Exhibit 99.1
FOR IMMEDIATE RELEASE
Investor Contacts
Tom Conforti
Chief Financial Officer
IHOP Corp.
818-240-6055
Stacy Roughan
Hill & Knowlton
323-966-5784
Media Contact
Chris Kuechenmeister
Hill & Knowlton
323-966-5709
IHOP CORP. REPORTS FIRST QUARTER 2003 RESULTS
GLENDALE, Calif. – May 8, 2003 — IHOP Corp. (NYSE: IHP) today announced results for its first quarter ended March 31, 2003.
First Quarter 2003 Performance
The Company reported a 38.9% decrease in net income to $6.0 million, or a decrease of 39.1% in diluted net earnings per share to $0.28 in the first quarter 2003, compared with net income of $9.8 million, or diluted net income per share of $0.46 in the first quarter 2002. The decreases in net income and diluted net earnings per share were due to approximately $6.7 million in one-time charges associated with the Company’s reorganization, announced in January 2003. However, after accounting for these charges, net income increased 4.1% to $10.2 million or 2.2% in diluted net income per share of $0.47. The Company also reiterated its earnings guidance of $1.55 to $1.70 in diluted net income per share for fiscal 2003.
As previously announced, system-wide sales increased 13.1% in the quarter ended March 31, 2003 over the same period in 2002. System-wide comparable store sales increased by 2.2% for the quarter ended March 31, 2003. In the first quarter 2003, total revenues were $94.0 million, an increase of 15.3% over the first quarter 2002. In the first quarter 2003, IHOP franchised 15 restaurants compared to 10 in the first quarter 2002.
Julia A. Stewart, IHOP Corp. President and Chief Executive Officer, said, “Our first quarter performance partially reflects a greater emphasis on marketing, product promotions, including limited time offers, and operations. Specifically, our new advertising campaign and improved media buying strategy along with enticing limited time offers - “Never Ending” pancakes and a great new product idea, Stuffed French Toast - translated into improved same-store sales performance. These limited time offers provided both value and exciting new reasons to visit IHOP.”
General & Administrative costs increased by $1.6 million or 14.8% as IHOP invested in initiatives related to the move from a Company developed and financing model to a more traditional franchising model with an investment focus on marketing and operations. In addition, the Company’s financial statements reflect one-time reorganization charges of $6.7 million related to its decision to change its operating model. The Company anticipates additional reorganization charges of approximately $2.0 million for the remainder of 2003.
Segment Reporting
The Company announced on March 24, 2003, its intention to change its segment reporting effective the first quarter of 2003, as it moved to its new operating model. The new segments reported include franchise operations, rental operations, Company restaurant operations and financing operations.
Segment highlights for the first quarter 2003 versus 2002 include:
• Franchise operations segment profit increased by 12.9% due to an increase in franchise revenues associated with an increase in the number of franchise restaurants.
• Rental operations segment profit increased by 28.4% due primarily to increased revenue from IHOP owned properties.
• Company restaurant operations loss increased by $0.5 million to a loss of $1.2 million in the first quarter of 2003. This was due primarily to higher labor related expenses in Company restaurants.
• Segment profit from financing operations decreased by 5.6% due to an increase in interest expense related to our new private placement debt partially offset by increased interest income from franchise and equipment notes.
IHOP has restated 2002 financial results in its new segment reporting format in a table at the end of this press release.
Operating Highlights
First quarter 2003 results reflect the implementation of a number of key operational strategies consistent with the Company’s move to a traditional franchising model. IHOP implemented a number of new promotional and media strategies, including the launch of a new advertising campaign supported by its first utilization of National Media. Product promotions – “Never Ending” Pancakes and Stuffed French Toast – were the key drivers of the 2.2% same-store sales increase.
Investor Conference Call
IHOP Corp. will host an investor conference call to discuss its first quarter results on Thursday, May 8, 2003 at 11:00 a.m. ET (8:00 a.m. PT). To participate on the call, please dial (877) 356-3747. The Company will webcast the live call with a slide presentation to accompany management’s discussion which can be accessed on the Investor Relations section of IHOP’s Website at www.ihop.com. 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 and view the slide show.
