IHOP, Applebee's Serve Up Bigger Portions for Investors

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October has proven to be a month of redemption for the casual-dining industry. We've seen Ruby Tuesday (RT) and Chili's Grill & Bar parent Brinker International (EAT) come through with strong quarterly results earlier this month, and on Tuesday we had DineEquity (DIN) serving up encouraging fresh financials.

DineEquity -- the parent company of Applebee's and IHOP -- saw its shares open nicely higher on Tuesday morning after beating Wall Street expectations, boosting its outlook and raising its dividend.

Revenue inched higher as both concepts gained in popularity, surprising analysts that were holding out for a slight dip on the top line. DineEquity came through with domestic same-restaurant sales increasing 2.4 percent at IHOP and 1.7 percent at Applebee's. Adjusted earnings clocked in at $1.14 a share, better than the $1.10 a share it posted a year earlier and the $1.09 a share that analysts were targeting.

DineEquity, with its largely franchised empire of 3,600 restaurants, is a great measuring spoon to get a taste of how casual dining is holding up, and it's looking surprisingly tasty. IHOP has been a consistent performer over the years, but Applebee's could be the turnaround star. After posting a slight dip in comparable-restaurant sales last year, Applebee's has now come through with back-to-back quarters of year-over-year gains.

DineEquity is boosting its quarterly dividend by 17 percent to 87.5 cents a share. The move pushes its yield north of 4 percent.

Eat Up

Casual dining was under fire during the recession and the early stages of the economic recovery. Folks just weren't eating out when money was tight, and when the economy started to improve, they sidestepped traditional table-service establishments for fast-casual burrito rollers and gourmet burger flippers serving quality food with the convenience of fast food.

However, we're starting to see more than a few signs of life from traditional players. Brinker International -- the company behind Chili's and Maggiano's Little Italy -- also came through with better than expected sales in last week's quarterly report. Comparable-restaurant sales at company-owned Chili's locations rose 2.6 percent for the period.

Two weeks earlier it was Ruby Tuesday busting through with positive comparable-restaurant sales in its latest quarter. The 1.1 percent increase was modest. It didn't even keep up with inflation, and the average Ruby Tuesday location is selling a lot less than it did two years ago. However, it's the first whiff of a turnaround we're seeing at one of the biggest laggards in casual dining. Overall revenue declined, but that was because the 749-unit chain has closed more than three dozen underperforming locations over the past year.

Small Tech Comes Up Big, Again

It's probably not a coincidence that Chili's and Applebee's have been on the forefront of tabletop tablets. The two chains announced last year that they would start rolling out tablets in 2014 that make it easier for guests to place drink refill orders, browse digital menus and pay their tabs.

The technology was supposed to get customers to spend more and shorten table turnover times. The early results have been impressive, judging by the growing restaurant-level performance at both chains.

Chili's talked up the Ziosk tablets during last week's call. It's been rolling them out over the past few quarters, but all domestic locations will have them in place by next month. The next big test for Chili's will be aligning the tablets with its new loyalty program, getting to know its guests better.

Motley Fool analyst Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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