Holger, I just reread the press releases. The people quitting their jobs was happening over at AppleSouth, not Applebees. I did a quick look of the company's debt as posted on WSRN.COM. According to WSRN.COM, the company currently has a debt/equity ratio of .08. This additional debt will rais it to .53, or 35% of total capital. While this isn't good, it is not disastrous. This is a debt level which APPB should be able to handle.
The press release indicates there are 960 Applebees and 55 Rio Bravo Cantinas in 48 states. My guess is AppleSouth got out because they were running out of territory to establish new Applebees. AppleSouth has a much higher p/e ratio than APPB (and I assume a correspondingly higher growth rate). They probably needed to get out or see their stock price collapse as the result of slower growth due to the lack of territories to build new Applebees.
I don't recall seeing many (any) Applebees out west. Can anyone comment on this?
The following is from their press release:
>>As the company previously announced in early October, a negative impact was expected on fourth quarter earnings resulting from the continued costs of completing the rollout of its 1997 food and menu initiatives and the pre-opening costs and early operating inefficiencies related to 19 new company restaurant openings in the quarter. During the fourth quarter, these factors have impacted earnings more than expected. In addition, fourth quarter earnings have been negatively impacted by higher than anticipated labor costs resulting from recent minimum wage increases and continued tight labor markets, combined with the company Rio Bravo Cantina restaurants performing at less than expected levels.
The company expects that these fourth quarter factors may have some continued impact on operating costs into 1998. Also, the delay in franchise development in 1998 resulting from the Apple South divestment plan will impact 1998 earnings. The company now expects that earnings per share for 1998 will be in the range of $1.75 to $1.80 per share, an increase of more than 20% over 1997 expected earnings per share. <<
As you can see, next year's EPS growth rate is still higher than its (recent) P/E ratio, so I expect the stock will come back up in 98. In fact, now may be a good buying opportunity. Unfortunately, I am fully invested. |
