Overland Park, Kan.-based restaurant franchiser and operater Applebee’s International reviewed its future growth strategies at an investor conference held in New York today [Wednesday].
Chairman and CEO Lloyd Hill, together with members of the Applebee’s executive team, presented topics ranging from the increased domestic potential of the Applebee’s system to its long-term growth and earnings outlook.
Hill said: “A year ago, we embarked upon a strategic assessment of the Applebee’s brand, designed to realise the full potential of the concept. This strategic assessment was focused primarily on improving capacity utilisation, identifying sales-building opportunities and expanding distribution of the concept.”
COO George Shadid reviewed Applebee’s development and operating strategies, saying: “We now believe the ultimate domestic potential of the Applebee’s system to be at least 2,300 units.” Shadid also discussed the system-wide introduction of the first phase of the company’s new “To Go” initiative. This initiative will be implemented in the next 90 days.
CFO Steve Lumpkin discussed the use of the company’s strong balance sheet and substantial free cash flow for future franchise acquisitions and stock repurchases. He stated: “As an initial step in our franchise acquisition strategy, we expect to acquire at least one franchise territory before the end of the year. In addition, we are announcing today the availability of an additional US$75m to repurchase shares of our stock, subject to market conditions.”
Hill summarised the future outlook for the company: “We are focused on optimising the sales and returns of our existing restaurants by intensifying our food and menu, operating and marketing strategies. The strategies we outlined today will provide us with a solid foundation for continued growth. We expect annual earnings per share growth of 14 to 17% over the next three to five years beginning next year.
“We are also committed to maintaining our return on equity, which is already one of the highest in the industry, of at least 20%. These strategies will allow us to capitalise on our dominant market position.”
As part of the strategic assessment project completed last year, the company briefly highlighted its views on the role of future growth vehicles. Hill added, “In a disciplined fashion we also examined several different ways we can grow in the future beyond the core Applebee’s business. At some point, we expect part of our future growth to come as the result of capitalizing on new ways to extend the Applebee’s brand as well as the acquisition of another concept.”
Hill concluded, “Although we do not need brand extension or another concept to meet our growth targets over the next three to five years, we will be both opportunistic and selective about making an acquisition. However, the pursuit of a second concept will not be at the expense of maximising the core value of Applebee’s. We do not anticipate making any announcement in the next year about a new concept. After that time, we may choose to more aggressively seek out a second concept as opportunities are presented.”
Consistent with previous guidance, earnings per share for FY 2002 are expected to be between US$2.11 and US$2.15 (unadjusted for the stock split announced 9 May).
The company also provided guidance as to its future growth for the next three to five years beginning in fiscal year 2003:
*Approximately 100 new Applebee’s restaurants are expected to open annually.
*System-wide comparable sales are expected to increase annually by at least 3%.
*Overall restaurant margins should increase slightly in 2003 due to higher sales volumes.
*General and administrative costs should continue as mid-9% of operating revenues.