DineEquity, Inc. Reports Third Quarter Fiscal 2017 Results

GLENDALE, Calif. - Nov. 9, 2017 // 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 2017.

"I am excited about the road ahead for DineEquity and our two category-leading brands. We have a strong management team, committed franchisees and talented team members working cohesively to achieve our collective goals of strong performance and sustainable growth," said Stephen P. Joyce, Chief Executive Officer of DineEquity, Inc. "We are committed to driving shareholder value and ensuring the success of our franchisees. I look forward to working with my management team to execute against our strategic priorities during this challenging period. We are focused on developing a robust performance-based culture, driving sustainable positive sales at both brands and returning DineEquity to a growth company. Having just completed our global franchise conferences for Applebee's and IHOP, it is clear our franchise groups are confident about our plan to drive the business forward. The initial progress we have made and the positive same-restaurant sales performance of both brands in October are encouraging. I am very optimistic about realizing the company's full potential."

Third Quarter of Fiscal 2017 Financial Highlights

  • GAAP net loss available to common stockholders was $443.2 million, or net loss per diluted share of $24.98 for the third quarter of 2017. This compares to net income available to common stockholders of $23.9 million, or earnings per diluted share of $1.33, for the third quarter of fiscal 2016. The net loss was primarily due to non-cash impairment charges totaling $531.6 million related to the write-downs of Applebee's goodwill and other intangible assets, partially offset by a deferred tax benefit of $65.1 million attributable to the other intangible assets charge.
  • Adjusted net income available to common stockholders was $16.1 million, or adjusted earnings per diluted share of $0.91, for the third quarter of fiscal 2017. This compares to adjusted net income available to common stockholders of $26.4 million, or adjusted earnings per diluted share of $1.46, for the third quarter of fiscal 2016. The decrease in adjusted net income was mainly due to a decline in gross profit. The decrease in gross profit was due to a 7.7% decline in Applebee's domestic system-wide comparable same-restaurant sales, an increase in bad debt expense, restaurant closures and a reduction in revenue recognized due to the collectability of Applebee's franchisee royalties. (See "Non-GAAP Financial Measures" below.)
  • General and administrative expenses were approximately $38.0 million for the third quarter of fiscal 2017. This compares to $36.0 million for the third quarter of fiscal 2016. The modest increase was mainly due to higher personnel-related expenses.

First Nine Months of Fiscal 2017 Financial Highlights

  • GAAP net loss available to common stockholders was $409.2 million, or net loss per diluted share of $23.09 for the first nine months of fiscal 2017. This compares to net income available to common stockholders of $75.5 million, or earnings per diluted share of $4.15, for the first nine months of fiscal 2016. The net loss was primarily due to non-cash impairment charges in the third quarter of fiscal 2017 totaling $531.6 million related to the write-downs of Applebee's goodwill and other intangible assets as well as lower gross profit, partially offset by a deferred tax benefit of $65.1 million attributable to the other intangible assets charge.
  • Adjusted net income available to common stockholders was $60.7 million, or adjusted earnings per diluted share of $3.42, for the first nine months of fiscal 2017. This compares to adjusted net income available to common stockholders of $84.3 million, or adjusted earnings per diluted share of $4.63, for the first nine months of fiscal 2016. The decrease in adjusted net income was mainly due to lower gross profit and an increase in general and administrative expenses. The decrease in gross profit was due to a 7.3% decline in Applebee's domestic system-wide comparable same-restaurant sales, an increase in bad debt expense as well as restaurant closures and a reduction in revenue recognized due to the collectability of Applebee's franchisee royalties. (See "Non-GAAP Financial Measures" below.)
  • General and administrative expenses were $125.7 million for the first nine months of fiscal 2017 compared to $111.9 million for the first nine months of fiscal 2016. The increase was primarily due to approximately $9 million of non-recurring cash severance and equity compensation charges incurred in the first quarter of 2017 related to the separation of our previous chief executive officer and higher costs for professional services associated with investments in Applebee's stabilization initiatives.
  • Cash flows from operating activities were $31.0 million for the first nine months of fiscal 2017 compared to $62.1 million for the first nine months of fiscal 2016. The decline was primarily due to a decrease in gross profit from franchise operations and an increase in general and administrative expenses. Adjusted free cash flow was $29.4 million for the first nine months of fiscal 2017, compared to $66.2 million for the first nine months of fiscal 2016. (See "Non-GAAP Financial Measures" below.)

