Applebee's (NASDAQ:APPB) has had a heck of a time lately, and its November same-store sales decrease hinted that while change may be afoot, times aren't changing fast enough.
In a trend that has been going on for quite some time, Applebee's November same-store sales dropped 3%. Meanwhile, the average check was flat, and fewer customers patronized Applebee's that month.
If you revisit the company's third quarter, you will see that this is hardly a surprise -- the company missed analysts' expectations on both the top and bottom line, and same-store sales in the U.S. dropped 2.3%. Applebee's also gave fiscal 2007 guidance that, at between $1.15 and $1.20, was lower than analysts' expectations for fiscal 2007 earnings of $1.24 per share.
If you take a journey through the Foolish archives, you'll see challenges are nothing new for Applebee's. Certainly, there have been many issues that have made it tough for casual dining chains like Applebee's, Darden (NYSE:DRI), or Ruby Tuesday (NYSE:RI); consider rising gas prices last summer putting a strain on consumers' budgets, not to mention the ongoing housing slowdown giving some reason for worry.
On the other hand, though, Applebee's seems to be having problems all of its own, above and beyond any short-term macroeconomic angst impacting the industry at large. Last February, Fool contributor John Bluis took a look at Applebee's and pointed out that the company's own CEO said, "The best thing I can say about last year is that it's over." Indeed, some of the hallmarks of Applebee's 2005 included higher debt levels, decreasing margins, and falling free cash flow, with what Bluis described as an aggressive expansion plan that might imply a disregard for fiscal responsibility. And as 2006 has worn on, Applebee's has continued to struggle.
November's falling same-store sales figure is also interesting, considering that Applebee's may be heading for the hot seat, so to speak. Back in October, activist shareholder Breeden Capital Management took a 5% stake in Applebee's, and if you remember the heat administered to companies like Wendy's (NYSE:WEN) and McDonald's (NYSE:MCD) by shareholder activists, you know it's a pretty significant event.
Breeden may have said at the time that it believes Applebee's is a "fundamentally strong and vibrant business" and was undervalued, but it also said, "Applebee's has not paid adequate attention to shareholder interests in recent years, and its share price suffers from poor decisions on allocation of capital to company-owned restaurants and real estate holdings with low returns, as well as from high corporate general and administrative costs and certain undesirable governance and compensation practices."
Back in April, John Bluis pointed out that Applebee's return on invested capital was dropping, and if Applebee's management wasn't careful, it was going to end up "in the crosshairs of angry shareholders." It seems that may very well come to pass. Given the uncertainties and possible distractions, Applebee's doesn't strike me as too appetizing at the moment.
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Alyce Lomax does not own shares of any of the companies mentioned.
