DineEquity, Inc. Reports Third Quarter Fiscal 2016 Results

Dine Brands Global, Inc.
Published: November 1st, 2016

Third Quarter 2016 Summary

• GAAP EPS of $1.33
• Adjusted EPS (Non-GAAP) of $1.46
• Domestic system-wide comparable same-restaurant sales were negative 0.1% for IHOP and negative 5.2% for Applebee's
• Returned approximately $27 million to shareholders, which includes approximately $17 million in cash dividends and $10 million in share repurchases
• Quarterly cash dividend raised by 5.4% to $0.97 per share of common stock, effective with the fourth quarter 2016 dividend to be paid on January 6, 2017

First Nine Months of 2016 Summary

• GAAP EPS of $4.15
• Adjusted EPS (Non-GAAP) of $4.63
• Domestic system-wide comparable same-restaurant sales increased 0.5% at IHOP and declined 4.4% at Applebee's
• Generated cash from operating activities of approximately $62 million and adjusted free cash flow (Non-GAAP) of approximately $66 million
• Returned approximately $96 million to shareholders, which includes $51 million in cash dividends and $45 million in share repurchases

GLENDALE, Calif. - Nov. 1, 2016 // PRNewswire // - DineEquity, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill & Bar® and IHOP® restaurants, today announced financial results for the third quarter of fiscal 2016. 

"Despite challenges facing the industry, DineEquity again posted year-over-year growth in earnings per diluted share and generated substantial adjusted free cash flow.  We reaffirmed our commitment to return significant cash to shareholders by increasing the quarterly dividend by 5.4%, effective with the next dividend paid on January 6, 2017.  Additionally, we completed our restaurant support center consolidation, which enables us to reallocate resources as needed," said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc.

Ms. Stewart concluded, "Our top priority is driving the performance of the Applebee's brand.  In addition, we recognize that there is more work to be done to sustain the momentum at IHOP and we're taking action.  I'm pleased to say that we held successful franchise conferences for both Applebee's and IHOP in September and we're collaborating with franchisees to execute our long-term strategy to strengthen the brands."

Third Quarter of Fiscal 2016 Financial Highlights

• GAAP net income available to common stockholders was $23.9 million for the third quarter of 2016, or earnings per diluted share of $1.33.  This compares to net income available to common stockholders of $23.9 million, or earnings per diluted share of $1.28, for the third quarter of 2015. 
• GAAP net income for the third quarter of 2016 was essentially flat compared to the same period of 2015 mainly due to gross profit declines being offset by lower general and administrative expenses.  The increase in earnings per diluted share was due to a decrease in weighted average diluted shares outstanding. 
• Adjusted net income available to common stockholders was $26.4 million, or adjusted earnings per diluted share of $1.46, for the third quarter of 2016.  This compares to $26.7 million, or adjusted earnings per diluted share of $1.43, for the same period of 2015.  The slight decrease in adjusted net income was mainly due to lower gross profit.  The decrease was partially offset by lower income taxes and a decline in general and administrative expenses.  The increase in adjusted earnings per diluted share was due to a decrease in weighted average diluted shares outstanding.  (See "Non-GAAP Financial Measures" below.)
• General and administrative expenses were $36.0 million for the third quarter of 2016.  This compares to approximately $41.6 million for the same period of 2015.  The decrease was primarily due to lower non-recurring restaurant support center consolidation costs, partially offset by higher costs associated with the timing of franchise conferences.        

