Julia Stewart Out, Asset-Light Model in Question
DineEquity (NYSE: DIN) CEO Julia Stewart is out.
While Stewart’s exit from the struggling same store sales restaurant company isn’t a total surprise, it raises a lot of questions for investors. Shares were off almost 10% today as investors questioned the strength of the dividend, which at an annual payout of $3.88 represents a handsome 5.83% yield.
What will happen to the dividend? With same-store sales at Applebee’s down 7.2% for the fourth quarter (a full year decline of 5%) Applebee’s franchisees are reeling from the disastrous wood fire grilled steak product promotion. IHOP was down 2.1% in the fourth quarter as well, but only down .1% for the year—ahead of the industry comps by a decent margin. Both results won’t inspire franchisees to grow new units in either brand. In fact, Applebee’s franchisees shuttered 26 locations through the third quarter of 2016, a net loss of six Applebee’s locations.
With the sales decline don’t count on a refinancing of the company’s $1.4 billion debt either—there’s no more room to borrow. With interest rates low the company was able to refinance its debt and favor generous stock buybacks and dividends, but watch out now.
That brings the asset-light model at public restaurant companies into serious question. If same store sales don’t grow, there is no extra cash flow to buy back stock back or pay dividends. With no unit growth, the level of share buybacks and dividends are always in jeopardy, unless a company can keep cutting overhead and refinancing. Stewart ran out of her bag of tricks. Asset light only works when franchisees are building restaurants and sales are climbing.
We saw it coming. As Warren Buffet once famously said, “Only when the tide goes out do you see who’s been swimming naked.”
See the full release below:
"I am honored to have led this extraordinary global company through significant periods of growth and transformation over the last 16 years. It has been a privilege to lead two iconic brands, both number one in their respective categories," said Stewart. "I am also grateful for the opportunity to have worked with such talented and passionate executives, team members and franchisees. I am confident in the strong roadmap that has been set forth, and will continue to cheer for the company's success."
The board of directors has named its current lead director,
Mr. Dahl has served on the board of directors since
"For more than 16 years, Julia has been a strong and valued leader of
Concurrent with this leadership transition, the Company today released preliminary (unaudited) fourth quarter 2016 and fiscal 2016 financial results.
GAAP net income available to common stockholders was
$21.1 millionfor the fourth quarter of 2016, or earnings per diluted share of $1.18. GAAP net income available to common stockholders was $96.6 millionfor fiscal 2016, or earnings per diluted share of $5.33.
Adjusted net income available to common stockholders was
$24.5 million, or adjusted earnings per diluted share of $1.37, for the fourth quarter of 2016. Adjusted net income available to common stockholders was $108.9 million, or adjusted earnings per diluted share of $6.01, for fiscal 2016. (See non-GAAP financial measures below).
Adjusted EBITDA for the twelve months ended
December 31, 2016was $275.3 million(See non-GAAP financial measures below).
General and administrative expenses were
$37.0 millionfor the fourth quarter of 2016. General and administrative expenses were $148.9 millionfor fiscal 2016.
IHOP's domestic system-wide comparable same restaurant sales were negative 2.1% for the fourth quarter of 2016. IHOP's domestic system-wide comparable same restaurant sales decreased 0.1% for fiscal 2016.
Applebee's domestic system-wide comparable same-restaurant sales declined 7.2% for the fourth quarter of 2016. Applebee's domestic system-wide comparable same-restaurant sales decreased 5.0% for fiscal 2016.