Q4 2020 Dine Brands Global Inc Earnings Call
[music].
Hello, and welcome to the fourth quarter, just toss in Chinese Dine brands Global earnings Conference call. My name is growth in all of your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the.
Conference. Please press Star then zero on you touched on the telephone. Please note that this conference call is being recorded I will now turn the call over to Ken give chief Executive director of Investor Relations. Sir you may begin.
Good morning, and welcome to Dine brands fourth quarter and fiscal 2020 conference call I'm joined by John <unk> CEO of alcohol interim CFO controller, Jay Johns President of IHOP, and John Cywinski President of apps.
Before I turn the call John Please remember our safe Harbor regarding forward looking information during the call management may discuss the information on the forward looking and involves known and unknown risks uncertainties and other factors, which may cause the actual results to the difference in the spread from Florida.
Please evaluate the forward looking information in the context of the factors, which are detailed in today's press release and 10-K filings the.
The forward looking statements are as of today and assumes no obligation to supplement the update for supplementing stake we may.
We also refer to certain non-GAAP financial measures, which are described in our press release and also available on dine brands Investor Relations website.
I'll turn the call over to John.
Thanks, Ken Good morning, everyone and thanks for joining us I'll start by saying, it's an honor for me to join Dine brands I believe in dine brands, because I believe in restaurants restaurants are essential to strong communities of human connection and people appreciate that now more than ever before.
I believe we're on the cusp of the restaurant Renaissance and as we enter what we expect to be the beginning of the end of the pandemic all restaurant base of common challenge and Thats. The eating out in America has changed those will win in the new era of restaurants, or those who remained resilient and those who invested of new menu and service innovations and new technology.
During 2020 and.
And that's the story of the dine brands with solid fundamentals two categories of the iconic brands and certainly the most talented team members and franchisees in the industry.
Let me pause and tell you a bit about my story.
As of Teen I worked in my parents restaurant. It was called the seven on the station in West Philadelphia, and I was certainly humbled and stunned by the almost $20 seven demands required of my parents.
After the holiday and onto the work as a consultant from Pwc and then with the Starwood hotels and most recently at real Dizzy.
I joined dine, because I believe in the power and the allure of strong brands 20 years ago of mentor of mine, who is the marketing Wizard taught me the brands when when Theres different better and special and our brands are truly different better and special IHOP. For example is the pancake obsessed breakfast innovator that may.
The most important meal of the day after the most fun.
And applebee's embodies what it needs to be all of American and locally relevant we call that you can go to the neighborhood and.
In other words, Applebee's and IHOP are iconic brands that can net in an emotional way with our guests and that's important because we know restaurants are essential to the fabric of community and human connections.
I also like our business model, where 98% franchised asset light we are a significant generator of cash our franchise model helps buffer us from fluctuations in the market and our model generally requires less significant investments of capital.
And it allows those who our best operating restaurants, our franchisee owners to do so with our support.
My 20, plus years at Starwood and Realogy taught me the successful franchising requires true partnership and that we work hard every day to ensure that our independent franchisee build valuable businesses the create generational wealth.
So over the last few months I have been on the move of conducted a deep dive across the company learning more and more about our brands and dine dynamic corporate culture. So far up the building with 40 franchisees in the U S and around the world and they represent 50% of the applebee's system in more than a third of our IHOP restaurants.
Also connected with our suppliers and our vendors and our team members I visited our restaurants, and our test kitchen and I can report that our network is aligned in this desire to growth and to invest and to win.
Now despite the impact of the pandemic dine fundamentals remain solid you may recall that in March of 2020, S&P placed the company's whole business securitization notes on credit watch negative as it did with two other whole business securitization in our industry at that time.
Six months later S&P removed, our notional credit watch and reaffirmed our triple B rating Dine was the only issuer of the three to not have notes downgraded will remain on credit watch due to the pandemic.
S&P decision last fall with the great achievement for dine and illustrates that our fundamentals remained strong.
Because of the emerge in 2020 on sound financial footing, we plan to repay in full the $220 million drawn from our revolver last months last March we expect to complete the repayment. This month, resulting in interest expense savings of approximately $5 million.
In addition to strong fundamentals, we of passionate franchisees, who remain in very good standing our collection rate for royalty and marketing fees standard approximately 99% and the fees. We deferred during Q2 of last year are being paid back according to schedule.
And in addition to our Fabulous franchisees importantly, both brands are led by veteran executive team with exceptional experience and industry knowledge, you'll hear from Jay and John shortly and it's their expertise and collective wisdom. The truly paid off via the extraordinary stewardship of the brands and our franchisees throughout the challenges of 2020.
So looking ahead, we are anticipating a rebound in the second half of the year driven primarily by increases in vaccinate vaccination rates.
Overall weekly sales trends from both brands have also improved since the week ending January 30 of 2021, applebee's, improving by approximately eight percentage points and IHOP posting gains of about six points.
We're also encouraged by our off premise business both brands maintained off premise sales of approximately one third of total sales during the fourth quarter, and we view off premise dining and the new consumer behavior that will it beyond the pandemic, we're continuing to invest the technology to support our growing off premise business.