Same-Restaurant Sales Performance

Third Quarter of Fiscal 2017

  • IHOP's domestic system-wide comparable same-restaurant sales declined 3.2% for the third quarter of 2017.
  • Applebee's domestic system-wide comparable same-restaurant sales declined 7.7% for the third quarter of 2017.

First Nine Months of Fiscal 2017

  • IHOP's domestic system-wide comparable same-restaurant sales declined 2.5% for the first nine months of fiscal 2017.
  • Applebee's domestic system-wide comparable same-restaurant sales declined 7.3% for the first nine months of fiscal 2017.

Financial Performance Guidance for Fiscal 2017

The following projections for fiscal 2017 are based on management's expectations as of November 9, 2017. DineEquity reiterates its financial performance guidance for fiscal 2017 contained in the press release issued on August 10, 2017 and the Form 8-K filed on the same day, except for the revisions noted below.

  • Revised expectations for Applebee's domestic system-wide comparable same-restaurant sales performance to range between negative 5.5% and negative 6.5%. This compares to previous expectations of between negative 6.0% and negative 8.0%.
  • Reiterates expectations for IHOP's domestic system-wide comparable same-restaurant sales performance to range between negative 1.0% and negative 3.0%.
  • Reiterates expectations for Applebee's franchisees to develop between 20 and 30 new restaurants globally, the majority of which are expected to be international openings.
  • Reiterates expectations for Applebee's closures to range between approximately 105 and 135 restaurants.
  • Reiterates expectations for IHOP franchisees and its area licensee to develop between 80 and 95 restaurants globally, the majority of which are expected to be domestic openings.
  • Revised expectations for IHOP closures to range between 25 and 30 restaurants. This compares to previous expectations of between 20 and 25 restaurants.
  • Revised expectations for Franchise segment profit to be between $297 million and $303 million. This compares to previous expectations of between $302 million and $314 million. This downward revision is primarily due to additional expected reserves related to the collectability of Applebee's royalties.
  • Reiterates expectations for the Rental and Financing segments to generate approximately $38 million in combined profit.
  • Reiterates expectations for general and administrative expenses to range between $166 million and $172 million, including non-cash stock-based compensation expense and depreciation of approximately $22 million.
  • Reiterates expectations for interest expense to be approximately $62 million. Approximately $3 million is projected to be non-cash interest expense.
  • Reiterates expectations for weighted average diluted shares outstanding to be approximately 18 million shares.
  • Reiterates expectation for the income tax rate to be approximately 40%.
  • Revised expectations for cash flows provided by operating activities to range between $64 million and $74 million. This compares to previous expectations of between $80 million and $90 million. The decline is primarily due to the timing of fourth quarter 2017 marketing spend and projections for lower Franchise segment profit as discussed above.
  • Reiterates expectations for capital expenditures to be approximately $14 million.
  • Revised expectations for adjusted free cash flow (See "Non-GAAP Financial Measures" below) to range between $60 million and $70 million. This compares to previous expectations of between $76 million and $86 million.

2017 Adjusted Free Cash Flow (Non-GAAP) Guidance Table

 
 

(In millions)

 

Cash flows from operations

$64 – 74

 

Approximate net receipts from notes and equipment contracts receivable

10

 

Approximate capital expenditures

(14)

 

Adjusted free cash flow (Non-GAAP)

$60 - 70

 

Investor Conference Call Today

DineEquity will host a conference call to discuss its results on the same day at 8:00 a.m. Pacific Time. To participate on the call, please dial (888) 771-4371 and reference passcode 45813583. International callers, please dial (847) 585-4405 and reference passcode 45813583. A live webcast of the call will be available at www.dineequity.com and may be accessed by visiting Events and 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 9, 2017 through 11:59 p.m. Pacific Time on November 16, 2017 by dialing (888) 843-7419 and referencing passcode 45813583#. International callers, please dial (630) 652-3042 and reference passcode 45813583#.

An online archive of the webcast will also be available on Events and Presentations under the Investors section of DineEquity's website.

About DineEquity, Inc.

Based in Glendale, California, DineEquity, Inc. (NYSE: DIN), through its subsidiaries, franchises restaurants under both the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,700 restaurants combined in 19 countries 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 website located at www.dineequity.com.

