Shares of Dine Brands Global (DIN +6.01%) ascended as much as 12% in the trading session following the company's release of fourth-quarter 2018 earnings on Thursday before the markets opened. Robust comparable-store sales in both the Applebee's and IHOP chains evidenced continuing momentum in the company's turnaround efforts, and a vigorous 2019 outlook also pleased investors. Note that in the discussion that follows, all comparative numbers are presented against the prior-year quarter (the fourth quarter of 2017).
Dine Brands: The raw numbers
| Metric | Q4 2018 | Q4 2017 | Growth (Year Over Year) |
|---|---|---|---|
| Revenue | $214.2 million | $176.7 million | 21.2% |
| Net income | $26.1 million | $67.8 million | (61.5%) |
| Diluted earnings per share | $1.47 | $3.82 | (61.5%) |
Data source: Dine Brands Global.
What happened this quarter?
- Applebee's comparable-store sales growth of 3.5% marked its fifth-straight quarter of "comps" expansion, signaling to investors that the once-troubled brand has indeed turned a corner.
- IHOP achieved comps growth of 3%, illuminating its own streak of four consecutive quarters of comparables improvement.
- Dine Brand's gross margin jumped by more than 6 percentage points, to 45.9%, as higher revenue and tight cost control provided the company with plenty of operating leverage.
- Dine Brands booked a one-time tax benefit of $58.8 million in the fourth quarter of 2017 as a result of U.S. tax legislation, resulting in the comparatively smaller net earnings in the fourth quarter of 2018, shown in the table above.
- The company raised its quarterly dividend by 10%, to $0.69. At the current share price, the dividend yields 2.7% on an annualized basis.
- Dine Brands repurchased $7 million worth of its shares during the quarter, bringing its 2018 repurchase tally to $34.9 million.
- For the 2018 year, systemwide sales of both brands combined reached $7.6 billion, an improvement of 3% over 2017.
- For the full year, Applebee's systemwide restaurant count declined by 5.1%, to 1,837 units. The decline stems from management's strategy of closing underperforming stores and focusing resources on profitable locations.
- Conversely, IHOP's full-year systemwide store count expanded by 2.5% against 2017, to 1,831 locations.
Image source: Getty Images.
What management had to say
Dine Brands' CEO, Steve Joyce, broadly discussed the company's effort over the last year to execute on its "guest-centric" strategy in the company's earnings press release:
Dine Brands' strong performance in the fourth quarter and throughout 2018 is the result of a clear strategic vision and unwavering commitment to sustainable growth. Both Applebee's and IHOP have outperformed their respective categories by delivering on comprehensive efforts to drive their businesses and delight guests. The momentum we are seeing is bolstered by meaningful improvements in the in-restaurant experience, ongoing investment in guest-facing technologies, breakthrough marketing and further extending our off-premise platforms for both brands. ... As we head into 2019, we are very encouraged by our outlook and growth opportunities. We have the right strategies in place to drive long-term momentum and create additional value for our shareholders.
Check out the latest Dine Brandsearnings call transcript.
Looking forward
Dine Brands provided healthy full-year earnings guidance alongside its earnings report. The company expects comparable-sales growth of 2% to 4% in both Applebee's and IHOP operations in 2019. Net income is projected to land between $104 million and $113 million, while diluted earnings per share (EPS) is slated to fall between $6.15 and $6.45. At the midpoint of this range, the company will see an extremely healthy improvement of 44% over the $4.37 in diluted EPS earned in 2018.
As for locations, the company expects to continue its optimization exercise of adding IHOP locations while shuttering subpar Applebee's units. Management's store plans include the addition of 35 to 55 new Applebee's locations and a net closure of between 20 and 30 Applebee's units. Judging from the reaction of DIN shares on Thursday, shareholders have embraced the continuation of this value-enhancing strategy.
