Financial Overview December 2007
Darden to sell Smokey Bones for $80M - BOCA RATON , Fla. Sun Capital Partners Inc. is adding a barbecue concept to its burgeoning restaurant portfolio by paying $80 million for the remains of Darden Restaurants Inc.’s Smokey Bones Barbeque & Grill chain. If the deal closes as expected within the next 45 days, Sun Capital would own all or a piece of 34 restaurant concepts, operated or franchised by Boston Market Corp., Bruegger’s Enterprises, Fazoli’s Restaurants, Friendly Ice Cream Corp., Garden Fresh Restaurant Corp., Real Mex Restaurants, Restaurants Unlimited and Souper Salad. The company said its brands encompass 2,200 locations and generate $3.4 billion in sales. The private-equity firm’s other investments include stakes in Chrysler Holdings, Dale and Thomas Popcorn, Hickory Farms and The Limited.
It’s official: Applebee’s is now part of IHOP - GLENDALE , Calif. IHOP Corp. said Thursday that it has completed its acquisition of Applebee’s International Inc. for $25.50 per share in cash, or about $1.9 billion. The total value of the transaction comes to about $2.3 billion because of the assumption of Applebee’s debt and the transaction fees IHOP will pay.
- As previously reported, IHOP plans to sell most of Applebee’s company-run restaurants to franchisees, cut costs and complete sale-leaseback transactions on corporately owned real estate assets. IHOP did detail for the first time that it planned to sell 475 of Applebee’s 510 corporate locations by the end of 2010. Select markets could be sold by early next year, the company added. Sale-leasebacks of Applebee’s-owned real estate assets are also under way, the company said, and those deals are expected to close early next year.
- The acquisition makes IHOP one of the industry’s largest franchisors of full-service restaurants. Nearly all of IHOP’s 1,323 namesake restaurants are franchised, and about 1,400 Applebee’s units are franchised.
- “We believe that [IHOP’s] core competencies of re-energizing restaurant brands, franchising and expense management are ideally suited to improve Applebee’s overall brand and financial health,” Julia A. Stewart, chairman and CEO of IHOP, and the leader of the now combined entities, said in a statement. “We look forward to applying the same focus and discipline that we have employed successfully at IHOP over the last several years to generate meaningful and sustainable improvements within the Applebee’s business.”
- IHOP financed the acquisition through two separate securitized debt offerings that totaled about $2.04 billion — one collateralized by IHOP’s restaurant assets and future franchisee royalties and another by Applebee’s assets and future royalties.
- The Applebee’s securitization totaled about $1.79 billion and consisted of four classes of fixed-rate notes and a revolving credit facility of variable funding notes. IHOP completed its third series of securitized financing, totaling $245 million of fixed-rate notes. In April, IHOP had completed a $200 million securitization transaction.
- From the July announcement of IHOP’s intent to acquire Applebee’s through today’s closing, there was growing speculation among financial market observers that IHOP would be forced to use its pre-arranged bridge loan to finance the deal, as the credit crunch would delay the securitizations. It was assumed that IHOP would not get favorable terms for its debt, and would wait for the credit markets to settle before arranging its securitizations.
- When Domino’s Pizza Inc. completed its $1.85 billion securitized debt facility in April, the company cited an interest rate of 6.19 percent. Darden Restaurants Inc. did not use a securitized debt facility to fund its acquisition of Rare Hospitality, but it did sell $1.15 billion in notes, with interest rates ranging between 5.6 percent and 6.8 percent. That financing was arranged in October.
- According to IHOP’s statement, the average effective interest rate for its securitized notes is about 7.18 percent. That rate does not take into account the company’s interest rate swap transaction -- a hedging technique -- that the company completed in the third quarter of this year. The rate swap settlement will lead to interest expense of $26.5 million in the current fourth quarter of this year, IHOP said, and an additional $61.9 million in interest expense that will be amortized over the expected five-year life of the notes.
- Because of financing costs for the securitization and because of the settlement of the interest rate swap, IHOP said it no longer expects the deal to add to fiscal 2008 earnings, as it had previously projected. In addition to the securitized financing, IHOP completed a private placement of $190 million of non-convertible preferred stock and $35 million of convertible preferred stock, the company reported.
