IHOP 2010 Annual Report Download - page 15

When we acquired Applebee’s in 2007,
we set out a specific strategic agenda of
transformation for the business. Our
plans included not only revitalizing the
Applebee’s brand, but also taking steps
to unlock value for our shareholders.
These steps included proactively
evolving into an even more highly
franchised business and reducing our
overall debt levels. More than three
years later, we have made substantive
progress toward delivering on our
expectations around the Applebee’s
acquisition. We have remained true to
our long-term vision for DineEquity’s
business model by selling nearly 260
Applebee’s company-operated restaurants
to date — just more than 50% of our
company-operated restaurants — to
exceptional franchise partners. Through
the combined sale of restaurants, along
with the sale-leaseback of company-
owned Applebee’s restaurant real estate
and the use of free cash flow, we have
been able to pay down significant
amounts of funded debt.
By transitioning to an increasingly
franchised business model, we believe
that our operations are less capital-
intensive and experience lower volatility
in cash flow performance than they did
when we owed a larger number of
company-operated restaurants. Our
franchise business is resilient, and
continued to deliver strong results in
2010. Along with improving same-
restaurant sales results throughout the
year, our performance was largely driven
by robust franchise development efforts
at IHOP, where we added more effective
franchise restaurants; and at Applebee’s,
where we successfully franchised a
larger number of company-operated
restaurants. Our established and
growing franchise business is one of
the most differentiated aspects of our
business model, and one that will drive
strong free cash flow generation now,
and into the future.
Our highly franchised model allows our
team to focus only on those activities
like marketing, menu, operations and
remodel programs that continue to
strengthen and grow our brands. As a
result, Applebee’s same-restaurant sales
performance has returned to positive
territory, as we continue to revitalize the
brand with a similar holistic brand
management approach as the one we
have long employed at IHOP.
As we have grown, DineEquity has
evolved into an increasingly scalable,
Shared Services-oriented organization.
We have updated our systems and
processes over time to create an
effective, efficient structure that
supports those activities that facilitate,
but are not directly involved in, building
brands. This means that any aspect
of the business that does not impact
the guest or the optimization of the
Applebee’s and IHOP brands is
supported by common resources.
Whether it is Finance and Accounting,
Legal, Information Technology, Human
Resources, Communications or Quality
Assurance functions, we have created a
scalable infrastructure that will optimize
our expertise across brands, today
and tomorrow.
At DineEquity, we combine a scalable,
franchise-focused operating model with a
disciplined approach to financial management
to deliver consistent financial results.
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