And we're certainly optimistic about the outlook for Applebee's and IHOP because during times of crisis get just like me and just like you look to brands, who trust and as restaurant guests return to indoor dining guests will trust that our franchisees and restaurant team and IHOP and Applebees are committed to their health and safety.
Taken collectively the fundamentals uniquely position dine brands to endure the challenges brought on by the pandemic and position us for long term sustainable growth.
Our team's focus on three objectives over the next 12 to 24 months. The first is the navigate what we believe is the beginning of the end of the crisis the.
The second is to win the recovery and when the new normal that follows and the third is to evaluate long term growth vehicles. So allow me to share a bit of my thinking about each of those first is to navigate the beginning at the end of the crisis.
Of course, we will continue to monitor and protect cash and we will also focus on continuous improvement and operational health and safety standards in our restaurants.
We're preparing compelling marketing campaigns and new products to drive in the recovery growth and we are working intensely to ensure the financial health of our franchisees.
Second we will win the recovery and when the new normal by leveraging our recent investments in business and consumer insight CRM and digital to reactivate our guests via one to one of highly targeted marketing.
And we will realign our menus to reflect learnings from the past 12 months and we'll reset the channel mix to reflect those learnings as well.
And third we will continue to evaluate long term growth vehicles, both traditional and non traditional development, which includes everything from new prototypes for both brands virtual brands and ghost kitchens, both of which we have efforts underway and we will take a look at international expansion opportunities in key markets and possibly explore incorporating of third brands at the right time.
So as I wrap up I want to emphasize the dine viewed the crisis as both the threat and an opportunity and while we knew it was important to play defense to protect our liquidity and our flexibility. We opened that office. So that we would emerge from the crisis in a position to serve more guests both inside and outside of our restaurants.
Because we play offense in 2020, we continued to invest the new digital and CRM products that are coming online early this summer as well as innovative menu items like our happy hour and burritos and bowls, the IHOP and Applebee's, new virtual brand contract wins.
And while we were investing in new technology and menu offerings, our franchisees invested in supporting their local communities by feeding and sheltering frontline workers and those of the needs.
And so with all of these investments combined that will pay off as our guests return to indoor dining.
So with that I'll turn the call over to Alison to provide an overview of our financial results. Thank you John Good morning, everyone I'll begin with a business update and review our results for the fourth quarter and the full year Lastly, I'll discuss our financial performance guidance for 2021.
During the very challenging year, we took steps to maintain our financial flexibility, including drawing down $220 million in March 2020 from our revolving credit facility all of which remain outstanding as of December 31.
As John just mentioned, we plan to repay the $220 million during the month of March.
Do you. This proactive measure we continue to have very strong liquidity. We ended 2020 with total cash and cash equivalents of $456 million, which includes restricted cash of $72 seven.
Excluding the $220 million drawn from our revolver and cash on the balance sheet was $64 million higher at the end of 2020 compared to year end 2019.
The increase was primarily due to the temporary suspension of both our quarterly cash dividend and our share repurchase program.
The steps, we're taking the response to COVID-19, pandemic and the need to maintain financial flexibility.
Additionally, we maintained tight G&A management during the year of austerity and were able to lower compensation costs selling the difficult decision to furlough of approximately one third of our cup of staff for several months during 2020.
Turning to our financial results I'll begin with a notable changes on our income statement for.
For the fourth quarter adjusted EPS of <unk> 39.
Compared to the dollars 78 per the same quarter of 2019.
For 2020, adjusted EPS was $1 79, compared to $6 of 95 cents in 2019.
The year over year decrease was due to a significant decline in customer traffic, resulting from governmental capacity restrictions on dine in operations.
This led to declines in domestic comp sales at both brands and a decrease in number of applebee's and IHOP effect of restaurants and lower gross profit.
The impact of of the pandemic on franchise operations resulted in an increase in bad debt.
2020, our bad debt was approximately $12 8 million as compared to virtually no bad debt for 2019.
Switching gears the Genie.
Given our asset light business model G&A remains an important lever for us in 2020, it constituted 30% of our total revenue excluding AMETEK Inc.
G&A for the fourth quarter of 2020 improved to $39 4 million from $41 $7 million from the same quarter last year.
The decline was primarily due to lower travel and compensation costs.
G&A for the fourth quarter was lower than our guidance of approximately 45 million, primarily due to our ability to tighten G&A controls and response of the resurgence of coronavirus cases.
Yeah.
G&A for 2020 was the $144 8 million, including $4 $3 million related to the company restaurant same thing.
This compares to $162 8 million in 2019.
The decline was primarily due to the G&A titer of management around that which included a decrease in compensation and travel related costs.
Now turning to the cash flow statement of.
Cash from operations for 2020 was $96 5 million compared to $155 2 million in 2019 the.
The change is primarily due to a decrease in total revenue, resulting from the decline in guest traffic out of restaurants as previously discussed.
Our highly franchised model continued to generate strong adjusted free cash flow of the $106 6 million in 2020 compared to $148 8 million in the prior year.
The decline is primarily due to the decrease in cash from operations, just discussed primarily offset by lower capex compared to 2019.
We believe that our cash on hand cash from operations and the steps we've taken to mitigate the effects of the pandemic will allow us to continue to remain strong liquidity throughout the year as our business continues to improve.
