UPDATE 3-DineEquity shares rise on surprise Q4 profit
* Q4 adj EPS $0.34 vs Wall Street loss view $0.06
* Rev up 66 pct to $355.5 mln, helped by Applebee's deal
* Plans to sell 200 Applebee's to franchisees in 2009
* Some excess cash to go to opportunistic debt retirement
* Shares up 16 percent, amplified by short covering (Adds analyst comment, byline; updates share movement)
LOS ANGELES, Feb 25 (Reuters) - DineEquity Inc (DIN.N), the parent of the IHOP and Applebee's restaurant chains, contained costs and posted a surprise profit on Wednesday that sent its shares sharply higher.
IHOP bought Applebee's in a roughly $2 billion leveraged buyout in 2007, before global credit markets froze and consumer spending cooled.
Its debt load has investors nervous since it limits the company's financial flexibility in a very challenging operating market. It also can cause big swings in the company's results.
The company said it complied with its debt covenants in 2008 and will continue to do so in 2009. DineEquity, which paid down about $500 million in debt in 2008, will "dedicate a portion of excess cash towards opportunistic debt retirement" in 2009, Chief Executive Julia Stewart said.
Stewart also said DineEquity believes it will meet its goal to sell 200 company-owned Applebee's restaurants to franchisees and is working with "several interested parties to overcome obstacles posed by the credit markets and weakness in the broader economy."
While it has made progress paying down debt and finding buyers for Applebee's restaurants, DineEquity has significant challenges ahead, said Telsey Advisory Group analyst Tom Forte.
"On one hand they deserve a lot of credit, on the other, they still have an uphill climb," he said.
SHORT SELLERS BET ON STUMBLE
Short-sellers, who hold nearly a quarter of the company's freely trading shares, had bet that DineEquity would stumble and that its stock would fall. The company's better-than-expected results on Wednesday forced those investors to purchase stock to cover their bets -- amplifying the share rise.
"The shorts were betting that the company was going to have serious financial and covenant issues. Those concerns are fading quickly," said Raymond James analyst Bryan Elliott, who has a "buy" rating on the shares.
DineEquity, based in Glendale, California, said its fourth-quarter net loss rose to $136.9 million, or $8.15 per share, from a loss of $16 million, or 94 cents per share, a year earlier.
Excluding charges related to write-downs of Applebee's goodwill and assets, the company's profit was 34 cents a share, compared with the 6 cent loss that analysts polled by Reuters Estimates had expected.
Total revenue rose 66 percent to $355.5 million due to the addition of sales from Applebee's, which is now offering two dinners for $20.
Same-store sales at IHOP restaurants fell 1 percent, while Applebee's systemwide domestic same-store sales fell 4.6 percent. IHOP is primarily known for its pancakes and other breakfast dishes.
Raymond James' Elliott said the company did a better job of controlling costs than he expected. It also beat his same-store sales estimates, which called for a drop of 6 percent at Applebee's and a 2 percent fall at IHOP.
J.P. Morgan analyst Steven Rees said in a client note that the company missed his same-store sales targets that called for a 3 percent decline at Applebee's and flat results at IHOP.
Still, Rees noted that Applebee's restaurant margins improved in the fourth quarter, helped by labor scheduling changes and food cost management.
DineEquity said it expects 2009 same-store sales at IHOP restaurants to range between 1 percent lower and 1 percent higher, and those at Applebee's to be down between 2 percent and 5 percent. [ID:nWNAB6626]
Fiscal 2009 "sales and margin guidance at Applebee's looks aggressive given current sales trends," Rees said.
DineEquity shares climbed 43 percent to $8.44 in early Tuesday trading, but later pared those gains to be up 16 percent to $6.86 in late afternoon trading. The shares hit a 52-week high of $53.32 on May 20 last year. (Reporting by Lisa Baertlein and Shivani Singh in Bangalore; Editing by Dave Zimmerman and Tim Dobbyn)
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