IHOP Corp. Reports First Quarter 2005 Results; Company Committed to Driving Higher Same-Store Sales Growth for the Balance of 2005

Business Wire, April 28, 2005

GLENDALE, Calif. -- IHOP Corp. (NYSE:IHP) today announced results for its first quarter ended March 31, 2005. The Company reported that its net income decreased from $10.9 million in the first quarter 2004 to $10.1 million in the first quarter 2005, or 7.7%. As a result of share repurchases, the Company's diluted net income per share remained $0.50, the same as in the first quarter 2004.

Julia A. Stewart, IHOP's President and Chief Executive Officer, said, "This decrease in net income resulted from modest same-store sales growth of 0.6%, which was not enough to offset expected increases in General & Administrative spending during the first quarter 2005. Our commitment is to keep G&A growth at a modest level this year to improve IHOP's financial leverage as revenue is expected to grow faster than G&A. In this regard, we expect G&A to moderate over the balance of the year, while we experience the benefit of stronger anticipated sales for the remainder of 2005. With several positive sales catalysts set to work in our favor, we remain confident of reaching our goal of producing 2% to 4% same-store sales growth in 2005."

System-wide sales increased 4.9% in the first quarter 2005 versus the same quarter in 2004. This sales increase is primarily the result of growth in the number of total effective franchise restaurants during these periods. Total effective franchise restaurants grew by 5.6% in the first quarter 2005 versus the first quarter last year.

Cash Flows from Operating Activities decreased in the first quarter 2005 to $14.9 million compared to $20.3 million in the same quarter in 2004. Capital expenditures were reduced from $4.3 million in the first quarter 2004 to $1.2 million in the first quarter this year, reflecting investment in the development of IHOP's Company market in Cincinnati, Ohio, as well as continued support of Information Technology initiatives.

Performance Highlights

The following are key business highlights for the first quarter 2005 resulting from IHOP's three primary strategic objectives: Energize the Brand, Improve Operations Performance and Maximize Franchise Development.

--Energize the Brand: Supported by IHOP's Fruit Pocket Pancakes and Stuffed Crepes national product promotions, system-wide same-store sales increased by 0.6% in the first quarter 2005. Same-store sales comparisons were impacted by reduced traffic levels. Among other reasons, traffic performance reflected the timing of IHOP's historically strong New Year's holiday, which was included in the fourth quarter 2004 results due to the effect of a 53rd operating week in fiscal 2004. While the benefit of the Easter holiday was included in the Company's first quarter 2005 same-stores sales results, it was not enough to offset the negative impact of the absence of the New Year's holiday in its sales comparison for the quarter. Looking ahead, IHOP will employ several strategic initiatives to support improved same-store sales growth and promote a healthier balance between guest check increases and increased traffic levels. These initiatives include the addition of a fourth flight of national advertising, the system-wide roll out of an enhanced menu in May 2005, the remodeling of 225 to 250 IHOP restaurants in 2005,and the system-wide introduction of a gift card program in September 2005, as well as a promising line up of promotional offerings slated for the balance of 2005.

--Improve Operations Performance: The Company evaluates each franchise operator on an "A" through "F" scale based on a range of objective criteria, including Mystery Shop reports, operational assessments, participation in training programs, and the maintenance of required management infrastructure. At the end of the first quarter 2005, 76% of IHOP's franchisees were rated an "A" or a "B" based on this rating system. This reflects an improvement from 60% of IHOP's franchisees rated as "A" or "B" operators in the first quarter 2004. Additionally, the number of "C" operators was reduced by nearly 50% as compared to the first quarter 2004. Operations improvement at the individual restaurant level continues to be a key focus for IHOP's Operations group in 2005.

--Maximize Franchise Development: During the first quarter 2005, IHOP franchisees and its area licensee opened 12 new IHOP restaurants, compared to only five restaurants in the same quarter last year. IHOP also continued to build its pipeline of franchise development commitments with additional Multi-Store and Single-Store Development Agreements secured in the first quarter 2005 for its franchisees to build 63 new IHOP restaurants over the next ten years. As of the end of the first quarter 2005, the Company's franchise pipeline included signed or optioned commitments to develop a total of 317 new IHOP restaurants over the next 11 years. Currently, IHOP is finalizing legal agreements for additional franchise development, which could add up to 51 more IHOP restaurants to its development pipeline.

2005 Guidance Reiterated