The parent company of Applebee’s and IHOP plans to close up to 160 restaurants, vastly boosting the number of eateries from the two comfort-food chains that it plans to shutter.
Some 105 to 135 Applebee’s restaurants will close, up from the 40 to 60 that parent DineEquity said would close in the first quarter. Also on the chopping block are an estimated 20 to 25 IHOP sites, up from about 18.
At the same time, the two chains now will open 125 restaurants globally between them in new locations, DineEquity said.
The casual-dining segment, where both chains are positioned, is experiencing increased troubles as more customers have gravitated to the quick-service restaurants like Panera Bread or Chipotle Mexican Grill, many of which market themselves as offering healthier and more upscale food.
Analysts say Applebee’s, in particular, has had a hard time.
Applebee’s “remains out-of-favor with casual-dining consumers….Sister concept IHOP may be feeling the effects of DineEquity’s struggles as well,” said Instinet analyst Mark Kalinowski in a report released Friday.
But DineEquity officials say the painful job of closing restaurants will help in the long run.
“We are investing in the empowerment of our brands by improving overall franchisee financial health, closing underperforming restaurants and enhancing the supply chain,” interim CEO Richard Dahl said in a statement.
He said Applebee’s is in the middle if a “transitional year” and is “making the necessary investments for overall long-term brand health.”
The company declined to release a list of locations that will be shuttered.
DineEquity reported net income of $20.9 million, or $1.18 a share, in the second quarter, a drop from $26.4 million, or $1.45 a share, compared to the same quarter last year.
Applebee’s domestic system-wide comparable same-restaurant sales declined 6.2% in the second quarter of 2017, while IHOP’s declined 2.6% during the same period, according to the company.
“IHOP remains on solid ground, despite soft sales this quarter. I am optimistic about the growth in both effective franchise restaurants and systemwide sales,” Dahl said.
DineEquity reiterated its plan to open 20 to 30 Applebee’s, mostly abroad, and revised its plan to open 80 to 95 IHOP restaurants, mostly in the U.S. That’s up from the 75 to 90 restaurants globally that it announced previously.
“Restaurant closures are a normal course of business in the industry and when you have a footprint as large as ours,” Amy Mason, senior vice president for global communications and consumer insights, said. “They are either older locations in a lapsed trade area, where once vibrant retail, residential and traffic characteristics are no longer present; others are closed when they are underperforming with unsustainable economics. Closing these well-below average restaurants can have a positive brand benefit since guests are no longer experiencing a substandard experience.”
On Thursday, the company also named Stephen Joyce, former CEO of Choice Hotels, as its new CEO. He replaces Julia Stewart, who resigned in February; she was at the helm when Applebee’s as acquired in 2007.
DineEquity CFO Thomas Emrey resigned in March and no permanent replacement has been named.
The Glendale, Calif.-based company has 3,700-plus restaurants in 19 countries.
DineEquity stock was trading at $38.7, up $1.42 or 3.81%, in mid-afternoon trading.