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DineEquity Inc.'s (DIN) Applebee's chain is tailoring marketing plans to try to steal business from competitors during each part of the day, from lunch and dinner to late-night and takeout, Chairman and Chief Executive Julia Stewart said.
With expansion opportunities limited in casual dining, especially in the bar-and-grill segment that Applebee's operates in, winning customers from competitors is paramount for increasing sales, Stewart said.
"More than ever, it's a share war," Stewart said late Thursday during a phone interview.
Applebee's strategy to develop specific marketing plans for each business line paints a bull's eye, chiefly on mom-and-pop restaurants but also some of its chief chain competitors, like Brinker International Inc. (EAT) Chili's Grill and Bar and privately held T.G.I. Friday's. DineEquity is also laying a challenge for others to defend their turf, like Buffalo Wild Wings Inc.'s (BWLD) bar and late-night business.
"There are some particular chains that might get hurt from us, but the independents are taking the largest hit," Stewart said.
Applebee's is emboldened after DineEquity spent the last three years revitalizing the brand since it was combined with IHOP in a $2.1 billion deal. Among the changes have been retooled marketing, leaner operations and more new menu items, including additions like meals with under 550 calories and "Sizzling Skillet" meals during 2010.
Last month, DineEquity said same-store sales rose 2.7% at Applebee's and 0.3% at IHOP through the majority of its third-quarter. The preliminary results were ahead of analysts' expectations at the time. DineEquity reports results for the quarter Tuesday, with analysts most recently polled by Thomson Reuters expecting per-share earnings of 68 cents, up from 55 cents last year.
Stewart declined to comment ahead of next week's report as to whether the improved sales at Applebee's were sustainable, but she ascribed the recent lift mostly to what the company has done rather than the improving economy.
"What you are seeing is the direct result of the efforts we put into play," Stewart said.
Stewart said Applebee's sales are coming with less discounting, too. Applebee's instead is developing meals that it can sell at low prices while preserving profit.
"Our direct competitors are discounting existing products to get you in the door," she said. "Applebee's hasn't been doing that for almost two years."
The improved sales at Applebee's have come as DineEquity has taken steps to reduce the overhang from a highly leveraged model, including refinancing $1.8 billion of debt that pushed out maturities until 2018 from 2012, and announcing pending deals to sell 149 more company-run stores to franchisees. The latest deals would push the company past the halfway mark toward its plan to sell nearly all 500 company-owned Applebee's to franchisees.
"We have interested parties for the large majority of what's left," Stewart said. "It's just getting the right buyer, valuation, financing."
The actions boosted DineEquity shares, which have nearly doubled over the past 12 months, though they have retreated on concerns over valuation. Recently, share traded at $43.67, losing more than 13% since Oct. 18, when Morgan Keegan downgraded shares to market perform from outperform because of the recent run-up.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; firstname.lastname@example.org