IHOP Corp. Reports Second Quarter 2006 Financial Results
GLENDALE, Calif.--(BUSINESS WIRE)--July 26, 2006--IHOP Corp. (NYSE:IHP) today announced financial results for its second quarter and six months ended June 30, 2006. Financial performance highlights included:
-- EPS excluding stock based compensation expense of $1.1 million
was $0.60, flat over prior year's performance. Year-to-date
EPS increased 18.2% to $1.30 excluding stock based
compensation expense of $1.9 million.
-- Cash Flow from Operating Activities increased 13.3% to $30.4
million year-to-date. Additionally, $9.2 million of cash was
provided by the collection of the Company's long-term
receivables for the first six months of 2006.
-- Share repurchases in the second quarter 2006 amounted to
397,300 shares of IHOP stock totaling $19.0 million. Compared
to prior year, diluted weighted average shares outstanding
were reduced by 8.0%.
-- Segment leading same-store sales growth of 3.1% reflects
sizable increases in traffic that outpaced average guest check
increases.
-- System-wide restaurants grew 4.7% year-over-year to a total of
1,264 IHOPs. 16 new restaurants were developed and opened by
IHOP franchisees during the quarter.
-- Management reiterated fiscal 2006 EPS guidance of $2.35 to
2.45 per diluted share, excluding stock based compensation
expense of $2.5 to $3.5 million.
Julia A. Stewart, IHOP's Chairman and Chief Executive Officer, said, "Positive, traffic driven sales growth, new franchise restaurant openings and ongoing share repurchases contributed to our second quarter results and a strong first half of the year and should continue to be the key levers we employ to manage our business. While General & Administrative (G&A) expenses grew for the quarter in part due to the adoption of FAS 123R, this increase was expected and is provided for in our existing guidance for the full year. We remain confident of meeting our previously stated performance expectations for fiscal 2006."
Second Quarter 2006 Performance
IHOP reported a decrease of 13.6% in net income to $10.3 million, and a decrease of 6.7% in diluted net income per share to $0.56 in the second quarter 2006. Excluding pre-tax stock based compensation expense of $1.1 million, net income decreased 8.7% to $10.9 million, and diluted net income per share was flat at $0.60. The decreases in net income and diluted net income per share resulted primarily from a 21.4% increase in G&A expenses, offset in part by an 8.0% reduction in diluted average weighted shares outstanding due to ongoing share repurchases by the Company.
For the six months ended June 30, 2006, IHOP reported an increase of 4.1% in net income to $22.9 million, and an increase of 12.7% in diluted net income per share to $1.24. Excluding pre-tax stock based compensation expense of $1.9 million, net income increased 8.9% to $24.0 million, and diluted net income per share increased 18.2% to $1.30. The increases in net income and diluted net income per share resulted primarily from an 11.3% increase in Franchise Operations segment profit due to higher same-store sales performance in the first six months of 2006, which effectively leveraged against modest expense growth in this segment. Additionally, a 7.9% reduction in diluted weighted average shares outstanding due to ongoing share repurchases by the Company contributed to IHOP's per share earnings performance for the first half of 2006.
Cash Flow from Operating Activities increased in the six months ended June 30, 2006 to $30.4 million compared with $26.8 million in the same period in 2005. This increase is primarily due to net earnings growth exclusive of non-cash stock based compensation expense as well as improved collection of receivables compared to the same period in 2005. Principal receipts from notes and equipment contracts receivable, which are an additional source of cash generation for the Company, amounted to $9.2 million in the six months ended June 30, 2006. Capital expenditures increased to $3.9 million in the first six months of 2006 versus $2.6 million in the same period in 2005. The increase in capital expenditures primarily reflects the cost of restaurant development in IHOP's Company market in Cincinnati, Ohio.
2006 Guidance Reiteration
IHOP reiterated its 2006 earnings performance expectations, ranging between $2.25 and $2.35 per diluted share including estimated stock based compensation expense ranging between $2.5 million and $3.5 million for the year. The Company's earnings performance expectations are primarily based on revenue drivers including positive same-store sales growth of between 2% and 4% and the addition of 64 to 69 new restaurants to the IHOP system in 2006, managed G&A growth with expenses expected to range between $65 million to $67 million in 2006, which includes estimated stock based compensation expense, and the effect of ongoing share repurchases by the Company.
Cash Flow from Operating Activities is expected to range between $55 million and $60 million in 2006, and principal receipts from notes and equipment contract receivable are expected to be within the range of $18 million to $20 million. Capital expenditures are expected to range between $12 million to $14 million in 2006, which primarily reflects investment in the development of four IHOP restaurants in its Company market in Cincinnati, Ohio, as well as supporting and optimizing the Company's Information Technology infrastructure. Cash commitments in 2006 are expected to be approximately $24 million, which includes the first principal repayment of the Company's private placement debt, other scheduled principal payments on long-term debt and capital lease obligations. Additionally, year-to-date the Company has paid to its shareholders $9.2 million in dividends and has declared its third quarter dividend in the approximate amount of $4.6 million, payable August 22, 2006.
