IHOP Corp. Reports Fourth Quarter and Fiscal 2004 Results
GLENDALE, Calif.--(BUSINESS WIRE)--Feb. 24, 2005--
Strong Momentum in Core Business Continues as IHOP Reaches
12-Year Record Same-Store Sales Increase of 5.3% for 2004
IHOP Corp. (NYSE:IHP) today announced results for its fourth quarter and fiscal year ended December 31, 2004.
IHOP reported a 19.0% increase in net income to $10.5 million, or an increase of 26.8% in diluted net income per share to $0.52, in the fourth quarter 2004. During the quarter, IHOP's net income and diluted net income per share performance was impacted by pre-tax impairment and closure charges of $982,000 related to the Company's strategic repositioning of Company-operated restaurants previously announced on July 22, 2004. The quarterly results also benefited from a gain of $1.8 million recognized upon the sale of real estate property during the fourth quarter 2004. Excluding these charges and the gain from the sale of real estate, net income for the fourth quarter 2004 would have increased 14.8% to $10.0 million, or an increase of 22.5% in diluted net income per share to $0.49. This increase was primarily attributable to the impact of a 53rd week for the fiscal year which fell in the fourth quarter 2004. The impact on net income of the additional week totaled approximately $4.0 million on a pre-tax basis.
For fiscal 2004, the Company reported a decrease of 9.1% in net income to $33.4 million, or a decrease of 5.3% in diluted net income per share to $1.61. IHOP's net income and diluted net income per share performance for fiscal 2004 was impacted by pre-tax impairment and closure charges of $14.1 million, which were primarily related to the strategic repositioning of Company-operated restaurants. IHOP's fiscal 2004 results also benefited from a gain of $2.3 million recognized upon the sale of three real estate properties during the year. Excluding these charges and the gain from the sale of real estate, net income for 2004 would have increased 6.7% to $40.7 million, or an increase of 10.7% in diluted net income per share to $1.96. This increase was primarily attributable to increased Franchise Operations and Rental Operations segment profitability due to strong system-wide same-store sales results and growth in the total number of effective restaurants in fiscal 2004.
Julia A. Stewart, IHOP's President and Chief Executive Officer, said, "We are pleased with our financial performance for the fourth quarter and fiscal year 2004. While year-over-year comparisons benefited from the impact of a 53rd week, IHOP's core business also performed ahead of our expectations due to continued marketplace momentum that resulted in 12-year record high same-store sales growth. Additionally, IHOP's new business model took hold as our franchisees and Florida area licensee developed and opened 41 new IHOP restaurants in 2004."
System-wide sales increased 16.6% in the fourth quarter and 11.4% for fiscal 2004 over the same periods in 2003. The sales increase is primarily the result of system-wide same-store sales growth and growth in the number of total effective restaurants during these periods. IHOP's system-wide same-store sales increased 4.3% for the fourth quarter 2004, and 5.3% for fiscal 2004. Total effective restaurants grew by 1.9% in the fourth quarter 2004 and 3.2% for fiscal 2004 over the same periods last year.
Cash Flows from Operating Activities decreased in fiscal 2004 to $67.0 million compared to $71.3 million in fiscal 2003. Capital expenditures were reduced significantly from $80.5 million in 2003 to $16.6 million in 2004, reflecting the shift to franchisee-funded development of new IHOP restaurants.
Performance Highlights
The following are key business highlights for the fourth quarter and fiscal year 2004 resulting from our three primary strategic objectives to Energize the Brand, Improve Operations Performance and Maximize Franchise Development:
-- Energize the Brand: Supported by the positive impact of IHOP's
Never Ending Popcorn Shrimp and Sweet Caramel Combos product
promotions, system-wide same-store sales increased by 4.3% in
the fourth quarter. For the year, IHOP reported a 5.3%
increase in system-wide same-store sales. The Company's brand
energizing efforts in 2005 will include a strong line-up of
product promotions, the addition of a fourth flight of
national cable advertising, the planned remodel of
approximately 225 to 250 franchise restaurants, as well as the
roll out of a new core menu to all IHOP restaurants.
-- Improve Operations Performance: The Company has established a
rating system whereby all franchisees are evaluated and rated
on an "A" through "F" scale. At the end of 2004, nearly 400
franchisees operated almost 1,200 IHOP restaurants nationwide.
More than 70% of IHOP's franchisees were rated an "A" or a "B"
based on this rating system. This reflects a continued
improvement from the rating system's inception in 2003 when
less than 50% of the Company's franchisees received an "A" or
a "B" rating. Additionally, IHOP was successful in removing
nearly all of its franchisees rated as "D" or "F" in 2004. In
2005, IHOP remains committed to improving the operational
performance of its system, with a particular focus on
supporting "C" operators as they work to achieve higher
operational ratings this year.