Forward-Looking Statements

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 press release includes references to the Company's non-GAAP financial measure "adjusted net income available to common stockholders, "adjusted earnings per diluted share (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 may use certain of these non-GAAP financial measures along with the corresponding U.S. GAAP measures to evaluate the performance of the business and to make certain business decisions. 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. Additionally, adjusted EPS is one of the metrics used in determining payouts under the Company's annual cash incentive plan. Management believes that these non-GAAP financial measures provide additional meaningful information that should be considered when assessing the business and the Company's performance compared to prior periods and the marketplace. 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 U.S. GAAP.

DineEquity, Inc. and Subsidiaries

Consolidated Statements of (Loss) Income

(In thousands, except per share amounts)

(Unaudited)

 
   

Three Months Ended

 

Nine Months Ended

   

September 30,

 

September 30,

   

2017

 

2016

 

2017

 

2016

Revenues:

               

Franchise and restaurant revenues

 

$

112,347

   

$

123,259

   

$

358,912

   

$

380,034

 

Rental revenues

 

30,263

   

30,507

   

90,852

   

92,746

 

Financing revenues

 

2,061

   

2,251

   

6,280

   

7,019

 

Total revenues

 

144,671

   

156,017

   

456,044

   

479,799

 

Cost of revenues:

               

Franchise and restaurant expenses

 

41,800

   

41,553

   

123,476

   

122,129

 

Rental expenses

 

22,318

   

22,771

   

67,665

   

69,032

 

Financing expenses

 

449

   

9

   

449

   

155

 

Total cost of revenues

 

64,567

   

64,333

   

191,590

   

191,316

 

Gross profit

 

80,104

   

91,684

   

264,454

   

288,483

 

General and administrative expenses

 

38,030

   

36,002

   

125,701

   

111,937

 

Impairment and closure charges

 

532,522

   

206

   

535,440

   

3,932

 

Interest expense

 

15,353

   

15,358

   

46,496

   

46,107

 

Amortization of intangible assets

 

2,507

   

2,500

   

7,507

   

7,480

 

(Gain) loss on disposition of assets

 

(35)

   

113

   

(6,387)

   

679

 

(Loss) income before income tax benefit (provision)

 

(508,273)

   

37,505

   

(444,303)

   

118,348

 

Income tax benefit (provision)

 

56,555

   

(13,232)

   

28,228

   

(41,703)

 

Net (loss) income

 

$

(451,718)

   

$

24,273

   

$

(416,075)

   

$

76,645

 

Net (loss) income available to common stockholders:

               

Net (loss) income

 

$

(451,718)

   

$

24,273

   

$

(416,075)

   

$

76,645

 

Less: Net loss (income) allocated to unvested participating restricted stock

 

8,496

   

(338)

   

6,921

   

(1,103)

 

Net (loss) income available to common stockholders

 

$

(443,222)

   

$

23,935

   

$

(409,154)

   

$

75,542

 

Net (loss) income available to common stockholders per share:

               

Basic

 

$

(24.98)

   

$

1.33

   

$

(23.09)

   

$

4.17

 

Diluted

 

$

(24.98)

   

$

1.33

   

$

(23.09)

   

$

4.15

 

Weighted average shares outstanding:

               

Basic

 

17,742

   

17,950

   

17,718

   

18,099

 

Diluted

 

17,742

   

18,041

   

17,718

   

18,201

 
                 

Dividends declared per common share

 

$

0.97

   

$

0.92

   

$

2.91

   

$

2.76

 

Dividends paid per common share

 

$

0.97

   

$

0.92

   

$

2.91

   

$

2.76

 

 

DineEquity, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 
   

September 30, 2017

 

December 31, 2016

   

(Unaudited)

   

Assets

       

Current assets:

       

Cash and cash equivalents

 

$

104,212

   

$

140,535

 

Receivables, net

 

96,657

   

141,389

 

Restricted cash

 

31,338

   

30,256

 

Prepaid gift card costs

 

36,667

   

47,115

 

Prepaid income taxes

 

8,749

   

2,483

 

Other current assets

 

5,703

   

4,370

 

Total current assets

 

283,326

   

366,148

 

Long-term receivables, net

 

131,033

   

141,152

 

Property and equipment, net

 

199,857

   

205,055

 

Goodwill

 

339,236

   

697,470

 