First Nine Months of Fiscal 2016 Financial Highlights

• GAAP net income available to common stockholders was $75.5 million for the first nine months of fiscal 2016, or earnings per diluted share of $4.15.  This compares to net income available to common stockholders of $78.5 million, or earnings per diluted share of $4.16, for the first nine months of fiscal 2015.  The decrease in GAAP net income was primarily due to lower gross profit and a loss on the disposition of assets in the first nine months of 2016 compared to a gain in the same period of 2015. The decrease was partially offset by lower income tax expense.  The decline in earnings per diluted share was less than the decline in net income due to fewer weighted average diluted shares outstanding.
• Adjusted net income available to common stockholders was $84.3 million, or adjusted earnings per diluted share of $4.63, for the first nine months of fiscal 2016.  This compares to $86.7 million, or adjusted earnings per diluted share of $4.59, for the same period of fiscal 2015.  The decline in adjusted net income was mainly due to lower gross profit and higher general and administrative expenses, partially offset by lower income taxes.  Despite the decrease in adjusted earnings, adjusted earnings per diluted share increased due to fewer weighted average diluted shares outstanding. (See "Non-GAAP Financial Measures" below.)
• General and administrative expenses were $111.9 million for the first nine months of 2016.  This compares to $110.4 million for the same period of 2015.  The slight increase was primarily due to higher costs associated with the timing of franchise conferences, partially offset by a decrease in personnel and related costs.       
• In the nine months of fiscal 2016, cash flows from operating activities were $62.1 million compared to $70.6 million in the same period of fiscal 2015.  Adjusted free cash flow was $66.2 million for the first nine months of fiscal 2016, compared to $75.6 million for the first nine months of fiscal 2015.  (See "Non-GAAP Financial Measures" below.)

Same-Restaurant Sales Performance

Third Quarter of Fiscal 2016

• IHOP's domestic system-wide comparable same restaurant sales were negative 0.1% for the third quarter of 2016. 
• Applebee's domestic system-wide comparable same-restaurant sales declined 5.2% for the third quarter of 2016.

First Nine Months of Fiscal 2016

• IHOP's domestic system-wide comparable same restaurant sales increased 0.5% for the first nine months of fiscal 2016. 
• Applebee's domestic system-wide comparable same-restaurant sales declined 4.4% for the first nine months of fiscal 2016.

Financial Performance Guidance for Fiscal 2016

DineEquity reiterates its financial performance guidance for fiscal 2016 contained in the press release issued on August 3, 2016 and the Form 8-K filed on August 3, 2016, except for the revisions noted below.

• Revised Applebee's comparable same-restaurant sales performance to range between negative 4.0% and negative 5.0%.  This compares to the previous expectations of between negative 3.0% and negative 4.5%.  The Company expects comparable same-restaurant sales to be near the low end of the guidance range.
• Reiterated IHOP's comparable same-restaurant sales performance to range between positive 0.5% and positive 2.0%.  The Company expects comparable same-restaurant sales to be near the low end of the guidance range.
• Reiterated worldwide development expectations for Applebee's franchisees to develop between 25 and 33 new restaurants. IHOP franchisees and its area licensee are expected to develop between 65 and 77 new restaurants. 
• Revised expectations for Franchise segment profit to be between $340 million and $345 million.  This compares to the previous expectations of between $342 million and $352 million.
• Reiterated expectations for the Rental and Financing segments to generate roughly $40 million in combined profit.
• Revised expectations for general and administrative expenses to range between $150 million and $154 million, including non-cash stock-based compensation expense and depreciation of approximately $20 million, reflecting an improvement from previous expectations of between $154 million and $158 million. This amount includes approximately $4 million of non-recurring costs related to our restaurant support center consolidation.   
• Reiterated expectations for interest expense to be approximately $62 million. Approximately $3 million is projected to be non-cash interest
• expense.
  Reiterated expectations for weighted average diluted shares outstanding to be approximately 18.2 million shares. 
• Reiterated expectations for the income tax rate to be approximately 37%.
• Reiterated expectations for cash flows provided by operating activities to range between $112 million and $120 million. 
• Reiterated expectations for capital expenditures to be roughly $8 million.
• Reiterated expectations for adjusted free cash flow (See "Non-GAAP Financial Measures" below) to range between $113 million and $121 million.  Our guidance reflects approximately $9 million in cash payments related to our restaurant support center consolidation and the impact of fiscal 2016 containing 52 weeks compared to 53 weeks in fiscal 2015, taking into account the effect on working capital, including gift card receivables. Additionally, our guidance reflects non-recurring tax payments totaling approximately $7 million related to deferred gains from the repurchase of our debt, primarily in 2008 and 2009.  The total tax payments were made in the third quarter of 2016.  The Company previously estimated non-recurring tax payments totaling approximately $10 million. 