Now regarding capital allocation, we continue to re evaluate our capital allocation strategy as industry conditions continued to improve and number of restaurant operations.
As previously discussed we plan to repay the $220 million drawn last much. Additionally, we will review the reinstating our quarterly cash dividends and the assumption of our share repurchase program.
We will also be evaluating investments in our existing brands Geneva pools.
Platforms from both organic and Nonorganic growth.
Now for an update on our franchisees program day.
<unk> brands provide approximately $55 7 million in royalty advertising fees and rent payment deferrals to our franchisees and continue to provide assistance on the case by case basis.
In total we provided approximately $61 million deferrals to 223 franchisees across both brands of which 61 of repaid the deferred balances in film.
Overall total of approximately $32 million of the original subsequent deferrals have been repaid and repayments are on track.
Regarding adjusted EBITDA, our consolidated adjusted EBITDA for 2020 list of 100 of $58 7 million compared to $273 5 million for 2019 of the decrease was primarily due to a significant decline in customer traffic, resulting from the governmental mandated dining capacity restrictions discussed earlier this.
The decreases in both revenues and gross profit in 2020 compared to 2019.
Because of our asset light model and low capex requirements. It continued to have very high quality adjusted EBITDA as Capex ratio represented only 7% of 2020 adjusted EBITDA.
Lastly, I will review our financial performance guidance for 'twenty from fiscal 2021, which reflects the projected impact of a pandemic honor of guidance as of today.
Due to ongoing uncertainty created by COVID-19, the currently cannot provide a complete business outlook for the year.
As our business condition conditions continue to improve and dining capacity restrictions are lower we will evaluate providing additional performance guidance as necessary.
We're not offering guidance around development of comp sales because of the uncertainty of the recovery. This year. However, I can tell your G&A is expected to range of between approximately $160 million of 170 million, including noncash stock based compensation expense and depreciation of approximately $45 million.
Please note that this range includes the profit was five point of G&A related to the company restaurants, Inc.
And capital expenditures are expected to be approximately $14 million inclusive of approximately 5 million related to the company restaurants, Inc.
To wrap up dine brands have significant cash on the balance sheet and has maintained strong financial flexibility. Despite the adverse conditions in 2020.
Sales of both brands and the improved significantly since the onset of the pandemic.
Although there is a lot of work of still ahead of US we believe our accomplishments this year and lay the solid foundation for growth with that I'll now turn the call over to John.
Thanks, Allison and good morning, good afternoon, everyone I'm very proud of what this applebee's team accomplished in 2020 and remain extremely optimistic about our business prospects here in 'twenty one.
In partnership with our franchisees, we fundamentally altered our business model to adapt to this new environment Applebees comp sales progressed from minus 49, 4% in Q2 to minus 13, 3% in Q3 minus one 9% in the month of October when we last spoke.
Almost immediately thereafter, the country experienced the rather abrupt resurgence of COVID-19 directly impacting our Q4 trajectory as a result of November comp sales were minus 15.0% while December came in at minus 31%.
Now the good news is the business is now improving as comp sales for January and the first three weeks of February combined were minus 18, 1% rolling over of very strong three 3% increase from the same timeframe last year.
Additionally, given COVID-19 related restrictions, we scaled back our media spending in December January and February.
It's also important to note that not all casual dining brands are impacted equally by these restrictions given each brands geographic distribution of.
Applebee's has a disproportionately heavy penetration of its restaurants in the northeast and Midwest two geographies, obviously hardest hit by dining restrictions while.
While reflected in these recent results this will ultimately and disproportionately benefit us as restrictions are eased over the coming months for context at the end of December 412 of our dining rooms were closed due to government imposed mandates thankfully the landscape has changed dramatically over the past month.
And virtually all of our <unk> hundred dining rooms are now opened for business.
In many respects our current operating environment feels very similar to late summer of last year. If you recall when we saw the applebee's sales momentum accelerate as restrictions restrictions were eased, including our first positive sales week at the end of September.
And barring unforeseen circumstances, I anticipate a similar dynamic to unfold very soon here in 'twenty one.
Now for the month of February Applebee's sales mix consisted of 63% dine in 22% car side to go and 15% delivery.
On the off premise front, we continue to enhance car side to go with the upcoming introduction of of third party App called fly by that notifies. The restaurant teams through Geo fencing, the moment of our guest arrives on the lot of.
Also our franchise partner in Arkansas recently opened the Applebee's first drive through window. In addition to being very well received by team members and guests. This dedicated drive thru lane eliminates weather challenges improves throughput and importantly extends our late night to go operating hours.
From a delivery perspective are tamper evident packaging is now fully deployed throughout the brand as another visible point of guest reassurance.
Without question, our off premise investments over the past year have broadened the applebee's reach and relevance across the important convenience driven occasion.
Now with respect to applebee's on premise business I anticipate our 63% sales mix to naturally elevate this year is indoor dining gradually returns and I firmly believe dining room service will be an unmistakable core strength for applebee's as guests look for that long overdue escape from home where they can.
Once again connect with one another over of good meal and perhaps the drink.
Importantly, these guests will naturally gravitate to brands that of earn their trust and loyalty throughout the pandemic on the.
This front, we're confident applebee's is exceptionally well positioned this optimism is supported by our very strong brand affinity and visit intent metrics, which have proven to be reliable leading indicators of brand performance.
