Please ensure Javascript is enabled for purposes of website accessibility

Applebee's Jab to the Ribs

By Rick Munarriz – Updated Nov 16, 2016 at 3:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Applebee's doesn't want these baby backs back.

It's been awhile since Brinker International's (NYSE:EAT) Chili's popularized the jingle about wanting baby back ribs. Before you knew it, boy bands and Austin Powers villains were playing along. Well, casual dining rival Applebee's (NASDAQ:APPB) is singing a different tune today. Can it take its ribs back, baby?

The chain will be taking a $2.3 million hit during the second quarter to cover -- and I'm not making this up -- an excess in its inventory of riblets. While this may be a problem dating all the way back to the days of Adam and Eve, it's not every day you see a company docking its financials after counting its ribs.

Still, it's not the first time that a single entree has roughed up a company's financials. Darden Restaurants (NYSE:DRI) got clawed last year after its all-you-can-eat crab promotion backfired with hungrier than expected Red Lobster patrons. The problems are entirely different, though, as Darden found itself going through more of its stock than it had first expected, while Applebee's is writing off extra riblets that didn't quite make the quality cut.

After the hit, which amounts to $0.02 a share, the company is projecting to earn between $0.33 and $0.34 per share. With Wall Street pegged at a $0.35 showing before the charge, that finds Applebee's landing on the high end of analyst expectations.

That's happening because folks are flocking to casual dining chains like Applebee's in record numbers, and the restaurant operators are being given some flexibility to inch menu prices higher to offset rising food costs. June comps were up by 6.8%, as the company closed out its 24th consecutive quarter of growing same unit sales.

Yes, the economy has had its mood swings over the past six years, but Applebee's -- and other casual dining chains like Cheesecake Factory (NASDAQ:CAKE) -- have had no problem growing their sales at the restaurant level.

Even with the throwaway riblets, Applebee's is looking to earn roughly $1.35 a share this year. Growing its chain to more than 1,600 company-owned and franchised units, the company has no problem with eating its own cooking. The company has been ambitiously buying back its own shares, which answers the original question. No, it can't take its baby backs back, but it can buy back its babies.

Have you been to Applebee's lately? Do baby back ribs work well under the Atkins-approved diet guidelines, or did you find yourself ordering off the company's new Weight Watchers menu? All this and more in the Low Carb Way of Life discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz needs to drive 7.2 miles to get to his nearest Applebee's, but he'll do it gladly if he's hungry enough. He owns shares in Cheesecake Factory but not any of the other companies mentioned in this story.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Brinker International, Inc. Stock Quote
Brinker International, Inc.
EAT
$25.53 (-5.02%) $-1.35
Darden Restaurants, Inc. Stock Quote
Darden Restaurants, Inc.
DRI
$122.39 (-2.44%) $-3.06
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
CAKE
$28.43 (-2.44%) $0.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.