IHOP Corp. Reports Strong Fourth Quarter and Fiscal 2006 Financial Results
IHOP Corp. (NYSE:IHP) today announced financial results for its fourth quarter and fiscal 2006, which include the following performance highlights:
• EPS for the fourth quarter 2006 of $0.57, including stock based compensation expense, was a 7.5% increase versus the same quarter last year. EPS for the fourth quarter 2006, excluding pre-tax stock based compensation expense of $1.0 million, was $0.61, a 15.1% increase compared to the prior year.
• For fiscal 2006, EPS of $2.43, including stock based compensation expense, increased 8.5% versus the same period last year. EPS for fiscal 2006 increased 14.2% to $2.57, excluding pre-tax stock based compensation expense of $3.9 million.
• IHOP produced its 16th consecutive quarter of same-store sales growth with an increase of 0.4% for the fourth quarter 2006, which was entirely driven by increases in guest traffic that offset flat guest check average results. For fiscal 2006, same-store sales increased 2.5%, which consisted of increases in guest traffic and moderate increases in guest check average.
• 24 new restaurants were developed and opened by IHOP franchisees and its area licensee during the fourth quarter 2006. System-wide restaurants grew 4.8% year-over-year to a total of 1,302 IHOPs.
• Cash Flow from Operating Activities for fiscal 2006 increased 17.2% to $64.9 million. Additionally, $17.8 million of cash was provided by the collection of the Company's long-term receivables for fiscal 2006.
• Share repurchases for fiscal 2006 amounted to approximately 889,000 shares of IHOP stock, totaling $42.7 million.
Julia A. Stewart, IHOP's Chairman and Chief Executive Officer, said, "In 2006, we were able to deliver strong results by focusing on driving organic growth throughout the IHOP system with a significant number of new franchise restaurant openings and by delivering positive same-store sales results at existing IHOP restaurants. We also produced operating leverage through expense control and the deployment of our capital in ways that create value for our shareholders through share repurchase and dividend payments. In all, we are pleased with our performance for the year, and look forward to further building upon our successes in 2007."
Fourth Quarter and Fiscal 2006 Performance
IHOP reported an increase of 3.7% in net income to $10.3 million, and a 7.5% increase in diluted net income per share of $0.57 for the fourth quarter 2006 compared to the prior year. Excluding pre-tax stock based compensation expense of $1.0 million, net income increased 9.2% to $10.9 million, and diluted net income per share increased 15.1% to $0.61. The increases in diluted net income per share resulted primarily from a 3.8% increase in Franchise Operations segment profit and a 4.2% reduction in diluted weighted average shares outstanding due to ongoing share repurchases by the Company made throughout the year.
For the twelve months ended December 31, 2006, IHOP reported an increase of 1.4% in net income to $44.6 million, and an increase of 8.5% in diluted net income per share to $2.43. Excluding pre-tax stock based compensation expense of $3.9 million, net income increased 6.4% to $46.9 million, and diluted net income per share increased 14.2% to $2.57. The increases in net income and diluted net income per share resulted primarily from an 8.6% increase in Franchise Operations segment profit due to an increase in effective restaurants as well as higher same-store sales performance for fiscal 2006. This rate of revenue growth exceeded modest expense growth in this segment. Additionally, a 6.7% reduction in diluted weighted average shares outstanding contributed to IHOP's per share earnings performance for fiscal 2006.
Including stock based compensation expense, General & Administrative (G&A) expenses increased 7.5% to $17.0 million for the fourth quarter 2006, and 8.1% to $63.5 million for fiscal 2006 compared to the same periods in 2005. Excluding stock based compensation expense, G&A increased 1.7% to $16.0 million for the fourth quarter 2006, and 1.9% to $59.6 million for fiscal 2006 compared to the same periods in 2005.