- OVERLAND PARK, Kan. — As IHOP CORP.´s acquisition of APPLEBEE´S INTERNATIONAL INC. neared its expected closing today, Applebee´s on Wednesday reported a 1.6–percent year–to–year drop in domestic systemwide samestore sales for November. At U.S. corporate–owned Applebee´s restaurants, most of which are slated for sale to franchisees by IHOP under its previously divulged turnaround plan, samestore sales declined 2.3 percent for the four weeks ended Nov. 25. Guest traffic at those locations fell between 3 percent and 3.5 percent from a year ago, but average checks were higher, Applebee´s said. Same–store sales at franchised Applebee´s units in the United States fell 1.3 percent. Glendale, Calif.– based IHOP has agreed to pay $25.50 per share in cash for Applebee´s outstanding stock, for a transaction value of about $2.1 billion. Including fees, IHOP´s purchase of the industry´s largest casual–dining chain will total about $2.3 billion. Applebee´s and its franchisees operate about 1,965 restaurants worldwide. IHOP´s mostly franchised system has about 1,328 restaurants.
- RICHMOND HEIGHTS, Mo. — PANERA BREAD CO. said Wednesday that it will pay up to $75 million to buy back its common stock during the first quarter of next year, partly through an accelerated share repurchase agreement with a broker. Securities analysts that follow Panera estimated that the buybacks could add between 3 cents per share and 5 cents per share to fiscal 2008 earnings, and 5 cents per share to fiscal 2009 profit. There were about 32.2 million Panera shares outstanding as of Sept. 25, according to the company´s latest quarterly report, filed Nov. 2. Richmond Heights–based Panera, which operates or franchises about 1,100 bakery–cafes, has been struggling this year with higher costs and weaker samestore sales. Its stock has traded recently in the mid–$30 range, compared with its 52–week high of $62.78 per share. On news of the buy–back, Panera shares posted the industry´s fifth highest daily rise in value in trading Wednesday.
- SAN ANTONIO — Activist investor and Western Sizzlin Corp. chairman SARDAR BIGLARI has increased to 8.6 percent his funds´ holdings in STEAK N SHAKE CO. He and an associate intend to seek board seats at the family–dining operator´s annual meeting in February. Biglari has been pressing for changes by struggling Steak n Shake since this summer, when he first disclosed he would nominate himself and a colleague to Steak n Shake´s board when all its directorships come up for a vote. Indianapolis–based Steak n Shake and its franchisees operate about 490 restaurants in 20 states. In a filing Friday with securities regulators, Biglari disclosed that through his San Antonio–based hedge fund LION FUND LP, and through Western Sizzlin and other investment funds, he controls 2.45 million Steak n Shake shares or purchase options. The newly acquired shares were purchased between Nov. 19 and Nov. 23 for per–share prices of $10.46 to $14.30, the filing stated. During the past year, Steak n Shake´s stock has traded between $10.15 and $18.10 per share. Biglari´s funds previously held a
7.3–percent position in the restaurant company.
- WASHINGTON — Funds controlled by BAIN CAPITAL, TPG CAPITAL and GOLDMAN SACHS, which together took BURGER KING HOLDINGS INC. public last year, have sold a total of 19.9 million of their common shares for about $486 million, reducing their combined equity in BK to about 43 percent, according to filings with securities regulators. In the Nov. 21 filings, Boston–based Bain said it sold 4.96 million shares on Nov. 19 for $24.13 per share, and another 864,000 shares Nov. 21, also for $24.13 each. Bain now owns 18.65 million shares, or about 14 percent of Burger King´s total shares outstanding. In a separate Nov. 21 filing, Fort Worth, Texas–based TPG Capital reported that it sold 6.48 million BK shares on Nov. 19 and an additional 972,000 on Nov. 21, for $24.13 per share. TPG said it now owns 20.98 million Burger King shares, or about 15.5 percent of the company´s total shares outstanding. Goldman Sachs sold about 6.6 million shares for $25 each, leaving it with 18.7 million shares.
