IHOP is doing something right.
On Wednesday, the pancake restaurant chain reported that profits rose 36.9% in the second quarter, led by better sales and lower costs.
The Glendale, Calif.-based company said earnings climbed to $14.1 million, or 82 cents a share, from $10.3 million, or 56 cents a share. That exceeded analyst expectations of 59 cents a share. Unlike other restaurant operators, which have struggled against high gasoline prices and dairy costs, IHOP has managed to grow its bottomline by increasing prices and slashing operational costs.
That's bodes well for
"We are very pleased with our performance for the second quarter 2007 as it demonstrates our proven financial formula for success: driving top line sales through new franchise restaurant openings and same-store sales growth while moderating G&A expenses and continuing share repurchaes," IHOP's Chief Executive Office Julia Stewart, said on Tuesday.
In the second quarter, IHOP managed to cut general and administrative expenses by 7.1%. "The quarterly decrease was primarily due to decreased travel and conference expenses as well as lower costs related to the Company's performance share plans for its executive management team," the company said Tuesday.
On the store front, IHOP battled the challenging consumer environment by raising menu prices. Despite declining foot traffic, same-store sales, across its vast franchise network, increased 2.5%.
IHOP's second quarter profits were also helped by a one-time reduction of certain tax contingency reserves, which allowed the company to lower its effective tax rate to 29.9%, down from 40.1% in the year ago period. In addition, the company's ongoing share buyback program caused a 4.4% reduction in diluted weighted average shares outstanding .
IHOP's strategy of increasing franchise operations, slashing operational costs and boosting menu prices will likely be the cornerstones of its campaign to turnaround Applebee's restaurants. "IHOP intends to franchise a substantial majority of Applebee's 508 company-operated restaurants and expects to realize significant cost savings as a results," IHOP said this month. There could be significant value locked up in Applebee's real estate, some of which the company could sell-off.
Copyright © 2007 Forbes.com
