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01/11 03:38
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents mixed signals: revenue growth and positive Applebee's sales are offset by IHOP's negative sales, decreased EBITDA, and increased expenses. The Q&A reveals operational improvements but also management's vague responses on profitability timelines. Shareholder returns are stable, but CapEx increases may strain cash flow. The market may react neutrally, as positive and negative factors balance each other out.
Applebee's comp sales 4.9% increase year-over-year. This was driven by a significant increase in traffic, marking the first positive comp sales in 2 years.
IHOP comp sales Negative 2.3% year-over-year. However, there was a sequential improvement compared to Q1, supported by a new strategy amplifying awareness of premium-priced items.
Adjusted EBITDA $56 million, down from $67 million in the same quarter last year. The decrease was attributed to increased G&A expenses and investments in dual brand and remodeling initiatives.
Adjusted free cash flow $49 million, down from $53 million in 2024. The decline was due to increased capital expenditures and a decrease in principal receipts from notes and equipment contracts receivable.
Consolidated total revenues Increased 11.9% to $230.8 million from $206.3 million in the prior year. This was primarily driven by an increase in company restaurant sales due to acquisitions, offset by a decrease in franchise revenues and rental income.
Franchise revenues Decreased 1% to $174.7 million from $176.5 million in the prior year. The decline was due to a decrease in advertising revenues and rental segment revenues.
G&A expenses $50.8 million, up from $46.9 million in the prior year. The increase was due to higher compensation-related expenses and professional services fees, partly related to dual brand and remodeling initiatives.
Adjusted diluted EPS $1.17, down from $1.71 in the prior year. The decline was due to lower adjusted EBITDA and higher G&A expenses.
Cash provided by operations $53.1 million, slightly up from $52.2 million in the prior year. The increase was due to postponed income tax payments, offset by higher G&A expenses and lower segment profit.
CapEx $9.3 million, up from $6.8 million in the prior year. The increase was due to investments in dual brand and remodeling initiatives.
Menu Innovation: Applebee's introduced new menu items like Bourbon Street Cajun Pasta, New Skillets & Steak, and Chicken Parmesan Fettuccine under the '2 for $25' value platform. IHOP expanded its House Faves menu and introduced premium-priced items like Pancake of the Moment.
Off-Premise Sales: Applebee's off-premise sales grew by 7.6% in Q2, with consistent positive sales and traffic year-to-date. IHOP also promoted its IHOP 'N GO off-premise channel through partnerships like Amazon Prime and NASCAR.
New Restaurant Formats: Fuzzy's launched its first fast casual plus location in Sugar Land, Texas, combining fast casual dining with full-service hospitality.
International Expansion: Opened first dual-brand non-traditional travel center in Mexico and first non-traditional airport IHOP in Mexico City. Signed a development agreement in Canada to open 3 dual-brand stores.
Dual-Brand Restaurants: Opened second domestic dual-brand restaurant in Uvalde, Texas, with sales 2-3x higher than pre-dual brand levels. Plans to open at least a dozen dual-brand restaurants by year-end.
Social Media Engagement: Applebee's and IHOP brought social media teams in-house, leading to significant increases in engagement across platforms like TikTok and Meta.
Operational Improvements: IHOP improved order accuracy by 5 percentage points and reduced table turns by 4 minutes through server tablets and operational changes.
Refinancing and Investments: Completed $600 million senior secured notes refinancing and extended $325 million variable funding notes to 2030. Increased CapEx guidance to $30-$40 million to accelerate dual-brand and remodeling initiatives.
Asset-Light Model: Maintained asset-light strategy while reinvesting in company-owned restaurants to improve brand health and long-term growth.
Macroeconomic Pressure on Consumers: Consumers are managing their spending by ordering fewer beverages and appetizers and trading down to lower-priced menu items, impacting revenue and profitability.
IHOP's Negative Comp Sales: IHOP reported a 2.3% decline in comparable sales, indicating challenges in maintaining customer traffic and sales growth.
Decreased Adjusted EBITDA: Adjusted EBITDA decreased from $67 million in Q2 2024 to $56 million in Q2 2025, reflecting reduced profitability.
Increased G&A Expenses: General and administrative expenses rose to $50.8 million in Q2 2025, driven by higher compensation-related expenses and professional service fees, impacting overall profitability.
Commodity Cost Increases at IHOP: IHOP experienced an 8% increase in commodity costs, particularly for eggs and coffee, which could pressure margins.
Tariff and Trade Policy Uncertainty: Uncertainty around tariffs and trade policies could further impact commodity costs and supply chain stability.
Franchise Revenue Decline: Franchise revenues decreased by 1% in Q2 2025, reflecting challenges in maintaining franchisee profitability and system-wide revenue.
Supply Chain Challenges: Efforts to manage commodity costs and ensure supply availability highlight ongoing supply chain vulnerabilities.
Dual Brand Expansion Risks: While dual-brand restaurants show promise, the strategy involves significant investment and operational complexity, with potential risks if performance expectations are not met.
Increased Capital Expenditures: CapEx increased to $9.3 million in Q2 2025, reflecting higher investments in remodeling and dual-brand initiatives, which could strain cash flow.
Applebee's domestic system-wide comp sales: Expected to be between positive 1% and positive 3% for the full year, compared to the previous range of negative 2% to positive 1%.
IHOP domestic system-wide comp sales: Expected to be between negative 1% and positive 1% for the full year, compared to the previous range of negative 1% to positive 2%.
G&A expenses: Guidance raised to $205 million to $210 million compared to the prior range of $200 million to $205 million, including noncash stock-based compensation expense and depreciation of approximately $35 million.
EBITDA: Guidance reduced to $220 million to $230 million compared to the prior range of $235 million to $245 million.
CapEx: Guidance increased to $30 million to $40 million compared to the prior range of $20 million to $30 million.
Development plans: Applebee's expects 20 to 35 net fewer domestic restaurants; IHOP expects between 10 net fewer domestic restaurants to 10 net domestic openings.
Dividends Paid: $8 million in dividends were paid in Q2 of 2025.
Share Buybacks: $6 million in shares were repurchased in Q2 of 2025.
The earnings call presents a mixed picture. Positive factors include stable sales momentum, successful upselling strategies, and a promising dual-branded restaurant concept. However, increased expenses, reduced EBITDA guidance, and the impact of restaurant disruptions offset these positives. The dividend cut for share repurchases and lack of clear guidance on dual-branded conversions add uncertainty. Overall, these mixed signals suggest a neutral impact on the stock price.
The earnings call presents mixed signals: revenue growth and positive Applebee's sales are offset by IHOP's negative sales, decreased EBITDA, and increased expenses. The Q&A reveals operational improvements but also management's vague responses on profitability timelines. Shareholder returns are stable, but CapEx increases may strain cash flow. The market may react neutrally, as positive and negative factors balance each other out.
The earnings call presents a mixed picture: revenue growth and shareholder returns are positives, but declining EBITDA, comp sales, and adjusted EPS are concerns. The Q&A reveals optimism for upcoming quarters, yet lacks clarity on certain financial impacts, causing uncertainty. Despite risks like consumer behavior and supply chain challenges, the overall sentiment remains neutral, with no strong catalysts for significant stock price movement in the near term.
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