IHOP Corp. Reports Second Quarter 2005 Results
GLENDALE, Calif.--(BUSINESS WIRE)--July 28, 2005--IHOP Corp. (NYSE:IHP) today announced results for its second quarter and six months ended June 30, 2005.
IHOP reported an increase of 173.2% in net income to $11.9 million, or an increase of 185.7% in diluted earnings per share to $0.60, in the second quarter 2005. IHOP's net income and diluted net income per share comparisons to the prior year were impacted by pre-tax impairment and closure charges of $8.9 million recorded in the second quarter 2004 related to IHOP's strategic repositioning of Company-operated restaurants. Excluding this charge, net income for the second quarter 2005 would have increased 24.9% to $12.4 million, or an increase of 31.9% in diluted net income per share to $0.62. This increase is primarily attributable to a 10.9% reduction in General & Administrative (G&A) expenses during the second quarter 2005, and a 5.5% reduction in diluted weighted average shares outstanding as a result of the Company's ongoing share repurchase program.
For the six months ended June 30, 2005, the Company reported an increase of 44.0% in net income to $22.0 million, or an increase of 54.9% in diluted net income per share to $1.10. IHOP's net income and diluted net income per share comparisons to the prior year were impacted by pre-tax impairment and closure charges of $10.1 million recorded in the first six months of 2004 related to IHOP's strategic repositioning of Company-operated restaurants. Excluding this charge, net income for the first six months of 2005 would have increased 5.8% to $22.5 million, or an increase of 13.1% in diluted net income per share to $1.12. This increase is primarily due to minimal G&A growth and a 6.0% reduction in diluted weighted average shares outstanding as a result of the Company's ongoing share repurchase program.
Julia A. Stewart, IHOP's President and Chief Executive Officer, said, "We are pleased with our strong financial performance for the second quarter as it reflects our commitment to manage G&A expense and enhance operating leverage in our core business. While our sales performance for the first half of the year was disappointing, our operating model enabled us to increase profitability through improved expense control. We expect that the second half of 2005 will show improved sales performance, combined with continued expense control, to maintain strong financial momentum. Even with modest same-store sales increases, our model provides for continued strong cash flow, which is supported by a growing base of IHOP restaurants."
Cash Flows from Operating Activities decreased in the six months ended June 30, 2005, to $26.8 million compared with $32.6 million in the same period in 2004. This decrease was primarily due to a cash flow adjustment for $10.1 million in pre-tax impairment and closure charges taken in the first six months of 2004. Capital expenditures were reduced from $9.0 million in the six months ended June 30, 2004, to $2.6 million in the first six months of this year, reflecting the Company's business model change.
Performance Highlights
The following are key business highlights for the second 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 Stuffed Crepes and
Sourdough Cheese Grillers national product promotions,
system-wide same-store sales increased by 0.9% in the second
quarter 2005. Sourdough Cheese Grillers performed modestly,
but was strategically targeted to expand consumer awareness
about IHOP's non-breakfast offerings. The system-wide roll out
of an enhanced core menu during the quarter also included the
introduction of new lunch and dinner offerings, which further
supported IHOP's focus on building its business beyond
breakfast. IHOP also benefited from modest pricing increases
taken by franchisees at the time of the enhanced core menu
roll out. During the second quarter 2005, negative guest
traffic trends continued, but showed significant improvement
in the last two months of the quarter as IHOP works to gain a
healthier balance between guest traffic and check average.
-- 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 second quarter 2005, 83% 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 second quarter 2004.
-- Maximize Franchise Development: During the second quarter
2005, IHOP franchisees and its area licensee opened 13 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 second quarter 2005 for its franchisees to build 28 new
IHOP restaurants over the next eight-and-a-half years. As of
the end of the second quarter 2005, the Company's franchise
pipeline included signed or optioned commitments to develop a
total of 339 new IHOP restaurants over the next 11 years.
Currently, IHOP is finalizing legal agreements for additional
franchise development that could add up to 62 more IHOP
restaurants to its development pipeline, which brings total
signed, optioned and pending commitments to as many as 401
restaurants.
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 the addition of 62 to 72 new restaurants to the IHOP system this year, and IHOP's expectation that it will see positive same-store sales growth in the range of 2% to 4% in 2005.
