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DineEquity (DIN) Q4 Earnings Meet, Sales Lag; Stock Plunges

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DineEquity, Inc. (DIN - Free Report) reported fourth-quarter 2016 earnings of $1.37 per share, in line with the Zacks Consensus Estimate. However, the figure decreased 13.8% from the prior-year quarter earnings of $1.59 due to lower gross profit.
 
Total revenue of $154.2 million declined nearly 10% year over year due to lower Franchise and restaurant, Rental as well as Financing revenues. Revenues also missed the Zacks Consensus Estimate of $158.0 million by 2.4%.
 

 

Notably, the company operates under the Applebee's Neighborhood Grill & Bar and International House of Pancakes (IHOP) brands.

DineEquity’s shares plummeted 11.6% in yesterday’s trading session due to soft revenues given a domestic system-wide comps decline at both IHOP and Applebee’s. Also, investor confidence in the stock declined further after the company’s CFO Thomas Emrey announced his resignation. Effective Mar 15, he is going to be the CFO of Munchkin Inc., after serving over five years at DineEquity. The CFO’s resignation comes less than a fortnight after the company’s Chairman and CEO Julia Stewart announced her resignation, effective Mar 1.

Behind the Headline Numbers

IHOP's domestic system-wide comps declined 2.1%. This compares unfavorably with the prior-quarter comps decrease of 0.1% and the prior-year quarter comps growth of 1.4%. Notably, after posting 13 consecutive quarters of comps growth and essentially flat comps in the last quarter, this was the first quarter of comps decline at IHOP. Nonetheless, the company hopes to boost the brands’ comps through menu innovation, remodeling and initiatives to improve guest satisfaction.

Applebee's domestic system-wide comps declined 7.2% comparing unfavorably with the prior-quarter comps decline of 5.2% and the prior-year quarter decline of 2.5%. Notably, Applebee’s casual dining restaurants are facing stiff competition from fast-food and quick service restaurants. Also, consumers are favoring ordering in meals over going to brick-and-mortar retailers. Nonetheless, the company is taking steps to revitalize the Applebee brand. Increased focus on food and culinary innovation, consumer satisfaction and marketing are expected to drive comps over the long term.

2016 Results

For 2016, revenues were $633.97 million, down 6.9% from 2015. Also, revenues missed the Zacks Consensus Estimate of $637.76 million by 0.6%.
    
Adjusted earnings were $6.01 per share, down 2.9% year over year. Earnings marginally surpassed the consensus mark of $6.00 by 0.2%.

DineEquity, Inc Price, Consensus and EPS Surprise

 

2017 Outlook

For full-year 2017, Applebee's domestic system-wide comps are expected to decline in the range of 4–8%.

IHOP's domestic system-wide comps are expected to be flat to up 3%.

DineEquity expects general and administrative expenses to range between $170 million and $177 million.

The company projected its capital expenditure at approximately $12 million.

Meanwhile, Applebee's franchisees are projected to develop 20 to 30 new restaurants globally, the majority of which are expected to be international openings. Moreover, the company anticipates the closure of 40 to 60 restaurants, in keeping with its detailed system-wide analysis to optimize the health of the franchisee system.

Zacks Rank & Stocks to Consider

DineEquity has a Zacks Rank #4 (Sell).

Better-ranked stocks in this sector include:

Wingstop, Inc. (WING - Free Report) has a positive record of earnings surprises, recording an average beat of 11.99% in the last four quarters. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Restaurant Brands International, Inc. (QSR - Free Report) is another Zacks Rank #1 company. Its 2017 and 2018 earnings estimates have moved north by 2.3% and 11.7% respectively, over the past month.

Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) has a Zacks Rank #2 (Buy). The company’s earnings surpassed the Zacks Consensus Estimate in all the last four quarters, with an average beat of 37.81%.

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