Q1 2022 Dine Brands Global Inc Earnings Call
Good afternoon, everyone and welcome to Ehealth incorporated conference call to discuss the company's first quarter 2022 financial results.
At this time, all participants have been placed in listen only mode.
Floor will be opened for your questions. Following the presentation.
It is now my pleasure to turn the floor over to Ely <unk> Investor Relations manager. Please go ahead.
Operator, good morning, and welcome to Dine brands first quarter Conference call I'm joined by John Peyton CEO Vance Chang CFO , Jay Johns President of IHOP and John <unk>.
Ski president of Applebees Biff.
Before I turn the call over to John Please remember our safe Harbor regarding forward looking information during the call management may discuss information that is forward looking.
Gulf's known and unknown risks uncertainties and other factors, which may cause the actual results to be different than those expressed or implied.
Please evaluate the forward looking information and the context of these factors, which are detailed in today's press release and 10-Q filings.
The forward looking statements are as of today and assumes no obligation to update or supplement these statements.
May 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'd like to highlight that all references to same restaurant comparable sales will be relative to the prior year.
We will no longer disclose comp sales relative to 2019, our 2020.
With that I'll turn the call over to John .
Thanks, Ken and good morning, everyone on behalf of John J advance. Thanks for joining us for our first quarter earnings call Q1 was a strong quarter with great results and that's because our bold choices and smart investments are paying off we're accomplishing so much especially in this challenging environment. Thanks to our focus on.
Houston and innovation.
I'm. So glad many of you can attend our Investor day in March and based on the feedback we've heard that you see strengthen our growth plan and the way our leadership team is aligned.
And now turning to Q1. This morning, I'll cover our perspective on the macroeconomic environment, our results for the quarter and our key initiatives for the rest of the year.
We continue to operate in an environment that headwind and tailwind as I described last quarter.
During the quarter IHOP and Applebee's, both posted positive comp sales and on premise sales volume continues to recover and so it appears for now the customer behavior remains a tailwind.
We didn't see a significant decline in traffic or off premise business due to inflation or gas prices last quarter. We continue to closely monitor the effects of the macroeconomic environment on customer behavior.
We benefit from the fact that year to date average CPI inflation for food away from home continues to trail CPI inflation for food at home and so in a world with many dining options. This is favorable for applebee's and IHOP because both brands are strongly positioned in the value segment.
Finally, understaffed hours due to challenges in recruiting labor remaining upside when all restaurants are able to return to 2019 hours of operations.
At the same time headwinds still persist supply chain disruptions food and fuel inflation labor supply all of the accelerated by the war in Ukraine.
Nationwide staffing remains about 90% of full capacity.
This prevents restaurants macheting full hours of operation and can slow table turns and so we're working with franchisees detached front and back of house technology that address labor productivity, while also enhancing the guest experience.
Regarding the cost of food ingredients at the restaurant level, we expect inflation of about 13% to 16% in 2022.
And that's why in this environment, our purchasing co op <unk> first priority is to secure supply and lock in pricing contracts whenever possible, we've assembled a cross functional team, including the co op, our suppliers and distributors, our culinary beverage and operations teams and our franchisees to aggressively pursue ideas to mitigate the impact on.
Costs. This cross functional team has already identified about 140 cost mitigation opportunities. Examples include to go packaging in restaurant beer distribution systems server tablets high efficiency ovens and ultimate supply sources and new product specs at the same time, we're also closely monitoring.
The impact of U S energy prices.
Energy costs make up about 2.5% to 4% of our restaurants costs, depending on the region and I can tell you that approximately 40% to 50% of our restaurants energy costs is gas many of our franchisees block in one to three year utility contracts in deregulated states. So they are protected from price increases in the short to medium term.
I'll transition now to our Q1 results our performance during the quarter reflects the continued improvement in our business and the stability of our asset light model.