IHOP remains confident in reaching its same-store sales growth goals due to several sales catalysts planned for the second half of 2005, which include a promising line up of promotional offerings, the system-wide introduction of a gift-card program in September 2005, continued execution of its national cable media advertising strategy, the second system-wide update of its enhanced core menu by year-end, and the remodeling of 225 to 250 IHOP restaurants in 2005.
G&A expenses are expected to be within IHOP's guidance range of $61 million to $63 million for 2005. IHOP expects to keep G&A growth moderate as the Company works to improve its operating 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 second quarter 2005 results today, Thursday, July 28, 2005, at 10:00 a.m. Eastern Time (7:00 a.m. Pacific Time). To participate on the call, please dial 800-901-5248 and reference pass code 31290967. 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, August 4, 2005, by dialing 888-286-8010 and referencing pass code 64192772. 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 a variety 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 June 30, 2005, the end of IHOP's second quarter, there were 1,207 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 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 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 Six Months
Ended June 30, Ended June 30,
----------------- -----------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenues
Franchise revenues $39,887 $37,209 $80,784 $76,338
Rental income 32,806 32,405 65,844 64,797
Company restaurant sales 3,806 8,314 7,792 18,869
Financing revenues 6,409 8,216 14,311 18,024
-------- -------- -------- --------
Total revenues 82,908 86,144 168,731 178,028
-------- -------- -------- --------
Costs and Expenses
Franchise expenses 18,196 18,297 37,651 36,595
Rental expenses 24,333 23,705 49,016 47,125
Company restaurant expenses 3,788 8,942 8,594 20,898
Financing expenses 2,783 3,701 6,144 8,914
General and administrative
expenses 12,514 14,045 28,077 27,680
Other expense, net 1,214 1,583 2,785 2,318
Impairment and closure charges 747 8,888 801 10,059
-------- -------- -------- --------
Total costs and expenses 63,575 79,161 133,068 153,589
-------- -------- -------- --------
Income before income taxes 19,333 6,983 35,663 24,439
Provision for income taxes 7,404 2,617 13,659 9,163
-------- -------- -------- --------
Net income $11,929 $4,366 $22,004 $15,276
======== ======== ======== ========
Net Income Per Share
Basic $0.60 $0.21 $1.11 $0.72
======== ======== ======== ========
Diluted $0.60 $0.21 $1.10 $0.71
======== ======== ======== ========
Weighted Average Shares
Outstanding
Basic 19,764 20,958 19,877 21,182
======== ======== ======== ========
Diluted 19,968 21,134 20,090 21,373
======== ======== ======== ========
Dividends Declared Per Share
$0.25 $0.25 $0.50 $0.50
======== ======== ======== ========
Dividends Paid Per Share
$0.25 $0.25 $0.50 $0.50
======== ======== ======== ========
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DATA
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
Restaurant Data
Effective restaurants(a)
Franchise 1,042 987 1,038 983
Company 9 32 9 37
Area license 150 145 149 145
------- ------- ------- -------
Total 1,201 1,164 1,196 1,165
======= ======= ======= =======
System-wide(b)
Sales percentage change(c) 5.6% 8.4% 5.2% 10.4%
Same-store sales percentage
change(d) 0.9% 4.2% 0.8% 5.6%
Franchise
Sales percentage change(c) 6.3% 11.6% 6.1% 13.6%
Same-store sales percentage
change(d) 0.8% 4.0% 0.8% 5.5%
Company
Sales percentage change(c) (54.2)% (61.0)% (58.7)% (54.0)%
Same-store sales percentage
change(d) (3.1)% 7.1 % (0.3)% 8.5 %
Area License
Sales percentage change(c) 10.0% 16.3% 10.7% 14.3%
(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. Franchise restaurant sales were $435.4 million and
$871.1 million for the second quarter and first six months of
2005, respectively, and sales at area license restaurants were
$46.8 million and $96.6 million for the second quarter and first
six months of 2005, respectively. 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 Six Months
Ended Ended
June 30, June 30,
-------------- ------------
2005 2004 2005 2004
------ ------ ------ -----
Restaurant Development Activity
Beginning of period 1,198 1,164 1,186 1,165
New openings
Company-developed -- 2 2 3
Franchisee-developed 11 5 22 7
Area license 2 -- 3 3
------ ------ ------ ------
Total new openings 13 7 27 13
Closings
Company and franchise (4) (4) (6) (11)
Area License -- -- -- --
