DineEquity Inc. (DIN - Free Report) fell 3% in morning trading on Friday after announcing that the company will close 105 to 135 Applebee’s restaurants and 20 to 25 IHOP locations.
The company has not said which locations will be closing. DineEquaity said in its first quarter report that only 40 to 60 Applebee’s and about 18 IHOP locations would close in 2017.
“We are investing in the empowerment of our brands by improving overall franchise financial health, closing underperforming restaurants and enhancing the supply chain,” interim CEO Richard Dahl said.
“Restaurant closures are a normal course of business in the industry and when you have a footprint as large as ours,” said Amy Mason, senior vice president for global communications and consumer insights.
This announcement follows DineEquity’s second-quarter fiscal 2017 earnings report. While the company reported earnings of $1.30 per share, beating our consensus estimate of $1.20 by 8.3%, earnings decreased 18.2% year-over-year.
Total revenue also declined 3.2% year-over-year to $155.2 million. This figure missed our consensus estimate of $156.4 million.
Casual-dining restaurants have been struggling recently as consumers move towards quick-service restaurants like Panera Bread or Chipotle Mexican Grill (CMG - Free Report) . Buffalo Wild Wings , another casual-dining chain, has chosen to test small-format locations to create a to-go dining experience in order to handle the competition.
“Closing these well-below average restaurants can have a positive brand benefit since guests are no longer experiencing a substandard experience,” Mason said. The company reaffirmed plans to open 20 to 30 new Applebee’s, mainly abroad, as well as 80 to 95 IHOP restaurants this year.
DIN remains a Zacks Rank #2 (Buy), with a Value score of ‘A.’
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