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IHOP Quarterly Earnings Slip 11%

Slow franchise and same-store sales push down third-quarter profit. Restaurant chain says fourth quarter won't meet forecasts.

October 30, 2002|Karen Robinson-Jacobs | Times Staff Writer

Less-than-expected franchising activity pushed third-quarter earnings down 11% at IHOP Corp., the Glendale-based restaurant chain said Tuesday.

The company, which franchises International House of Pancakes restaurants in the U.S. and Canada, reported net income of $9.8 million, or 46 cents a share.

That compared with $11.1 million, or 53 cents, for the same period a year ago. Revenue rose to $92.1 million, from $81.1 million.

IHOP reported its earnings after the markets closed Tuesday. Its shares rose 87 cents to $24.74 on the New York Stock Exchange.

Same-store sales dropped 1.2% for the quarter, compared with the year-ago period. The company also was forced to operate seven stores that it had difficulty franchising, said Julia A. Stewart, IHOP's president and chief executive.

About 94% of the 1,063 IHOP restaurants in the U.S. and Canada are franchised, with each operator paying a $250,000-per-store franchise fee and continuing royalties.

The initial franchise fee is "a big revenue generator for them," said Michael D. Smith, a Kansas City-based analyst with Fahnestock & Co., which rates the company a "hold."

Stewart said the company is on track to meet its previously announced goal of opening as many as 90 restaurants this year. The company has launched 53 so far this year.

The company said it expects fourth-quarter earnings to be below prior forecasts due to several factors, including slow sales of franchises and continued weakness in same-store sales. .

The company expects to report fiscal 2002 earnings of $1.85 to $1.96 a share, down from prior expectations of $1.99 to $2.10 a share.

The company also announced completion of a $100-million private debt placement to fund future capital expenses and general corporate needs.

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