------ ------ ------ ------
End of period 1,207 1,167 1,207 1,167
====== ====== ====== ======
Summary-end of period
Franchise 1,045 990 1,045 990
Company 11 32 11 32
Area license 151 145 151 145
------ ------ ------ ------
Total 1,207 1,167 1,207 1,167
====== ====== ====== ======
Restaurant Franchising Activity
Company-developed -- 2 3 4
Franchisee-developed 11 5 22 7
Rehabilitated and refranchised 2 2 5 11
------ ------ ------ ------
Total restaurants franchised 13 9 30 22
Reacquired by the Company (6) (3) (8) (3)
Closed (3) (4) (5) (8)
------ ------ ------ ------
Net addition 4 2 17 11
====== ====== ====== ======
IHOP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
2005 2004
(Unaudited)
---------------- --------------
Current assets:
Cash and cash equivalents $44,793 $44,031
Marketable securities 10,958 14,504
Other current assets 49,529 48,079
---------------- --------------
Total current assets 105,280 106,614
Property and equipment, net 320,538 326,848
Long-term receivables:
Notes receivable 34,281 39,841
Equipment leases receivable 169,206 172,927
Direct financing leases receivable 122,952 124,410
Other long-term assets 57,377 51,037
---------------- --------------
Total assets $809,634 $821,677
================ ==============
Current liabilities:
Accounts payable $17,881 $17,133
Accrued expenses 17,104 20,551
Other current liabilities 14,931 12,669
---------------- --------------
Total current liabilities 49,916 50,353
Long-term debt 132,737 133,768
Other long-term liabilities 297,238 297,792
Stockholders' equity 329,743 339,764
---------------- --------------
Total liabilities and stockholders'
equity $809,634 $821,677
================ ==============
IHOP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2005 2004
---------------- --------------
Cash flows from operating activities
Net income $22,004 $15,276
Adjustments to reconcile net income
to cash flows provided by operating
activities:
Depreciation and amortization 9,910 9,332
Impairment and closure charges 801 10,059
Changes in current assets and
liabilities (3,364) (1,061)
Other (2,521) (998)
---------------- --------------
Cash flows provided by operating
activities 26,830 32,608
Cash flows from investing activities
Additions to property and equipment (2,639) (8,978)
Purchase and redemption of marketable
securities, net 3,546 9,630
Proceeds from sale of land and
building 890 1,472
Principal receipts from long-term
receivables 10,487 10,424
Other (1,959) (1,051)
---------------- --------------
Cash flows provided by investing
activities 10,325 11,497
Cash flows from financing activities
Dividends paid (10,002) (10,696)
Purchase of treasury stock (26,121) (46,333)
Other (270) (143)
---------------- --------------
Cash flows used in financing
activities (36,393) (57,172)
---------------- --------------
Net change in cash and cash
equivalents 762 (13,067)
Cash and cash equivalents at beginning
of period 44,031 27,996
---------------- --------------
Cash and cash equivalents at end of
period $44,793 $14,929
================ ==============
IHOP CORP. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME EXCLUDING IMPAIRMENT AND CLOSURE
CHARGES AND GAIN ON SALE OF REAL ESTATE
(In thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-----------------------------------
2005 2004 2005 2004
----------------------------------
Net income, as reported $11,929 $4,366 $22,004 $15,276
Impairment and closure charges 747 8,888 801 10,059
Gain on sale of real estate -- -- -- (485)
Income tax benefit (286) (3,333) (307) (3,590)
----------------------------------
Net income excluding impairment and
closure charges and gain on sale
of real estate $12,390 $9,921 $22,498 $21,260
==================================
Basic net income per share:
Net income, as reported $0.60 $0.21 $1.11 $0.72
Impairment and closure charges 0.04 0.42 0.04 0.47
Gain on sale of real estate -- -- -- (0.02)
Income tax benefit (0.01) (0.16) (0.02) (0.17)
----------------------------------
Net income excluding impairment and
closure charges and gain on sale
of real estate $0.63 $0.47 $1.13 $1.00
==================================
Diluted net income per share:
Net income, as reported $0.60 $0.21 $1.10 $0.71
Impairment and closure charges 0.04 0.42 0.04 0.47
Gain on sale of real estate -- -- -- (0.02)
Income tax benefit (0.02) (0.16) (0.02) (0.17)
----------------------------------
Net income excluding impairment and
closure charges and gain on sale
of real estate $0.62 $0.47 $1.12 $0.99
==================================
CONTACT: IHOP Corp.
Stacy Roughan, 818-637-3632
SOURCE: IHOP Corp.