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OVERLAND PARK, KS—Closed mouths are never good for a dining establishment, so perhaps it was ominously fitting when one of America’s largest restaurant chains served up a big helping of the silent treatment alongside news that two dozen US operations were being shuttered. A press release by Applebee’s International bore scant details regarding the cuts, and a spokeswoman declined further elucidation when contacted by GSR.

“We’ve disclosed all that we needed to,” Laurie Ellison relayed when asked for a list of the targeted restaurants. The release did indicate that 10 of the 24 restaurants are in two New England states, but Ellison would go no further in pinpointing the locations. “We are in the process” of notifying affected workers, Ellison told GSR late Wednesday, rebuffing requests to speak with company officials about the meaning of the actions.

“They’ve been pretty tightlipped,” acknowledges Rob Furlong. The Baltimore-based analyst at Garp Research Corp. backdates Applebee’s information blackout to a review launched in February by its Strategy Committee aimed at confronting operational maladies.

Officials had been among the more forthcoming public concerns, explains Furlong, but the review exercise by its directors ushered in a wave of secrecy.

Given the melodrama surrounding that approach, Furlong says he anticipated the plan would be more far-reaching. Closing two dozen restaurants is merely “a drop in the bucket” given the firm’s myriad of issues, he says, and if management sees that as the solution, “they should be thinking about closing another 25 or so.”

The action seems more miniscule when weighed against Applebee’s unit count, which at 1,940 restaurants puts the chain far beyond major competitors such as Outback Steakhouse, Olive Garden and Red Lobster. The 24 Applebee’s being closed are among 528 company owned restaurants.

In the press release, CEO Dave Goebel insists the downsizings “will have a positive impact on our future earnings, cash flow and return on invested capital,” and claims that “our New England market will be stronger and better positioned” for future gains. “The decision to close underperforming restaurants reflects the company’s and our board’s commitment to disciplined capital allocation and to ensuring we are maximizing both our physical assets and invaluable people resources,” Goebel continues.

Founded in Atlanta and expanding nationally upon its acquisition by W.R. Grace Co. in 1983, Applebee’s averages one or two restaurant closings annually, the release says. Nineteen of the affected operations in this cycle of closings will be gone by the end of the first quarter, while the release says the closing date for the five remaining will depend on negotiations with landlords and other property related factors.

Pre-tax charges for the first-quarter 2007 will include $13.5 million to $15.5 million in non-cash impairment charges for all 24 restaurants and up to $10 million in lease contract termination funds for the 19 units immediately closing. Lease termination costs for the other five could be up to $2.5 million. Other cost-motivated efforts by Applebee’s include selling the company headquarters in Overland Park, and plans for a sale/leaseback arrangement upon moving into a new home in Lenexa, KS at the end of 2007.

Although no insight is being provided by the company, Furlong says he anticipates Applebee’s will curtail what had been an aggressive expansion program, with upwards of 75 new restaurants added annually since 2004 after starting the decade averaging about 25 per year. The figure could trickle to 12 in 2007, he estimates.

The previous run-up came amidst optimism that Applebee’s could open 3,000 units without becoming oversaturated, but Furlong says the company will likely ease that mindset in light of the struggles. Restoring tired properties, “tweaking” the menu and embracing alternative designs could be other ways to address the recent woes, adds Furlong, who blames alternative dining concepts for contributing to the chain’s difficulties.

“Applebee’s got really squeezed by being in the middle” tier of the casual dining sector, says Furlong, explaining that the rise of alternatives such as Panera Bread and Chipolte took away price-conscious customers, while the improving economy hurt on the other end when those with rising incomes were able to frequent more expensive dining locales. In spite of its difficulties, Furlong says Applebee’s remains fundamentally solid, with “not a lot of debt” and the platform to rebound if the right steps are taken.

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