What’s wrong with Applebee’s?

applebees exterior night

In an extraordinary conference call with Wall Street analysts, DineEquity outgoing CEO Julia Stewart voiced confidence the company’s “well-researched and detailed” turnaround plan for its Applebee’s brand is on target and certain to yield results. A few minutes later, her successors showed how little they agreed.

The casual giant’s recent weak performance “involves every aspect of our business, from value perception [to] marketing, food differentiation, and operations execution,” said Richard Dahl, who has assumed Stewart’s duties as both DineEquity CEO and Applebee’s president on an interim basis.  “Clearly, what we implemented in 2015 and 2016 did not resonate with our guests and, combined with industry softness, resulted in further sales declines.”

He was particularly pointed about what was arguably Stewart’s major initiative for Applebee’s, the chainwide rollout of grills for cooking higher-quality steaks and vegetables.  “The hand-cut wood-fired grill platform did not have the desired effect and was off target with value-focused trends in the industry,” said Dahl.

He also noted the growing incidence of consumers staying home and shopping online during the year-end holiday season, “which certainly had a negative impact on traffic to our restaurants and third-party retail sales of our gift cards.”

The damage has left “several” Applebee’s franchisees in a stressful situation, he added, noting that the franchisor is ready to come to their assistance. But he acknowledged that some restaurants would need to close—in the neighborhood of 40 to 60.

And the strain on the operators will likely continue “at least through the first half of 2017,” said corporate controller Gregg Kalvin, who provided the CFO’s portion of the call after Tom Emrey’s resignation from the post was announced that morning.

Dahl forecast a 4% to 8% decline in Applebee’s same-store sales for 2017.

So, he said, “we’ve gone back to the drawing board.” He noted that the company has retained a “world-class management consulting firm” to get a more precise read on the situation, without revealing the concern’s name. DineEquity has earmarked $10 million to pay for that advice and help suffering franchisees.

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