Tall Order on Her Plate

Julia A. Stewart, a restaurant industry veteran who likes to tinker with menus and use zippy ad campaigns to boost business, is the heir-apparent to head IHOP Corp., which runs the International House of Pancakes chain.

Analysts say that may be just what the Glendale company needs. Although IHOP is on solid financial footing, analysts say its menu could use some beefing up as it attempts to lure more customers for lunch and dinner, its best hope for boosting sales.

Its stock has been hovering around its all-time high and the company’s earnings and sales have grown steadily for years, but there are concerns that IHOP’s growth could flatten unless it can move beyond its image as a spot for the orange-juice-and-pancake crowd, said Dennis Joe, an analyst with Sidoti & Co. in New York.

Last week, IHOP named Stewart, 46, president and chief operating officer and said she is in line to move up to chief executive next summer. Stewart would succeed Richard K. Herzer, 70, who helped transform the once-struggling blue-roofed chain into an industry leader over two decades. Herzer suffered a heart attack in 1999.

In an interview, Stewart, one of the highest-ranking women in the restaurant business, steered away from details about the company’s performance and how she might change it. She said she wants to meet with executives, franchise owners and customers in the coming months before devising a game plan for IHOP.

Based on her track record with other chains, such as Applebee’s International Inc. and Taco Bell Corp., however, Stewart figures to pay close attention to IHOP’s menu and marketing strategy.

During her three years as president of the domestic division of Overland Park, Kan.-based Applebee’s, Stewart overhauled the menu, adding such items as steak salad and garlic-crust shrimp Caesar salad. She also introduced pricier steaks, helping boost the average check about 10% to the $9.50-to-$10 range, said Allan Hickok, an analyst at U.S. Bancorp Piper Jaffray.

Stewart revved up Applebee’s marketing efforts, reinforcing the 1,300-restaurant chain’s reputation for affordable neighborhood dining, Hickok said. The “Eatin’ Good in the Neighborhood” ads, launched last January, showed a cross-section of folks at their jobs, then unwinding at Applebee’s.

She also won high marks for a personal touch that boosted employee morale. John Koch, a former Applebee’s vice president, recalled how she slipped him a bottle of his favorite vodka after he finished an important presentation to executives.

In 1999, a year after Stewart joined Applebee’s, sales at restaurants open a year--a key industry measure--moved up 3.2%. After slowing a bit in 2000, same-store sales have moved up 2.9% so far this year.

Stewart said she departed in August after it became clear she would not be considered for the chief executive’s position in the near future.

At Taco Bell, where she held several management positions over seven years, she also expanded the fare, helping put quesadillas on the menu for the first time, for example.

“IHOP can basically operate breakfast by itself, but [Stewart’s] successes at Applebee’s and Taco Bell with lunch and dinner and marketing make her a good fit,” said Hal Sieling, a Carlsbad restaurant consultant.

IHOP’s earnings and sales have grown steadily, averaging double-digit percentage gains over the last five years, but the 1,001-restaurant chain’s same-store sales have been sluggish.

In the third quarter, earnings rose 10% to $11.1 million from the year-earlier period, on sales of $81.1 million. Same-store sales were off 0.4%, compared with a 1.6% gain a year earlier.

An advertising campaign and revamped menu have failed to generate desired increases in lunch and dinner traffic. Breakfast business still accounts for more than half of the chain’s sales.

In addition, the company has been pressured by a major shareholder, Southeastern Asset Management Inc., to free up more funds for dividends or stock repurchases by selling or refinancing $287 million of loans to franchisees. Southeastern holds about 19% of IHOP’s stock.

In August, Dennis Leifheit, the executive that many thought had the inside track to become CEO, resigned as IHOP’s chief operating officer.

For Stewart, the IHOP job represents a homecoming of sorts. At 16, she landed her first job serving up hotcakes at an IHOP restaurant in San Diego.

After graduating from San Diego State University in 1977, Stewart was pursuing a career in advertising.

But on a flight to San Francisco, she struck up a conversation with a man who was annoying her, trying to read her newspaper over her shoulder. The stranger turned out to be hamburger chain mogul Carl Karcher.

He told her to give him a call. She did, and joined Carl’s Jr., where she worked her way up to regional marketing manager for Northern California.

Stints followed at other chains, including Burger King Corp. and Stuart Anderson’s Black Angus Restaurants, before she joined Taco Bell in 1991.

Former Taco Bell CEO John Martin, who hired Stewart, remains a fan. “I bought IHOP stock as soon as I found out Julia was president because I think I’m going to make some money with her,” he said.

Last week, the stock closed in on its 52-week high of $29.15 set July 31. The shares closed Friday at $28.79, off 1 cent, on the New York Stock Exchange.

Herzer, IHOP’s chief executive, said he expects Stewart to come up with a solid slate of recommendations for the chain before he turns over the reins.

“If she falls flat on her face, I don’t think I’d give it to her,” he said with a laugh. “But I don’t think she’s going to fall flat on her face.”

He noted that he had interviewed 90 people before offering Stewart the job

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Julia A. Stewart

Age: 46

New position: President, chief operating officer, IHOP Corp.

Previous positions: President, domestic division, Applebee’s International Inc.; national vice president, franchise and license, Taco Bell Corp.

Background: During her seven-year tenure at Taco Bell, Stewart held a number of other senior management positions, focusing on operations and general management. During her first 15 years in the restaurant industry, Stewart acquired expertise in brand development and marketing working with several restaurant companies.

Education: Bachelor of science in communications, with a minor in marketing, from San Diego State University

Personal: Married to Jon Greenawalt, 46. Two children: son, Alec, 5, and daughter, Aubrey, 21/2

Hobbies: Cooking, skiing

Residence: She and her family are buying a home in Pasadena.

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Sources: IHOP, Julia A. Stewart