- SEATTLE — STARBUCKS CORP., while making its firstever report of a decline in U.S. same–store customer traffic, said the coffeehouse giant´s domestic store margins were the lowest in two years for the September–ended fourth quarter. However, U.S. same–store sales rose 4 percent for the quarter as the average sales transaction grew 5 percent to offset a 1–percent dip in customer counts. Fourth–quarter net profit jumped 35 percent. To stem the apparent effects of saturation in some markets, the company said it will reduce its new–store growth rate while launching its first–ever national TV ad campaign. Starbucks reduced its per–share earnings outlook for fiscal 2008 and its expectations for the new year´s same–store sales because of slowing volumes that it blamed on a challenging macroeconomic environment and higher dairy costs, which are expected to continue next year. Starbucks raised drink prices by an average of 9 cents in late July, after taking a price hike in October 2006. The Seattle–based company and its licensees operate about 15,000 Starbucks coffeehouses worldwide.
- San Diego — JACK IN THE BOX INC., operator or franchisor of 2,500 restaurants under the flagship Jack in the Box quick–service brand and the fast–casual QDOBA MEXICAN GRILL format, reported a 19–percent drop in fourth–quarter net income on an unfavorable comparison to a year ago when it booked a 12–cents–per–share benefit from the sale of company–owned restaurants to franchisees in Hawaii. Net income for the quarter ended Sept. 30 was $27.0 million, or 43 cents per share, compared with $33.2 million, or 46 cents per share, for the same quarter in 2006. The per–share results reflect Jack in the Box´s 2–for–1 stock split effective Oct. 15. Corporate earnings for the latest quarter came in at the high end of the company´s forecast and beat Wall Street estimates. For all of fiscal 2007, net earnings were $126.3 million, or $1.88 per share, which included a third–quarter benefit of 4 cents per diluted share from an insurance recovery. The company´s fiscal–2006 earnings were $108.0 million, or $1.50 per share.
- MIAMI — BURGER KING HOLDINGS INC. said Wednesday that the three private–equity firms that are its majority shareholders would sell 18 million shares of BK common stock in a secondary offering for $25 per share, which is 5 million fewer shares than proposed last week. Burger King´s stock, which closed at $25.16 per share on Tuesday, fell 0.56 percent Wednesday to close at $25.02. The selling shareholders — funds controlled by TPG CAPITAL, BAIN CAPITAL PARTNERS and the GOLDMAN SACHS FUNDS, which together own 79 million BK shares, or 58 percent of its equity – will also offer to the offering´s underwriters an option to purchase up to an additional 2.7 million shares, Burger King said. Last week, when the offering was first disclosed, Burger King had said the firms planned to offer 23 million shares, with an over–allotment option of up to 3.45 million units. The selling shareholders could gross $517.5 million. Burger King is not receiving any proceeds from the sale. After the offering, the three firms would have reduced their ownership stake in Burger King to between 45 percent and 43 percent, depending on the exercise of over–allotments.
- STAMFORD, Conn. — CENTERPLATE INC., the contract foodservice firm specializing in sports, entertainment and convention venues, reported a 51.2–percent drop in net income for the third quarter ended Oct. 2, versus the same period a year ago, despite a 12.4–percent increase in sales to $246.1 million. Centerplate officials blamed differences in the company´s income tax provision, or estimated tax liability, for the third quarters of 2006 and 2007. For the latest quarter Centerplate recorded a $4.2 million tax provision, versus a $1.1 million tax benefit a year ago. Third–quarter net income was $6.0 million, or 27 cents per share, versus $12.3 million, or 54 cents per share, for the same period last year. The sales increase reflected results of Major League Baseball and National Football League accounts, Centerplate said.
- GREENWOOD VILLAGE, Colo. — RED ROBIN GOURMET BURGERS INC. posted a 36.4–percent surge in third–quarter profit thanks to a 27–percent jump in revenue from higher check averages and stronger customer traffic, spurred by the casual-dining chain´s media campaigns. Net income for the 380-unit operator or franchisor was $8.2 million, or 49 cents per share, for the three months ended Oct. 7, versus $6 million, or 36 cents per share, a year earlier. Corporate revenue rose to $188.7 million, from $148.6 million. Same–store sales at corporate restaurants increased 4.8 percent. Despite the strong quarter, Red Robin said it would post a dip in profit for the full fiscal year mainly because of charges for the settlement of a lawsuit and stock compensation expenses. Earnings per share are expected to be between $1.70 and $1.74. The company earned $1.75 per share last year.
