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September 12, 2008

Casual/family dining DineEquity is running out of equity!

Analysis of: DineEquity Meltdown Predictable | biz.yahoo.com
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Analysis By:
John Macaluso, President & Chief Executive OfficerJohn Macaluso
President & Chief Executive Officer, Cornell Management Group
Implications: 1.  DineEquity, now one of the largest casual/family dining chains is a bellweather for the segment.2. All the equity has been squeezed out of the balance sheet:     *Divested the real estate and corp. investment underlying franchise                units a couple of years ago.     *Sale-leaseback on many Applebee's locations to help fund the                     acquisition.     *Refranchising of hundreds of Applebee's company locations, which is           going much slower than anticipated.3. The sudden departure of the CFO is troubling.          

Analysis: DinEquity is highly leveraged and very vulnerable.  Julia Stewart made some smart moves early on in her tenure at IHOP, such as reversing the traditional strategy of helping to fund franchisee growth.  That removed millions of dollars of contingent liabilities and freed up cash.
The acquisition of Applebee's was highly leveraged and left the company exposed to the kind of downturn the entire industry is seeing.   The initial efficiencies were helpful in reducing overhead, but the re-franchising attempt -- in itself an indication of weakness --has stalled; and the sale-leaseback has generated significant cash, but left the company vulnerable to huge lease payments.
The economic picture doesn't look any better in the foreseeable future for the industry, and DineEquity is right in the eye of the storm -- Casual dining and family dining are taking the biggest hits in terms of declining sales and customer counts, and the competitive pressure of lower prices and discount offers is seriously eroding operating margins.
Unless the overall economic environment --rising comodity costs, occupancy costs, and labor costs; coupled with reduced consumer spending -- turns around, DineEquity could go the way of Bennigans.

Other Analyses of the Same Source Article:
If Julia Can't Do It - Nobody Can
September 11, 2008, Author: GLG Expert Contributor
Recent DineEquity Meltdown Predictable
September 11, 2008, Author: GLG Expert Contributor

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