IHOP Corp. Reports Second Quarter 2003 Results

August 7, 2003 at 7:03 AM EDT

GLENDALE, Calif., Aug. 7 /PRNewswire-FirstCall/ -- IHOP Corp. (NYSE: IHP) today announced financial results for its second quarter and six months ended June 30, 2003.

Second Quarter 2003 Financial Results

The Company reported an 18.3% increase in net income to $11.0 million, or an increase of 15.9% in diluted net earnings per share to $0.51 in the second quarter 2003, compared with net income of $9.3 million, or diluted net income per share of $0.44 in the second quarter 2002. IHOP's net income and diluted net earnings per share performance was impacted during the quarter by one-time charges of $811,000, or $0.02 per diluted share, associated with the Company's reorganization announced in January 2003. After accounting for these charges, net income for the second quarter 2003 increased 23.7% to $11.5 million or 20.5% increase in diluted net income per share of $0.53.

For the six months ended June 30, the Company reported an 11.5% decrease of net income to $16.9 million, and a decrease of 13.3% in diluted net income per share to $0.78 in 2003, compared with net income of $19.1 million, or diluted net income per share of $0.90 in the same 2002 period. After accounting for one-time reorganization charges, net income for the first six months of 2003 increased 13.1% to $21.6 million or an 11.1% increase in diluted net income per share of $1.00.

Julia A. Stewart, IHOP Corp. President and Chief Executive Officer, said, "Our system performed extremely well during the quarter. Our focus on brand building, marketing promotions, improved operations and enhanced training efforts are paying off as more guests visit IHOP restaurants more often. The success of our strategies to date is very encouraging. We are confident about our future and look for continuing improvements in the second half of the year."

System-wide sales increased 16.1% in the quarter and by 14.6% in the six months ended June 30, 2003 over the same periods in 2002. The sales increase is primarily the result of growth in the number of effective restaurants and increases in average per unit sales. Effective restaurants grew by 8.8% in the second quarter and by 8.6% for the six months ended June 30, 2003 over the same periods in 2002. In addition, the company franchised five more restaurants in the quarter than in second quarter 2002. As previously announced, system-wide comparable store sales increased by 4.8% for the second quarter, which reflected the highest quarterly growth in 10 years. For the six months ended June 30, 2003, comparable store sales were 3.6%. Both these comparable store sales figures are calculated on a 12-month basis.

IHOP's comparable store sales performance for the second quarter benefited from the carryover effect of national network advertising in the first quarter 2003 and other operational initiatives. Additionally, IHOP provided new reasons for guests to visit with two promotional items, Stuffed French Toast and Paradise Pancakes. During the ten week promotional period for Stuffed French Toast, comparable store sales increased by 5.8%. Five weeks of that promotion took place in the second quarter. For the eight week promotional period of Paradise Pancakes, comparable store sales increased by 4.6%.

Change in Comp-Store Sales Methodology

Beginning with the second quarter 2003, IHOP is changing its methodology for calculating comparable store sales from a 12-month basis to an 18-month basis. The Company believes that changing this methodology, where restaurants opened only 18 months or more will be used for calculation of year-to-year changes, will enable a more accurate view of its system's performance. This is because the calculations will now exclude the effect of high sales levels typically seen during the first months of operation at new restaurants. Accordingly, system-wide comparable store sales increased by 5.1% for the second quarter and 4.1% for the six months ended June 30, 2003 using the 18-month methodology.

Operations Initiatives

IHOP restaurants performed well during the quarter, reflecting several positive operations initiatives during the second quarter 2003.

IHOP completed the process of assessing restaurants as "A" or "B" operations to best leverage and further develop the strongest operators in its system. The Company also worked to identify IHOP restaurants that may not perform at the top of its expectations and encouraged those operators to improve by returning to operations and training basics. The goal is to dramatically improve operations at challenged restaurants.

Mystery Shop evaluations were successfully conducted in the second quarter 2003. IHOP received significant feedback in the areas of service and hospitality, uncovering additional opportunities to improve the guest experience. Based on this feedback, IHOP will continue to augment its operational and training efforts as franchisees implement change at the restaurant level.

