DineEquity Inc. (DIN) shares dropped Tuesday after the restaurant operator's second-quarter sales failed to respond to aggressive discounting, while a filing to potentially sell up to $200 million in securities stoked fears of diluting shares.

Despite posting per-share earnings well ahead of analyst estimates, DineEquity shares fell $3.44, or 11%, in recent trading to $27.65. The stock has run up more than 140% in 2009 as the company recovered from earlier liquidity concerns and investors' expectations rose.

While cost-containment is helping restaurant chains like DineEquity top earnings estimates, investors are getting hungry for sales growth, which is slow to come as unemployment remains high. Chains are responding with promotions to increase traffic, though analysts are skeptical it's been paying off. DineEquity saw traffic decline at both its IHOP and Applebee's restaurants, where same-store sales fell 0.6% and 4.3%, respectively.

About 20% of Applebee's customers are coming in for their "2 for $20" deal offering two entrees and an appetizer for $20, a level that DineEquity Chief Executive Julia Stewart noted was fairly high. Brinker International Inc.'s (EAT) Chili's Grill & Bar, a chief competitor of Applebee's, recently raised the stakes in the bar-and-grill battle, offering an appetizer, two entrees and a dessert for $20 in its latest promo.

Such aggressive discounting may not be sustainable, as customers become accustomed to shopping around for the best deal. In a call with investors, Stewart acknowledged the long-term impact that such promotions can have on business, and said the company will test new ways to offer values.

"While discounting and buy-one-get-one-free may drive traffic in the near term, we believe such moves are ultimately dilutive to margins and detrimental to the business over the long term," said Stewart.

Separately, DineEquity also filed a shelf registration that would allow the company to sell up to $200 million of common and preferred stock, debt and other securities, joining a wave of companies capitalizing on investor appetite for new issues. Proceeds will be used for general corporate purposes.

For a company with a market capitalization of less than $500 million, the size of the potential offering shook some investors. "If they do sell stock here, it could be pretty dilutive," Raymond James & Co. analyst Bryan Elliott said. He noted, however, that given the uncertain environment for companies sensitive to consumer spending, DineEquity was prudent in proposing such an option.

Earlier, DineEquity reported second-quarter profits excluding items rising to 74 cents from 2 cents a share. Revenue fell 18% to $349.7 million.

Analysts surveyed by Thomson Reuters predicted earnings of 36 cents a share on revenue of $355 million.

DineEquity added that, due to the credit crunch, it likely won't be able to sell any company-owned Applebee's restaurants in 2009. The company had earlier planned to sell 200 stores this year, which is key in retiring debt taken on during IHOP's $2.1 billion acquisition of Applebee's in 2007, though analysts were skeptical of that goal.

The remaining Applebee's stores owned by the company have improved margins through cost cuts, which has pushed the asking price higher, though few buyers are willing to bite.

Even without any sales, DineEquity says it will generate enough free cash to remain in compliance with debt covenants for at least the next 12 months.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com