Average weekly sales for Applebee's, and IHOP surpassed the comparable quarter for 2021 by 15% and 19% respectively. We delivered topline growth of approximately 13% recognizing revenue of $230 million gross profit increased by 9% to approximately $93 million.
And adjusted EBITDA improved by 12% to $65 million.
And finally, we opened 11, new restaurants globally, demonstrating that our franchisees are healthy and have an appetite for development.
John and Jay will provide more details on comp sales unit growth and new sources of revenue.
And now I'll wrap up by highlighting three of our key focus areas for the rest of the year first is our investments in technology to enhance the guest experience before during and after the meal, whether on premise or off premise.
This includes paying at your table in our restaurants, using our app to customize and order your meal for curbside pickup where having our delicious food delivered through an aggregator partner.
A tangible outcome of our tech investment is IHOP, new one of a kind and fast growing loyalty program. The international Bank of pancakes and the program is enabled by dines investment in technology that supports both brands and is a great example of the benefits of our scale.
Second we're continuing to introduce new restaurant formats flipped a fast casual version of IHOP.
Order ahead and pick up windows for Applebee's and the new Applebee's prototypes are all examples of how our teams are working with our franchisees to evolve our restaurants to meet changes in consumer behavior, while continuing to optimize unit economics.
And third we're investing in disruptive new growth channels, such as virtual brands and ghost kitchens. The key idea here is that we can drive substantial incremental revenue with low commitments of capital.
Ghost kitchens for example, allow us to serve new markets or trade areas, where the cost to build is prohibited.
For example, Applebees and IHOP opened a total of 10, new International Ghost kitchens in Q1, including our 29 overall ghost kitchen, which opened in the Philippines. We also recently announced our new partnership with Jeff kitchen in the Taiwan market.
And virtual brands enable us to lean into specific day parts. So in addition to cosmic win IHOP is testing to virtual brands thrilled cheese and Super Mega Dia, which are now available in 280 restaurants up from approximately 80 in February and both are available in 13 markets.
So today I'm bullish that our long term strategy and bold choices and smart investments is working.
Because while we protected our financial health as well as the health of our franchisees, we remained focused nimble and steadfast in the execution of our plans.
The successful execution of our strategy is delivering tangible results as we enter 2022 stronger than ever and poised to own the upswing with that I'll turn it over to advance to discuss the details of our financial performance.
Thank you John well the execution of our long term strategy and guest focused actions continued to deliver solid results for the first quarter.
On the top line consolidated revenues rose, 13% in Q1 versus the prior year driven.
Driven by strong franchise revenues, which grew 14% to $161.2 million compared to $141 million for the same quarter of 2021.
The improvement was due to a strong comp sales growth at both brands.
Excluding advertising revenues franchise revenues increased 13%.
Rental segment revenues for the first quarter of 2020 to improve by 10% to $28 $8 million compared to $26.1 million for the same quarter of 2021.
The favorable variance was mostly the result of franchisees higher retail sales, which drove higher percent rental income for the quarter.
For our company restaurant operations sales increased approximately 10% to $39.4 million for the first quarter compared to $35 $9 million for the same period of last year. This was mainly due to an increase in customer traffic from changes in operating capacity of the restaurants during the quarter.
G&A for the first quarter of 2022 was $41.5 million compared to $39.9 million for the same quarter of last year.
The variance was primarily due to increases in travel expenses personnel related costs and professional services as we returned to normal franchisee supporting activities.
We.
Our investment G&A to further increase in Q2 through Q4 of this year as we continue to execute our strategy to unlock and support long term sustainable growth.
And as an update we are tracking in line with our full year G&A guidance range of between $188 million and $198 million, including noncash stock based comp and depreciation of approximately $30 million.
For the first quarter of 2022 consolidated adjusted EBITDA was $65 $2 million compared to $58 $1 million for the same quarter of 2021.
The increase was primarily due to the gross profit improvement in our business as I just discussed.
Finally, adjusted EPS for the first quarter was $1.54 compared to adjusted EPS of $1.75 for the same period of 2021.
