DineEquity, Inc., the parent company of Applebee's Neighborhood Grill & Bar and IHOP restaurants, announced financial results for the second quarter of fiscal 2017. 

"We are investing in the empowerment of our brands by improving overall franchisee financial health, closing underperforming restaurants and enhancing the supply chain.  We are focusing on operations and elevating the guest experience, whether in our restaurants or off-premise.  We believe 2017 will be a transitional year for Applebee's and we are making the necessary investments for overall long-term brand health and expect to see improvement over the next year," said Richard J. Dahl, Chairman and interim Chief Executive Officer of DineEquity, Inc.

Mr. Dahl added, "IHOP remains on solid ground, despite soft sales this quarter.  I am optimistic about the growth in both effective franchise restaurants and system-wide sales.  IHOP is currently rolling out initiatives to address the convenience needs of our guests, which are inclusive of online ordering as well as accelerating tests for delivery and development of an IHOP mobile application.  We believe these will create enhanced revenue channels."

Second Quarter of Fiscal 2017 Financial Highlights

• GAAP net income available to common stockholders was $20.9 million for the second quarter of fiscal 2017, or earnings per diluted share of $1.18.  This compares to net income available to common stockholders of $26.4 million, or earnings per diluted share of $1.45, for the second quarter of fiscal 2016.  The decline in GAAP net income for the second quarter of 2017 compared to the same period of 2016 was mainly due to lower gross profit and higher income tax expense.  The decrease in gross profit was due to a 6.2% decline in Applebee's domestic system-wide comparable same-restaurant sales, an increase in bad debt expense, restaurant closures and a reduction in revenue recognized due to the collectability of Applebee's franchisee royalties.  These items were partially offset by a larger gain on the disposition of assets in the second quarter of 2017 compared to the same period of 2016.  The impact of lower net income on earnings per diluted share was partially mitigated by fewer weighted average diluted shares outstanding for the second quarter of 2017 compared to the second quarter of 2016.  Our effective tax rate for the second quarter of 2017 was 46.5% compared to 32.5% for the same quarter of 2016 primarily due to an increase in unrecognized tax benefits for deductions related to internal software development and the impact of new accounting guidance for share-based payments. 

• Adjusted net income available to common stockholders was $23.0 million, or adjusted earnings per diluted share of $1.30, for the second quarter of fiscal 2017.  This compares to $28.8 million, or adjusted earnings per diluted share of $1.59, for the same period of fiscal 2016.  The decrease in adjusted net income was mainly due to lower gross profit, as explained in the preceding paragraph.  The impact of lower adjusted net income on adjusted earnings per diluted share was partially mitigated by fewer weighted average diluted shares outstanding.  (See "Non-GAAP Financial Measures" below.)

• General and administrative expenses were $37.4 million for the second quarter of fiscal 2017.  This compares to approximately $36.5 million for the same quarter of fiscal 2016.  The slight increase was mainly due to higher costs for professional services associated with investments in Applebee's stabilization initiatives, partially offset by a decrease in personnel-related costs.            

First Six Months of Fiscal 2017 Financial Highlights

• GAAP net income available to common stockholders was $35.0 million for the first six months of fiscal 2017, or earnings per diluted share of $1.98.  This compares to net income available to common stockholders of $51.6 million, or earnings per diluted share of $2.82, for the first six months of fiscal 2016.  The decrease in GAAP net income was primarily due to lower gross profit.  The decrease in gross profit was due to a 7.0% decline in Applebee's domestic system-wide comparable same-restaurant sales, an increase in bad debt expense as well as restaurant closures and a reduction in revenue recognized due to the collectability of Applebee's franchisee royalties.  In addition, general and administrative expenses increased for the first six months of 2017 compared to the same period of 2016.  These items were partially offset by a gain on the disposition of assets in the first six months of 2017 compared to a loss in the same period of 2016.  The impact of lower net income on earnings per diluted share was partially mitigated by fewer weighted average diluted shares outstanding for the first six months of 2017 compared to the same period of 2016.  

• Adjusted net income available to common stockholders was $44.6 million, or adjusted earnings per diluted share of $2.51, for the first six months of fiscal 2017.  This compares to $58.0 million, or adjusted earnings per diluted share of $3.17, for the first six months of fiscal 2016.  The decrease in adjusted net income was mainly due to lower gross profit, as explained in the preceding paragraph.  The impact of lower adjusted net income on adjusted earnings per diluted share was partially offset by fewer weighted average diluted shares outstanding.  (See "Non-GAAP Financial Measures" below.)

