California-based DineEquity Inc. (DIN - Snapshot Report), which operates approximately 3,500 Applebee's and IHOP restaurants, recently announced the inking of a multi-restaurant franchisee agreement with Kuwait-based M.H. Alshaya Co., to expand its IHOP brand in the Middle East. However, the financial terms of the contract were not disclosed.
Per the deal, 40 new IHOP restaurants are expected to open in Kuwait, Saudi Arabia, Jordan, Lebanon, Qatar, the United Arab Emirates, Oman, Bahrain and Egypt over the next five years. The first restaurant is expected to open within 12 months. We are certain that people in the Middle East would love IHOP’s cuisine.
We believe that the company’s recent partnership with Alshaya will enhance its market share in the Middle East, as Alshaya is one of the largest retailers in the Middle East. Alshaya currently operates over 2000 stores across 7 divisions and is a renowned franchisee in the region, peddling over 55 retail brands like Starbucks Corporation (SBUX - Analyst Report), American Eagle Outfitters, Inc. (AEO - Analyst Report) and P.F. Chang's China Bistro, Inc .
DineEquity used to primarily focus on the development of IHOP restaurants in the North American market, with franchises in the U.S., Canada and Mexico. However, lately, the company expanded its IHOP brand in Puerto Rico, the U.S. Virgin Islands and Guatemala, indicating its intent to look beyond the shores of North America. DineEquity’s recent agreement with Alshaya marks the first major expansion of the brand outside the U.S.
At the end of the recent quarter, DineEquity had 1513 IHOP restaurants and expects to open 55 to 65 restaurants in 2011, mostly in the domestic market. Currently, the company boasts a development pipeline of more than 300 IHOP restaurants through franchising. DineEquity is expanding through franchising to boost free cash flows and conserve capital.
Apart from expansion by opening new restaurants, the company intends to offer its world famous pancake at college and university campuses, military bases and airports to drive further growth.
DineEquity currently retains the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term Neutral recommendation on the stock.
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