Other intangible assets, net

 

585,160

   

763,431

 

Deferred rent receivable

 

84,071

   

86,981

 

Non-current restricted cash

 

14,700

   

14,700

 

Other non-current assets, net

 

3,825

   

3,646

 

Total assets

 

$

1,641,208

   

$

2,278,583

 
         

Liabilities and Stockholders' (Deficit) Equity

       

Current liabilities:

       

Accounts payable

 

$

26,452

   

$

50,503

 

Gift card liability

 

104,317

   

170,812

 

Dividends payable

 

17,755

   

17,465

 

Accrued employee compensation and benefits

 

13,527

   

14,609

 

Current maturities of long-term debt, capital lease and financing obligations

 

16,202

   

13,144

 

Accrued advertising

 

8,359

   

6,369

 

Other accrued expenses

 

16,775

   

13,410

 

Total current liabilities

 

203,387

   

286,312

 

Long-term debt, less current maturities

 

1,281,950

   

1,282,691

 

Capital lease obligations, less current maturities

 

64,923

   

74,665

 

Financing obligations, less current maturities

 

39,292

   

39,499

 

Deferred income taxes, net

 

178,848

   

253,898

 

Deferred rent payable

 

65,449

   

69,572

 

Other non-current liabilities

 

24,036

   

19,174

 

Total liabilities

 

1,857,885

   

2,025,811

 

Commitments and contingencies

       

Stockholders' (deficit) equity:

       

Common stock, $0.01 par value, shares: 40,000,000 authorized; September 30, 2017 - 25,033,220 issued, 17,996,223 outstanding; December 31, 2016 - 25,134,223 issued, 17,969,636 outstanding

 

250

   

251

 

Additional paid-in-capital

 

292,255

   

292,809

 

(Accumulated deficit) retained earnings

 

(86,634)

   

382,082

 

Accumulated other comprehensive loss

 

(105)

   

(107)

 

Treasury stock, at cost; shares: September 30, 2017 - 7,036,997; December 31, 2016 - 7,164,587

 

(422,443)

   

(422,263)

 

Total stockholders' (deficit) equity

 

(216,677)

   

252,772

 

Total liabilities and stockholders' (deficit) equity

 

$

1,641,208

   

$

2,278,583

 

 

DineEquity, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
   

Nine Months Ended

   

September 30,

   

2017

 

2016

Cash flows from operating activities:

       

Net (loss) income

 

$

(416,075)

   

$

76,645

 

Adjustments to reconcile net (loss) income to cash flows provided by operating activities:

       

Impairment and closure charges

 

535,306

   

1,461

 

Depreciation and amortization

 

23,053

   

22,924

 

Non-cash interest expense

 

2,509

   

2,400

 

Deferred income taxes

 

(77,345)

   

(14,852)

 

Non-cash stock-based compensation expense

 

8,826

   

8,215

 

Tax benefit from stock-based compensation

 

   

1,153

 

Excess tax benefit from stock-based compensation

 

   

(966)

 

(Gain) loss on disposition of assets

 

(6,422)

   

679

 

Other

 

(2,791)

   

456

 

Changes in operating assets and liabilities:

       

Accounts receivable, net

 

(1,569)

   

4,312

 

Current income tax receivables and payables

 

(1,699)

   

(1,138)

 

Gift card receivables and payables

 

(26,387)

   

(30,355)

 

Other current assets

 

(1,336)

   

(824)

 

Accounts payable

 

(7,530)

   

(1,397)

 

Accrued employee compensation and benefits

 

(1,146)

   

(9,293)

 

Other current liabilities

 

3,606

   

2,638

 

Cash flows provided by operating activities

 

31,000

   

62,058

 

Cash flows from investing activities:

       

Additions to property and equipment

 

(9,608)

   

(3,543)

 

Proceeds from sale of property and equipment

 

1,100

   

 

Principal receipts from notes, equipment contracts and other long-term receivables

 

15,283

   

13,969

 

Other

 

(356)

   

(393)

 

Cash flows provided by investing activities

 

6,419

   

10,033

 

Cash flows from financing activities:

       

Dividends paid on common stock

 

(52,326)

   

(50,790)

 

Repurchase of common stock

 

(10,003)

   

(45,010)

 

Principal payments on capital lease and financing obligations

 

(10,621)

   

(10,391)

 

