IHOP Corp. Reports Third Quarter 2006 Financial Results
Business Editors
GLENDALE, Calif.--(BUSINESS WIRE)--Oct. 25, 2006--IHOP Corp. (NYSE:IHP) today announced financial results for its third quarter and nine months ended September 30, 2006, as well as raised its fiscal 2006 earnings guidance to $2.35 to $2.40 per diluted share, including stock-based compensation expense of $2.5 to $3.5 million.
Financial performance highlights for the third quarter and the first nine months of 2006 included:
-- EPS for the third quarter 2006 of $0.62, including stock-based
compensation expense, was flat versus the same quarter last
year. EPS for the third quarter 2006, excluding stock-based
compensation expense of $1.0 million, was $0.66, a 6.5%
increase compared to prior year.
-- Through the first nine months of fiscal 2006, EPS of $1.86,
including stock-based compensation expense, increased 8.8%
versus the same period last year. EPS for the first nine
months of fiscal 2006 increased 14.0% to $1.96, excluding
stock-based compensation expense of $2.9 million.
-- Cash Flow from Operating Activities for the first nine months
of fiscal 2006 increased 18.6% to $53.9 million. Additionally,
$13.1 million of cash was provided by the collection of the
Company's long-term receivables for the first nine months of
fiscal 2006.
-- Share repurchases for the third quarter 2006 amounted to
approximately 279,000 shares of IHOP stock, totaling $13.1
million. Share repurchases for the first nine months of fiscal
2006 amounted to approximately 889,000 shares of IHOP stock,
totaling $42.7 million.
-- Same-store sales growth of 1.3% for the third quarter 2006 was
entirely driven by increases in guest traffic, which offset a
slight decrease in guest check average.
-- System-wide restaurants grew 4.9% year-over-year to a total of
1,278 IHOPs. Fifteen new restaurants were developed and opened
by IHOP franchisees and its area licensee during the quarter.
Julia A. Stewart, IHOP's Chairman and Chief Executive Officer, said, "We are pleased with our third quarter and year-to-date performance for 2006. We continue to drive organic growth throughout the IHOP system with our 15th consecutive quarter of positive same-store sales results and remain on target to meet our unit growth expectations for the year. While we are able to deliver solid results by focusing on driving top line growth, we also produced operating leverage through expense control and utilized our capital in ways that create value for our shareholders through share repurchase and dividend payments. Our improved earnings outlook for 2006 reflects the attractiveness of our franchise business model and the benefits of this successful financial formula."
Third Quarter and Nine Month 2006 Performance
IHOP reported a decrease of 5.4% in net income to $11.3 million, and diluted net income per share of $0.62 for the third quarter 2006, which was essentially flat compared to prior year. Excluding pre-tax stock-based compensation expense of $1.0 million, net income decreased 0.4% to $12.0 million, and diluted net income per share increased 6.5% to $0.66. The increases in diluted net income per share resulted primarily from a 6.6% reduction in diluted average weighted shares outstanding due to ongoing share repurchases by the Company.
For the nine months ended September 30, 2006, IHOP reported an increase of 0.7% in net income to $34.2 million, and an increase of 8.8% in diluted net income per share to $1.86. Excluding pre-tax stock-based compensation expense of $2.9 million, net income increased 5.6% to $36.0 million, and diluted net income per share increased 14.0% to $1.96. The increases in net income and diluted net income per share resulted primarily from a 10.3% increase in Franchise Operations segment profit due to higher same-store sales performance for the first nine months of fiscal 2006. This effectively leveraged against modest expense growth in this segment. Additionally, a 7.4% reduction in diluted weighted average shares outstanding contributed to IHOP's per share earnings performance for the nine months of fiscal 2006. This was due to ongoing share repurchases by the Company.
Cash Flow from Operating Activities increased for the nine months ended September 30, 2006, to $53.9 million compared with $45.4 million for the same period in 2005. This increase resulted primarily from steps taken to accelerate the depreciation of certain fixed assets for tax purposes as the result of the Company's recently completed cost segregation study. Principal receipts from notes and equipment contracts receivable, which are an additional source of cash generation for the Company, amounted to $13.1 million for the nine months ended September 30, 2006. Capital expenditures increased to $7.4 million for the first nine months of fiscal 2006 versus $3.5 million for 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.
