DineEquity (DIN) reported fourth quarter figures this week as well as a new capital allocation strategy. Essentially management plans to put all of the company's future Free Cash Flow into the hands of shareholders. DineEquity, franchisor of over 1,800 Applebee's restaurants and over 1,500 IHOP restaurants, is one of the largest full service franchise restaurant operators in the world. Since the acquisition of Applebee's in 2007, the company has been selling off owned Applebee's restaurants, converting to a pure franchisor of their restaurants (99% as of end of December).
As I will explain, the franchisor model is far more attractive than owning/operating restaurants. Margins are higher, operating leverage non-existent, fees quite stable, and capital expenditure needs are...
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