And as the year progresses, we will continue to deploy guest facing digital technology, such as our paying go initiative designed to provide easy mobile payment options without the need for a server.
Now I'd like to take a moment to discuss our virtual brand evolution.
As you May know, we just launched cosmic wings nationally on February 17th introducing of fully differentiated virtual brand targeting a younger audience around the wings meal occasion.
At the moment cosmic wings remains in the online delivery only concept available via Uber eats and fulfill through approximately 250 applebee's kitchens.
In addition to craveable wings tenders, waffle fries and onion rings. The team has developed a proprietary menu of cheetos original wings Cheetos Flaming Hot wings as well as cheetos cheese bites. This innovation work is exclusive to the applebee's and the culmination of our ongoing partnership between our culinary and marketing teams for.
<unk> Pepsico and Frito lay.
While it's far too early to draw any conclusions cosmic wings averaged $510 of incremental sales per restaurant last week in its first full week of operations showing a steady build from day to day. We're very pleased with these initial results and we'll certainly be in a better position to quantify the.
The ultimate financial impact of Cosmic wings on our next call.
We've also been active in piloting our first ghost kitchens in partnership with our franchisees with two in Philadelphia, one in Los Angeles, and another sooner opened in Miami.
Clarify these are low capital investment small footprint kitchens without of street front presence designed to satisfy online delivery demand for Applebee's, where we currently don't have restaurant penetration.
The business model here appears attractive in the right geographies, where our brick and mortar presence may not be feasible.
Now as I reflect upon this past year I know our guests genuinely trust applebee's, perhaps now more than ever.
Whether it's in their family rooms, or in our dining rooms. There is no more relevant brand positioning for this environment than eating good in the neighborhood as John referenced and thanks to the resilience and fortitude of our franchise partners. The Applebee's AD fund is in great shape, allowing us to reestablish our national media presence as we engage America with.
The compelling messaging.
To this point last week, we launched our latest national event, five boneless wings for a buck with the purchase of any Burger, which is resonating extraordinarily well in fact last week Applebee's achieved our single highest sales volume week since the pandemic outbreak in mid March of last year Thats 50 weeks of.
Ago.
It's also worth noting that we are strategically and tactically aligned with our franchisees around our full year marketing and innovation plan, along with contingencies, given the obvious need for the agility in this environment.
In closing I believe applebee's is near an inflection point and that America's pent up demand for dining out is indeed very real we saw this trajectory last year up until the resurgence of the virus and I'm confident we'll see it again this year very soon and.
And when this does occur our franchise partners are very well positioned to not only return to sustained growth, but to thrive in the post pandemic environment is the unlock the full potential of the Applebee's brand.
With that I'll turn it to Jay.
Thank you John.
Good morning, everyone.
We are very optimistic about the road ahead for IHOP for several reasons first our quarterly comp sales of improved meaningfully from a decline of $59 one per cent for the second quarter two of decline of 31% for the fourth quarter, reflecting a net increase of 29 percentage points since the pandemic began.
Second the brand is well positioned to benefit from pent up demand when restrictions on dining room capacity of ease and we are of a strategy in place to cash at <unk>.
Lastly, our development pipeline remains strong and new opportunities are being pursued.
As we closed out the fourth quarter, our comp sales declined 31%, which was on par with the family dining category.
Our performance, especially the final six weeks was adversely impacted by the resurgence in coronavirus cases, we were particularly impacted in California, and Texas, which collectively comprise approximately 25% of our domestic restaurants.
Our results for January 2021 improved to minus 26, 8% representing a gain of 10 percentage points from December February comp sales through the weekend in February of 'twenty, one were down 27, 6%.
For the same period, our sales mix consisted of 66% dine in 16, 9% to go and 17, 1% delivery.
As we continue to navigate the ever changing environment, we have four strategies to help the brands drive growth number one focusing on our PM day parts number two value number three maintaining our gains in off from a sales and number four development growth.
To address our first and second strategies of the PM day parts and value, we launched IHOP. The hour on September 28, which offers our guests a wide array of value options during the afternoon and evening hours or later, depending on the location.
We believe this new value platform will not only play an important part of the strengthening and expanding our PM business, but also drive offering of sales in locations, where it's available.
I have the hour is driving incremental sales in the mid to high teens and approximately 20% incremental traffic compared to the rest of the day. This equates to a low to mid single digit lift in both sales and traffic for the whole week.
I happy hour is consistently four times more effective of driving traffic and any window, we've had during that time.
Our third strategy of growing our strong off premise business as consumer sentiment is shifting and off premise is becoming more accepted around the country. Our mix has remained strong for the fourth quarter off premise was 33, 3% of the total sales compared to 32, 4% for the third quarter.
To provide more color to go accounted for approximately 17% of sales mix and delivery accounted for approximately 16%.
Off premise comp sales for the fourth quarter grew by 130% driven primarily by traffic.
We believe that we can retain a significant amount of this growth even as dining room capacity restrictions are eased over time.
Conducive to this as our heart is the highest portability of eye ops menu and our proprietary off premise packaging, which keeps our food warm approximately 40 minutes after leaving the restaurant.