For the third quarter 2006, system-wide same-store sales increased 1.3% due to increased guest traffic, which offset a slightly decreased guest check average. IHOP believes its appealing limited-time offers and franchisees' continued pricing moderation were primarily responsible for its positive traffic results for the quarter. For the nine months ended September 30, 2006, system-wide same-store sales increased 3.1%, primarily as a result of increases in traffic.
2006 Guidance Update
IHOP raised its fiscal 2006 earnings performance expectations to range between $2.35 and $2.40 per diluted share, including estimated stock-based compensation expense ranging between $2.5 million and $3.5 million for the year. This compares favorably to its previous earnings expectations of $2.25 to $2.35 per diluted share, including stock-based compensation expense. The Company's improved earnings outlook is primarily attributable to an overall reduction in previously planned G&A expenses for fiscal 2006, which is now expected to range between $63 million and $65 million, including stock-based compensation expense. This compares favorably to its previously stated guidance of $65 million to $67 million, including stock-based compensation expense for fiscal 2006.
IHOP also raised its fiscal 2006 guidance for Cash Flows from Operating Activities to $60 million to $65 million, largely due to the net benefit associated with the Company's previously announced cost segregation efforts, resulting in the accelerated depreciation of certain fixed assets for tax purposes. This compares favorably to its previous Cash Flows from Operating Activities guidance of $55 million to $60 million for fiscal 2006. IHOP reiterated its principal receipts from notes and equipment contract receivable guidance, which is expected to be within the range of $18 million to $20 million.
IHOP reduced its Capital expenditures expectations for fiscal 2006 to range between $9 million and $11 million, which compares to its previously stated range of $12 million to $14 million. This reduction reflects lower estimates associated with the build out of IHOP's Company market in Cincinnati, Ohio.
Investor Conference Call Today
IHOP will host an investor conference call to discuss its third quarter 2006 results today, Wednesday, October 25, 2006, at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time). To participate on the call, please dial 888-396-2384 and reference pass code 87528595. 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 November 1, 2006, by dialing 888-286-8010 and referencing pass code 42752292. 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-based IHOP Corp. As of September 30, 2006, the end of IHOP's third quarter, there were 1,278 IHOP restaurants in 49 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 Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2006 2005 2006 2005
--------- -------- --------- ---------
Revenues
Franchise revenues $ 45,961 $43,292 $133,706 $124,076
Rental income 33,428 33,239 99,032 99,083
Company restaurant sales 3,492 3,574 9,649 11,366
Financing revenues 5,156 11,197 19,241 25,508
--------- -------- --------- ---------
Total revenues 88,037 91,302 261,628 260,033
--------- -------- --------- ---------
Costs and Expenses
Franchise expenses 21,520 20,720 61,244 58,371
Rental expenses 24,371 24,633 73,526 73,649
Company restaurant expenses 4,054 3,559 10,941 12,153
Financing expenses 2,092 7,532 9,961 13,676
General and administrative
expenses 16,230 14,881 46,508 42,958
Other expense, net 1,567 844 3,718 4,430
--------- -------- --------- ---------
Total costs and expenses 69,834 72,169 205,898 205,237
--------- -------- --------- ---------
Income before income taxes 18,203 19,133 55,730 54,796
Provision for income taxes 6,880 7,161 21,507 20,820
--------- -------- --------- ---------
Net income $ 11,323 $11,972 $ 34,223 $ 33,976
========= ======== ========= =========
Net Income Per Share
Basic $ 0.63 $ 0.62 $ 1.88 $ 1.73
========= ======== ========= =========
Diluted $ 0.62 $ 0.62 $ 1.86 $ 1.71
========= ======== ========= =========
Weighted Average Shares
