The smell of coffee and flapjacks is in the air, Fools, and you know what that means: IHOP's (NYSE:IHP) on its way to Wall Street, bearing a steaming platter of Q1 2006 earnings news. So grab yourself a menu and let's see what's on order for the morning.
What analysts say:
- Buy, sell, or Belgian waffle? Seven analysts follow IHOP, splitting their votes 3-to-4, buy-to-hold.
- Revenues. Overall, they're expecting IHOP to report only 3% revenue growth tomorrow. $88.2 million is the sales target.
- Earnings. Profits may come in a bit stronger than that. Wall Street expects 8% growth over last year, to $0.54 per share.
What management says:
On April 24, IHOP announced plans to actually go "international," opening a half-dozen franchises in Mexico over the next four years. The company also commented that it is exploring further franchise relationships in Mexico and Canada in the future.
Back in February, CEO Julia Stewart sounded upbeat on this future, citing success in increasing same-store sales, cost controls, and share buybacks as factors in the company's 39% growth in profits per diluted share. Further growth is expected this year, with the company targeting same-store sales growth of 2% to 4%, 60-odd new store openings, and continued share buybacks.
What management does:
IHOP has done great work in the margins department. With revenues continuing to fall (down 1% year over year for the last six months), the company is cutting its cost of goods sold and selling, general, and administrative expenses several times faster. By the time you reach the bottom line, the company now looks 46% more profitable than it did 18 months ago -- and those profits are being divvied up among 7% fewer shares (diluted).
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
36.1 |
36.4 |
42.8 |
43.9 |
44 |
38.9 |
|
Op. |
19.9 |
19.8 |
25.3 |
26.6 |
27.2 |
22 |
|
Net |
8.6 |
9.3 |
9.2 |
11.5 |
12.5 |
12.6 |
One Fool says:
IHOP is doing a bang-up job all around. Its operations are leaner than ever, and its sales, while falling, should turn around shortly as same-store sales increase and new stores are opened. The main problem here is with the stock itself -- specifically, its price.
Trading now for 19 times trailing free cash flow, the stock appears not just "priced for perfection," but priced for better-than-perfect growth. Yet analysts expect it can only grow profits at about 9% on average over the next five years. To be worth its current price, I'm afraid IHOP will have to do a lot better than that, exceeding even the 14% growth projected for the restaurant industry as a whole.
Competitors:
- Bob Evans (NASDAQ:BOBE)
- CBRL Group (NASDAQ:CBRL)
- Denny's (NASDAQ:DENN)
- Applebee's (NASDAQ:APPB)
Suppliers:
- Micros Systems (NASDAQ:MCRS)
Fool contributor Rich Smith does not own shares of any company named above.
