DineEquity, Inc., the parent company of Applebee’s Neighborhood Grill & Bar and IHOP restaurants, announced financial results for the fourth quarter and fiscal 2016.
“While this has been a challenging period for the industry, particularly for casual dining and Applebee’s, I have confidence in our brands, our franchisees and our team members,” says Richard J. Dahl, chairman and interim chief executive officer of DineEquity, Inc.
“Working with a world-class management consulting firm to conduct a comprehensive diagnostic on Applebee’s, we are moving forward with a plan to significantly invest in the growth of our brands for the long-term benefit of our franchisees and shareholders. We have identified key strategic initiatives, which we believe will drive meaningful improvements in sales and traffic over time. To drive the business forward, we know that there is more that needs to be done. I am confident in our roadmap.”
DineEquity, Inc. also announced that it has accepted the resignation of its Chief Financial Officer, Thomas W. Emrey, to be effective March 15. Emrey is leaving to accept the position of Chief Financial Officer at Munchkin, Inc., a leading global infant products lifestyle brand. Effective March 15, 2017, Greggory H. Kalvin, DineEquity’s Senior Vice President, Corporate Controller, will assume the role of interim CFO until a permanent successor to Emrey is named. A search for a permanent CFO has commenced.
Commenting on Emrey’s departure, Dahl says, “On behalf of everyone at DineEquity and our board of directors, I would like to thank Tom for his many contributions during his tenure as CFO. Tom has been a valued member of the DineEquity executive team for more than 5 years. We wish him much success in his future endeavors. I am confident that Gregg Kalvin, our long-time controller, will do an excellent job.”
Fourth Quarter of Fiscal 2016 Financial Highlights
GAAP net income available to common stockholders was $21.1 million for the fourth quarter of 2016, or earnings per diluted share of $1.18. This compares to net income available to common stockholders of $25 million, or earnings per diluted share of $1.35, for the fourth quarter of 2015. GAAP net income for the fourth quarter of 2016 declined compared to the same period of 2015 mainly due to a decrease in gross profit, partially offset by improvement in general and administrative expenses primarily due to lower incentive compensation.
Adjusted net income available to common stockholders was $24.5 million, or adjusted earnings per diluted share of $1.37, for the fourth quarter of 2016. This compares to $29.5 million, or adjusted earnings per diluted share of $1.59, for the same period of 2015. The decrease in adjusted net income was mainly due to lower gross profit. The decrease was partially offset by improvement in general and administrative expenses primarily due to lower incentive compensation.
General and administrative expenses were $37 million for the fourth quarter of 2016. This compares to approximately $45 million for the same period of 2015. The improvement was mainly due to lower incentive compensation and a decline in costs associated with the timing of franchise conferences.
Fiscal 2016 Financial Highlights
GAAP net income available to common stockholders was $96.6 million for fiscal 2016, or earnings per diluted share of $5.33. This compares to net income available to common stockholders of $103.5 million, or earnings per diluted share of $5.52, for fiscal 2015. The decrease in GAAP net income was primarily due to lower gross profit, which included an incremental $9.4 million as a result of a 53rd week in fiscal 2015. The decrease was partially offset by lower income tax expense due to lower state tax rates applied to our deferred tax balances as the result of our restaurant support center consolidation as well as an improvement in general and administrative expenses mainly due to lower incentive compensation.
Adjusted net income available to common stockholders was $108.9 million, or adjusted earnings per diluted share of $6.01, for fiscal 2016. This compares to $116.1 million, or adjusted earnings per diluted share of $6.19, for fiscal 2015. The decline in adjusted earnings per diluted share was mainly due to lower gross profit, which included an incremental $9.4 million as a result of a 53rd week in fiscal 2015. This was partially offset by fewer weighted average diluted shares outstanding, a decline in general and administrative expenses and a lower income tax rate.
General and administrative expenses were $148.9 million for fiscal 2016. This compares to $155.4 million for fiscal 2015. The improvement was primarily due to lower incentive compensation.
In fiscal 2016, cash flows from operating activities were $118.1 million compared to $135.5 million in fiscal 2015. Adjusted free cash flow was $122.5 million for full-year fiscal 2016, compared to $142.3 million for full-year fiscal 2015.
Same-Restaurant Sales Performance
Fourth Quarter of Fiscal 2016
IHOP’s domestic system-wide comparable same restaurant sales declined 2.1 percent for the fourth quarter of 2016.
Applebee’s domestic system-wide comparable same-restaurant sales declined 7.2 percent for the fourth quarter of 2016.
Fiscal 2016
IHOP’s domestic system-wide comparable same restaurant sales decreased 0.1 percent for fiscal 2016.
Applebee’s domestic system-wide comparable same-restaurant sales decreased 5 percent for fiscal 2016.
Financial Performance Guidance for Fiscal 2017
The following projections for fiscal 2017 are based on management’s expectations as of March 1, 2017.
Applebee’s domestic system-wide same-restaurant sales performance is expected to range between negative 4 and negative 8 percent.
IHOP’s domestic system-wide same-restaurant sales performance is expected to range between flat and positive 3 percent.
Applebee’s franchisees are projected to develop between 20 and 30 new restaurants globally, the majority of which are expected to be international openings. As part of a detailed system-wide analysis to optimize the health of the franchisee system, we anticipate the closure of approximately 40 to 60 restaurants. The expected closures will be based on several criteria, including meeting our brand and image standards and operational results.
IHOP franchisees and its area licensee are projected to develop between 75 and 90 restaurants globally, the majority of which are expected to be domestic openings. We expect the closure of approximately 18 restaurants as part of normal attrition.
Franchise segment profit is expected to be between $323 million and $338 million.
Rental and Financing segments are expected to generate roughly $38 million in combined profit.
General and administrative expenses are expected to range between $170 million and $177 million, including non-cash stock-based compensation expense and depreciation of approximately $22 million. The anticipated increase in general and administrative expenses compared to fiscal 2016 is primarily due to expectations for higher personnel-related and incentive compensation costs as well as investments in Applebee’s stabilization initiatives. These initiatives will total approximately $10 million in fiscal 2017 and we expect that a substantial amount will not recur. The range for expected general and administrative expenses is inclusive of approximately $9 million of non-recurring cash severance and equity compensation charges to be incurred in the first quarter of fiscal 2017.
Interest expense is expected to be approximately $62 million. Approximately $3 million is projected to be non-cash interest expense.
Weighted average diluted shares outstanding are expected to be approximately 18 million shares.
The income tax rate is expected to be approximately 38 percent.
Cash flow provided by operating activities is expected to range between $98 million and $108 million. The expected decline compared to fiscal 2016 is primarily due to projections for lower net income due to higher general and administrative expenses as well as expectations for domestic system-wide comparable same restaurant sales.
Capital expenditures are projected to be roughly $12 million.
Adjusted free cash flow (See “Non-GAAP Financial Measures” below) is projected to range between $96 million and $106 million. The expected decline in adjusted free cash flow compared to fiscal 2016 is primarily due to projections for lower net income due to higher general and administrative expenses as well as expectations for domestic system-wide comparable same restaurant sales.