• General and administrative expenses were $87.7 million the first six months of fiscal 2017 compared to $75.9 million for the same period of fiscal 2016.  The increase was primarily due to approximately $9 million of non-recurring cash severance and equity compensation charges incurred in the first quarter of 2017 related to the separation of our previous chief executive officer and higher costs for professional services associated with investments in Applebee's stabilization initiatives, partially offset by a decline in recruiting and relocation costs as well as travel costs.

• Cash flows from operating activities were $20.9 million for the first six months of fiscal 2017 compared to $53.9 million for the first six months of fiscal 2016.  The decline was due to lower net income and unfavorable changes in net working capital.  The unfavorable variance in working capital changes was mainly due to the timing of payments related to advertising funds.  Adjusted free cash flow was $19.2 million for the first six months of fiscal 2017, compared to $56.4 million for the first six months of fiscal 2016.  (See "Non-GAAP Financial Measures" below.)

Same-Restaurant Sales Performance

Second Quarter of Fiscal 2017

• IHOP's domestic system-wide comparable same restaurant sales declined 2.6% for the second quarter of 2017. 

• Applebee's domestic system-wide comparable same-restaurant sales declined 6.2% for the second quarter of 2017. 

First Six Months of Fiscal 2017

• IHOP's domestic system-wide comparable same restaurant sales decreased 2.1% for the first six months of fiscal 2017. 

• Applebee's domestic system-wide comparable same-restaurant sales decreased 7.0% for the first six months of fiscal 2017.

Financial Performance Guidance for Fiscal 2017

The following projections for fiscal 2017 are based on management's expectations as of August 10, 2017.  DineEquity reiterates its financial performance guidance for fiscal 2017 contained in the press release issued on May 2, 2017 and the Form 8-K filed on the same day, except for the revisions noted below.

• Revised expectations for Applebee's domestic system-wide same-restaurant sales performance to range between negative 6.0% and negative 8.0%.  This compares to previous expectations of between negative 4.0% and negative 8.0%.

• Revised expectations for IHOP's comparable same-restaurant sales performance to range between negative 1.0% and negative 3.0%.  This compares to previous expectations of between 0.0% to positive 3.0%.

• Reiterates expectations for Applebee's franchisees to develop between 20 and 30 new restaurants globally, the majority of which are expected to be international openings. 

• Revised expectations for Applebee's closures to range between approximately 105 and 135 restaurants.  This compares to previous expectations for closures of approximately 40 to 60 restaurants. The expected closures will be based on several criteria, including franchisee profitability, operational results and meeting our brand quality standards. 

• Revised expectations for IHOP franchisees and its area licensee to develop between 80 and 95 restaurants globally, the majority of which are expected to be domestic openings.  This compares to previous expectations for development of 75 to 90 restaurants globally.

• Revised expectations for IHOP closures to range between 20 and 25 restaurants.  This compares to previous expectation for the closure of approximately 18 restaurants.

• Revised expectations for Franchise segment profit to be between $302 million and $314 million.  This compares to previous expectations of between $323 million and $338 million.  This downward revision is primarily due to an expected contribution in the second half of 2017 of approximately $8 million to the Applebee's national advertising fund to mitigate the decline in franchisee contributions, additional expected reserves for collectability of Applebee's royalties, the revised guidance for both IHOP's comparable same-restaurant sales and Applebee's restaurant closures discussed above.

• Reiterates expectations for the Rental and Financing segments to generate approximately $38 million in combined profit.

• Revised expectations for general and administrative expenses to range between $166 million and $172 million, including non-cash stock-based compensation expense and depreciation of approximately $22 million.  This compares to previous expectations for general and administrative expenses to range between $170 million and $177 million.  The revised range is inclusive of approximately $10 million for Applebee's stabilization initiatives in fiscal 2017, of which we expect that a substantial amount will not recur.  The range also includes approximately $9 million of non-recurring cash severance and equity compensation charges incurred in the first quarter of fiscal 2017.    

• Reiterates expectations for interest expense to be approximately $62 million. Approximately $3 million is projected to be non-cash interest expense.

• Reiterates expectations for weighted average diluted shares outstanding to be approximately 18 million shares.

• Revised expectation for the income tax rate to be approximately 40%.  This compares to previous expectations for approximately 38%.  The expected increase is primarily due to the impact of new accounting guidance for share-based payments.  

• Revised expectations for cash flows provided by operating activities to range between $80 million and $90 million.  This compares to previous expectations of between $98 million and $108 million. The expected decline compared to fiscal 2016 is primarily due to projections for lower segment profit, partially offset by lower general and administrative expenses as discussed above.

• Revised expectations for capital expenditures to be roughly $14 million, an increase of $2 million from the previous guidance.

• Revised expectations for adjusted free cash flow (See "Non-GAAP Financial Measures" below) to range between $76 million and $86 million.  This compares to previous expectations of between $96 million and $106 million.