Tax payments for restricted stock upon vesting

 

(2,345)

   

(2,680)

 

Proceeds from stock options exercised

 

2,635

   

1,282

 

Excess tax benefit from stock-based compensation

 

   

966

 

Cash flows used in financing activities

 

(72,660)

   

(106,623)

 

Net change in cash and cash equivalents

 

(35,241)

   

(34,532)

 

Cash, cash equivalents and restricted cash at beginning of period

 

185,491

   

192,013

 

Cash, cash equivalents and restricted cash at end of period

 

$

150,250

   

$

157,481

 

 

NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

(Unaudited)

 

Reconciliation of net loss or income available to common stockholders to net income available to common stockholders, as adjusted for the following items: impairment and closure charges; executive separation costs; Kansas City Support Center consolidation costs; amortization of intangible assets;  non-cash interest expense; gain or loss on disposition of assets; the combined tax effect of the preceding adjustments; and income tax adjustments unrelated to current period operations, as well as related per share data:

 
   

Three Months Ended

 

Nine Months Ended

   

September 30,

 

September 30,

   

2017

 

2016

 

2017

 

2016

Net (loss) income available to common stockholders, as reported

 

$

(443,222)

   

$

23,935

   

$

(409,154)

   

$

75,542

 

Impairment and closure charges

 

532,522

   

206

   

535,440

   

1,461

 

Executive separation costs

 

   

   

8,782

   

 

Kansas City Support Center consolidation costs (1)

 

   

306

   

   

5,338

 

Amortization of intangible assets

 

2,507

   

2,500

   

7,507

   

7,480

 

Non-cash interest expense

 

846

   

809

   

2,509

   

2,400

 

(Gain) loss on disposition of assets

 

(35)

   

113

   

(6,387)

   

679

 

Income tax provision

 

(67,490)

   

(1,456)

   

(72,054)

   

(6,422)

 

Income tax adjustments (2)

 

   

   

2,219

   

(2,002)

 

Net income allocated to unvested participating restricted stock

 

(9,014)

   

(34)

   

(8,210)

   

(130)

 

Net income available to common stockholders, as adjusted

 

$

16,114

   

$

26,379

   

$

60,652

   

$

84,346

 
                 

Diluted net income available to common stockholders per share:

               

Net (loss) income available to common stockholders, as reported

 

$

(24.98)

   

$

1.33

   

$

(23.09)

   

$

4.15

 

Impairment and closure charges

 

26.28

   

0.01

   

26.40

   

0.05

 

Executive separation costs

 

   

   

0.31

   

 

Kansas City Support Center consolidation costs (1)

 

   

0.01

   

   

0.18

 

Amortization of intangible assets

 

0.09

   

0.09

   

0.26

   

0.26

 

Non-cash interest expense

 

0.03

   

0.03

   

0.09

   

0.08

 

(Gain) loss on disposition of assets

 

(0.00)

   

0.00

   

(0.22)

   

0.02

 

Income tax adjustments (2)

 

0.00

   

0.00

   

0.13

   

(0.11)

 

Net income allocated to unvested participating restricted stock

 

(0.51)

   

(0.00)

   

(0.46)

   

(0.00)

 

Rounding

 

   

(0.01)

   

   

 

Diluted net income available to common stockholders per share, as adjusted

 

$

0.91

   

$

1.46

   

$

3.42

   

$

4.63

 
                 

Numerator for basic EPS-income available to common stockholders, as adjusted

 

$

16,114

   

$

26,379

   

$

60,652

   

$

84,346

 

Effect of unvested participating restricted stock using the two-class method

 

   

1

   

(5)

   

3

 

Numerator for diluted EPS-income available to common stockholders after assumed conversions, as adjusted

 

$

16,114

   

$

26,380

   

$

60,647

   

$

84,349

 
                 

Denominator for basic EPS-weighted-average shares

 

17,742

   

17,950

   

17,718

   

18,099

 

Dilutive effect of stock options

 

1

   

91

   

11

   

102

 

Denominator for diluted EPS-weighted-average shares and assumed conversions

 

17,743

   

18,041

   

17,729

   

18,201

 
   

(1)

Includes $2,471 of lease termination costs for the nine months ended September 30, 2016 reported in "closure and impairment charges" in the Consolidated Statements of Comprehensive Income.

