IHOP’s Profit Falls, but It Raises 2004 Estimate

IHOP Corp. reported a 60% drop in second-quarter profit Thursday and announced plans to shed nearly all remaining company-owned restaurants as part of its shift to a new expansion strategy.

The Glendale-based chain of 1,167 family dining restaurants also raised its profit forecast for the remainder of the year.

IHOP posted net income of $4.4 million, or 21 cents a share, compared with $11 million, or 51 cents, a year earlier. Excluding one-time charges of $8.9 million, or 26 cents a share, IHOP would have reported earnings of $9.9 million, or 47 cents a share -- down 10% from a year earlier.

On that basis, one analyst had predicted earnings of 43 cents a share. IHOP shares rose 14 cents to $36.40 on the New York Stock Exchange.

Revenue for the quarter fell 17% to $86.1 million, reflecting a shift away from company-owned restaurants. Sales at all stores open a least one year -- a key performance gauge -- rose 4.2%.

IHOP is abandoning an expansion system in which it paid development costs for new restaurants that were then sold as completed stores. Now, franchise owners cover their own development costs.

The company unveiled plans for its 32 remaining company-owned restaurants, saying it would sell 24 to franchisees, close five and temporarily continue operating three others.

Mike Smith, a restaurant analyst with Oppenheimer & Co., applauded IHOP’s same-store sales growth, but he said he was unsure how the firm would achieve earnings growth “much above 10%.”

The company revised its 2004 profit guidance to $1.80 to $1.90 a share, excluding write-offs of $13 million to $14 million. Previously, the company had forecast full-year earnings of $1.65 to $1.75 a share.