Outstanding
Basic 17,921 19,224 18,168 19,660
========= ======== ========= =========
Diluted 18,123 19,394 18,381 19,858
========= ======== ========= =========
Dividends Declared Per Share $ 0.25 $ 0.25 $ 0.75 $ 0.75
========= ======== ========= =========
Dividends Paid Per Share $ 0.25 $ 0.25 $ 0.75 $ 0.75
========= ======== ========= =========
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DATA
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2006 2005 2006 2005
--------- -------- -------- --------
Restaurant Data
Effective restaurants(a)
Franchise 1,099 1,048 1,088 1,042
Company 8 7 7 8
Area license 156 151 155 150
--------- -------- -------- --------
Total 1,263 1,206 1,250 1,200
========= ======== ======== ========
System-wide(b)
Sales percentage change(c) 6.2% 9.6% 7.8% 6.7%
Same-store sales percentage
change(d) 1.3% 4.5% 3.1% 2.1%
Franchise(b)
Sales percentage change(c) 6.3% 10.5% 8.1% 7.6%
Same-store sales percentage
change(d) 1.3% 4.5% 3.1% 2.1%
Company
Sales percentage change(c) (2.3)% (52.4)% (15.1)% (56.9)%
Area License(b)
Sales percentage change(c) 5.5% 12.4% 6.7% 11.3%
(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 at IHOP restaurants operated by
franchisees, area licensees and the Company, as reported to the
Company. Franchise restaurant sales were $489.3 million and
$1,438.9 million for the third quarter and first nine months ended
September 30, 2006, respectively, and sales at area license
restaurants were $49.7 million and $153.3 million for the third
quarter and first nine months ended September 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 Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2006 2005 2006 2005
------ ------ ------ ------
Restaurant Development Activity
Beginning of period 1,264 1,207 1,242 1,186
New openings
Company-developed 2 -- 3 2
Franchisee-developed 12 12 35 34
Area license 3 1 6 4
------ ------ ------ ------
Total new openings 17 13 44 40
Closings
Company and franchise (3) (2) (7) (8)
Area license -- -- (1) --
------ ------ ------ ------
End of period 1,278 1,218 1,278 1,218
====== ====== ====== ======
Summary-end of period
Franchise 1,111 1,062 1,111 1,062
Company 9 4 9 4
Area license 158 152 158 152
------ ------ ------ ------
Total 1,278 1,218 1,278 1,218
====== ====== ====== ======
Restaurant Franchising Activity
Company-developed -- -- -- 3
Franchisee-developed 12 12 35 34
Rehabilitated and refranchised -- 13 8 18
------ ------ ------ ------
Total restaurants franchised 12 25 43 55
Reacquired by the Company -- (6) (7) (14)
Closed (3) (2) (7) (7)
------ ------ ------ ------
Net addition 9 17 29 34
====== ====== ====== ======
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, 2006 December 31, 2005
------------------ -----------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 26,410 $ 23,111
Receivables, net 41,363 43,690
Reacquired franchises and
equipment held for sale, net -- 273
Inventories 359 537
Prepaid expenses 3,214 2,899
------------------ -----------------
Total current assets 71,346 70,510
------------------ -----------------
Long-term receivables 306,446 319,335
Property and equipment, net 312,194 317,959
Excess of costs over net assets
acquired 10,767 10,767
Other assets 60,856 52,509
------------------ -----------------
Total assets $ 761,609 $ 771,080
================== =================
Liabilities and Stockholders'
Equity
Current liabilities
Current maturities of long-term
debt $ 19,693 $ 19,564
Accounts payable 8,197 15,083
Accrued employee compensation
and benefits 10,535 10,745
Other accrued expenses 11,824 9,030
Deferred income taxes 2,617 2,882
Capital lease obligations 4,855 4,491
------------------ -----------------
Total current liabilities 57,721 61,795
------------------ -----------------
Long-term debt, less current
maturities 112,515 114,210
Deferred income taxes 69,037 61,414
Capital lease obligations 170,906 172,681
Other liabilities 73,622 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;
September 30, 2006: 22,712,655
shares issued and 17,768,196
shares outstanding; December
31, 2005: 22,464,760 shares
issued and 18,409,587 shares
outstanding 226 225
