KANSAS CITY, Mo. – Pancake house operator IHOP Corp., which is acquiring casual dining chain Applebee's International, said Wednesday its second-quarter profit rose 37 percent, helped by new franchise restaurant openings, same-store sales growth and cost controls.
Net income for the quarter ended June 30 rose to $14.1 million, or 82 cents per share, from $10.3 million, or 56 cents per share, a year ago.
Analysts surveyed by Thomson Financial were looking for profit of just 59 cents per share.
Revenue climbed to $89.5 million from $85.1 million last year, above the $87.3 million analysts projected.
The company also said it was paying a dividend of 25 cents per share.
IHOP shares, which have traded in a 52-week range of $44.06 to $66.40, were up 56 cents to $65.58 in midday trading Wednesday.
Julia A. Stewart, the company's chairwoman and chief executive, said the company continued to drive topline sales through opening 15 new franchise restaurants, increasing same-store sales and moderating expenses. In a conference call with analysts, she said the pending Applebee's acquisition would not be a serious distraction.
"We intend to keep our eye on the ball and will not allow management focus on IHOP to waver," she said.
For the three months ended June 30, sales at stores open for at least a year increased 2.5 percent as higher average customer checks offset lower dining room traffic. The company said it is continuing to battle a sluggish restaurant market, brought about by higher fuel prices and changing consumer behavior, and increased competition for breakfast customers.
IHOP reiterated its existing guidance for 2007 as it relates to its IHOP business, saying it expects same-store sale growth of 2 percent to 4 percent and the addition of 61 to 66 new restaurants. But it said it is suspending its fiscal 2007 profit outlook as current guidance doesn't account for the impact of the Applebee's acquisition on results.
The company said last week it plans to buy Overland Park, Kan.-based Applebee's, the nation's largest casual dining restaurant chain, for $2.1 billion in cash and assumption of debt in a deal expected to be completed in the fourth quarter.
IHOP said it plans to fund part of the acquisition through selling Applebee's real estate holdings and turning over company-operated stores to franchisees, a plan that Tom Conforti, IHOP's chief financial officer, said could begin early next year.
Stewart, president of Applebee's domestic division from 1998 to 2001, said transition plans are under way and that she's received largely positive comments from IHOP franchisees, including some asking about buying or developing some of Applebee's company-operated stores.
Asked whether she would change recent efforts by Applebee's to reposition its brand to go after a more upscale audience or return to its bar-and-grill roots, Stewart said she would have a better idea later this year.
"I would really strongly suggest that you think of that brand positioning as a filter for everything we do on a go-forward basis, whether that's the remodel, whether that's the new prototype, whether that's the service platform, whether that's the menu," she said. "Everything needs to go through that brand filter and I'm not in a position to say today that there is complete alignment of what that is."
She also said the companies were developing plans for retaining key Applebee's employees and would move forward with Applebee's plans to move to a new corporate headquarters in Lenexa, Kan.