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Investor Conference Call Today

DineEquity will host a conference call to discuss its results on the same day at 11:00 a.m. Eastern Time/ 8:00 a.m. Pacific Time.  To participate on the call, please dial (888) 771-4371 and reference passcode 43500950. International callers, please dial (847) 585-4405 and reference passcode 43500950.

A live webcast of the call will be available at www.dineequity.com, and may be accessed by visiting Calls & Presentations on the site's Investors 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 from 10:30 a.m. Pacific Time on November 1, 2016 through 8:59 p.m. Pacific Time on November 8, 2016 by dialing (888) 843-7419 and referencing passcode 43500950#. International callers, please dial (630) 652-3042 and reference passcode 43500950#. An online archive of the webcast will also be available on the Investors section of DineEquity's website.

About DineEquity, Inc.

Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,700 restaurants combined in 20 countries and U.S. territories and approximately 400 franchisees, DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company's Web site located at www.dineequity.com.

Statements contained in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words such as "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "plan" and other similar expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. These factors include, but are not limited to: the effect of general economic conditions; the Company's indebtedness; risk of future impairment charges; trading volatility and the price of the Company's common stock; the Company's results in any given period differing from guidance provided to the public; the highly competitive nature of the restaurant business; the Company's business strategy failing to achieve anticipated results; risks associated with the restaurant industry; risks associated with locations of current and future restaurants; rising costs for food commodities and utilities; shortages or interruptions in the supply or delivery of food; ineffective marketing and guest relationship initiatives and use of social media; changing health or dietary preferences; our engagement in business in foreign markets; harm to our brands' reputation; litigation; fourth-party claims with respect to intellectual property assets; environmental liability; liability relating to employees; failure to comply with applicable laws and regulations; failure to effectively implement restaurant development plans; our dependence upon our franchisees; concentration of Applebee's franchised restaurants in a limited number of franchisees; credit risk from IHOP franchisees operating under our previous business model; termination or non-renewal of franchise agreements; franchisees breaching their franchise agreements; insolvency proceedings involving franchisees; changes in the number and quality of franchisees; inability of franchisees to fund capital expenditures; heavy dependence on information technology; the occurrence of cyber incidents or a deficiency in our cybersecurity; failure to execute on a business continuity plan; inability to attract and retain talented employees; risks associated with retail brand initiatives; failure of our internal controls; and other factors discussed from time to time in the Company's Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Company's other filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.

Non-GAAP Financial Measures

This news release includes references to the Company's non-GAAP financial measures "adjusted net income available to common stockholders (adjusted EPS)" and "adjusted free cash flow."  "Adjusted EPS" is computed for a given period by deducting from net income or loss available to common stockholders for such period the effect of any closure and impairment charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any gain or loss related to the disposition of assets, and other items deemed not reflective of current operations.  This is presented on an aggregate basis and a per share (diluted) basis.  "Adjusted free cash flow" for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable, less capital expenditures.  Management uses adjusted free cash flow in its periodic assessments of, among other things, the amount of cash dividends per share of common stock and repurchases of common stock and we believe it is important for investors to have the same measure used by management for that purpose.  Adjusted free cash flow does not represent residual cash flow available for discretionary purposes.  Adjusted EPS and adjusted free cash flow are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with United States generally accepted accounting principles.

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Restaurant Data

The following table sets forth, for the three and nine months ended September 30, 2016 and 2015, the number of "Effective Restaurants" in the Applebee's and IHOP systems and information regarding the percentage change in sales at those restaurants compared to the same periods in the prior year and, as such, the percentage change in sales at Effective Restaurants is based on non-GAAP sales data. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. However, we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are generally based on a percentage of their sales, and, where applicable, rental payments under leases that  may be partially based on a percentage of their sales. Management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations.

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SOURCE DineEquity, Inc.

Contacts:

Ken Diptee
Executive Director
Investor Relations
DineEquity, Inc.
818-637-3632

Patrick Lenow
Media Relations
Vice President, Communications
DineEquity, Inc.
818-637-3122