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An audio replay of the call will be available by 2:00 p.m. ET (11:00 a.m. PT) on May 8, 2003, which can be accessed through May 15, 2003 by dialing (800) 642-1687 and referencing pass code 9695931. An online archive of the webcast and slide show will be available approximately four hours following the live call.
About IHOP Corp.
The IHOP family restaurant chain has been serving a wide variety of breakfast, lunch and dinner selections for 45 years. Offering more than 16 types of pancakes, as well as omelettes, breakfast specialties, burgers, chicken and steaks, IHOP’s diverse menu appeals to people of all ages. IHOP restaurants are developed, operated and franchised by Glendale, California based IHOP Corp. As of March 31, 2003, there were 1,118 IHOP restaurants in 48 states and Canada. IHOP is publicly traded on the NYSE under the symbol “IHP.” For more information, call the Company’s headquarters at (818) 240-6055 or visit the Company’s Website located at www.ihop.com.
Forward-Looking Statements
There are forward-looking statements contained in this news release. They use such words as “may,” “will,” “expect,” “believe,” “plan,” or other similar terminology. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include, but are not limited to: risks associated with the implementation of the Company’s new strategic growth plan, the availability of suitable locations and terms of the sites designated for development; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; conditions beyond IHOP’s control such as weather, natural disasters or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the International House of Pancakes brand and concepts by guests and franchisees; IHOP’s overall marketing, operational and financial performance; economic and political conditions; adoption of new, or changes in, accounting policies and practices; and other factors discussed from time to time in IHOP’s filings with the Securities and Exchange Commission. Forward-looking information is provided by IHOP pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. In addition, IHOP disclaims any intent or obligation to update these forward-looking statements.
[Financial Information to Follow]
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IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD ENDED MARCH 31, 2003
(Dollars in thousands, except per share amounts)
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2003 | | 2002 | |
Revenues | | | | | |
Franchise revenues | | $ | 33,786 | | $ | 30,040 | |
Rental income | | 28,314 | | 23,974 | |
Company restaurant sales | | 19,674 | | 17,790 | |
Financing revenues | | 12,217 | | 9,736 | |
Total revenues | | 93,991 | | 81,540 | |
| | | | | |
Costs and Expenses | | | | | |
Franchise expenses | | 15,401 | | 13,757 | |
Rental expenses | | 19,985 | | 17,488 | |
Company restaurant expenses | | 20,908 | | 18,554 | |
Financing expenses | | 6,833 | | 4,035 | |
General and administrative expenses | | 12,267 | | 10,685 | |
Other (income) expense, net | | 2,347 | | 1,411 | |
Reorganization charges | | 6,709 | | — | |
Total costs and expenses | | 84,450 | | 65,930 | |
| | | | | |
Income before taxes | | 9,541 | | 15,610 | |
Provision for income tax | | 3,578 | | 5,854 | |
Net income | | $ | 5,963 | | $ | 9,756 | |
| | | | | |
Net Income Per Share | | | | | |
Basic | | $ | 0.28 | | $ | 0.47 | |
Diluted | | $ | 0.28 | | $ | 0.46 | |
| | | | | |
Weighted Average Shares Outstanding | | | | | |
Basic | | 21,313 | | 20,771 | |
Diluted | | 21,443 | | 21,169 | |
| | | | | |
Dividends Declared Per Share | | $ | 0.25 | | $ | — | |
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IHOP CORP. AND SUBSIDIARIES
RESULTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2003 | | 2002 | |
Restaurant Data | | | | | |
Effective restaurants(a) | | | | | |
Franchise | | 903 | | 823 | |
Company | | 76 | | 74 | |
Area license | | 125 | | 121 | |
Total | | 1,104 | | 1,018 | |
System-wide | | | | | |
Sales(b) | | $ | 413,825 | | $ | 365,840 | |
Percent change | | 13.1 | % | 10.6 | % |
Average sales per effective restaurant | | $ | 375 | | $ | 359 | |
Percent change | | 4.5 | % | 5.0 | % |
Comparable sales percentage change(c) | | 2.2 | % | 2.0 | % |
Franchise | | | | | |
Sales | | $ | 358,373 | | $ | 314,723 | |
Percent change | | 13.9 | % | 14.4 | % |
Average sales per effective restaurant | | $ | 397 | | $ | 382 | |
Percent change | | 3.9 | % | 3.2 | % |
Comparable sales percentage change(c) | | 2.4 | % | 2.1 | % |
Company | | | | | |
Sales | | $ | 19,674 | | $ | 17,790 | |
Percent change | | 10.6 | % | 6.0 | % |
Average sales per effective restaurant | | $ | 259 | | $ | 240 | |
Percent change | | 7.9 | % | 4.3 | % |
Area License | | | | | |
Sales | | $ | 35,778 | | $ | 33,327 | |
Percent change | | 7.4 | % | (13.9 | )% |
Average sales per effective restaurant | | $ | 286 | | $ | 275 | |
Percent change | | 4.0 | % | 7.8 | % |
(a) “Effective restaurants” are the number of restaurants in a given fiscal period adjusted to account for restaurants open for only a portion of the period. It is calculated by dividing total restaurant operating days by 91 days for a quarterly calculation.
