) recently announced that it has struck a deal with Apple Franchise
Capital, LLC to sell 33 company-owned Applebee's restaurants in
Missouri and Indiana for about $26 million. The company intends to
reduce its financial obligations and shift toward a franchise-based
model through this deal. The transaction is expected to close in
the third quarter of 2012.
Moreover, on the first day of this month, the company also
announced the sale of 39 company-operated Applebee's restaurants in
Virginia and expects to clinch this deal also in the third quarter
During the first quarter, DineEquity completed the sale of 17
company-operated Applebee's restaurants located in a six-state
market around Tennessee, consistent with the company's strategy of
becoming highly franchised.
Following the footsteps of other noted restaurant companies in
the U.S., DineEquity is also shifting its focus toward franchised
operations from company-owned restaurants as a de-risking strategy,
given that expansion through franchising is less capital intensive
and income is fixed in the form of fee.
DineEquity acquired Applebee's International in November 2007 in
a $2 billion leveraged buyout. Since then, the company has sold a
total of 342 Applebee's company-operated restaurants.
The sale of company-owned Applebee's restaurants has reduced the
debt burden of the company considerably by the use of free cash
flow. As of March 31, 2012, the company's long-term debt
liability was $1,338.0 million compared with $1,411.4 million as of
December 31, 2011. During the quarter, the company reduced its
total debt burden by $85.9 million.
At the end of the first quarter, more than 95% of DineEquity's
Applebee's and IHOP restaurants were franchised. Upon completion of
the pending sale, this percentage will rise to 97%. Although
DineEquity's transition to a more franchise-based model will
decrease company-owned revenues, this will enhance free cash flow
generation by reducing capital employed.
For fiscal 2012, Applebee's franchise plans to open 30 to 40
restaurants, half of which are expected to open in the U.S.
With more than 3,500 Applebee's and IHOP restaurants combined,
DineEquity is the largest full-service restaurant company in the
world with brands leading in their respective categories of casual
and family dining.
DineEquity's primary competitors are
Brinker International Inc.
DENNY'S CORP (DENN): Free Stock Analysis Report
DINEEQUITY INC (DIN): Free Stock Analysis
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