2nd UPDATE: DineEquity Up On 3Q Beat, Improving Sales
(Adds details from conference call and stock movement.)
By Paul Ziobro
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- DineEquity Inc. (DIN) shares rose 12% after the company
said same-store sales declines moderated in October with a refined version of
its "Two for $20" promotion and marketing targeting football fans.
"We are encouraged by an improvement in Applebee's same-store sales trend so
far in the month of October," DineEquity Chairman and Chief Executive Julia
Stewart said Tuesday in a third-quarter earnings call.
She later added: "We believe all of the things are in play to make that
sustainable for the rest of the year."
Investors have been awaiting signs that same-store sales are improving at
casual-dining restaurants, especially as they face easy comparisons from a year
ago when consumer spending retrenched sharply after the financial market's
meltdown. Most restaurants also have less room to rely on cost cuts to grow
profits after a year of managing their business tighter, putting sales in the
spotlight.
DineEquity shares were recently up $2.60, or 12%, at $24.21. Earlier, the
company reported third-quarter earnings ahead of analyst expectations, with
lower costs and better margins at Applebee's stores overcoming continuing
declines in same-store sales.
Same-store sales were down 1.1% at DineEquity's IHOP brand and 6.5% at
Applebee's for the quarter. The company also said Applebee's sales would be at
the low end of its guidance for the year. But later comments on the recent sales
trajectory helped to reassure investors.
"The highlight from the call is that October sales trends have improved at
Applebee's," Telsey Advisory Group analyst Tom Forte said.
DineEquity also continues to negotiate with prospective buyers of some 400
company-owned Applebee's, proceeds of which will help pay down debt from a $2.1
billion deal in 2007 that brought the two brands together.
The company's willing to wait for the right price as the credit crunch impedes
sales. It has also improved operating margins at the Applebee's stores, which
has given the company enough of a cushion that it expects to be able to meet its
debt covenant obligations over the next year even without the sale of any
stores.
Price competition remains a concern in casual-dining, especially as
competitors retaliate with their own promotions. Applebee's main threat comes
from Brinker International Inc.'s (EAT) Chili's Grill & Bar chain, which is
offering an appetizer, two entrees and a dessert for $20, one-upping Applebee's
deal.
Applebee's doesn't feel the need to raise the bar on discounting. "I think
we'll stay where we are, and let other people try to steal shamelessly," Stewart
said.
For the quarter, DineEquity's swung to a profit of $7.9 million, or 46 cents a
share, compared with a prior-year loss of $16.4 million, or 98 cents a share.
Excluding items such prior-year write-downs and closure charges, earnings were
55 cents compared with a prior-year loss of 8 cents.
Revenue decreased 15% to $333.6 million amid the sale of 110 company-operated
Applebee's restaurants in the past year.
Analysts polled by Thomson Reuters most recently forecast earnings of 30 cents
on revenue of $337 million.
- By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com
(Tess Stynes contributed to this article.)
(END) Dow Jones Newswires
10-27-091316ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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