Shares in DineEquity Inc. lost 42 percent of their value last week after the company’s July 10 announcement that it was lowering its same-store sales projections at its newly acquired Applebee’s chain.
The Glendale company, which also owns the IHOP restaurant chain and was formerly named IHOP Corp., saw its shares hit an eight-year low amid concerns that slower consumer spending was cutting into restaurant industry sales and profits.
But while rival Southern California casual dining chain California Pizza Kitchen Inc. actually gained ground, DineEquity was punished apparently by investors skeptical of its ability to turn around the struggling Applebee’s chain. Shares closed up 5.8 percent to $22.47 on July 17 amid some profit taking.
Analyst Lynne Collier of KeyBanc Capital Markets said the weak economy was a concern for the entire industry.
“While we believe that the tax rebate checks had a modest impact on May sales, we believe that the impact was short-lived given $4 per gallon gasoline, reduced consumer confidence and continued housing concerns,” wrote Collier in a research report.
DineEquity acquired Applebee’s and its roughly 2,000 restaurants for $1.9 billion in November, making it the largest, full-service restaurant operator in the world with a total of 3,300 restaurants.
The acquisition has been questioned by critics, because Applebee’s, once a hot eatery, has long lost its luster. However, DineEquity Chief Executive Julia Stewart, in pursuing the acquisition, vowed to turn around the restaurants by remodeling them and sprucing up the menu.
However, DineEquity announced July 10 that Applebee’s same-store sales would range in 2008 from a 1 percent decline to a 1 percent rise as opposed to same-store sales growth between 1 percent and 2 percent forecast earlier this year.
DineEquity would not comment on the company’s stock movement citing that it is set to report its second-quarter results on July 29 and had entered a quiet period. However, Chief Executive Julia Stewart issued a statement upon disclosing the lowered sales projections.
“Our revised same-store sales outlook for Applebee’s takes into consideration the early stage implementation of our brand re-energizing and operational improvement strategies and our same-store sales performance in the first half of 2008,” Stewart said.
Another key issue perhaps for investors is the ability of the company to pay off $350 million in debt accrued in the acquisition. A “make whole” payment is due before Aug. 31; DineEquity has completed the sale of more than 200 company-owned restaurants to lower its debt but still needs to sell off more to reach its target of 475.
Shares have lost more than 69 percent since hitting a 52-week high of $71.70 shortly after the Applebee’s deal was announced last summer.
