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Change Cuts Into Profit for IHOP

The Glendale-based chain takes write-offs after abandoning old system of financing its new restaurants.

May 09, 2003|Karen Robinson-Jacobs | Times Staff Writer

About $5.5 million in write-offs for scrapped restaurant development projects and consulting costs related to the company's new expansion plan took a bite out of profit for the parent of the International House of Pancakes chain.

First-quarter net income for Glendale-based IHOP Corp. declined 39% to $6 million, or 28 cents a share, from $9.8 million, or 46 cents a share, a year ago, the company said Thursday.

Despite the decline, IHOP reported a 2.2% increase in same-store sales for the period ended March 31, besting most other family dining chains.

IHOP has 1,118 outlets in 48 states and Canada. In January, it announced that it would abandon its traditional method of expansion, in which it paid development costs for new restaurants and then sold a completed store to a franchisee. Instead, the company is moving to a system where franchise owners cover their own development expenses.

Tom Conforti, the chief financial officer, said the company is writing off about $5.5 million in expenses for restaurant development projects it will no longer pursue.

An additional $1.2 million was spent on consultants and attorneys to help the company convert from its old business model to the new.

Revenue for the company, known for its blue-roofed eateries, was $94 million, up 15.3% from the $81.5 million posted in the same period in 2002.

The stock lost 27 cents to close at $26.59 on the New York Stock Exchange.

That's up from the $21 level the stock fell to in February, but down from the 52-week-high of $35.46 last May.

Buoyed by an aggressive marketing campaign, including its first-ever network television ads, the company saw sales growth at stores open at least one year -- a key measure of chain health -- that eclipsed most other family dining chains, many of whom said sales were washed out by winter storms.

Of the eight family dining chains tracked by Fairfield, Conn.-based Restaurant Research, IHOP was one of only three to post positive same-store sales for the quarter.

"If not for the weather, IHOP same-store sales would have been up almost 4%," said Michael Gallo, a research analyst with C.L. King, which is based in New York. "That's a pretty good showing in what was a difficult quarter."

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