Julia Stewart Out, Asset-Light Model in Question


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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: 


GLENDALE, Calif.Feb. 17, 2017 -- DineEquity, Inc. (NYSE: DIN), the parent company of Applebee's Neighborhood Grill & Bar® and IHOP® restaurants, today announced that chairman and chief executive officer and interim president of the Applebee's business unit Julia Stewart will resign from the Company, effective March 1, 2017.

"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, Richard Dahl, to serve as interim chief executive officer and chairman, effective March 1, 2017, while the board of directors conducts a search for a permanent replacement.

Mr. Dahl has served on the board of directors since February 2004 and has more than 35 years of experience in senior management of public and private companies, including service as chief executive officer, chief operating officer and chief financial officer. The board appointed Caroline Nahas as DineEquity's lead director to replace Mr. Dahl and Douglas Pasquale to succeed Mr. Dahl as chairman of the audit and finance committee.  Upon completion of the chief executive officer search, the DineEquity board of directors intends to separate the chairman and chief executive officer roles.

"For more than 16 years, Julia has been a strong and valued leader of DineEquity and the IHOP and Applebee's brands and has made numerous and lasting contributions to the business," said Richard Dahl. "Under Julia's leadership, DineEquity has become one of the largest full service, fully franchised chains in the world. She led the successful turnaround of IHOP early in her tenure, drove the acquisition and re-franchising of Applebee's and transitioned DineEquity to an asset light model.  We thank Julia for her service to DineEquity's stockholders and her unwavering commitment to DineEquity and its franchisees."

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 million for the fourth quarter of 2016, or earnings per diluted share of $1.18. GAAP net income available to common stockholders was $96.6 million for 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, 2016 was $275.3 million (See non-GAAP financial measures below).

  • General and administrative expenses were $37.0 million for the fourth quarter of 2016.  General and administrative expenses were $148.9 million for 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.

DineEquity is in the process of finalizing the foregoing information. The company intends to report definitive fourth quarter 2016 and fiscal 2016 results and its outlook on March 1, 2017, when it will hold its regularly scheduled investor conference call.

"DineEquity will continue to invest in the long term success and growth of both IHOP and Applebee's. I will be working very closely with the Applebee's franchisees to improve performance," added Mr. Dahl. "While a turnaround of Applebee's will not happen immediately, the results of a comprehensive diagnostic conducted by a world class management consulting firm has enhanced our understanding of what has driven our recent sales trends.  More importantly, we have a go forward plan to improve performance, and have worked with the same firm to validate our initiatives and identify additional creative strategies to expeditiously return Applebee's to growth."

About DineEquity, Inc.

Based in Glendale, CaliforniaDineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,700 restaurants combined in 18 countries and 3 U.S. territories and approximately 400 franchisees, DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company's Web site located at www.dineequity.com.

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