IHOP Profit Up 18% on Ads, New Restaurants

Strong sales spurred by a nationwide advertising campaign and restaurant openings helped boost IHOP Corp.’s second-quarter profit by 18%, the company said Thursday.

The Glendale-based parent of the International House of Pancakes chain posted net income of $11 million, or 51 cents a share, in the quarter ended June 30, compared with $9.3 million or 44 cents a year ago.

The results include a one-time charge of $811,000 or 2 cents a share, for layoffs that are part of a transition to a new business model announced this year.

Even with the charge, earnings were 4 cents ahead of the consensus estimate of analysts surveyed by Thomson First Call.

IHOP booked $18 million in revenue in the quarter as a fee from franchisees for developing new restaurants.

Under a new business model, franchisees will handle new-restaurant development costs themselves.

Revenue in the latest quarter was $103 million, up 21% from the $84 million posted a year ago.

The upbeat earnings report, released before the market opened, pushed the company’s shares up 70 cents to $32.40 on the New York Stock Exchange. The stock has gained 35% this year.

Sales at all IHOP restaurants were $426 million in the quarter, up 16% from a year ago, and benefited from the company’s first national advertising campaign and new menu items such as “stuffed French toast,” said Julia A. Stewart, president and chief executive.

Last month IHOP announced a second-quarter gain of 5% in sales at restaurants open at least a year -- the strongest quarterly jump in 10 years.

To further boost sales, Stewart said the company has identified about 200 of its 1,136 restaurants that could benefit from staying open around the clock.

Switching to a 24-hour operation can boost sales by as much as 15%, she said.

About 440 restaurants already are open 24 hours at least on the weekend.

In some markets, a 24-hour store would help IHOP compete with other all-day players, most notably Denny’s Corp.

“In a lot of markets, Denny’s has been the only game in town,” said Michael W. Gallo, a research analyst with C.L. King & Associates. “In markets where it makes sense, I wouldn’t be surprised if IHOP picked up some market share.”

Conversion of the IHOP restaurants would take place over the next 12 months, Stewart said.

“The big advantage for franchisees is that going 24 hours leverages a bunch of fixed costs,” said Tom Conforti, IHOP’s chief financial officer.

But Dennis Joe, an analyst with Sidoti & Co., cautioned that if there aren’t enough diners in the wee hours, the extended hours could pinch the franchisee’s bottom line.