DineEquity Inc (DIN.N) said its costs nearly halved in the third quarter after it sold more of its Applebee's and IHOP restaurants to franchisees, following a model that has helped U.S. restaurant chains through an economic downturn.
DineEquity's shares rose as much as 12 percent on Tuesday after the company reported a better-than-expected adjusted quarterly profit.
Companies such as DineEquity and Burger King Worldwide Inc BKW.N, which on Monday reported a better-than-expected quarterly profit, are moving to a mostly franchise model that provides a steady and lower-risk stream of revenue.
Franchisees pay royalties based on overall sales, and also take on operating costs ranging from worker pay and food to rent and supplies, such as straws and paper wrappers.
A 43 percent decline in expenses helped DineEquity to post a third-quarter profit that topped Wall Street estimates, even as revenue fell 25 percent.
More than 94 percent of Glendale, California-based DineEquity's 3,600 restaurants were owned by franchisees at the end of the third quarter to September 30, up from 91 percent a year earlier.
DineEquity forecast full-year adjusted profit of $4.14 to $4.24 per share, above analysts' average estimate of $4.00 per share, saying it expected higher comparable-store sales in the current quarter than it had previously forecast.
The company's U.S. same-restaurant sales rose 3.6 percent at IHOP outlets, but fell 0.4 percent at Applebee's restaurants in the third quarter.
Analysts polled by Consensus Metrix had expected a rise of 1 percent at IHOP outlets and an increase of 0.4 percent at Applebee's restaurants.
Excluding items, DineEquity earned $1.10 per share, beating the average analyst estimate of 92 cents, according to Thomson Reuters I/B/E/S.
Net income fell to $18.7 million, or 97 cents per share, from $60.6 million, or $3.14 per share, a year earlier.
DineEquity's shares, which had risen about 25 percent in the year to Monday's close, were up 12 percent at $80.02 in late morning trade on the New York Stock Exchange.
(Reporting by Aditi Shrivastava in Bangalore; Editing by Kirti Pandey)