(b) “System-wide sales” are retail sales of franchisees, area licensees and Company-operated restaurants, as reported to IHOP.
(c) “Comparable sales percentage change” reflects the percentage change in sales for restaurants that are operated for the entire fiscal period in which they are being compared. Because of new unit openings and store closures, the restaurants opened for an entire fiscal period being compared will be different from period to period. Comparable average sales do not include data on restaurants located in Florida.
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IHOP CORP. AND SUBSIDIARIES
RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2003 | | 2002 | |
RESTAURANT DEVELOPMENT ACTIVITY | | | | | |
IHOP-beginning of period | | 1,103 | | 1,017 | |
New openings | | | | | |
IHOP—developed | | 17 | | 10 | |
Franchisee—developed | | 3 | | 1 | |
Area license | | — | | 1 | |
Total new openings | | 20 | | 12 | |
Closings | | | | | |
Company and franchise | | (5 | ) | (1 | ) |
IHOP-end of period | | 1,118 | | 1,028 | |
| | | | | |
Summary-end of period | | | | | |
Franchise | | 913 | | 830 | |
Company | | 80 | | 75 | |
Area license | | 125 | | 123 | |
Total IHOP | | 1,118 | | 1,028 | |
| | | | | |
RESTAURANT FRANCHISING ACTIVITY | | | | | |
IHOP—developed | | 11 | | 9 | |
Franchisee—developed | | 3 | | 1 | |
Rehabilitated and refranchised | | 1 | | — | |
Total restaurants franchised | | 15 | | 10 | |
Reacquired by IHOP | | (2 | ) | (2 | ) |
Closed | | (2 | ) | (1 | ) |
Net addition | | 11 | | 7 | |
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IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| | March 31,
2003 | | December 31,
2002 | |
| | (Unaudited) | | | |
| | | | | |
Current assets, net | | $ | 145,893 | | $ | 159,101 | |
Property and equipment, net | | 300,153 | | 286,226 | |
Long-term receivables: | | | | | |
Notes receivable | | 45,713 | | 46,929 | |
Equipment contracts receivable | | 155,395 | | 153,261 | |
Direct financing leases receivable | | 132,379 | | 132,602 | |
Other assets | | 43,873 | | 41,681 | |
Total assets | | $ | 823,406 | | $ | 819,800 | |
| | | | | |
Current liabilities | | $ | 54,181 | | $ | 53,564 | |
Long-term debt | | 145,259 | | 145,768 | |
Other long-term liabilities | | 258,121 | | 256,079 | |
Stockholders’ equity | | 365,845 | | 364,389 | |
Total liabilities and stockholders’ equity | | $ | 823,406 | | $ | 819,800 | |
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2003 | | 2002 | |
Cash provided by operating activities | | $ | 13,322 | | $ | 16,227 | |
Cash used in investing activities | | | | | |
Additions to property and equipment | | (27,306 | ) | (20,857 | ) |
Investments in short-term marketable securities | | (21,123 | ) | — | |
Additions to other assets, net | | 1,020 | | 1,747 | |
Cash provided by financing activities | | 741 | | 13,632 | |
Net change in cash and cash equivalents | | (33,346 | ) | 10,749 | |
Cash and cash equivalents at beginning of period | | 98,739 | | 6,252 | |
Cash and cash equivalents at end of period | | $ | 65,393 | | $ | 17,001 | |
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IHOP CORP. AND SUBSIDIARIES
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
| | 1st Qtr.
