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DineEquity (DIN) Q2 Earnings Beat, Revenues Lag, Stock Up


DineEquity, Inc. DIN reported second-quarter fiscal 2017 earnings of $1.30 per share, which surpassed the Zacks Consensus Estimate of $1.20 by 8.3%. However, the figure decreased 18.2% from the prior-year quarter earnings of $1.59. The fall was primarily due to lower revenues and decline in gross profits.

Total revenue of $155.2 million declined 3.2% year over year due to lower franchise and restaurant, rental as well as financing revenues. Also, the top line missed the Zacks Consensus Estimate of $156.4 million by 0.8%.

Currently, the company operates under the Applebee's Neighborhood Grill & Bar and International House of Pancakes (IHOP) brands.

Notably, DineEquity continues to invest in the empowerment of its brands by enhancing overall franchisee financial health, closing underperforming restaurants and improving the supply chain. Consequently, the company’s shares were up more than 4% in yesterday’s trading session, reflecting investors’ optimism regarding the initiatives undertaken to drive growth at both the brands.

DineEquity, Inc Price, Consensus and EPS Surprise

DineEquity, Inc Price, Consensus and EPS Surprise | DineEquity, Inc Quote

Behind the Headline Numbers

IHOP's domestic system-wide comps declined 2.6%. This compares unfavorably with the previous quarter’s comps decrease of 1.7% and the prior-year quarter’s comps growth of 0.2%. Despite witnessing soft sales in the last few quarters, the company believes that the IHOP brand remains on solid ground.

Moreover, initiatives to improve guest satisfaction via online ordering as well as testing of delivery services and development of an IHOP mobile application are expected to create improved revenue channels.

Applebee's domestic system-wide comps decreased 6.2% comparing favorably with the last quarter’s comps decline of 7.9% but unfavourably with the prior-year quarter’s decline of 4.2%. Notably, Applebee’s casual dining restaurants are facing stiff competition from fast-food and quick service restaurants. Also, consumers are favoring ordering in meals over going to brick-and-mortar retailers.

Nonetheless, DineEquity believes that fiscal 2017 will be a transitional year for Applebee's, and steps taken to revitalize the brand via increased focus on food and culinary innovation, consumer satisfaction and marketing are expected to drive comps over the long term, with an improvement likely 2018 onwards.

Fiscal 2017 Outlook Slashed

For fiscal 2017, Applebee's domestic system-wide comps are now expected to decrease in the range of 6–8% (a decline of 4% to 8%, expected earlier).

IHOP's domestic system-wide comps are expected to be down in the range of 1% to 3% (earlier, flat to up 3%).

DineEquity now expects general and administrative expenses to range between $166 million and $172 million ($170–$177 million, expected previously).

Meanwhile, the company expects capital expenditure to be roughly $12 million in fiscal 2017, up from $12 million, anticipated earlier.

Currently, DineEquity carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

McDonald's Corp. MCD reported second-quarter adjusted earnings per share of $1.73, beating the Zacks Consensus Estimate of $1.62 by 6.8%. The bottom line also increased 19% year over year.

Chipotle Mexican Grill, Inc.’s CMG second-quarter 2017 adjusted earnings of $2.32 per share outpaced the Zacks Consensus Estimate of $2.16 by 7.4%. The figure also increased significantly from the prior-year quarter earnings of 87 cents, given a substantial rise in revenues.

Darden Restaurants, Inc.’s DRI fourth-quarter fiscal 2017 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.15 by 2.6%. Further, the bottom line increased 7.3% year over year on the back of higher revenues and lower share count.

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