The earnings hit (and miss) parade continues, and while I rarely focus on one quarter's results as the be all and end all, I must admit that the spectacle is usually fun to watch. Sometimes it presents opportunities, especially when markets overreact to so-called bad news.
This morning Dine Brands Global (DIN) , parent of Applebee's and IHOP (International House of Pancakes), announced second-quarter results that beat bottom-line consensus estimates ($1.03 per share vs. 98 cents), but missed on the top line ($184.5 million vs. $187 million). Applebee's same-store sales were up an impressive 5.7%, while IHOP's comps were up 0.7%. Both, however, outperformed in their category.
IHOP made some waves in early June after teasing a name change to "IHOb" but not clarifying what the "b" represented. The following week the company announced that the "b" stood for burgers and that the iconic brand would become "International House of Burgers." This garnered a great deal of free press and a ton of reactions; as a shareholder I was in disbelief, especially because the burger space is already overly crowded and the focus on pancakes is unique.
The company got the best of us, though, after admitting on July 9 that it was all a publicity stunt; it said the name would remain IHOP and that the whole production was simply to introduce a new line of burgers as well as to underscore the pancake specialty. This was absolutely brilliant, one of the best restaurant campaigns since Denny's Corp.'s (DENN) free post-Super Bowl breakfasts in 2009 and Domino's Pizza's (DPZ) 2010 ads that announced improvements in its pizza recipe while admitting its quality had deteriorated. We'll see if all that free press translates into revenue for IHOP in the next quarter.
Overall, a decent quarter for Dine Brands; I've personally been impressed with Applebee's offerings, specials and consistency. I've recently had the same meal in locations as diverse as Bucks County, Pennsylvania, Kalispell, Montana, and upstate New York, and all were both good and similar. I still keep DIN in the group of potential restaurant takeover targets. The stock has been on a nice run year to date, up 40%, but we'll need to see how the markets greet today's results.
Dine Brands also revised guidance for fiscal 2018 in a few areas, raising same-store sales estimates for Applebee's to a range of 3.5% to 4.5% from the previous 0% to 3%. IHOP comps are now expected to be in the range of 0.5% to 2%, which is narrowed from a range of flat to up 3%. It also increased Applebee's restaurant closure expectations to between 90 and 100 from a range of 60 to 80. Hopefully we'll hear more about that on the earnings call, but it is a bit concerning.
The company increased estimates of free cash flow from between $94 million and $114 million to between $99 million and $119 million. Full-year earnings per share are still expected to be in the range of $4.95 to $5.25, putting the forward price-earnings ratio (P/E) in the 13.5 to 14 range. Next year's consensus estimate of $6.67 per share puts the forward P/E at less than 11. Interestingly, just three analysts currently cover DIN.
We'll see how investors initially great these results. The rest of the day should be interesting on the earnings front with a diverse group of names such as Kulicke & Soffa (KLIC) reporting prior to the market open and Fitbit (FIT) and FreightCar America (RAIL) reporting after the close.