Cash Flow from Operating Activities increased for fiscal 2006 to $64.9 million compared with $55.4 million for fiscal 2005. This increase resulted primarily from steps taken to accelerate the depreciation of certain fixed assets for tax purposes as the result of the Company's cost segregation study completed in 2006. Principal receipts from notes and equipment contracts receivable, which are an additional source of cash generation for the Company, amounted to $17.8 million for fiscal 2006. Capital expenditures increased to $9.4 million for fiscal 2006 versus $7.4 million for the same period in 2005. The increase in capital expenditures primarily reflects the cost of restaurant development in IHOP's Company market in Cincinnati, Ohio.
For the twelve months ended December 31, 2006, system-wide same-store sales increased 2.5%, which consisted of increases in guest traffic and moderate increases in guest check average. Compared to an exceptionally strong 5.4% growth in the same quarter last year, system-wide same-store sales increased 0.4% for the quarter ended December 31, 2006. This growth consisted entirely of increases in guest traffic that offset flat guest check average results. Same-store sales growth for the fourth quarter 2006 was supported by the solid performance of limited-time offers French Toast Fantasy and Super Rooty Tooty Fresh 'N Fruity.
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------- --------- --------- ---------
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues
Franchise revenues $ 45,625 $ 43,308 $ 179,331 $ 167,384
Rental income 33,069 32,543 132,101 131,626
Company restaurant sales 3,936 2,598 13,585 13,964
Financing revenues 5,302 9,541 24,543 35,049
--------- --------- --------- ---------
Total revenues 87,932 87,990 349,560 348,023
--------- --------- --------- ---------
Costs and Expenses
Franchise expenses 21,835 20,397 83,079 78,768
Rental expenses 24,378 24,742 97,904 98,391
Company restaurant expenses 4,660 2,942 15,601 15,095
Financing expenses 1,920 6,660 11,881 20,336
General and administrative expenses 17,035 15,843 63,543 58,801
Other expense, net 984 1,336 4,702 5,766
--------- --------- --------- ---------
Total costs and expenses 70,812 71,920 276,710 277,157
--------- --------- --------- ---------
Income before income taxes 17,120 16,070 72,850 70,866
Provision for income taxes 6,790 6,109 28,297 26,929
--------- --------- --------- ---------
Net income $ 10,330 $ 9,961 $ 44,553 $ 43,937
========= ========= ========= =========
Net Income Per Share
Basic $ 0.58 $ 0.53 $ 2.46 $ 2.26
========= ========= ========= =========
Diluted $ 0.57 $ 0.53 $ 2.43 $ 2.24
========= ========= ========= =========
Weighted Average Shares Outstanding
Basic 17,839 18,642 18,085 19,405
========= ========= ========= =========
Diluted 18,051 18,837 18,298 19,603
========= ========= ========= =========
Dividends Declared Per Share $ 0.25 $ 0.25 $ 1.00 $ 1.00
========= ========= ========= =========
Dividends Paid Per Share $ 0.25 $ 0.25 $ 1.00 $ 1.00
========= ========= ========= =========
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DATA
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- -------- -------- --------
Restaurant Data
Effective restaurants (a)
Franchise 1,116 1,063 1,095 1,047
Company 10 5 8 7
Area license 159 153 156 151
--------- -------- -------- --------
Total 1,285 1,221 1,259 1,205
========= ======== ======== ========
System-wide (b)
Sales percentage change (c) 6.2% 1.9% 7.4% 5.4%
Same-store sales percentage
change (d) 0.4% 5.4% 2.5% 2.9%
Franchise (b)
Sales percentage change (c) 5.9% 2.5% 7.5% 6.2%
Same-store sales percentage
change (d) 0.5% 5.4% 2.5% 2.9%
Company
Sales percentage change (c) 51.5% (49.9)% (2.7)% (55.8)%
Area License (b)
Sales percentage change (c) 6.1% 1.6% 6.5% 8.7%
(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. Information is presented for all effective restaurants in
the IHOP system, which includes IHOP restaurants owned by the Company
as well as those owned by franchisees and area licensees.