IHOP recently launched an initiative to identify high potential locations that could benefit from 24-hour operations. With field consultants trained in the financial operating model, the Company is educating selected franchisees on the profitability and sales growth opportunities of 24-hour operations.

Enhanced training efforts continued with the rollout of Paradise Pancakes during the second quarter 2003. More than 50,000 employees were trained in the promotion's details.

Performance Outlook

In view of the positive momentum in its business, IHOP reiterated its guidance of $1.55 to $1.70 in net income per diluted share for fiscal 2003.

Second Quarter 2003 Conference Call

The Company will host an investor conference call to discuss its second quarter results today, Thursday, August 7, 2003 at 11:00 a.m. ET (8:00 a.m. PT). To participate in the call, please dial (877) 356-3747. A live webcast of the call can be accessed on the Investor Relations section of IHOP's Web site at www.ihop.com . Participants should allow approximately ten minutes prior to the call's start time to visit the site and download any streaming media software needed to listen to the webcast.

About IHOP Corp.

The IHOP family restaurant chain has been serving a wide variety of breakfast, lunch and dinner selections for 45 years. Offering more than 16 types of pancakes, as well as omelettes, breakfast specialties, burgers, chicken and steaks, IHOP's diverse menu appeals to people of all ages. IHOP restaurants are developed, operated and franchised by Glendale, California based IHOP Corp. As of June 30, 2003, there were 1,136 IHOP restaurants in 48 states and Canada. IHOP is publicly traded on the NYSE under the symbol "IHP." For more information, call the Company's headquarters at (818) 240-6055 or visit the Company's Website located at www.ihop.com .

Forward-Looking Statements

There are forward-looking statements contained in this news release. They use such words as "may," "will," "expect," "believe," "plan," or other similar terminology. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include, but are not limited to: risks associated with the implementation of the Company's new strategic growth plan, the availability of suitable locations and terms of the sites designated for development; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; conditions beyond IHOP's control such as weather, natural disasters or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the International House of Pancakes brand and concepts by guests and franchisees; IHOP's overall marketing, operational and financial performance; economic and political conditions; adoption of new, or changes in, accounting policies and practices; and other factors discussed from time to time in IHOP's filings with the Securities and Exchange Commission. Forward-looking information is provided by IHOP pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. In addition, IHOP disclaims any intent or obligation to update these forward-looking statements.

 IHOP CORP. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                          PERIOD ENDED JUNE 30, 2003
               (Dollars in thousands, except per share amounts)
                                 (Unaudited)

                               Three Months Ended       Six Months Ended
                                     June 30,                June 30,
                                2003         2002        2003        2002
    Revenues
    Franchise revenues        $34,722 $29,947 $68,508 $59,987
    Rental income              28,993       24,416      57,307      48,390
    Company restaurant
     sales                     21,335       17,986      41,009      35,776
    Financing revenues         18,234       12,510      30,451      22,246
      Total revenues          103,284       84,859     197,275     166,399
    Costs and Expenses
    Franchise expenses         15,961       13,592      31,362      27,349
    Rental expenses            21,320       18,224      42,139      35,712
    Company restaurant
     expenses                  22,493       18,627      43,401      37,181
    Financing expenses          9,868        5,882      16,701       9,917
    General and
     administrative
     expenses                  13,562       12,665      25,829      23,350
    Other (income)
     expense, net               1,713          989       3,226       2,400
    Reorganization charges        811           --       7,520          --
      Total costs and
       expenses                85,728       69,979     170,178     135,909
    Income before income
     taxes                     17,556       14,880      27,097      30,490
    Provision for income
     taxes                      6,584        5,580      10,162      11,434
    Net income                $10,972 $9,300 $16,935 $19,056

    Net Income Per Share
      Basic                     $0.51 $0.44 $0.79 $0.91
      Diluted                   $0.51 $0.44 $0.78 $0.90

    Weighted Average
     Shares Outstanding
      Basic                    21,520       20,904      21,417      20,838
      Diluted                  21,705       21,340      21,574      21,254

    Dividends Declared
     Per Share                    $--          $--       $0.25         $--

    Dividends Paid
     Per Share                  $0.25          $--       $0.25         $--


