IHOP 2009 Annual Report Download - page 6

04
We are disciplined about nancial
management.
Our Company’s disciplined approach to optimizing the
nancial performance at company-operated Applebee’s,
reducing General & Administrative (G&A) spending and
lowering interest expense delivered nearly a 90% increase
in adjusted earnings per share1 for scal 2009.
Restaurant operating margins improved 270 basis points
to 14.4% for 2009 compared to 2008, primarily reecting
the better management of food and labor costs at Applebee’s
company-operated restaurants. This was achieved while
delivering record guest satisfaction scores and in the face
of challenging same-store sales results. G&A expenses
decreased 13% to $158 million for 2009, primarily driven
by lower overhead expense as a result of the sale of 110
company-operated Applebee’s restaurants since 2008,
as well as from the integration of Applebee’s and IHOP
Shared Services functions, among other cost savings
initiatives. We expect to reduce consolidated G&A
spending to approximately $150 million once we sell the
majority of Applebee’s remaining company-operated
restaurants. Finally, due to ongoing debt retirement
efforts, we reduced interest expense by nearly $17 million
in 2009. As a result of these improvements in the
performance of our business, cash ows from operating
activities were $158 million, the highest level in DineEquity’s
history. We used available cash to retire $217 million of
securitized debt, or 10% of our outstanding debt, as we
remained committed to reducing our leverage levels.
It is also important to emphasize the resilient and strong
performance of our core franchising business during the
year. DineEquity’s predominantly franchised Applebee’s
and IHOP restaurant systems generated consolidated
franchise operations revenue increases of 5% for 2009
compared to 2008. This was primarily due to increases
in the number of effective franchise restaurants as the
result of IHOP’s robust franchise restaurant development
efforts, as well as the successful franchising of 110 Applebee’s
company-operated restaurants. Our established and growing
franchise business is one of the most differentiated aspects
of our business model, and one which will drive strong free
cash ow2 generation now and in the future.
We are creating an insurmountable
lead for IHOP.
IHOP is the leader in family dining measured by system-
wide sales and franchise restaurant development, as well
as consumer and franchisee preference. Now, our goal is
to create an insurmountable lead. In 2009, IHOP franchi-
sees opened an industry-leading 75 new restaurants, as
well as substantially completed the system-wide remodel
of all IHOP restaurants, a process that began in 2004.
Our successful “Come Hungry. Leave Happy.” advertising
campaign and limited-time offerings continued to resonate
with our guests. We were also pleased with the initial
results from the third-party distribution of IHOP gift
cards in 2009. It is a simple and effective way for us to
extend the brand and we expect to build upon our initial
success. Finally, more than 90% of all IHOP restaurants
ranked as “A” or “B” operations as franchisees delivered a
higher level of performance throughout the IHOP system.
In 2010, IHOP’s core strategies around energizing the
brand, improving operations and maximizing franchise
development remain unchanged. We will approach all of
our efforts with an increased sense of urgency to strengthen
our value positioning and regain same-store sales momen-
tum that weakened in the second half of 2009.
We are dening differentiation in
grill & bar with Applebee’s resurgence.
Applebee’s is the leader in grill & bar measured by
system-wide sales and locations. However, we are not
satised with simply being the biggest. We are intent on
becoming the best — to be number one in grill & bar in
terms of guest preference, same-store sales and trafc
growth, and as the franchise investment of choice.
Step into an Applebee’s today and you will see the
various ways we are leading the category. We have begun
a comprehensive revitalization of the Applebee’s menu
with craveable items like Realburgers and a line up of
Under 550 Calories menu items. Add in improved
appetizers, sandwiches and more, and we are dening
differentiation in the category by remaining true to our
grill & bar heritage. We also have built meaningful equity
with our Two for $20 value message, which has earned a
place on our core menu. We launched a national advertising
campaign that features stories about the neighborhood
with friends and families coming together at their local
Applebee’s. Our Applebee’s team members and franchisees
are making tremendous progress toward ensuring that
1
Earnings per share excluding impairment and closure charges, gain on debt
repurchases, gain/loss on disposition of assets, amortization of intangibles and
non-cash interest expense substantially related to the acquisition of Applebee’s.
2
Cash ows from operating activities plus long-term receivables less capital
expenditures and preferred dividend payments.