News | May 7, 1999

With Applebee's Sell-off Complete, Avado Refocuses on Core

Madison, GA, family/casual dining restaurant company Avado Brands (formerly Apple South) has completed the divestiture of its Applebee's division. Shedding its last remaining 23 of 264 Applebee's restaurant franchises in the Washington, D.C. market marks the 16th transaction in a 16-month sell-off that netted about $400 million.

The top reason Avado sold the chain was a strategic view of "growth potential and concept evolution," said Tom DuPree, Jr., chairman and CEO. "With our defined, franchised territory nearly three-quarters developed and no prospects for additional territory, we believed that we had essentially maximized the value of our Applebee's business.

"Had we delayed the decision to divest until the markets were fully developed," he added, "the difficulty of selling markets with little or no growth potential would have been substantially higher."

In short, there was more money to be made selling the restaurants than keeping them.

CFO Erich Booth recapped the initial intention for the divestitures to take 12 to 18 months and produce net proceeds of $400 million.

The divestiture proceeds were used to develop 59 new core brand restaurants in 1998 and 16 more so far in 1999 as well as repaying debt and repurchasing shares of its common stock. "We redeployed our financial and human capital into these core businesses, which was an essential element of our divestiture strategy," he said.

Avado owns four decentralized brands: 18 Canyon Cafe restaurants, 133 Don Pablo's Mexican Kitchens, 52 Hops Restaurant Bar and 22 McCormick & Schmick's seafood dinner houses. The company has additional holdings here and abroad.

Earlier this week, the company annoucned that its core-brand revenues were up 26% and operating income margins expanded 40 basis points for the quarter ended April 4, 1999.

Net sales for the quarter ended April 4, 1999 were only $164.1 million compared to $241.7 million for the first quarter 1998 due to the Applebee's divestitures. Net sales for Avado Brands' four core brands were $146.6 million compared to net sales for the first quarter of 1998 of $115.9 million, an increase of 26%.