-- Maximize Franchise Development: In 2004, IHOP franchisees and
Florida area licensee developed and opened 41 new IHOP
restaurants, which was in line with the Company's
expectations. IHOP has signed development agreements and
options covering 287 new IHOP restaurants as of the end of
2004. The Company is currently pursuing additional Multi-Store
Development Agreements and Single-Store Development
Agreements, which could potentially add 41 more IHOP
restaurants to its development pipeline. As a result of this
focus on franchise development efforts, IHOP expects its
franchisees and Florida area licensee to open 60 to 68 new
IHOP restaurants in 2005. The Company also expects to open two
to four IHOP restaurants in its new dedicated Company market
in Cincinnati, Ohio.
2005 Guidance Reiterated
IHOP reiterated its 2005 performance guidance and is expecting 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 continue to see positive same-store sales growth at 2% to 4% in 2005, and the addition of a total of 62 to 72 new restaurants to the IHOP system this year. IHOP expects to generate between $55 million and $65 million in Cash Flows from Operating Activities 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 fourth quarter and fiscal 2004 results today, Thursday, February 24, 2005, at 11:00 a.m. ET (8:00 a.m. PT). To participate on the call, please dial 800-638-5439 and reference pass code 79306335. 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, March 3, 2005, by dialing 888-286-8010 and referencing pass code 55884963. 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 December 31, 2004, the end of IHOP's fourth quarter, there were 1,186 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 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," "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 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 INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
2004 2003 2004 2003
--------- -------- --------- ---------
Revenues
Franchise revenues $42,152 $35,862 $157,584 $140,131
Rental income 34,519 30,370 131,763 117,258
Company restaurant sales 5,186 14,053 31,564 74,880
Financing revenues 12,574 22,483 38,091 72,536
--------- -------- --------- ---------
Total revenues 94,431 102,768 359,002 404,805
Costs and Expenses
Franchise expenses 20,742 16,636 75,599 64,265
Rental expenses 24,210 22,763 95,392 86,620
Company restaurant expenses 5,772 16,851 34,701 81,737
Financing expenses 9,594 15,583 22,434 43,619
General and administrative
expenses 16,476 16,002 59,890 54,575
Other (income) expense, net (788) 588 2,707 3,867
Impairment and closure charges
(recovery) 982 (200) 14,112 2,187
Reorganization charges -- 461 -- 9,085
--------- -------- --------- ---------
Total costs and expenses 76,988 88,684 304,835 345,955
--------- -------- --------- ---------
Income before income taxes 17,443 14,084 54,167 58,850
Provision for income taxes 6,971 5,281 20,746 22,068
--------- -------- --------- ---------
Net income $10,472 $8,803 $33,421 $36,782
========= ======== ========= =========
Net Income Per Share
Basic $0.52 $0.41 $1.62 $1.72
========= ======== ========= =========
Diluted $0.52 $0.41 $1.61 $1.70
========= ======== ========= =========
Weighted Average Shares
Outstanding
Basic 19,957 21,357 20,606 21,424
========= ======== ========= =========
Diluted 20,151 21,579 20,791 21,614
========= ======== ========= =========
Dividends Declared Per Share
$0.25 $0.25 $1.00 $0.75
========= ======== ========= =========
Dividends Paid Per Share
$0.25 $0.25 $1.00 $0.75
========= ======== ========= =========
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DATA
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
---------------- -------------
2004 2003 2004 2003
------- ------- ------- ------
Restaurant Data
Effective restaurants(a)
Franchise(b) 1,011 954 993 919
Company 17 56 29 72
Area license(b) 146 142 145 140
------- ------- ------- ------
Total 1,174 1,152 1,167 1,131
======= ======= ======= ======
System-wide(c)
Sales percentage change(d) 16.6% 14.4% 11.4% 14.6%
Same-store sales percentage change(e) 4.3% 4.4% 5.3% 4.8%
Franchise(b)
Sales percentage change(d) 18.8% 16.8% 14.4% 15.8%
Same-store sales percentage change(e) 4.1% 5.8% 5.2% 4.7%
Company
Sales percentage change(d) (63.1)% (26.1)% (57.8)% 0.6%
Same-store sales percentage change(e) 0.8% 7.2% 5.1% 6.5%
Area License(b)
Sales percentage change(d) 24.2% 14.3% 16.4% 11.6%
(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) We historically reported restaurants in Canada as franchise
restaurants although the restaurants were operated under an area
license agreement. Beginning with 2004, Canadian restaurants are
reported as "Area License." Prior period information has been
restated to conform to the current period presentation.
(c) System-wide sales are retail sales of franchisees, area
licensees and Company-operated restaurants, as reported to the
Company. Sales of restaurants that are owned by franchisees and
area licensees are not attributable to the Company.
(d) "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.