- ATLANTA — TRIARC COS. INC., franchisor of nearly 2,600 ARBY´S outlets and owner about about 1,000 more of the chain´s outlets, said third-quarter restaurant operating profit jumped 15 percent on a nearly 5–percent increase in sales, improved margins and lower corporate expenses. Though Triarc did not forecast financial results for the fourth quarter or the full year, it said it is “currently incurring significant costs” to evaluate the acquisition of another restaurant company. Triarc´s non-executive chairman, NELSON PELTZ, heads investment funds that own substantial equity in WENDY´S INTERNATIONAL INC., which he has indicated Triarc wishes to acquire. For the quarter ended Sept. 30, Arby´s operating profit was $29.8 million, versus $25.9 million a year earlier. Revenues were $307.2 million, compared with $293.9 million. The increase reflected newly opened Arby´s units´ higher average volumes, and higher franchise royalties, the company said. Same–store sales at Triarc-owned Arby´s fell 1 percent.
- LOS ANGELES — The UWINK touchscreen dining—and-games concept has raised $10.4 million in equity financing for new—unit development and other capital needs. The company had hoped to raise up to $15 million in the offering. Investors purchased about 5.2 million units of common stock and stock warrants. Net proceeds would be about $9.3 million after agent fees and offering expenses. UWINK INC. currently operates one upscale-casual bistro in Woodland Hills, Calif., and plans two more corporate units in the Los Angeles area, and units in Mountain View, Calif., and Dallas. Area developer OCC Partners plans to open three franchised uWinks in the Miami area. UWink also plans to open units in Canada in a joint venture with tech firm Jefferson Partners.
- OAK BROOK, Ill. — MCDONALD´S CORP. on Thursday reported another in a string of global surges in monthly same-store sales. U.S. sales were boosted by value-oriented items, breakfast offerings and late-night operating hours, McDonald´s said. Globally, same-store sales increased 6.9 percent for October, versus the same month a year ago, including a U.S. same-store sales increase of 5.4 percent. In Europe, same-store sales rose 6.4 percent for the month, helped primarily by sales in France, the United Kingdom and Russia. In McDonald´s Asia-Pacific/Middle East/Africa region, same-store sales rose 9.4 percent. October systemwide sales increased 14.2 percent from a year ago, or 8.2 percent excluding foreign-currency exchange fluctuations.
- HOUSTON — LANDRY´S RESTAURANTS INC. on Thursday credited a smaller deficit from discontinued operations for helping reduce its third-quarter net loss to $4.3 million, from $30 million a year earlier, despite increased debt interest. The Houston-based company, which operates about 200 casual-dining restaurants and various entertainment and lodging-gaming venues, said revenue for the three months ended Sept. 30 rose 5.1 percent to $301.9 million as same-store sales grew 1 percent. The net loss was 25 cents per share, versus $1.36 per share a year ago. Landry´s operates the Landry´s Seafood House, Chart House, Rainforest Cafe and Saltgrass Steak House chains and two Golden Nugget hotel—casinos. The company´s quarterly loss from continuing operations was $3.2 million, versus a $6 million profit a year ago.
- LOS ANGELES — CALIFORNIA PIZZA KITCHEN INC. on Thursday reported a sharp decline in third-quarter earnings blamed on costs for the closure of four CPK ASAP fast-casual outlets, despite higher corporate revenues. The operator of 190 restaurants and franchisor or licensor of 33 others posted a net profit of $1.4 million, or 5 cents per diluted share, for the three months ended Sept. 30, versus $6.65 million, or 34 cents a share, for last year´s comparable quarter. CPK said the net decline reflected a charge of 20 cents per diluted share for the ASAP outlet closures. Corporate revenues grew about 13.5 percent to $162.0 million as same-store sales rose 3.5 percent. Average weekly sales for the company´s 176 full-service restaurants increased 3.0 percent to $68,972 in the third quarter, during which CPK added six full-service branches and franchisee HMSHost opened a California Pizza Kitchen ASAP branch at Los Angeles International Airport.