(b) System-wide sales are retail sales at IHOP restaurants operated by
franchisees, area licensees and the Company, as reported to the
Company. Franchise restaurant sales were $482.0 million and $1.9
billion for the fourth quarter and fiscal year ended December 31, 2006,
respectively, and sales at area license restaurants were $50.0 million
and $203.3 million for the fourth quarter and fiscal year ended
December 31, 2006, respectively. Sales at restaurants that are owned
by franchisees and area licensees are not attributable to the Company.
(c) "Sales percentage change" reflects, for each category of restaurants,
the percentage change in sales in any given fiscal period compared to
the prior fiscal period for all restaurants in that category.
(d) "Same-store sales percentage change" reflects the percentage change in
sales, in any given fiscal period compared to the prior fiscal period,
for restaurants that have been operated throughout both fiscal periods
that are being compared and have been open for at least 18 months.
Because of new unit openings and store closures, the restaurants open
throughout both fiscal periods being compared will be different from
period to period. Same-store sales percentage change does not include
data on restaurants located in Florida.
IHOP CORP. AND SUBSIDIARIES
RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Restaurant Development Activity
Beginning of period 1,278 1,218 1,242 1,186
New openings
Company-developed 1 2 4 4
Franchisee-developed 22 24 57 58
Area license 2 1 8 5
--------- --------- --------- ---------
Total new openings 25 27 69 67
Closings
Company and franchise (1) (3) (8) (11)
Area license - - (1) -
--------- --------- --------- ---------
End of period 1,302 1,242 1,302 1,242
========= ========= ========= =========
Summary-end of period
Franchise 1,132 1,082 1,132 1,082
Company 10 7 10 7
Area license 160 153 160 153
--------- --------- --------- ---------
Total 1,302 1,242 1,302 1,242
========= ========= ========= =========
Restaurant Franchising Activity
Company-developed - - - 3
Franchisee-developed 22 24 57 58
Rehabilitated and refranchised 1 8 9 26
--------- --------- --------- ---------
Total restaurants
franchised 23 32 66 87
Reacquired by the Company (1) (9) (8) (23)
Closed (1) (3) (8) (10)
--------- --------- --------- ---------
Net addition 21 20 50 54
========= ========= ========= =========
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31, December 31,
2006 2005
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 19,516 $ 23,111
Receivables, net 45,571 43,690
Reacquired franchises and equipment held for
sale, net - 273
Inventories 396 537
Prepaid expenses 7,493 2,899
Deferred income taxes 5,417 -
------------ ------------
Total current assets 78,393 70,510
------------ ------------
Long-term receivables 302,088 319,335
Property and equipment, net 309,737 317,959
Excess of costs over net assets acquired 10,767 10,767
Other assets 67,885 52,509
------------ ------------
Total assets $ 768,870 $ 771,080
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 19,738 $ 19,564
Accounts payable 14,689 15,083
Accrued employee compensation and benefits 13,359 10,745
Other accrued expenses 11,317 9,030
Deferred income taxes - 2,882
Capital lease obligations 5,002 4,491
------------ ------------
Total current liabilities 64,105 61,795
------------ ------------
Long-term debt, less current maturities 94,468 114,210
Deferred income taxes 76,017 61,414
Capital lease obligations 170,412 172,681
Other liabilities 74,655 67,134
Commitments and contingencies
Stockholders' equity
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued and outstanding - -
Common stock, $.01 par value, 40,000,000 shares
authorized; December 31, 2006: 22,818,007
shares issued and 17,873,548 shares
outstanding; December 31, 2005: 22,464,760
shares issued and 18,409,587 shares
outstanding 227 225
Additional paid-in capital 131,748 120,922
Retained earnings 358,975 332,560
Deferred compensation - (747)
Accumulated other comprehensive loss (133) (205)