2002 | | 2nd Qtr.
2002 | | 6 Mos.
2002 | | 3rd Qtr.
2002 | | 9 Mos.
2002 | | 4th Qtr.
2002 | | 12 Mos.
2002 | |
Revenues | | | | | | | | | | | | | | | |
Franchise revenues | | $ | 30,040 | | $ | 29,947 | | $ | 59,987 | | $ | 30,946 | | $ | 90,933 | | $ | 32,117 | | $ | 123,050 | |
Rental income | | 23,974 | | 24,416 | | 48,390 | | 25,158 | | 73,548 | | 26,047 | | 99,595 | |
Company restaurant sales | | 17,790 | | 17,986 | | 35,776 | | 19,634 | | 55,410 | | 19,023 | | 74,433 | |
Financing revenues | | 9,736 | | 12,510 | | 22,246 | | 16,345 | | 38,591 | | 30,205 | | 68,796 | |
Total revenues | | 81,540 | | 84,859 | | 166,399 | | 92,083 | | 258,482 | | 107,392 | | 365,874 | |
| | | | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | | | |
Franchise expenses | | 13,757 | | 13,592 | | 27,349 | | 13,673 | | 41,022 | | 14,117 | | 55,139 | |
Rental expenses | | 17,488 | | 18,224 | | 35,712 | | 18,517 | | 54,229 | | 19,583 | | 73,812 | |
Company restaurant expenses | | 18,554 | | 18,627 | | 37,181 | | 20,442 | | 57,623 | | 20,799 | | 78,422 | |
Financing expenses | | 4,035 | | 5,882 | | 9,917 | | 9,027 | | 18,944 | | 19,241 | | 38,185 | |
General and administrative expenses | | 10,685 | | 12,665 | | 23,350 | | 13,326 | | 36,676 | | 12,850 | | 49,526 | |
Other (income) expense, net | | 1,411 | | 989 | | 2,400 | | 1,357 | | 3,757 | | 1,676 | | 5,433 | |
Total costs and expenses | | 65,930 | | 69,979 | | 135,909 | | 76,342 | | 212,251 | | 88,266 | | 300,517 | |
| | | | | | | | | | | | | | | |
Income before taxes | | 15,610 | | 14,880 | | 30,490 | | 15,741 | | 46,231 | | 19,126 | | 65,357 | |
Provision for income tax | | 5,854 | | 5,580 | | 11,434 | | 5,903 | | 17,337 | | 7,172 | | 24,509 | |
Net income | | $ | 9,756 | | $ | 9,300 | | $ | 19,056 | | $ | 9,838 | | $ | 28,894 | | $ | 11,954 | | $ | 40,848 | |
| | | | | | | | | | | | | | | |
Net Income Per Share | | | | | | | | | | | | | | | |
Basic | | $ | 0.47 | | $ | 0.44 | | $ | 0.91 | | $ | 0.47 | | $ | 1.38 | | $ | 0.57 | | $ | 1.95 | |
Diluted | | $ | 0.46 | | $ | 0.44 | | $ | 0.90 | | $ | 0.46 | | $ | 1.36 | | $ | 0.56 | | $ | 1.92 | |
| | | | | | | | | | | | | | | |
Weighted Average Shares Outstanding | | | | | | | | | | | | | | | |
Basic | | 20,771 | | 20,904 | | 20,838 | | 20,958 | | 20,878 | | 21,152 | | 20,946 | |
Diluted | | 21,169 | | 21,340 | | 21,254 | | 21,235 | | 21,248 | | 21,334 | | 21,269 | |
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