Who Will Hop to Applebee's?

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.

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