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What: Shares of DineEquity (NYSE:DIN) were looking tasty today, finishing up 12% after a strong third-quarter earnings report.
So what: The parent company of Applebee's and IHOP sped past estimates, posting per-share earnings of $1.10, ahead of expectations of $0.91. Sales fell 25.4%, because of last year's transition to a fully franchised model, to $161.3 million, beating the consensus at $156.5 million. Same-store sales, a key industry figure, fell 0.4% at Applebee's, but rose 3.6% at IHOP, giving an overall boost to organic revenue. DineEquity also delighted investors by lifting its full-year guidance for same-store sales at IHOP, and for EPS as it now expects a per-share profit of $4.14-$4.24. Analysts had projected just $3.98.
Now what: DineEquity seems to be bucking the trend in casual dining, as rivals such as BJ's Restaurants, Ruby Tuesday, and Darden Restaurants have struggled of late. The transition to the franchise model seems like a smart move by the company as it eliminates much of the risk of operating the restaurants. DineEquity's individual franchisees may not see growing profits, but the company will still bring in the cash flow and it can grow by entering new territories. Even though revenue fell 25%, gross margin widened dramatically to 58% from 44% a year ago, a benefit of franchising. Throw in a 4.1% dividend yield, and this may be your best bet in the casual dining sector.
Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends BJ's Restaurants and owns shares of BJ's Restaurants and Darden Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.