IHOP 1st Quarter Earnings Fall

IHOP Corp. (NYSE:IHP) announced financial results for the first quarter 2007 ended March 31, 2007, which included the following performance highlights:

• The Company successfully completed a $200 million securitized financing transaction during the first quarter 2007.

• EPS for the first quarter 2007 was $0.63, which decreased 7.4% due to costs related to the write-off of deferred financing costs and a pre- payment penalty on the Company's pre-existing debt. Excluding these costs, EPS would have increased 2.9% to $0.70.

• IHOP produced its 17th consecutive quarter of same-store sales growth with an increase of 0.5% for the first quarter 2007. This growth was driven by higher guest check averages, which offset declines in guest traffic during the quarter.

• IHOP franchisees developed and opened eight new restaurants during the first quarter 2007. System-wide restaurants grew 4.3% year-over-year for a total of 1,306 IHOPs.

• Cash Flow from Operating Activities for the first three months of 2007 totaled $14.6 million. Additionally, $3.9 million of cash was provided by the collection of the Company's long-term receivables for the first three months of 2007.

• Share repurchases for the first quarter 2007 amounted to $37.6 million worth of IHOP stock, or approximately 659,400 shares.

Julia A. Stewart, IHOP's Chairman and Chief Executive Officer, said, "While our quarterly performance was impacted by costs related to our corporate refinancing, our core franchising business turned in solid results for the first quarter 2007. We benefited from modest same-store sales gains and new franchise restaurant openings, continuous management of General & Administrative expense growth and ongoing share repurchases during the quarter. This is the same successful financial formula that has driven our solid financial performance in recent years."

First Quarter 2007 Performance

IHOP reported a decrease of 10.2% in net income to $11.3 million, and a 7.4% decrease in diluted net income per share to $0.63 for the first quarter 2007 compared with the same quarter in fiscal 2006. This decrease was due to the impact of costs related to the write-off of deferred financing costs and a pre-payment penalty on the Company's existing debt, which was replaced by a $200 million securitized refinancing completed in March 2007. Excluding these costs, net income would have increased 0.1% to $12.7 million, while diluted net income per share would have increased 2.9% to $0.70. The increases in diluted net income per share resulted primarily from a 4.3% increase in Franchise Operations segment profit and a 3.2% reduction in diluted weighted average shares outstanding due to share repurchases by the Company made over the past 12 months.

General & Administrative (G&A) expenses increased 6.8% to $16.1 million for the first quarter 2007 compared with the same quarter in fiscal 2006. This increase was primarily due to planned increases in salaries and wages, and an increase in long-term incentive plan expense.

Cash Flow from Operating Activities decreased 32.1% for the first three months of fiscal 2007 to $14.6 million compared with $21.5 million for the same period in fiscal 2006. This decrease was primarily related to the timing of tax payments in the first quarter 2007. Principal receipts from notes and equipment contracts receivable, which are an additional source of cash generation for the Company, amounted to $3.9 million for the first three months of fiscal 2007. Capital expenditures increased to $784,000 for the first three months of fiscal 2007 compared with $241,000 for the same period in fiscal 2006. The increase in capital expenditures primarily reflects increased investment in Information Technology initiatives.

For the three months ended March 31, 2007, system-wide same-store sales increased 0.5%. IHOP's same-store sales growth was tempered by a challenging consumer environment and a difficult comparison to its strongest same-store sales performance last year of 5.1% in the first quarter 2006. During the first quarter 2007, IHOP experienced an increase in guest check average primarily due to the cumulative effect of menu price increases taken in 2006, while guest traffic declined during the quarter. Same-store sales growth for the first quarter 2007 was supported by the solid performance of limited-time offers All You Can Eat Pancakes and Cinn-a Stacks.

2007 Performance Guidance Reiterated

IHOP reiterated that it expects its earnings performance to range between $2.50 and $2.60 per diluted share for fiscal 2007. The Company's 2007 earnings guidance is primarily based on the expectation of positive same-store sales growth between 2% and 4%, the addition of 61 to 66 new franchise restaurants to the IHOP system, moderate G&A spending in the range of $65 million to $67 million, and ongoing share repurchases. Higher expenses associated with its corporate refinancing also are reflected in the Company's 2007 financial performance guidance.

Cash from Operations is expected to range between $60 million and $65 million in 2007, and principal receipts from note and equipment contracts receivable are expected to be within the range of $16 million to $18 million. Capital expenditures are expected to range between $6 million and $8 million in 2007. This primarily reflects investment in the Company's Information Technology infrastructure and construction related to the opening of additional restaurants in IHOP's Company market in Cincinnati, Ohio, in 2008. IHOP does not plan to open any IHOP restaurants in Cincinnati this year.



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