Additionally, we implemented curbside to go quickly at the onset of the pandemic and continue investment in our IHOP and go platform.
<unk> latest menu innovation is our all new signature burritos and bolt, which was introduced this past January the six new breed of them bowls were designed with creative flavor combinations and easy portability in mind for guests to enjoy wherever they pleased and appeal to guests across all day parts.
The results since the launch of very encouraging with burritos and bowls, capturing approximately 8% of ticket order incidence based on our soft launch without a full media and marketing campaign.
Switching gears to our fourth strategy development.
As we look at growth heading into 2021 and beyond we will grow our IHOP brand with four different platforms.
First of traditional development of which we have of stable pipeline as a result of franchise the obligations that were deferred as part of our assistance during the pandemic.
Second non traditional development, which is led by our largest agreement in our 62 year history with travel centers of America from 94 restaurants over five years.
Third the resumption of work on our flipped by IHOP concept, which we expect to open our first locations this year.
And fourth and finally, we've developed a new small prototype that we intend to test. This year, we expect it to provide new opportunities for frankly, the growth with a higher return on investment, allowing us to go into areas, we might not have been able to penetrate previously.
For 2021, we expect to continue to reinvigorate our growth was hindered by the pandemic.
Now for an update on our domestic restaurants opened for business.
As of December 31, 1174, restaurants, or 70% of our domestic system was opened for in restaurant dining with restrictions. This.
This compares to 1425 restaurants or 85% as of September 30th.
The decline in locations opened for in restaurant service was primarily due to the spike in front of virus cases discussed earlier.
Turning to the unit guidance for restaurant closures, we provided in October as a reminder, given the impact of the pandemic on the individual restaurant level economics, we evaluated only greatly underperforming restaurants.
The chance of not being viable coming out of the pandemic. These restaurants were generally some of the lowest performing units in the system based on sales and franchisee profitability.
This program concluded with 41 closures over the last six months, which is well below our initial projection of up to 100 restaurants.
We remain confident that we will eventually replace the severely underperforming locations and grow our footprint with better performing restaurants that have volumes closer to our pre COVID-19 SUV of approximately $1 9 million.
To close we are.
Executing against our four strategies to drive our growth, which includes PM day part expansion value maintaining our gains in all from a sales and development growth. We've done the heavy lifting to position the brands for long term success and build an insurmountable lead in family dining I'm.
I am pleased with what our franchisees and team members have accomplished during a very challenging year and I'm very optimistic about the road ahead with that I'll now turn the call back over to John Payne for his closing comments John.
Thanks day, we have a tremendous team and I want to thank Allison and John and Jay it's truly because of their leadership, particularly during the pandemic. The dine in its brands are poised to enjoy significant upside potential in 2021 and beyond.
The understanding we though of meaningful change in performance of project trajectory will not happen immediately but I'm confident in our ability to the source sustainable same restaurant sales momentum in the second half of 2021 as more people are vaccinated and guests who are eager to dine out return to our restaurants I have absolute faith of our franchisees and our talented team members will lead us into.
Our new restaurant Renaissance, our strong fundamentals remain intact, we're positioning dine for long term growth and continuing to evolve the guest centric data driven organization and so with that we're pleased to take your questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your thoughts on the telephone.
Question has been answered or you wish to remove yourself from Vicky. Please press the passage of.
The first question comes from the line of Jake Bartlett from true with Securities. Your line is open.
Great. Thanks for taking the question.
My first is really on the regional performance and I understand there's a lot going on with with.
With weather and restrictions the.
<unk> tightened.
Could you could you give us a sense of how stores performed in the markets that have had the lease descriptions and thinking of.
Markets like Florida in terms of how their sales how the indoor dining has been recovering and then what's been happening with the off premise mix in markets like that.
Okay.
Jake.
This is John so I winski the.
It's a good question I won't quantify what we see but suffice it to say those geographies with very few restrictions performed well you see a and not surprisingly a larger percentage mix than the national average for dine in.
And you May in fact see.
The inverse of what we saw in our most restricted geographies, where two thirds of our business was off premise and the third on premise in those lease restricted geographies, we see the inverse of that and we like the the revenue results that we see and we're anxious to get the full of Nash.
National brands back to that point, we had significant variability as you know across the country geographically and some.
Some of those geographies that you referenced or our benchmark geographies for us the paint a picture as to what's possible is very favorable.
Hey, Jay this is Jay Johns at IHOP.
I would say do the most everything that John said, the only of the thing that I might add is you asked about the to go business of how that holds up as well.
There is an absolute direct correlation between opening up and not having restrictions and the performance of those restaurants logical it's factual.
But I do think the to go business has held up really well even as restaurants have opened up we're maintaining a lot of that to go business most of that to go business as we move forward. So.
Clearly one of the keys for US is just.
As these areas open up we're going to do a better job.
Great that's really helpful and a question.
John on the on the Applebee's you made the comment that last week's average.
The sales were the strongest since the Covid crisis began when is that sort of imply that same store sales were actually were positive.
For Applebee's last week.
Yeah, Jake I won't again, I'll resist quantifying that but.
I'll make two points number one the last week data that I referenced is not in the data that was disclosed in our release, which is only through the first three weeks of February.
Suffice it to say it was a significant trajectory shift and a very favorable fashion.
