Who Will Hop to Applebee's?

By Lawrence A. Rothman, CFA | More Articles
September 5, 2007 | Comments (0)

IHOP (NYSE: IHP ) has its work cut out for it once the Applebee's (Nasdaq: APPB ) acquisition goes through. The pancake purveyor, which has agreed to acquire Applebee's for $25.50 per share in cash, will see that things aren't so good in this neighborhood. The latest same-store-sales results, in fact, left behind a pretty sour taste for me.

Applebee's continued to struggle systemwide. Comps fell 0.9% as traffic declined by 0.7% at franchise restaurants and 1.6% at company-owned stores, even as customers spent more on average per check. The results were blamed on a promotion offered a year ago, but I'm not buying it. The company has been dealing with poor results for some time now.

I realize the casual-dining restaurants are struggling as people grapple with higher mortgage payments and the rising cost of essentials such as groceries and gas. But Applebee's also faces company-specific issues. Once a magnet for suburbanites, with individual restaurants decked out in local flair, Applebee's now faces increasing competition from the likes of Ruby Tuesday (NYSE: RT ) , Brinker's (NYSE: EAT ) Chili's, and others. Management even admits that it lacks the ability to keep customers coming back for more.

The new management team at IHOP will therefore need to focus on how to ramp up the Applebee's menu to establish a loyal base of customers who will continuously return for more. IHOP management certainly has experience in turning around its own chain over the past few years. Perhaps it will do so again.

Related Foolishness:

Best Odds in the Universe!
If you're interested in a 98.79% chance at beating the market... and a 70.84% chance at DOUBLING the market's return – Motley Fool Supernova could be just what you're looking for. And get this: We arrived at these odds from 10,000 random back-tested portfolios composed of Motley Fool Co-founder David Gardner's personal stock picks.

It's why David recently handpicked a small team of world-class portfolio managers. You see, he thinks these odds can get even better! And he'd like to prove it to you...

Simply enter your email address. And the answer to the question everybody is asking will be delivered to your inbox!

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.