                         IHOP CORP. AND SUBSIDIARIES
                            RESULTS OF OPERATIONS
                            (Dollars in thousands)
                                 (Unaudited)

                              Three Months Ended       Six Months Ended
                                   June 30,                June 30,
                               2003        2002        2003        2002
    Restaurant Data
      Effective
       restaurants(a)
        Franchise               919          834         911          829
        Company                  79           75          77           74
        Area license            125          123         125          122
          Total               1,123        1,032       1,113        1,025

    System-wide
      Sales(b)             $425,533 $366,594 $839,358 $732,434
        Percent change        16.1%        10.7%       14.6%        10.7%
      Average sales per
       effective
       restaurant              $379 $355 $754 $715
        Percent change         6.8%         2.6%        5.5%         4.1%
      Comparable sales
       percentage
       change (c)              4.8%         1.8%        3.6%         1.9%

    Franchise
      Sales                $369,884 $317,017 $728,257 $631,740
        Percent change        16.7%        13.0%       15.3%        13.7%
      Average sales per
       effective
       restaurant              $402 $380 $799 $762
        Percent change         5.8%         2.2%        4.9%         2.7%
      Comparable sales
       percentage
       change(c)               4.7%         1.8%        3.6%         1.9%

    Company
      Sales                 $21,335 $17,986 $41,009 $35,776
        Percent change        18.6%       (0.1)%       14.6%         2.9%
      Average sales per
       effective
       restaurant              $270 $240 $533 $483
        Percent change        12.5%       (1.2)%       10.4%         1.5%

    Area License
      Sales                 $34,314 $31,591 $70,092 $64,918
        Percent change         8.6%       (3.2)%        8.0%       (9.0)%
      Average sales per
       effective
       restaurant              $275 $257 $561 $532
        Percent change         7.0%         2.4%        5.5%         5.1%

     (a)  "Effective restaurants" are the number of restaurants in a given
          fiscal period adjusted to account for restaurants open for only a
          portion of the period.  It is calculated by dividing total
          restaurant operating days by 91 days for a quarterly calculation.

     (b)  "System-wide sales" are retail sales of franchisees, area licensees
          and Company-operated restaurants, as reported to IHOP.

     (c)  "Comparable sales percentage change" reflects the percentage change
          in sales for restaurants that are operated for the entire fiscal
          period in which they are being compared and are open for at least
          12 months.  Because of new unit openings and store closures, the
          restaurants opened for an entire fiscal period being compared will
          be different from period to period.  Comparable average sales do not
          include data on restaurants located in Florida.


                         IHOP CORP. AND SUBSIDIARIES
               RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
                                 (Unaudited)

                                    Three Months Ended    Six Months Ended
                                         June 30,              June 30,
                                       2003      2002      2003       2002
    RESTAURANT DEVELOPMENT ACTIVITY
    IHOP-beginning of period          1,118     1,028      1,103     1,017
      New openings
        IHOP-developed                   16        14         33        24
        Franchisee-developed              3         4          6         5
        Area license                     --         1         --         2
          Total new openings             19        19         39        31
      Closings
        Company and franchise            (1)       (4)        (6)       (5)
    Area License                         --        --         --        --
    IHOP-end of period                1,136     1,043      1,136     1,043

    Summary-end of period
        Franchise                       932       843        932       843
        Company                          79        76         79        76
        Area license                    125       124        125       124
          Total IHOP                  1,136     1,043      1,136     1,043

    RESTAURANT FRANCHISING ACTIVITY
    IHOP-developed                       19        13         30        22
    Franchisee-developed                  3         4          6         5
    Rehabilitated and refranchised        1         1          2         1
          Total restaurants
           franchised                    23        18         38        28
    Reacquired by IHOP                   (4)       (2)        (6)       (4)
    Closed                               --        (3)        (2)       (4)

          Net addition                   19        13         30        20


                         IHOP CORP. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                            (Dollars in thousands)

                                                  June 30,     December 31,
                                                   2003            2002
                                                (Unaudited)

    Current assets, net                          $139,620 $159,101
    Property and equipment, net                   310,795         286,226
    Long-term receivables:
      Notes receivable                             46,852          46,929
      Equipment contracts receivable              160,564         153,261
      Direct financing leases receivable          131,304         132,602
    Other assets                                   47,199          41,681
    Total assets                                 $836,334 $819,800