From what we saw earlier in February makes sense.
And then my last question here.
On the on the the closures at IHOP.
I just wanted to clarify when you mentioned the the 100 stores that were possible.
You were looking at was that just a comment on the on the domestic side I noticed that there's a fair amount of international closures.
This quarter.
But less than I expected on the on the on the domestic side, which is great, but one just to clarify that and then and then two just to clarify that debt.
The the closures on the kind of the majority of the closures you think or any of the thank you would use the word.
<unk> in terms of kind of.
Assessing those stores, so should we expect elevated closures bleeding into the 2021 or.
The system essentially kind of been cleaned up already and now we're kind of set for some symmetrical of net growth.
Well I think to begin with your question about what was the 100, referring to that was referring to potentially domestically up to 100.
And what I mean by that program that was the special program that we had done this research on these restaurants and work with franchisees on those particular locations and that program has come to the close now as a regular course of business. There is always going to be other closures et cetera.
As far as actually of the program Thats over at 41.
Okay.
Does that program involving kind of.
Lifting.
And the penalties for closing.
Good day.
Promotion of trying to.
Kind of clean up the system.
Well, obviously, we work with the franchisees to together on this too.
And a way to help their position.
For the rest of the portfolios in many cases so.
We worked directly with the franchisees on that in.
How we work those out of the system, but like I said that that program was a unique thing that we put together I am not going to share specific details on what fees were et cetera, but.
That program is over we're back to kind of running the business with our net normal review of any kind of request franchisees have at this point.
Great I appreciate it thank you very much.
Thank you and your next question comes from the line of next from Wedbush Securities. Your line is open.
Hi, Thank you.
As the marketing now back.
And then also.
On the virtual brands is there.
Like a target weekly sales number that you guys are at least Directionally you guys are willing to share specifics since there is the.
The peer benchmark out there.
Hey, Nick this is John <unk>.
On the marketing front, we love our position will be as you look at the year worth of.
A bit light in Q1 quite candidly as I mentioned, we we did pull back on media spending in January and February which means Q2 three of four.
On the look pretty favorable when you guys. When you assess the full year virtual brands. Your question on is there a threshold.
In any new investments and keep months as this is.
Very.
Capital light, it's a fairly easy investment.
Our operators execute well, we do expect a minimum threshold of incremental sales performance you could call that directionally of percentage point, but we believe there is significant upside.
On that but it's just too early Nick to begin the frame that we only have 10 plus days in markets and what I will tell you is we see steady improvement.
Sequentially from one day to the next.
Got it and then a question on margin the Applebee's gross margin I think it was two six for the quarter is that just the reflection of the recovery of some of the debut of the deferrals.
And then on the iPhone six.
The $67 three.
Any kind of an outlook there sort of for 2021 at least the red cell and what's really going on there with what's the gross margin at IHOP.
So this is Allison.
The gross profit margin on the Applebee's, you'll see there the increase in bad debt year over year, but were not giving any guidance.
Related to 2020 other than G&A kind of Cy 'twenty 'twenty, one other than G&A and Capex.
Okay. Thank you very much.
Thank you next we have question from Brian Vaccaro from Raymond James Your line is open.
Alright, Thank you and good afternoon, I had a couple of questions on the quarter to date trends you mentioned for each brand and I. Appreciate the comments on average weekly sales and the improvement Youre seeing there I think you said applebee's debate I have of six and I wasn't sure if that's compared to kind of the reported AWS in the fourth quarter or were you comparing.
Net to December so could you just so we're on the same page could you disclose kind of average weekly sales per each brand in that quarter to date period.
I guess this is Jay.
Are you talking about in the fourth quarter are you talking about the what we know all of that in the quarter to date period. So you.
The improved.
Even improved 6%, but what does that mean is that versus December or is that versus the around 27, you did in the fourth quarter I'm, just trying to get sort of.
Our current average weekly sales check basically for both brands.
Well for IHOP, we have actually I think my comment was we had improved 10 percentage points from December into January. So clearly when things were really shut down those last six weeks of Q4, we were struggling we have come back nicely in January and February.
And.
If you look at the trends our sales going all the way back to last year.
We were making great progress of the transfer going great until those last six weeks of the year, where we.
We took a little bit of of dive in and then we're coming back slowly out of that and the correlation that I see is directly related to the closures as as cities are starting to open up now I'm seeing that that's going to trend of the right direction, but.
I wont give any real real specific numbers on that in quarter right now.
Hey, Brian.
John C. The.
On the Applebee's front weighted as I've referenced we were down 30% 31, I believe for December and then about 12 percentage.
Percentage point favorable move down 18% in the first seven weeks of the quarter very.
Very similar January and the early part of February keep in mind, some pretty meaningful weather impact.
And couple of those February weeks and then.
We are just now as I referenced the beginning to reengage with meaningful National marketing, which we believe has will have significant impact.
Brian.
Jonathan just to make sure I understood. The question and we're answering it accurately so for those first seven weeks of January and February were comparing number one.
Same week prior year and then each of the weeks in January of February is improving relative to the last does that makes sense.
Yes, yes, no. That's helpful. I appreciate that and also I just wanted to ask in terms of given how important having dining rooms opened is to the overall sales and I. Appreciate I think it was 80% of applebee's and 70% at the end of December but what does that look like today in terms of the the number of units I guess, you said, 99% at Apple.
