Dine Brands Global, Inc. Reports Second Quarter 2018 Results

GLENDALE, Calif., Aug. 1, 2018 /PRNewswire/ -- Dine Brands Global, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill & Bar^® and IHOP^® restaurants, today announced financial results for the second quarter of fiscal 2018. 

"Applebee's and IHOP's domestic same-restaurant sales increased 5.7% and 0.7%, respectively.  Positive sales momentum for both brands continued into the second quarter.  I am pleased to report that for the third consecutive quarter, both Applebee's and IHOP outperformed their respective categories based on sales and traffic. The execution of our strategic growth plans over the past year are producing meaningful results.  Applebee's achieved its highest quarterly domestic sales increase in over a decade.  Additionally, IHOP successfully launched its all new Ultimate Steakburgers platform, further establishing the brand as a destination beyond breakfast.  We also recently announced that IHOP will be introduced in South America for the first time through an agreement with a new franchisee to open 25 restaurants in Peru over the next ten years," said Steve Joyce, Chief Executive Officer of Dine Brands Global, Inc. 

Mr. Joyce added, "We've made great progress stabilizing the performance of our brands and we are excited about the results to date.  We are also working on a number of key initiatives that we believe will create significant long-term value for our shareholders, including the refinancing of our debt this year." 

 Second Quarter of Fiscal 2018 Financial Highlights      

• GAAP net income available to common stockholders was $12.3 million, or earnings per diluted share of $0.69 for the second quarter of 2018. This compares to net income available to common stockholders of $21.8 million, or earnings per diluted share of $1.23, for the second quarter of fiscal 2017. The decrease in net income was primarily due to lower segment profit as the result of $16.5 million in franchisor contributions to the Applebee's national advertising fund, partially offset by a decline in bad debt expense, IHOP restaurant development over the past twelve months and improvement in Applebee's and IHOP's domestic same-restaurant sales.
• Adjusted net income available to common stockholders was $18.3 million, or adjusted earnings per diluted share of $1.03, for the second quarter of fiscal 2018. This compares to adjusted net income available to common stockholders of $23.8 million, or adjusted earnings per diluted share of $1.34, for the second quarter of fiscal 2017. The decrease in adjusted net income was mainly due to lower segment profit as the result of $16.5 million in franchisor contributions to the Applebee's national advertising fund, partially offset by a decline in bad debt expense, IHOP restaurant development over the past twelve months and improvement in Applebee's and IHOP's domestic same-restaurant sales. (See "Non-GAAP Financial Measures" below.)
• General and administrative expenses were $38.8 million for the second quarter of fiscal 2018 compared to $37.4 million for the second quarter of fiscal 2017. The increase was primarily due to higher personnel-related costs, partially offset by a decline in professional services expenses.

First Six Months of Fiscal 2018 Financial Highlights

• GAAP net income available to common stockholders was $28.8 million, or earnings per diluted share of $1.61 for the first six months of fiscal 2018. This compares to net income available to common stockholders of $37.1 million, or earnings per diluted share of $2.09, for the first six months of fiscal 2017. The decrease in net income was primarily due to lower segment profit as the result of $30.0 million in franchisor contributions to the Applebee's national advertising fund, partially offset by a decline in bad debt expense, IHOP restaurant development over the past twelve months and improvement in Applebee's and IHOP's domestic same-restaurant sales. The impact of lower segment profit was partially offset by lower income tax expense and a decline in general and administrative expenses.
• Adjusted net income available to common stockholders was $38.0 million, or adjusted earnings per diluted share of $2.13, for the first six months of fiscal 2018. This compares to adjusted net income available to common stockholders of $46.6 million, or adjusted earnings per diluted share of $2.63, for the first six months of fiscal 2017. The decrease in adjusted net income was mainly due to lower segment profit, as explained in the paragraph above. The impact of lower segment profit was partially offset by lower income taxes and a decline in general and administrative expenses. (See "Non-GAAP Financial Measures" below.)
• General and administrative expenses were $80.7 million for the first six months of fiscal 2018 compared to $87.7 million for the same period of fiscal 2017. The decline was primarily due to approximately $8.8 million in executive separation costs incurred during the first six months of 2017 that did not recur in the comparable period of fiscal 2018.  
• Cash flows from operating activities were approximately $25.8 million for the first six months of fiscal 2018 compared to approximately $20.9 million for the first six months of fiscal 2017. Adjusted free cash flow was $28.1 million for the first six months of fiscal 2018.  This compares to $19.2 million for the first six months of fiscal 2017.  (See "Non-GAAP Financial Measures" below.)

Same-Restaurant Sales Performance

Second Quarter of Fiscal 2018

• Applebee's domestic system-wide comparable same-restaurant sales increased 5.7% for the second quarter of 2018.
• IHOP's domestic system-wide comparable same-restaurant sales increased 0.7% for the second quarter of 2018. 

First Six Months of Fiscal 2018

• Applebee's domestic system-wide comparable same-restaurant sales increased 4.5% for the first six months of 2018. 
• IHOP's domestic system-wide comparable same-restaurant sales increased 0.9% for the first six months of 2018. 

GAAP Effective Tax Rate

Our effective tax rates for the three and six months ended June 30, 2018 were impacted by two events. The Tax Cuts and Jobs Act (the "Tax Act") enacted in December 2017 lowered the federal statutory corporate tax rate from 35% to 21%, beginning in 2018. However, during the three months ended June 30, 2018, we increased our tax provision by $5.7 million related to adjustments resulting from IRS audits for tax years 2011 through 2013. This adjustment increased our effective tax rates for the three and six months ended June 30, 2018, offsetting the lower federal statutory corporate tax rate resulting from the Tax Act.  Completion of the IRS audits for tax years 2011 through 2013 will allow us to accelerate the collection of certain tax benefits recognized in prior years.  As a result, we expect to receive a cash refund of approximately $12 million within the next 12 months.  The expected refund is currently included in Prepaid Income Taxes in the Consolidated Balance Sheets.