Treasury stock, at cost (4,944,459 shares and
4,055,173 shares at December 31, 2006 and
December 31, 2005, respectively) (201,604) (158,909)
------------ ------------
Total stockholders' equity 289,213 293,846
------------ ------------
Total liabilities and stockholders' equity $ 768,870 $ 771,080
============ ============
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twelve Months Ended
December 31,
---------------------
2006 2005
---------- ----------
Cash flows from operating activities
Net income $ 44,553 $ 43,937
Adjustments to reconcile net income to cash flows
provided by operating activities
Depreciation and amortization 20,050 19,866
Impairment and closure charges 43 896
Deferred income taxes 6,304 (3,689)
Stock-based compensation expense 3,911 287
Excess tax benefit from stock-based compensation (1,720) -
Tax benefit from stock options exercised - 1,578
Changes in operating assets and liabilities
Receivables (2,524) (148)
Inventories 141 (389)
Prepaid expenses (4,594) (487)
Accounts payable (394) (2,050)
Accrued employee compensation and benefits 2,614 1,560
Other accrued expenses (802) (2,336)
Other (2,723) (3,672)
---------- ----------
Cash flows provided by operating activities 64,859 55,353
---------- ----------
Cash flows from investing activities
Additions to property and equipment (9,426) (7,365)
Additions to long-term receivables (159) (36)
Purchase and redemption of marketable securities,
net - 13,843
Proceeds from sale of land and building - 890
Principal receipts from notes and equipment
contracts receivable 17,781 19,403
Additions to reacquired franchises and equipment
held for sale (594) (2,387)
Property insurance proceeds 1,694 -
---------- ----------
Cash flows provided by investing activities 9,296 24,348
---------- ----------
Cash flows from financing activities
Proceeds from landlords - 1,000
Repayment of long-term debt (19,568) (5,838)
Principal payments on capital lease obligations (4,088) (3,844)
Dividends paid (18,138) (19,550)
Purchase of treasury stock (42,695) (77,474)
Proceeds from stock options exercised 5,944 5,085
Excess tax benefit from stock-based compensation 1,720 -
Deferred financing costs (925) -
---------- ----------
Cash flows used in financing activities (77,750) (100,621)
---------- ----------
Net change in cash and cash equivalents (3,595) (20,920)
Cash and cash equivalents at beginning of period 23,111 44,031
---------- ----------
Cash and cash equivalents at end of period $ 19,516 $ 23,111
========== ==========
IHOP CORP. AND SUBSIDIARIES
NON-GAAP FINANCIAL MEASURES
(In thousands, except per share amounts)
(Unaudited)
Reconciliation of net income to net income excluding impact of stock based
compensation expense:
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Net income, as reported $ 10,330 $ 9,961 $ 44,553 $ 43,937
Stock option expense 390 - 1,905 -
Restricted stock 620 86 2,006 287
Income tax benefit (401) (33) (1,519) (109)
--------- --------- --------- ---------
Net income excluding stock
based compensation expense $ 10,939 $ 10,014 $ 46,945 $ 44,115
========= ========= ========= =========
Basic net income per share:
Net income, as reported per
share $ 0.58 $ 0.53 $ 2.46 $ 2.26
Stock option expense per share 0.02 - 0.11 -
Restricted stock per share 0.03 0.01 0.11 0.02
Income tax benefit per share (0.02) - (0.08) (0.01)
--------- --------- --------- ---------
Net income excluding stock
based compensation expense
per share $ 0.61 $ 0.54 $ 2.60 $ 2.27
========= ========= ========= =========
Diluted net income per share:
Net income, as reported per
share $ 0.57 $ 0.53 $ 2.43 $ 2.24
Stock option expense per share 0.02 - 0.11 -
Restricted stock per share 0.04 - 0.11 0.02
Income tax benefit per share (0.02) - (0.08) (0.01)
--------- --------- --------- ---------
Net income excluding stock
based compensation expense
per share $ 0.61 $ 0.53 $ 2.57 $ 2.25
========= ========= ========= =========
Logos, product and company names mentioned are the property of their respective owners.
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