The variance was primarily due to a $10 million Delta in income tax expense between the two quarters as we returned to a normal effective tax rate in Q1 of 'twenty two versus the significant tax benefit that we received during the same quarter of last year, partially offset by a $7.5 million increase in gross profit.
Turning to the statement of cash flows we had adjusted free cash outflow of $10 $1 million for the first quarter of 2022 compared to inflow of $30.7 million for the same quarter of last year.
Driven primarily by cash from operations.
Cash used from operations for the first quarter of 2022 was $7 $8 million compared to cash provided from operations of $30 $6 million for the same period of 2021.
The variance in cash flow was primarily due to a change in working capital.
Q1 of 'twenty, one our cash flow benefited from the onetime collection of franchisee deferral fees, which we had granted during the initial phase of the pandemic.
In Q1 of 2022, our cash flow reflect a payment for a larger performance incentive compensation earned in 2021 versus the year prior as well as larger marketing expenses incurred in Q4, but paid in Q1.
Capex for the first quarter of 2022 was $5 $3 million compared to $2.4 million for the same quarter of 2021.
We also repurchased common stock of $41.6 million and paid dividends of $14.6 million for the quarter, which I will touch on in more details later.
We finished the first quarter with total unrestricted cash of $294.7 million. This.
This compares to unrestricted cash of $361.4 million at the end of the fourth quarter.
With our current levels of cash on our balance sheet and the borrowing capacity available under our credit facility, we're confident in our ability to maintain our financial flexibility and ample liquidity.
Even with returning $56 million back to shareholders during the quarter, our leverage ratio continues to stay healthy as of Q1. It was 4.05 times compared to 3.86 times in Q4.
Now I'll provide a summary of our capital allocation for the first quarter.
We remain committed to returning cash to shareholders as evidenced by a 15% increase in our first quarter cash dividend of 46 cents per share which was paid on April 1st.
Additionally, we purchased 588108 shares for approximately $41 million in the first quarter of 2022 at a weighted average price of $70.45 per share.
We will continue to use share repurchases as a key part of our overall strategy to deploy excess cash and increase total shareholder return over time.
Lastly, I will confirm that we're still tracking to our previously announced financial performance guidance and G&A Capex development in EBITDA for 2022.
To close Q1 was a great start to 2022 building from our very strong finish to 2021, we're confident that our bold choices and disciplined investments will support long term growth.
With that I'll turn it over to Jos Winski will share more on the Applebee's business John .
Thank you Vance and good morning, everyone Applebee's business momentum continued in Q1 with a 14.3% increase versus Q1 of last year and 26, 2% two year increase versus Q1 of 'twenty 'twenty, representing our fifth consecutive quarter of year over year comp sales growth in.
In the face of Omicron January comp sales were up 17.6% versus 'twenty 'twenty. One February sales were up 25.1% and to close out the quarter March comp sales were up 5.5% versus applebee's very strong March of 2021.
From a Q1 black box perspective, we slightly trailed the C D. Our category on comp sales versus last year, but this requires additional context, given applebee's substantial over performance in 2021 and very favorable two year and three year comp sales results.
Given the intra quarter Covid mismatches from both this year and last year. It may be helpful to focus on absolute dollar volumes for true indication of brand performance.
So let's start with last year's record setting volumes of 50000 and $500 per week as a baseline.
Given omicron impact to start the year weekly sales dropped to $46800 in January volumes, then accelerated to $54800 in February and $57600 in March driven by organic demand as well as peak seasonality.
It's worth noting that March represents applebee's highest weekly sales volumes on record under dine ownership.
Additionally, this momentum continues to be reflected among key brand attributes where applebee's leads the category on affordability menu variety convenience to go awareness delivery awareness and overall brand awareness. According to our proprietary third party tracker.
In reviewing Applebee's Q1 sales mix, 72% of our business was dine in 14% car side to go and 14% delivery with total off premise sales averaging between 14 and $15000 per week.
