Applebee's steams ahead as 'fast-food concept of the '90s.'

Nation's Restaurant News, August 28, 1995 by Richard L. Papiernik

At a time when several casual-restaurant chain operators are pulling back on unit development expansion, Applebee's International Inc., based in Overland Park, Kan., is on a growth track that exceeds earlier projections by some of its most enthusiastic industry analysts.

Applebee's International Inc. expects to have at least 57 new company-owned Applebee's Grill & Bar restaurants opened over this year and next.

That expectation puts unit growth just for company-owned restaurants at an average increase of more than one new restaurant every two weeks for two years. With an average unit sales generation of $2.1 million a year, meeting those projections alone will provide about $120 million in additional annual sales.

But that's only one facet of the plans being generated by this growth-minded management team headed by Abe J. Gustin Jr., the chairman and chief executive and a former franchisee who led the move to acquire Applebee's from former owner W.R. Grace Co. in March 1988.

Projected openings by Applebee's franchisees for 1995 and 1996 have gone up by 25, to at least 230, from earlier projections of 205. That means 120 new units this year vs. a previous 105 and 110 in 1996 vs. a previous 100.

So, for a better perspective on the mushrooming of the Applebee's concept across the United States, projections for 287 combined franchisee and company-owned units during this two-year period, would bring us to nearly three -- actually 2.75 -- new Applebee's popping up every week. Its present 600 restaurants are expected to climb to almost triple that number by the end of this decade.

With such rapid expansion placing Applebee's conveniently near almost every big- or medium-sized neighborhood in 44 states and with average guest checks priced at a low $8.50, it's no wonder that Piper Jaffray analyst Allan F. Hickok characterizes Applebee's as "the fast-food concept of the '90s."

"Unit expansion is continuing at a record pace, and our new restaurant development pipeline is at an all-time high," according to Lloyd L. Hill, Applebee's president and chief operating officer. It was Hill who provided the projections for new openings when the company released its second-quarter earnings report earlier this month.

Along with Hill's projections, there was another indication that came from Gustin on how this rollout specialist plans to heat up its already rapid pace of expansion even more with its March acquisition of Innovative Restaurant Concepts Inc., the operator of the Rio Bravo Cantina chain of Mexican restaurants.

"The strong response to our recent public offering has provided capital to fuel both the continued expansion of our Applebee's concept and our development of the Rio Bravo Cantina concept as a second franchising vehicle," he said.

With 15 company-owned Rio Bravo units in operation this year and three more in development, Applebee's already has significant sales growth in the pipeline for its newest line of restaurants. With 18 units, each generating an average of $3 million in sales, the corporation will be able to start its next year with $54 million in Rio Bravo sales in its pipeline. An additional five company-owned Rio Bravos are projected to open in 1996, and during the last half of the year, Applebee's expects to roll out the concept to franchisees.

"Several of Applebee's existing franchisees are close to building out their existing territories and have been interested in developing another concept," said Montgomery Securities analyst Michael Mueller. "We believe Rio Bravo Cantina complements the Applebee's concept well."

The market potential, Mueller said, should allow expansion of Rio Bravo to "at least 300 to 400 restaurants."

Without the Rio Bravo acquisition, the Applebee's Grill & Bar restaurants were expected to generate nearly $300 million in corporate revenues by the end of 1996. With the addition of the Rio Bravo chain, Applebee's now is expected to sail well past that mark this year, just on the sales generated by its company-owned restaurants. With the addition of some $43 million in franchise income, total revenues for this year are expected to reach about $344 million. Analysts project the total revenue figure to climb to $428 million in 1996.

Earlier this month Applebee's reported second-quarter income of $6.81 million, a gain of 60 percent from proforma earnings of $4.26 million in the comparable quarter in 1994. Revenues rose 35 percent, to $83.8 million from $62.22 million.

On a pro-forma basis, net income for the 26 weeks ended June 25 rose 44 percent, to $11.06 million, vs. $7.66 million in the year-ago period. Revenue was up 34 percent, to $159.24 million from $118.72 million.

Applebee's earnings report used pro-forma figures to depict combined earnings of Applebee's and the merged Rio Bravo operations during comparable periods.

Systemwide sales in the second quarter, ended June 25, compared with sales for the year-ago quarter, rose 42 percent, to $300.2 million. For the first half of the year, systemwide sales were up 43 percent, to $578.6 million.