But what does that look like on IHOP today.
Per cent dining rooms that are opened.
We've only got about 33 restaurants that are not opened for some form of business right now.
And we've got.
About 200 that may still be doing mostly to go or patios only right now we've got a heavy presence in California. Obviously, so there is a lot of our restaurants still are impacted in.
And Brian on the Applebee's front, we've got about 10 dining rooms currently closed half of those in California have in Oregon, and expect them to be opened very soon which is great news.
Yeah, that's great that's great and I. Appreciate you mentioned in the shifting gears a little bit from the development side I. Appreciate the update on the IHOP side, I guess, assuming no major setbacks in the broader Covid recovery narrative would you expect to return to net unit growth at IHOP in 'twenty, one or perhaps that could take into 'twenty, two and then whats.
The reasonable expectation on closures at Applebee's this year.
Yeah on the outside of this is Jay again, we're just not giving any guidance yet on exactly how this is going to play out we clearly have.
Franchisees that are interest in developing but theyre still in the middle of the Covid right now there is still so thats.
The rate of which that comes back we're just going to have to wait and see how that plays out in.
And Brian on your question regarding Applebee's.
We certainly haven't.
Forecasting is difficult in this environment other than to say.
As John referenced the franchisee collections of royalty and advertising of our superior.
And.
We're very optimistic about this 600 unit portfolios, we did we've cleaned up much of this.
Kind of the non viable assets over time over the last three to four years, but will resist framing any expectation or number of at this point in time.
Alright fair enough and then just last one from me I wanted to ask on cosmic wings.
Could you could you highlight some of the key differences.
Cosmic <unk> versus neighborhood wings, or perhaps comment on your approach to marketing the concept of other differences.
Worth mentioning there and some of it if I missed it but is there an expected timeline on when it might be offered from all 600 domestic locations.
Brian the.
Glad we piloted neighborhood wings last year as you know we did so.
Several hundred restaurants, what we learned was very clear.
The the brand itself the virtual brand needs to be differentiated.
Separated in some respects in terms of positioning from Applebee's.
The menu itself needs to be.
Proprietary and perhaps buzzworthy, our teams need to be able to execute that brand well and the naming was important.
Along with the targeting we had a very specific demographic here a bit more useful a bit of the male SKU cheetos lovers delivery levers wings lovers, and given that demographic profile of the naming and the positioning felt quite naturally to us but.
Youll notice we did not incorporate the word of the name of Applebee's in that so cosmic wings.
The validated that with consumers with that demo in particular, it resonated exceptionally well and.
Your question on timeframe again, Brian what was that question, yes, just thinking I think you said it caused the claims is currently offered from about I think it was 250 applebee's units I'm, just wondering when it'll be if and when it will be available across the system domestically.
The I would expect so 250 is.
With our partnership with Uber eats and where they have a strong presence. Obviously, we will have a strong presence could this brand be expanded in terms of the distribution channels yes.
And I'll resist.
Yes.
How that may unfold, but you can draw your own conclusions, Brian it's been very well received and so I would anticipate ex.
Flooring all options moving forward after the first couple of months.
Very helpful. I'll pass it along thank you.
Thank you and your next question comes from the line of Todd Brooks from CL, King and Associates. Your line is open.
Hey, Thanks for taking my question.
First if we could talk maybe.
Weather and storm impact with the couple of tough weeks and actually still some tough weeks for.
Texas from a couple of of the other states down south but.
Especially looking at the weekly IHOP sales they have been remarkably consistent across the first seven weeks in.
Just a bit of a surprise to me given it looks like almost a quarter of the stores are in that kind of Texas, Georgia, Virginia, North Carolina belt.
So if we could talk maybe about the IHOP performance and lost store days of both.
The brands due to the winter weather, we've had done some.
Well I think on the on the IHOP side.
There's interesting drivers on our side of what as we've talked about before capacity is probably the absolute most important thing obviously when you get weather like the close the restaurants down we had about 200 restaurants across our system that were closed for multiple days of because of weather impact as the spread across the country.
So clearly we have some some impact on net.
I don't think we've teased out all of the the information as far as the total impact that we could say is only related to that.
Holidays are a big impact for us as well so when you look at the first quarter. So far it's been a lot of different holidays, a lot of different weeks that are a little odd compared to just a regular run rate.
As soon as we started to get the momentum going one direction and then the weather hit.
This past week, we were rolling over.
The National Pancake day from last year, which we canceled this year and have moved the two of us.
Spread out through April event. So there's a lot of things that just don't sync up for a while so you may be seeing some odd numbers, just because theres a lot going on in this data that is.
As the somewhat inconsistent when you look at it I think the general trend I would say, though is.
If you look at take a step back and look at the Big picture, we are trending the right direction, we keep having these little hiccups that happened on given weeks, but I feel that this is about rate.
To make a nice move forward force as the capacity of restrictions are lifted.
Todd on the Applebees from had it not been for whether we would have seen.
Sequential improvement from January to the first three weeks of February I won't quantify it its a little less than 100 basis points of impact.
Okay, Great. That's helpful. Thanks, and then.
