IHOP 2012 Annual Report Download - page 59

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Franchise Operations
Year ended December 31, Favorable
(Unfavorable)
Variance % Change(1) 2012 2011
Franchise revenues (In millions)
Applebee's....................................................................... $ 185.9 $ 169.2 $ 16.7 9.9 %
IHOP............................................................................... 159.1 153.8 5.3 3.4 %
IHOP advertising ............................................................ 76.4 75.5 0.9 1.3 %
Total franchise revenues...................................................... 421.4 398.5 22.9 5.8 %
Franchise expenses
Applebee's....................................................................... 5.5 2.8 (2.7) (95.1)%
IHOP............................................................................... 28.0 26.7 (1.3) (4.8)%
IHOP advertising ............................................................ 76.4 75.5 (0.9) (1.3)%
Total franchise expenses...................................................... 109.9 105.0 (4.9) (4.7)%
Franchise segment profit
Applebee's....................................................................... 180.4 166.4 14.0 8.4 %
IHOP............................................................................... 131.1 127.1 4.0 3.2 %
Total franchise segment profit............................................. $ 311.5 $ 293.5 $ 18.0 6.1 %
Segment profit as % of revenue(1) .................................................. 73.9% 73.7%
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(1) Percentages are calculated on actual amounts, not the rounded amounts presented above
The increase in Applebee’s franchise revenue was attributable to increased royalty revenue resulting from a 7.0% increase in
the number of effective franchise restaurants, a 1.3% increase in domestic same-restaurant sales and an increase in fees associated
with franchisee-to-franchisee sales of Applebee's franchises. Applebee's effective franchise restaurant count increased by 124 due
to the refranchising of 154 Applebee’s company-operated restaurants during 2012 and a net increase of 15 restaurants due to
franchise development. Approximately $11.8 million of the revenue increase was attributable to refranchised restaurants.
The increase in IHOP franchise revenue (other than advertising) was primarily attributable to a 2.7% increase in the number
of effective franchise restaurants and an increase in both volume and pricing of pancake and waffle dry mix, partially offset by a
decrease of 1.6% in IHOP domestic franchise same-restaurant sales. IHOP added a net total of 33 franchise and area license
restaurants during 2012 due to development.
Applebee's franchise expenses increased primarily due to insurance costs associated with restaurants that were previously
company-operated. 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 constitutes an agency transaction and therefore is
not recognized as franchise revenue and expense.
The higher franchise segment profit was due primarily to the increased revenue as the segment profit margin was essentially
unchanged from the prior year.
Company Restaurant Operations
Year ended December 31 Favorable
(Unfavorable)
Variance % Change(1) 2012 2011
(In millions)
Company restaurant sales.................................................... $ 291.1 $ 531.0 $ (239.9) (45.2)%
Company restaurant expenses ............................................. 249.3 458.4 209.1 45.6 %
Company restaurant segment profit..................................... $ 41.8 $ 72.6 $ (30.8) (42.3)%
Segment profit as % of revenue(1) .................................................. 14.4% 13.7%
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(1) Percentages are calculated on actual amounts, not the rounded amounts presented above