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Applebee’s Comps Drop while IHOP's Rises in Q3

Applebee's sign. Photo by Blue MauMau

GLENDALE, Calif.—DineEquity (NYSE:DIN), the holding company for Applebee's Neighborhood Grill & Bar and IHOP restaurants announced on Tuesday that third quarter same-store sales in the U.S. for Applebee's restaurants decreased 0.4 percent, while IHOP's grew 3.6 percent compared to the same period last year.

"IHOP's same-store sales trounced expectations with a positive 3.6% showing," triumphantly wrote restaurant analyst Mark Kalinowski of Janney Captial Markets to stock investors. In comparison, competitor Denny's, which also was a star in the casual dining sector, saw its same-store sales for franchises increase by only 1.3 percent.

Still, Kalinowski gave only a "neutral" rating to stock investors for DineEquity because even though DineEquity has the largest market share in casual dining, it had a large downside with a general decline of visits in casual and family dining since 2006. Despite his neutral rating, the stockmarket went on a buying spree as DineEquity took off to come in range of Denny's stock price ascent since last year (see chart).

IHOP's better comps from better menu layout

DineEquity attributes the IHOP sales increase to a shift in IHOP's menu items that gave it a higher guest check. The chain grew too. With 1,421 franchises, IHOP went up in franchise count from the same period last year by 38 restaurants. The bad news is that customer traffic was down for both casual dining concepts.

DIN Chart

Applebee's store count dropped by six restaurants by the end of the third quarter of this year compared to the same time last year. However, its franchise count went up by 33 from its 1,954 franchises last year.

Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc., told analysts in an earnings call Tuesday that she attributes the rise in IHOP's same store sales to an easier to read menu. "The new menu's improved layout, which offers better visibility, prompted guests to trade up and also helped to increase the sale of additional items such as appetizers," Stewart said. The CEO also said, "We outperformed the overall category once again. This is a testament to the strategy that we have in place as the dedication of our franchisees.

The Knapp-Track Casual Dining Index supports that. The index shows all of casual dining's same store sales and traffic in the negative for the quarter ending in September. Likewise, foodservice researcher The NPD Group points out to Blue MauMau that visits to casual dining restaurants were down 2 percent in the seasonal quarter that it measures, which ends in August, not September.

The NPD Group's CREST research shows that casual dining is harder hit compared to the restaurant industry's flat traffic as a whole. Although September's industry results have not yet been tabulated, NPD restaurant industry analyst Bonnie Riggs estimates that when it comes to all restaurant sectors, "total industry traffic will likely be up by one percent in the year ending in September." But she pointed out that casual dining won't fare as well. "Casual dining traffic will be slightly down with the segment's declines eased by aggressive dealing," she said.

IHOP store remodeling to finish in 2014, then begin again

Stewart said that IHOP franchise owners had been allocating significant capital and effort to upgrading their stores to the new model. The CEO said, "Our franchisees have remodeled their restaurants with approximately 66% of the domestic system having the new look at the end of third quarter 2013, and we're targeting completion by the end of 2014." She hinted that there will be a new remodel after the current one completes. "We're working with several of our key franchisees on developing the next phase of the IHOP remodel program, which we believe will further enhance the appeal of our restaurants."

The firm expects Applebee's domestic comparable sales to range between negative 0.5 percent and positive 0.5 percent for the year. DineEquity anticipates IHOP same-store sales in 2013 to be between 2 and 3 percent. Applebee's decreased in total restaurants from 2,016 at the end of the third quarter last year to 2,010 for the same time this year.

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Staff reporter for Blue MauMau