(2) 

2017: unrecognized tax benefits related to domestic manufacturing deductions taken in years prior to 2017; 2016: Adjustments to deferred tax balances primarily due to reduction of effective state tax rate because of Support Center consolidation.

 

DineEquity, Inc. and Subsidiaries

Non-GAAP Financial Measures

(Unaudited)

 

Reconciliation of the Company's cash provided by operating activities to "adjusted free cash flow" (cash provided by operating activities, plus receipts from notes and equipment contracts receivable, less additions to property and equipment). Management uses this liquidity measure 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.

 
   

Nine Months Ended

   

September 30,

   

2017

 

2016

   

(In millions)

Cash flows provided by operating activities

 

$

31.0

   

$

62.1

 

Receipts from notes and equipment contracts receivable

 

8.0

   

7.6

 

Additions to property and equipment

 

(9.6)

   

(3.5)

 

Adjusted free cash flow

 

29.4

   

66.2

 

Dividends paid on common stock

 

(52.3)

   

(50.8)

 

Repurchase of DineEquity common stock

 

(10.0)

   

(45.0)

 
   

$

(32.9)

   

$

(29.6)

 

 

Restaurant Data

 

The following table sets forth, for the three and nine months ended September 30, 2017 and 2016, 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 partially may be 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.

 
   

Three Months Ended

 

Nine Months Ended

   

September 30,

 

September 30,

   

2017

 

2016

 

2017

 

2016

   

(Unaudited)

Applebee's Restaurant Data

               

Effective Restaurants(a)

               

Franchise

 

1,953

   

2,028

   

1,981

   

2,029

 
                 

System-wide(b)

               

Sales percentage change(c)

 

(9.7)

%

 

(5.1)

%

 

(8.6)

%

 

(4.5)

%

Domestic same-restaurant sales percentage change(d)

 

(7.7)

%

 

(5.2)

%

 

(7.3)

%

 

(4.4)

%

                 

Franchise(b)

               

Sales percentage change(c)

 

(9.7)

%

 

(4.9)

%

 

(8.6)

%

 

(3.7)

%

Domestic same-restaurant sales percentage change(d)

 

(7.7)

%

 

(5.2)

%

 

(7.3)

%

 

(4.4)

%

Average weekly domestic unit sales (in thousands)

 

$

40.9

   

$

43.5

   

$

43.5

   

$

46.2

 
                                 

IHOP Restaurant Data

               

Effective Restaurants(a)

               

Franchise

 

1,586

   

1,521

   

1,568

   

1,512

 

Area license

 

162

   

167

   

165

   

165

 

Company

 

   

10

   

6

   

11

 

Total

 

1,748

   

1,698

   

1,739

   

1,688

 
                 

System-wide(b)

               

Sales percentage change(c)

 

(0.7)

%

 

1.3

%

 

(0.1)

%

 

2.0

%

Domestic same-restaurant sales percentage change(d)

 

(3.2)

%

 

(0.1)

%

 

(2.5)

%

 

0.5

%

                 

Franchise(b)

               

Sales percentage change(c)

 

0.3

%

 

1.4

%

 

0.5

%

 

2.2

%

Domestic same-restaurant sales percentage change(d)

 

(3.2)

%

 

(0.1)

%

 

(2.5)

%

 

0.5

%

Average weekly domestic unit sales (in thousands)

 

$

35.7

   

$

37.1

   

$

36.3

   

$

37.5

 
                 

Area License (b)

               

Sales percentage change(c)

 

(5.7)

%

 

2.4

%

 

(3.6)

%

 

1.1

%

                                 
   

(a) 

"Effective Restaurants" are the weighted average number of restaurants open in a given fiscal period, adjusted to account for restaurants open for only a portion of the period. Information is presented for all Effective Restaurants in the Applebee's and IHOP systems, which includes restaurants owned by franchisees and area licensees as well as those owned by the Company.

