Applebee’s Intl

Nameless Student 2013-6-5

Presented originally 4/26/05

Company Overview

Industry Restaurants Competitors: Outback Steakhouse, Brinker Intl, and Carlson

Restaurants Worldwide (privately held)

History Founded in Atlanta, Georgia by Bill and T.J. Palmer They opened first Applebee’s restaurant in November 1986 The company is headquartered in Overland Park, Kansas Completed an initial public offering of its common stock in 1989

Relevant Numbers

APPB Market Cap: 2.3B Current Price (4/25/05): $26.07 P/E (ttm): 19.60 EPS (ttm): 1.33 Revenue (ttm): 1.11B ROE (ttm): 21.6% Profit Margin (ttm): 9.97% Operating Margin (ttm): 18.9% Dividend Yield: 0.23%

Industry Market Cap: 126B P/E (ttm): 18.6 Revenue (ttm): 62.08B ROE (ttm): 16.2% Profit Margin (ttm): 7.4%Source: ValueLine

Company and Business Practices

Applebee's International, Inc. develop, franchise and operate casual dining restaurants under the name "Applebee's Neighborhood Grill & Bar"

According to Nation's Restaurant News, Applebee's is the ninth largest restaurant chain in U.S. system-wide sales and, within the casual dining segment, Applebee's is first in number of units, first in sales and first in market share

Concept: Each Applebee's restaurant is designed as an attractive, friendly, neighborhood establishment featuring moderately priced, high quality food and beverage items, table service and a comfortable atmosphere.

Revenues are generated from three primary sources:o Company restaurant sales (food and beverage sales) o Franchise royalties and fees o Other franchise income

Company and Business Practices

As of 12/26/04, it operated 424 stores, and franchised another 1,247 restaurants Franchise fees typically range from $30,000-$35,000 and franchise royalties is

4% of monthly gross sales Average unit is 5,000-5,400 square feet, seats 175-200 guests Restaurants are located in 49 states (except Hawaii) and twelve foreign countries Primarily located in free-standing buildings, end caps of strip shopping centers,

and shopping center malls The restaurants feature a selection of entrees, including beef, chicken, pork,

seafood and pasta items prepared in a variety of cuisine, as well as appetizers, salads, sandwiches, specialty drinks and desserts

All restaurants offer beer, wine, liquor and premium specialty drinks Carside To Go service (initiated in ’02)

Macroeconomic Review

The industry is currently faced with several threats such as elevated gasoline and commodity prices and changing consumer tastes

The food and beverage index sequentially increased 0.1% in January and was 2.8% higher than a year ago. Dairy products posted the highest increases of 2.2% and 6.3% for the month and on a year-over-year basis, respectively

America's obesity battle is another concern as lawyers and public interest groups continue to blame the industry for this problem

Applebee's introduced Weight Watcher's menu selections, which were developed through a multiyear agreement with the weight-loss services provider

Restaurants are also being pressured to display nutritional information on menus, this would increase operating expenses

5-yr Chart

APPB vs. Nasdaq

Stock Market Prospects

Total company restaurant sales increased $109,640,000 (13%) from $867,158,000 in 2003 to $976,798,000 in 2004

Comparable restaurant sales at company restaurants increased by 3.8% in 2004. Weighted average weekly sales at company restaurants increased 3.4% from

$45,000 in 2003 to $46,536 in 2004 Franchise royalties and fees increased $11,617,000 (11%) from $109,604,000 in

2003 to $121,221,000 in 2004 due primarily to the increased number of franchise restaurants operating during 2004

Weighted average weekly sales and franchise comparable restaurant sales each increased by 5.2% in 2004

The “Carside To Go” initiative, which is the delivery of orders directly to customers' cars

Stock Market Prospects

APPB plans to open over 125 new restaurants in the year ahead, including at least 40 company units and 85 franchise locations, annual unit growth is expected to be in the 7%-8% range

They have opened at least 100 restaurants in the past 12 years They have an ultimate goal of 3,000 restaurants in U.S. and 1,000 worldwide In 2004, APPB bought back close to four million shares at a total cost of $99.7

million The board of directors also approved additional stock repurchases of up to $150

million beginning 2005, should help to offset the effect of stock options