Investor Conference Call Today
IHOP will host an investor conference call to discuss its second quarter 2006 results today, Wednesday, July 26, 2006 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time). To participate on the call, please dial 800-659-1966 and reference pass code 63639101. 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 August 2, 2006 by dialing 888-286-8010 and referencing pass code 58557247. 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 14 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, California based IHOP Corp. As of June 30, 2006, the end of IHOP's second quarter, there were 1,264 IHOP restaurants in 48 states and Canada. IHOP Corp. common stock is listed and 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 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.
References to Non-GAAP Financial Measures
This news release includes references to the non-GAAP financial measure "net income excluding stock based compensation expense." The Company defines "net income excluding stock based compensation expense" for a given period as net income for such period, less any stock based compensation expense incurred in such period. Management believes net income excluding stock based compensation expense and basic and diluted net income per share excluding stock based compensation expense is useful because it provides a more accurate period to period comparison. Net income excluding stock based compensation expense for any given period may be affected by a variety of factors, including but not limited to, changes in assets and liabilities and the timing of purchases and payments. Net income excluding stock based compensation expense is a supplemental non-GAAP financial measure and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenues
Franchise revenues $42,490 $39,887 $87,745 $80,784
Rental income 32,254 32,806 65,604 65,844
Company restaurant sales 2,785 3,806 6,157 7,792
Financing revenues 7,545 6,409 14,085 14,311
-------- -------- -------- --------
Total revenues 85,074 82,908 173,591 168,731
-------- -------- -------- --------
Costs and Expenses
Franchise expenses 19,226 18,196 39,724 37,651
Rental expenses 24,507 24,333 49,155 49,016
Company restaurant expenses 3,131 3,788 6,887 8,594
Financing expenses 4,829 2,794 7,869 6,158
General and administrative
expenses 15,188 12,514 30,278 28,077
Other expense, net 979 1,950 2,151 3,572
-------- -------- -------- --------
Total costs and expenses 67,860 63,575 136,064 133,068
-------- -------- -------- --------
Income before income taxes 17,214 19,333 37,527 35,663
Provision for income taxes 6,908 7,404 14,627 13,659
-------- -------- -------- --------
Net income $10,306 $11,929 $22,900 $22,004
======== ======== ======== ========
Net Income Per Share
Basic $0.57 $0.60 $1.25 $1.11
======== ======== ======== ========
Diluted $0.56 $0.60 $1.24 $1.10
======== ======== ======== ========
Weighted Average Shares
Outstanding
Basic 18,159 19,764 18,290 19,877
======== ======== ======== ========
Diluted 18,369 19,968 18,509 20,090
======== ======== ======== ========
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 Ended
June 30, June 30,
--------------- ---------------
2006 2005 2006 2005
------- ------- ------- -------
Restaurant Data
Effective restaurants (a)
Franchise 1,087 1,042 1,083 1,038
Company 6 9 7 9
Area license 155 150 155 149
------- ------- ------- -------
Total 1,248 1,201 1,245 1,196
======= ======= ======= =======
System-wide (b)
Sales percentage change (c) 7.8% 5.6% 8.6% 5.2%
Same-store sales percentage change
(d) 3.1% 0.9% 4.1% 0.8%
Franchise (b)
Sales percentage change (c) 8.0% 6.3% 9.0% 6.1%
Same-store sales percentage change
(d) 3.1% 0.8% 4.2% 0.8%
Company
Sales percentage change (c) (26.8)% (54.2)% (21.0)% (58.7)%
Area License (b)
Sales percentage change (c) 8.5% 10.0% 7.2% 10.7%
(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. 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 at IHOP restaurants
operated by franchisees, area licensees and the Company,
as reported to the Company. Franchise restaurant sales
were $470.2 million and $949.6 million for the second
quarter and first six months ended June 30, 2006,
respectively, and sales at area license restaurants were
$50.8 million and $103.6 million for the second quarter
and first six months ended June 30, 2006, respectively.