(e) "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 Twelve Months
Ended Ended
December 31, December 31,
---------------- -------------
2004 2003 2004 2003
------- ------- ------- ------
Restaurant Development Activity
Beginning of period 1,168 1,149 1,165 1,103
New openings
Company-developed 3 11 6 56
Franchisee-developed(a) 17 6 35 13
Area license(a) 2 1 6 5
------- ------- ------- -------
Total new openings 22 18 47 74
Closings
Company and franchise (4) (2) (26) (12)
Area license -- -- -- --
------- ------- ------- -------
End of period 1,186 1,165 1,186 1,165
======= ======= ======= =======
Summary-end of period
Franchise(a) 1,028 979 1,028 979
Company 10 44 10 44
Area license(a) 148 142 148 142
------- ------- ------- -------
Total 1,186 1,165 1,186 1,165
======= ======= ======= =======
Restaurant Franchising Activity
Company-developed 2 21 8 72
Franchisee-developed(a) 17 6 35 13
Rehabilitated and refranchised 17 13 33 19
------- ------- ------- -------
Total restaurants franchised 36 40 76 104
Reacquired by the Company (6) (1) (12) (11)
Closed (3) -- (15) (4)
------- ------- ------- -------
Net addition 27 39 49 89
======= ======= ======= =======
(a) We historically reported restaurants in Canada as franchise
restaurants although the restaurants were operated under an area
license agreement. Beginning with 2004, Canadian restaurants are
reported as "Area License." Prior period information has been
restated to conform to the current period presentation.
IHOP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
December 31, December 31,
2004 2003
--------------- ---------------
Current assets, net $106,614 $127,081
Property and equipment, net 318,816 327,264
Long-term receivables:
Notes receivable 39,841 49,470
Equipment contracts receivable 172,927 174,737
Direct financing leases receivable 124,410 129,829
Other long-term assets 51,037 47,666
--------------- ---------------
Total assets $813,645 $856,047
=============== ===============
Current liabilities $50,353 $45,373
Long-term debt 133,768 139,615
Other long-term liabilities 289,760 288,699
Stockholders' equity 339,764 382,360
--------------- ---------------
Total liabilities and stockholders'
equity $813,645 $856,047
=============== ===============
IHOP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twelve Months Ended
December 31,
2004 2003
--------------- ---------------
Cash flows from operating activities
Net income $33,421 $36,782
Adjustments to reconcile net income
to cash flows provided by
operating activities:
Depreciation and amortization 18,736 18,625
Impairment and closure charges 14,112 2,187
Reorganization charges - 5,632
Changes in current assets and
liabilities 6,823 485
Other (6,111) 7,599
--------------- ---------------
Cash flows provided by operating
activities 66,981 71,310
Cash flows from investing activities
Additions to property and equipment (16,631) (80,545)
Redemption and purchase of
marketable securities, net 31,033 (45,537)
Principal receipts from long-term
receivables 21,428 16,342
Other 1,434 (11,581)
--------------- ---------------
Cash flows provided by (used in)
investing activities 37,264 (121,321)
Cash flows from financing activities
Proceeds from sale and leaseback
arrangements - 12,618
Dividends paid (20,696) (16,102)
Purchase of treasury stock (63,890) (18,634)
Other (3,624) 1,386
--------------- ---------------
Cash flows used in financing
activities (88,210) (20,732)
--------------- ---------------
Net change in cash and cash
equivalents 16,035 (70,743)
Cash and cash equivalents at beginning
of year 27,996 98,739
--------------- ---------------
Cash and cash equivalents at end of
year $44,031 $27,996
=============== ===============
IHOP CORP. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME EXCLUDING IMPAIRMENT AND CLOSURE
CHARGES AND GAIN ON SALE OF REAL ESTATE
(Unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
---------------- -------------
2004 2003 2004 2003
------- ------- ------- ------
Net income, as reported $10,472 $8,803 $33,421 $36,782
Impairment and closure charges
(recovery) 982 (200) 14,112 2,187
Gain on sale of real estate (1,825) -- (2,311) --
Income tax benefit 337 75 (4,520) (820)
-------- ------- -------- --------
Net income excluding impairment and
closure charges and gain on sale
of real estate $9,966 $8,678 $40,702 $38,149
======== ======= ======== ========
Basic net income per share:
Net income, as reported $0.52 $0.41 $1.62 $1.72
Impairment and closure charges
(recovery) 0.05 (0.01) 0.69 0.10
Gain on sale of real estate (0.09) -- (0.11) --
Income tax benefit 0.02 0.01 (0.22) (0.04)
-------- ------- -------- --------
Net income excluding impairment and
closure charges and gain on sale
of real estate $0.50 $0.41 $1.98 $1.78
======== ======= ======== ========
Diluted net income per share:
Net income, as reported $0.52 $0.41 $1.61 $1.70
Impairment and closure charges
(recovery) 0.05 (0.01) 0.68 0.10
Gain on sale of real estate (0.09) -- (0.11) --
Income tax benefit 0.01 -- (0.22) (0.03)
-------- ------- -------- --------
Net income excluding impairment and
closure charges and gain on sale
of real estate $0.49 $0.40 $1.96 $1.77
======== ======= ======== ========
CONTACT: IHOP Corp.
Stacy Roughan, 818-637-3632
SOURCE: IHOP Corp.