Can we talk going back national advertising Wise, John I think you said applebee's back on in the past.
Week, or so and Jay I don't think you commented the Fi hops back on the out or not but this has been such a positive driver for the same store sales recovery and.
In fiscal 'twenty in the second half of the year.
Can we talk about maybe share of voice that's out there now that you are going back into the national advertising in the.
Anticipated or hoped for lifts.
As you start to leg into especially.
Those bigger weeks when you get the Q2 through Q4.
Hey, Todd this is Jay.
On the marketing fronts, we never went completely dark we were always doing some kind of marketing be of digital or one to one.
We cut back some on the what you would see as the big larger national TV campaigns et cetera.
So just like Applebees, we have spread our budget a little differently. This year, just based on capacities et cetera, and we are very confident we are of great plans for the year, both with innovation and marketing and how we're going to come to market with things. So I feel very comfortable we've got a really good plan we should have.
Plenty of money as long as the bottom doesn't fall out of this thing again, which which with some kind of of <unk>.
Covid resurgence, that's really bad I think we're going to have a nice.
Portfolio of things to promote and we're going to have a lot of money to do that when we get into the second third and fourth quarters.
Todd on the Applebee's side, you referenced that we have something of.
This year that we didn't have last year, we know have the brand.
Has performed as restrictions ease.
Guests are more willing to dine out so that trajectory trajectory you referenced last year.
May through September we moved from minus 50% to our first positive week of sales.
And.
So we really have an exceptional team and they understand how the message both rationally and emotionally.
That pacing and sequencing of of messaging with our guests.
As we evolve out of this pandemic is something.
Where they really do have a finger on the pulse so to speak.
And youre seeing the start of that right now and I anticipate it will unfold and perhaps that trajectory will look similar if not better than what we saw over a five month timeframe last year.
That's very helpful. Thanks, Thanks to you both.
Thank you thanks Todd.
Thank you. Your next question comes from the line of Brad <unk> from.
Barclays. Your line is open.
Great. Thanks, and good morning to you guys and good afternoon from Us if.
If you could talk a little bit more on how youre thinking about the capital allocation plans, obviously debt paydown is going to be the biggest and the most immediate but when you look at not just to the shareholders, but what else can you do in terms of investing in the infrastructure.
And also of franchisee support and.
And then John take note of a question for you.
So in terms of the capital allocation strategy, obviously, we wanted to pay down the <unk> the.
$220 million and we filed in March, which youre going to do this month.
We really we can't say at this point because of the industry conditions are very variable at this time.
Definitely one of the continue to look out of dividend.
The purchase of shares investment growth organically and inorganically, but it's really difficult the at least training.
The syngas as Clint just through the industry conditions.
On the on the M&A front.
Obviously, not looking for names, but what kind of criteria.
Make your wish list if you were to go.
Outside of your own system.
Sure Brad.
John I'll take that.
Ill.
Of the tack a little bit onto the last thing that I also mentioned as well when it comes to the capital. There is obviously there is the thinking of dividends and shareholder shareholder return.
And buybacks, but we're also looking at.
<unk> and technology and virtual brands based upon our learnings from cosmic wing, possibly exploring the acquisition of a third of of third brands. So we're looking at all of that as we as we look towards 2022 and beyond.
When it comes to when it comes to it.
M&A, where when we do think about it we will be looking at the.
Tuck in acquisition.
Certainly substantial enough that it's accretive.
But with the potential to grow to the size of our current brands or close to it. We're certainly interested in a high growth category that is complementary to the two segments that we're in and not competitive with our existing brands.
And then John just.
You talked about all the things that you that you viewed as positive as you joined into the the Dine story.
And excluding capacity and restrictions because of those are obviously.
Challenges outside of the concerns where do you see the the greatest opportunities for the low hanging fruit and what do you still see as the largest challenges and impediments to not just the recovery but.
Meaningfully.
Take share from from your peers. Thanks.
Sure. Thank you so.
In the short term the.
The the biggest opportunity is vaccines vaccines vaccine and we are we are optimistic that.
That people all of us are anxious to get out.
The other people have the other people and the reestablish a sense of connection and community in restaurants is the place the place to do that.
Over the.
The long term.
We're focused on and we've been investing throughout 2020 in in the digital technology, that's necessary to facilitate.
Off premise dining we think that the.
Growth in off premise at the incremental for US. We don't think we think it is kind of settle somewhere above where we were pre pandemic. We think it has introduced new consumers to our brands.
And we think we're now in the consideration set for takeout and delivery in the way that we weren't before because we've demonstrated our ability to deliver so one of the best for the future is certainly off premise dining facilitated.
<unk> facilitated by our investment in digital and things like that.
Thank you.
Thank you and sat at the time that they have for questions. Today I would now like to turn the conference back to Mr. Jonathan Cohen for any closing remarks.
Just wanted to say to say thank you to all of you for your questions for Alison. The Neatest is our first time speaking with all of you and we enjoyed it and are looking forward to the conversations throughout the day and up to our veterans, John and Jay Thanks, as well for telling the story of your brands and answering the questions. So we appreciate all of your Youre into.
And <unk>.
Investments in our company and look forward to talking to the throughout the day. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference. Thank you all for joining you may now all disconnect.
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