IHOP 2010 Annual Report Download - page 70

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decline experienced in comparable guest traffic is reflective of the current adverse economic conditions
affecting customers and impacting the restaurant industry as a whole.
The increase in IHOP franchise expenses is due to the costs of sales associated with the increased
revenues from pancake and waffle dry mix sales and franchise advertising fees. Applebee’s franchise
expenses are relatively smaller than IHOP’s due to advertising expenses. Franchise fees designated for
IHOP’s national advertising fund and local marketing and advertising cooperatives are recognized as
revenue and expense of franchise operations; however, Applebee’s national advertising fund and local
advertising cooperatives constitute agency transactions and therefore are not recognized as franchise
revenue and expense.
The 53rd week contributed additional franchise segment profit of approximately $5.9 million in
2009.
Company Restaurant Operations
Favorable
(Unfavorable) %
2009 2008 Variance Change(1)
(In millions)
Company restaurant sales .......... $890.0 $1,103.2 $(213.2) (19.3)%
Company restaurant expenses ....... 766.5 978.2 211.7 21.6%
Company restaurant segment profit . . . $123.5 $ 125.0 $ (1.5) 1.2%
Segment profit as % of revenue(1) . . . 13.9% 11.3%
(1) Percentages calculated on actual, not rounded, amounts
As of December 31, 2009, Company restaurant operations were comprised of 399 Applebee’s
company-operated restaurants and 13 IHOP company-operated restaurants. The impact of the IHOP
restaurants on all comparisons of fiscal 2009 with the same period of 2008 was negligible.
Company restaurant sales declined $213.2 million. Applebee’s company restaurant sales declined
$213.8 million, of which $192.1 million was due to the franchising of 110 restaurants since the second
quarter of 2008 and the full-year impact of three restaurant closures in 2008, in addition to a decrease
in domestic same-restaurant sales of 4.8%, partially offset by an increase of $19.7 million due to the
53rd week. The change in same-restaurant sales was driven mainly by a decline in guest traffic that was
partially offset by a slightly higher average guest check. An increase of 2.7% in effective pricing was
substantially offset by an unfavorable mix shift due to promotional campaigns and customer selection
of, on average, lower-priced menu items. The Company believes that the decline in comparable guest
traffic is reflective of the current adverse economic conditions affecting customers and impacting the
restaurant industry as a whole.
Company restaurant expenses declined $211.7 million. Applebee’s company restaurant expenses
declined $212.5 million, of which $169.6 million was due to the franchising of 110 restaurants since the
second quarter of 2008, and declined $25.6 million due to the decrease in same-restaurant sales. The
54