   

(b) 

"System-wide" sales are retail sales at Applebee's restaurants operated by franchisees and IHOP restaurants operated by franchisees and area licensees, as reported to the Company, in addition to retail sales at company-operated restaurants.  Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. An increase in franchisees' reported sales will result in a corresponding increase in our royalty revenue, while a decrease in franchisees' reported sales will result in a corresponding decrease in our royalty revenue. Unaudited reported sales for Applebee's domestic franchise restaurants, IHOP franchise restaurants and IHOP area license restaurants for the three and nine months ended September 30, 2017 and 2016 were as follows:

 

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2017

 

2016

 

2017

 

2016

 

(In millions)

Reported sales (unaudited)

             

Applebee's domestic franchise restaurant sales

$

956.5

   

$

1,058.9

   

$

3,092.3

   

$

3,382.1

 

IHOP franchise restaurant sales

736.9

   

$

734.3

   

2,220.3

   

$

2,208.6

 

IHOP area license restaurant sales

67.0

   

$

71.0

   

208.7

   

$

216.5

 

Total

$

1,760.4

   

$

1,864.2

   

$

5,521.3

   

$

5,807.2

 
   

(c)

"Sales percentage change" reflects, for each category of restaurants, the percentage change in sales in any given fiscal period compared to the prior fiscal period for all restaurants in that category.

   

(d) 

"Domestic same-restaurant sales percentage change" reflects the percentage change in sales, in any given fiscal period, compared to the same weeks in the prior year for domestic restaurants that have been operated throughout both fiscal periods that are being compared and have been open for at least 18 months. Because of new unit openings and restaurant closures, the domestic restaurants open throughout both fiscal periods being compared may be different from period to period. Same-restaurant sales percentage change does not include data on IHOP area license restaurants located in Florida.

 

DineEquity, Inc. and Subsidiaries

Restaurant Data

(unaudited)

 

The following table summarizes our restaurant development activity:

       
 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

 

2017

 

2016

 

2017

 

2016

Applebee's Restaurant Development Activity

             

Beginning of period:

1,968

 

2,027

 

2,016

 

2,033

Franchise restaurants opened:

         

Domestic

2

 

6

 

7

 

13

International

2

 

3

 

6

 

7

Total franchise restaurants opened

4

 

9

 

13

 

20

Franchise restaurants closed:

         

Domestic

(22)

 

(8)

 

(74)

 

(20)

International

(5)

 

(1)

 

(10)

 

(6)

Total franchise restaurants closed

(27)

 

(9)

 

(84)

 

(26)

Net franchise restaurant reduction

(23)

 

 

(71)

 

(6)

Total Applebee's restaurants, end of period

1,945

 

2,027

 

1,945

 

2,027

Domestic

1,791

 

1,871

 

1,791

 

1,871

International

154

 

156

 

154

 

156

           

IHOP Restaurant Development Activity

         

Summary - beginning of period:

         

Franchise

1,586

 

1,519

 

1,556

 

1,507

Area license

166

 

166

 

167

 

165

Company(a)

 

10

 

10

 

11

         Total IHOP restaurants, beginning of period

1,752

 

1,695

 

1,733

 

1,683

Franchise/area license restaurants opened:

     

Domestic franchise

11

 

7

 

31

 

26

Domestic area license

1

 

1

 

1

 

3

International franchise

6

 

8

 

18

 

11

Total franchise/area license restaurants opened

18

 

17

 

50

 

24

Franchise/area license restaurants closed:

         

Domestic franchise

(2)

 

(2)

 

(11)

 

(10)

Domestic area license

(1)

 

 

(2)

 

(1)

International franchise

(5)

 

 

(7)

 

(3)

International area license

(1)

 

 

(1)

 

Total franchise/area license restaurants closed

(9)

 

(2)

 

(21)

 

(14)

Net franchise/area license restaurant development

9

 

15

 

29

 

10

Refranchised from Company restaurants

 

 

9

 

1

Net franchise/area license restaurant additions

9

 

15

 

38

 

27

Summary - end of period

         

Franchise

1,596

 

1,532

 

1,596

 

1,532

Area license

165

 

167

 

165

 

167

Company(a)

 

10

 

 

10

Total IHOP restaurants, end of period

1,761

 

1,709

 

1,761

 

1,709

Domestic

1,655

 

1,622

 

1,655

 

1,622

International

106

 

87

 

106

 

87

 

   
   

(a)

During the nine months ending September 30, 2017, nine company-operated restaurants were refranchised and one was permanently closed.

Contacts:

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

Craig Hoffman
Media Relations
Director, Corporate Communications
DineEquity, Inc.
818-637-3603

View original content with multimedia:http://www.prnewswire.com/news-releases/dineequity-inc-reports-third-quarter-fiscal-2017-results-300552747.html

SOURCE DineEquity, Inc.

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