    Current liabilities                           $42,652 $53,564
    Long-term debt                                144,694         145,768
    Other long-term liabilities                   269,262         256,079
    Stockholders' equity                          379,726         364,389
    Total liabilities and stockholders' equity   $836,334 $819,800 IHOP CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                            (Dollars in thousands)
                                 (Unaudited)

                                                         Six Months Ended
                                                             June 30,
                                                          2003       2002
    Cash provided by operating activities               $32,182 $31,210
    Cash used in investing activities
      Additions to property and equipment               (49,634)   (48,163)
      Investments in short-term marketable securities   (33,367)        --
      Additions to other assets, net                       (332)     2,687
    Cash provided by financing activities                 6,097     23,749
    Net change in cash and cash equivalents             (45,054)     9,483
    Cash and cash equivalents at beginning of period     98,739      6,252
    Cash and cash equivalents at end of period          $53,685 $15,735 IHOP CORP. AND SUBSIDIARIES
                RESTATED CONSOLIDATED STATEMENT OF OPERATIONS
               (Dollars in thousands, except per share amounts)
                                 (Unaudited)

                  1st Qtr. 2nd Qtr. 6 Mos. 3rd Qtr.  9 Mos. 4th Qtr. 12 Mos.
                    2002     2002    2002    2002     2002    2002    2002
    Revenues
    Franchise
     revenues      $30,040 $29,947 $59,987 $30,946 $90,933 $32,117 $123,050
    Rental
     income         23,974  24,416  48,390   25,158  73,548  26,047   99,595
    Company
     restaurant
     sales          17,790  17,986  35,776   19,634  55,410  19,023   74,433
    Financing
     revenues        9,736  12,510  22,246   16,345  38,591  30,205   68,796
      Total
       revenues     81,540  84,859 166,399   92,083 258,482 107,392  365,874

    Costs and
     Expenses
    Franchise
     expenses       13,757  13,592  27,349   13,673  41,022  14,117   55,139
    Rental
     expenses       17,488  18,224  35,712   18,517  54,229  19,583   73,812
    Company
     restaurant
     expenses       18,554  18,627  37,181   20,442  57,623  20,799   78,422
    Financing
     expenses        4,035   5,882   9,917    9,027  18,944  19,241   38,185
    General and
     administrative
     expenses       10,685  12,665  23,350   13,326  36,676  12,850   49,526
    Other (income)
     expense, net    1,411     989   2,400    1,357   3,757   1,676    5,433
      Total costs
       and expenses 65,930  69,979 135,909   76,342 212,251  88,266  300,517

    Income before
     taxes          15,610  14,880  30,490   15,741  46,231  19,126   65,357
    Provision for
     income tax      5,854   5,580  11,434    5,903  17,337   7,172   24,509
    Net income      $9,756 $9,300 $19,056 $9,838 $28,894 $11,954 $40,848

    Net Income
     Per Share
      Basic          $0.47 $0.44 $0.91 $0.47 $1.38 $0.57 $1.95
      Diluted        $0.46 $0.44 $0.90 $0.46 $1.36 $0.56 $1.92

    Weighted
     Average
     Shares
     Outstanding
      Basic         20,771  20,904  20,838   20,958  20,878  21,152   20,946
      Diluted       21,169  21,340  21,254   21,235  21,248  21,334   21,269


                                  IHOP CORP.
                          18 MONTH SAME STORE SALES
               PERCENT INCREASES (DECREASES) OVER PRIOR PERIOD

                     1999         2000         2001         2002        2003

    1st Quarter      0.5%         0.2%         2.2%         2.6%        3.1%

    2nd Quarter      2.1%         1.1%         0.0%         1.9%        5.1%

    6 Months         1.4%         0.8%         1.2%         2.3%        4.1%

    3rd Quarter      1.4%         2.1%         0.0%        (0.7%)

    9 Months         1.5%         1.4%         0.8%         1.3%

    4th Quarter      1.5%         0.7%         1.3%        (0.3%)

    Full Year        1.6%         1.2%         1.0%         0.9%