Financial Performance Guidance for Fiscal 2018

Dine Brands reiterates its financial performance guidance for fiscal 2018 contained in the press release issued on February 20, 2018 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 positive 3.5% and positive 4.5%.  This compares to previous expectations of between flat and positive 3.0%. 
• Revised expectations for IHOP's domestic system-wide comparable same-restaurant sales performance to range between positive 0.5% and positive 2.0%.  This compares to previous expectations of between flat and positive 3.0%. 
• Revised expectations for the closure of approximately 80 to 90 domestic Applebee's restaurants and approximately 10 international Applebee's restaurants.  This compares to previous expectations for the closure of approximately 60 to 80 restaurants for domestic and international combined.  The expected closures will be based on several criteria, including meeting our brand and image standards as well as operational results.
• Revised expectations for adjusted free cash flow (See "Non-GAAP Financial Measures" below) to range between $99 million and $119 million.  This compares to previous expectations for adjusted free cash flow to range between $94 million and $114 million.   
• Reiterates expectations for Applebee's franchisees to develop between 10 and 15 new restaurants globally, the majority of which are expected to be international openings. 
• Reiterates expectations for IHOP franchisees and its area licensee to develop between 85 and 100 restaurants globally, the majority of which are expected to be domestic openings. We expect the closure of approximately 30 to 40 restaurants, or on a full-year net development basis, a range of 45 to 70 incremental restaurants. 
• Reiterates expectations for Franchise segment profit to be between approximately $289 million and $307 million.  Included in this amount is a one-time $30 million franchise expense that was contributed to the Applebee's national advertising fund in the first half of 2018.  This is in addition to the 2017 contribution of $9.5 million. 
• Reiterates expectations for Rental and Financing segments to generate approximately $37 million in combined profit.
• Reiterates expectations for general and administrative expenses to range between $147 million and $156 million, including non-cash stock-based compensation expense and depreciation of approximately $21 million. 
• Reiterates expectations for interest expense to be approximately $61 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 expectations for the income tax rate to be approximately 26%.     
• Reiterates expectations for cash flows provided by operating activities to range between $100 million and $120 million.    
• Reiterates expectations for capital expenditures to be approximately $16 million.
• Reiterates expectations for GAAP earnings per diluted share to range between $4.31 and $4.61.
• Reiterates expectations for adjusted earnings per diluted share (See "Non-GAAP Financial Measures" below) to range from $4.95 to $5.25.

Second Quarter Fiscal 2018 Results Conference Call Today

The Company will host a conference call to discuss its results on the same day at 6:00 a.m. Pacific Time/ 9:00 a.m. Eastern Time. To participate on the call, please dial (888) 771-4371 and reference passcode 47253774. International callers, please dial (847) 585-4405 and reference passcode 47253774.  A live webcast of the call will be available on www.dinebrands.com and may be accessed by visiting Events and Presentations under 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 7:30 a.m. Pacific Time/10:30 a.m. Eastern Time on August 1, 2018 through 8:59 p.m. Pacific Time/11:59 p.m. Eastern Time on August 8, 2018 by dialing (888) 843-7419 and referencing passcode 47253774#.  International callers, please dial (630) 652-3042 and reference passcode 47253774#.  An online archive of the webcast will also be available on Events and Presentations under the Investors section of the Company's website.

About Dine Brands Global, Inc.

Based in Glendale, California, Dine Brands Global, Inc. (NYSE: DIN), through its subsidiaries, franchises restaurants under both the Applebee's Neighborhood Grill & Bar and IHOP brands.  With approximately 3,700 restaurants combined in 18 countries and approximately 380 franchisees, Dine Brands is one of the largest full-service restaurant companies in the world. For more information on Dine Brands, visit the Company's website located at www.dinebrands.com.

Forward-Looking Statements

Statements contained in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by words such as "may," "will," "would," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "plan," "goal" 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: general economic conditions; our level of indebtedness; compliance with the terms of our securitized debt; our ability to refinance our current indebtedness or obtain additional financing; our dependence on information technology; potential cyber incidents; the implementation of restaurant development plans; our dependence on our franchisees; the concentration of our Applebee's franchised restaurants in a limited number of franchisees; the financial health our franchisees; our franchisees' and other licensees' compliance with our quality standards and trademark usage; general risks associated with the restaurant industry; potential harm to our brands' reputation; possible future impairment charges; the effects of tax reform; trading volatility and fluctuations in the price of our stock; our ability to achieve the financial guidance we provide to investors; successful implementation of our business strategy; the availability of suitable locations for new restaurants; shortages or interruptions in the supply or delivery of products from third parties or availability of utilities; the management and forecasting of appropriate inventory levels; development and implementation of innovative marketing and use of social media; changing health or dietary preference of consumers; risks associated with doing business in international markets; the results of litigation and other legal proceedings; third-party claims with respect to intellectual property assets; our ability to attract and retain management and other key employees; compliance with federal, state and local governmental regulations; risks associated with our self-insurance; natural disasters or other series incidents; our success with development initiatives outside of our core business; the adequacy of our internal controls over financial reporting and future changes in accounting standards; 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 does not intend to, nor does it assume any obligation to, update or supplement any forward-looking statements after the date hereof to reflect actual results or future events or circumstances.

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.

SOURCE Dine Brands Global, Inc.

Related Links

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