Additional paid-in capital 126,227 120,922
Retained earnings 353,102 332,560
Deferred compensation -- (747)
Accumulated other comprehensive
loss (143) (205)
Treasury stock, at cost
(4,944,459 shares and 4,055,173
shares at September 30, 2006 and
December 31, 2005, respectively) (201,604) (158,909)
------------------ -----------------
Total stockholders' equity 277,808 293,846
------------------ -----------------
Total liabilities and
stockholders' equity $ 761,609 $ 771,080
================== =================
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
--------------------------------
2006 2005
---------------- ---------------
Cash flows from operating activities
Net income $ 34,223 $ 33,976
Adjustments to reconcile net income
to cash flows provided by
operating activities
Depreciation and amortization 15,042 14,759
Impairment and closure charges 43 885
Deferred income taxes 7,358 (2,170)
Stock-based compensation expense 2,902 201
Excess tax benefit from stock-
based compensation (594) --
Tax benefit from stock options
exercised -- 837
Changes in operating assets and
liabilities
Receivables 2,020 1,855
Inventories 178 (711)
Prepaid expenses (315) 975
Accounts payable (6,886) (3,433)
Accrued employee compensation
and benefits (210) (1,153)
Other accrued expenses 2,794 943
Other (2,677) (1,531)
---------------- ---------------
Cash flows provided by
operating activities 53,878 45,433
---------------- ---------------
Cash flows from investing activities
Additions to property and equipment (7,373) (3,476)
Additions to long-term receivables 255 (305)
Purchase and redemption of
marketable securities, net -- 2,033
Proceeds from sale of land and
building -- 890
Principal receipts from notes and
equipment contracts receivable 13,129 14,387
Additions to reacquired franchises
and equipment held for sale (581) (1,871)
Property insurance proceeds 2,034 --
---------------- ---------------
Cash flows provided by
investing activities 7,464 11,658
---------------- ---------------
Cash flows from financing activities
Repayment of long-term debt (1,566) (1,453)
Principal payments on capital lease
obligations (3,252) (2,890)
Dividends paid (13,681) (14,862)
Purchase of treasury stock (42,695) (56,417)
Proceeds from stock options
exercised 2,557 2,584
Excess tax benefit from stock-based
compensation 594 --
---------------- ---------------
Cash flows used in financing
activities (58,043) (73,038)
---------------- ---------------
Net change in cash and cash
equivalents 3,299 (15,947)
Cash and cash equivalents at
beginning of period 23,111 44,031
---------------- ---------------
Cash and cash equivalents at end of
period $ 26,410 $ 28,084
================ ===============
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 Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2006 2005 2006 2005
---------- --------- --------- ---------
Net income, as reported $ 11,323 $ 11,972 $ 34,223 $ 33,976
Stock option expense 467 -- 1,516 --
Restricted stock 576 86 1,386 201
Income tax benefit (394) (32) (1,120) (76)
---------- --------- --------- ---------
Net income excluding stock-
based compensation expense $ 11,972 $ 12,026 $ 36,005 $ 34,101
========== ========= ========= =========
Basic net income per share:
Net income, as reported per
share $ 0.63 $ 0.62 $ 1.88 $ 1.73
Stock option expense per
share 0.03 -- 0.08 --
Restricted stock per share 0.03 0.01 0.08 --
Income tax benefit per share (0.02) -- (0.06) --
---------- --------- --------- ---------
Net income excluding stock-
based compensation expense
per share $ 0.67 $ 0.63 $ 1.98 $ 1.73
========== ========= ========= =========
Diluted net income per share:
Net income, as reported per
share $ 0.62 $ 0.62 $ 1.86 $ 1.71
Stock option expense per
share 0.03 -- 0.08 --
Restricted stock per share 0.03 -- 0.08 0.01
Income tax benefit per share (0.02) -- (0.06) --
---------- --------- --------- ---------
Net income excluding stock-
based compensation expense
per share $ 0.66 $ 0.62 $ 1.96 $ 1.72
========== ========= ========= =========
CONTACT: IHOP Corp.
Stacy Roughan, Director, Investor Relations
818-637-3632
SOURCE: IHOP Corp.