Sales at 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,
------------- -------------
2006 2005 2006 2005
------ ------ ------- -----
Restaurant Development Activity
Beginning of period 1,252 1,198 1,242 1,186
New openings
Company-developed 1 -- 1 2
Franchisee-developed 16 11 23 22
Area license -- 2 3 3
------ ------ ------ ------
Total new openings 17 13 27 27
Closings
Company and franchise (4) (4) (4) (6)
Area license (1) -- (1) --
------ ------ ------ ------
End of period 1,264 1,207 1,264 1,207
====== ====== ====== ======
Summary-end of period
Franchise 1,102 1,045 1,102 1,045
Company 7 11 7 11
Area license 155 151 155 151
------ ------ ------ ------
Total 1,264 1,207 1,264 1,207
====== ====== ====== ======
Restaurant Franchising Activity
Company-developed -- -- -- 3
Franchisee-developed 16 11 23 22
Rehabilitated and refranchised 5 2 8 5
------ ------ ------ ------
Total restaurants franchised 21 13 31 30
Reacquired by the Company (5) (6) (7) (8)
Closed (4) (3) (4) (5)
------ ------ ------ ------
Net addition 12 4 20 17
====== ====== ====== ======
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30, December 31,
2006 2005
----------- -----------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $21,301 $23,111
Receivables, net 40,623 43,690
Reacquired franchises and equipment held for
sale, net -- 273
Inventories 525 537
Prepaid expenses 2,785 2,899
---------- -----------
Total current assets 65,234 70,510
---------- -----------
Long-term receivables 310,786 319,335
Property and equipment, net 311,838 317,959
Excess of costs over net assets acquired 10,767 10,767
Other assets 57,853 52,509
Total assets $756,478 $771,080
========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $19,649 $19,564
Accounts payable 17,113 15,083
Accrued employee compensation and benefits 9,103 10,745
Other accrued expenses 10,346 9,030
Deferred income taxes 2,606 2,882
Capital lease obligations 4,687 4,491
---------- -----------
Total current liabilities 63,504 61,795
---------- -----------
Long-term debt, less current maturities 113,090 114,210
Deferred income taxes 54,797 61,414
Capital lease obligations 170,330 172,681
Other liabilities 72,190 67,134
Commitments and contingencies
Stockholders' equity
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued and
outstanding -- --
Common stock, $.01 par value, 40,000,000
shares authorized; June 30, 2006: 22,686,439
shares issued and 18,021,366 shares
outstanding; December 31, 2005: 22,464,760
shares issued and 18,409,587 shares
outstanding 226 225
Additional paid-in capital 124,622 120,922
Retained earnings 346,278 332,560
Deferred compensation -- (747)
Accumulated other comprehensive loss (70) (205)
Treasury stock, at cost (4,665,073 shares and
4,055,173 shares at June 30, 2006 and December
31, 2005, respectively) (188,489) (158,909)
---------- -----------
Total stockholders' equity 282,567 293,846
---------- -----------
Total liabilities and stockholders' equity $756,478 $771,080
========== ===========
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
-----------------
2006 2005
-------- --------
Cash flows from operating activities
Net income $22,900 $22,004
Adjustments to reconcile net income to cash flows
provided by operating activities
Depreciation and amortization 9,988 9,795
Impairment and closure charges 43 801
Deferred income taxes (6,893) (2,219)
Stock-based compensation expense 1,859 115
Excess tax benefit from stock-based compensation (395) --
Tax benefit from stock options exercised -- 1,355
Changes in operating assets and liabilities
Receivables 2,758 (406)
Inventories 12 (740)
Prepaid expenses 114 481
Accounts payable 2,030 748
Accrued employee compensation and benefits (1,642) (2,240)
Other accrued expenses 1,316 (1,207)
Other (1,698) (1,657)
-------- --------
Cash flows provided by operating activities 30,392 26,830
-------- --------
Cash flows from investing activities
Additions to property and equipment (3,857) (2,639)
Additions to long-term receivables 168 (675)
Purchase and redemption of marketable securities,
net -- 3,546
Proceeds from sale of land and building -- 890
Principal receipts from notes and equipment
contracts receivable 9,197 10,487
Additions to reacquired franchises and equipment
held for sale (581) (1,284)
Property insurance proceeds 2,234 --
-------- --------
Cash flows provided by investing activities 7,161 10,325
-------- --------
Cash flows from financing activities
Repayment of long-term debt (1,035) (963)
Principal payments on capital lease obligations (2,155) (1,851)
Dividends paid (9,182) (10,002)
Purchase of treasury stock (29,580) (26,121)
Proceeds from stock options exercised 2,194 2,544
Excess tax benefit from stock-based compensation 395 --
-------- --------
Cash flows used in financing activities (39,363) (36,393)
-------- --------
Net change in cash and cash equivalents (1,810) 762
Cash and cash equivalents at beginning of period 23,111 44,031
-------- --------
Cash and cash equivalents at end of period $21,301 $44,793
======== ========
IHOP CORP. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts)
(Unaudited)
Reconciliation of net income to net income excluding impact of stock
based compensation expense:
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Net income, as reported $10,306 $11,929 $22,900 $22,004
Stock option expense 484 -- 1,049 --
Restricted stock 566 86 810 115
Income tax benefit (421) (33) (725) (44)
-------- -------- -------- --------
Net income excluding stock based
compensation expense $10,935 $11,982 $24,034 $22,075
======== ======== ======== ========
Basic net income per share:
Net income, as reported per share $0.57 $0.60 $1.25 $1.11
Stock option expense per share 0.02 -- 0.06 --
Restricted stock per share 0.03 0.01 0.04 --
Income tax benefit per share (0.02) -- (0.04) --
-------- -------- -------- --------
Net income excluding stock based
compensation expense per share $0.60 $0.61 $1.31 $1.11
======== ======== ======== ========
Diluted net income per share:
Net income, as reported per share $0.56 $0.60 $1.24 $1.10
Stock option expense per share 0.03 -- 0.06 --
Restricted stock per share 0.03 -- 0.04 --
Income tax benefit per share (0.02) -- (0.04) --
-------- -------- -------- --------
Net income excluding stock based
compensation expense per share $0.60 $0.60 $1.30 $1.10
======== ======== ======== ========
CONTACT: IHOP Corp.
Stacy Roughan, 818-637-3632
SOURCE: IHOP Corp.