net 286,226 238,026
Long-term receivables:
Notes receivable 46,929 42,559
Equipment contracts receivable 153,261 131,200
Direct financing leases receivable 132,602 134,100
Other assets 41,681 36,384
Total assets $819,800 $641,429
Current liabilities $53,564 $44,529
Long-term debt 145,768 50,209
Other long-term liabilities 256,079 234,261
Shareholders' equity 364,389 312,430
Total liabilities and shareholders' equity $819,800 $641,429
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twelve Months Ended
December 31,
2002 2001
Cash provided by operating activities $78,112 $55,703
Cash used in investing activities
Additions to property and equipment (141,740) (119,797)
Additions to other assets, net 170 (2,645)
Cash provided by financing activities 155,945 65,783
Net change in cash and cash equivalents 92,487 (956)
Cash and cash equivalents at
beginning of period 6,252 7,208
Cash and cash equivalents at end of period $98,739 $6,252
SOURCE IHOP Corp.