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Strategies & Market Trends : Can you beat 50% per month? -- Ignore unavailable to you. Want to Upgrade?

To: Smiling Bob who wrote (13976)	5/21/2008 6:25:01 PM
From: Smiling Bob	Read Replies (2) \| Respond to of 19257

IHOP Should Have Stuck With Pancakes April 15, 2008 \| By Glenn Curtis IHOP's (NYSE:IHP) acquisition of casual dining chain Applebee's was a bold move, but so far it's done little to improve shareholder value. Last week IHOP released its first-quarter same store sales for both its IHOP and Applebee's locations. IHOP sizzled, but Applebee's sales were cold and unappetizing by comparison. IHOP Consistently Produces People still love pancakes. For the first quarter ended March 31, IHOP reported a system-wide same-store increase of 3.7%. This increase shows remarkable consistency and resiliency in an industry facing lofty labor costs, a slowing domestic economy and stiffening competition. IHOP has now posted 21 consecutive quarters of same-store growth. (To learn how spending habits provide valuable information about the economy, read Using Consumer Spending As A Market Indicator.) Beyond the consistency factor, a positive comp of 3.7% is a pretty good number. Rival Denny's (Nasdaq:DENN) fights with IHOP for breakfast customers, yet in Q4 Denny's reported a decline in comps of 1.2% at company locations, and a very slight increase of 0.3% at franchise locations. IHOP also battles Brinker International (NYSE:EAT) for the lunch/brunch crowd. Brinker operates Chili's, On The Border Mexican Grill & Cantina, and Maggiano's Little Italy, and in its most recent quarter Brinker posted a 2.1% decline in comps. Applebee's Ho-hum The newly acquired Applebee's chain posted a system-wide domestic same-store increase of only 0.5% for its first quarter. I view this number as a negative. Prior to the acquisition there was anticipation, rightly or wrongly, on the Street that Applebee's would almost immediately be a perfect compliment to IHOP's business. IHOP's would cover the breakfast crowd, while Applebee's, with its bar and different atmosphere, would bring in the lunch and dinner patrons. IHOP held up its end of the bargain, but Applebee's anemic 0.5% improvement just isn't going to cut it. This is especially worrying because Applebee's is a massive part of the overall organization. As of March there were 1,353 IHOP restaurants, and 1,986 Applebee's locations. Applebee's quarterly comps don't stand out from the competition the way IHOP's do either. We've already seen that Brinker had a mediocre quarter, and another competitor Darden Restaurants (NYSE:DRI) had similar performance. The company runs the Red Lobster, Olive Garden, and Long Horn Steakhouse chains. Of the three, only Olive Garden saw a comps increase, jumping a decent 5.7%. However, Red Lobster and Long Horn posted declines of 2% and 3.3% respectively. Applebee's numbers, while positive, just don't get my motor running. With most of the competition struggling, this would have been the perfect time to post a great number. (To discover how to keep score of companies and their competition, read What You Need To Know About Financial Statements.) Bottom Line It's still early in the game, and IHOP has a huge chance to make this Applebee's fit work. The company has proved it knows how to run a profitable restaurant chain, now it just has to expand that success to Applebee's. I remain bullish on the overall organization and its prospects going forward, but the latest results certainly put a damper on investor enthusiasm. For further reading on this subject, check out Mergers And Acquisitions: Why The Can Fail. By Glenn Curtis Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses. At the time of writing Glenn Curtis did not own shares in any of the companies mentioned in this article. Return to Yahoo