Applebee's off premise business is not only a core competency, but in 'twenty 'twenty. One it became a 1.2 billion dollar convenience driven business and a genuine consideration within <unk> and fast casual occasions.
I should also note that approximately 70% of our car side to go business is now digital a combination of online orders in call center orders, which come to our restaurants digitally through our point of sale system. Our goal is to approach, 100% digital orders by year end, which means no more over the phone order taking by restaurant team members.
On the delivery front, we completed cosmic wings virtual brand expansion to door Dash and we're now in process and activating grubhub.
And applebee's on premise business continued its strong and steady recovery with Q1, attaining 90% of our pre pandemic dine in sales volumes.
I also expect an eventual dine in tailwind from both of our late night business as well as our older guests as they gradually returned to dining out this year.
It's not surprising that we've become a bit younger over the past two years and certainly younger than our C. D. Our peers with Gen Z millennial and Gen X now accounting for 80% of Applebee's guests with millennials, representing our largest segment at 34%.
We really love this demographic profile, which is much more similar to Q ESR than it is C. D. R and we view Applebee's age family and ethnic diversity is core strengths relative to other casual dining brands.
Now from an absolute pricing perspective, applebee's franchisees increased menu prices between five and 6% in Q1.
As you might expect we continue to monitor these actions closely and believe the brand is very well positioned to navigate this inflationary environment, given our supply chain scale or average check at the very low end of the C. D. Our continuum and ongoing guest perceptions of Applebee's is the clear affordability leader.
We talk often about the subject and our relative position in the marketplace with our franchise partners and keep in mind. These are 31, smart and strategic leaders, who fundamentally understand the delicate balance of margin protection guest affordability and business momentum and they continue to view this year as a meaningful market share opportunity for <unk>.
The Applebee's brand.
On the development front, we expect to open approximately six traditional restaurants this year as well as six ghost kitchen restaurants.
In addition, we plan to close less than 15 restaurants, this year, marking a meaningful inflection point for applebee's with the fewest number of closures in 10 years and putting us on track to deliver net new unit growth in 2023.
I'm also pleased to report that we recently opened our fourth drive thru pickup window in Virginia with approximately 15 drive through planned conversions by year end.
In closing, we improved Applebee's average unit volume from $2.2 million in 2000 $17 million to $2.6 million in 2021.
Looking forward Applebee's remains exceedingly well positioned to accelerate this growth in.
And coming off of recent spring franchise conference, where we shared our balance of year innovation plan, our confidence and optimism in partnership with our franchisees could not be higher.
With that I'll turn it to Jay for an overview of the IHOP brand.
Thanks, John I'm sure you're proud of everything that you and your franchisees have accomplished this quarter I'm equally pleased with IHOP achievements.
Good morning, everyone as we rolled over the start of a recovery last year IHOP delivered an impressive first quarter based on several metrics.
Comp sales increased by 18, 1% driven by positive comps across all day parts, particularly late night and breakfast.
Despite the omicron wave January comp sales were up 24, 9% versus 2021 February up 28% and March up seven 5% despite rolling over our strongest month in the quarter of last year.
Average weekly sales for the first quarter were approximately $36000 an increase of 19% compared to the same period of 2021.
Notably average weekly sales volumes reached a weekly high for the quarter of approximately 41000 in March 2022 exceeding every week in March 2021 which included the third round of stimulus payments from the I R. S.
On the off premise front our to go business remains strong accounting for 24.6% of sales comprised of 15.3% delivery sales and nine 3% and takeout sales.
Importantly off premise average weekly sales volumes were approximately $8900 still more than double pre pandemic levels and highly incremental as our dine in business continues to gradually improve.
Dining and accounted for 75, 4% of sales for the first quarter well.
While we are enthusiastic about our results this quarter, we're doing more to build on our success, we've improved our marketing strategy and capabilities. After completing the most comprehensive research the brands ever done to discover what it is that people love about IHOP.
Ultimately our brand is a destination for joy.
We're taking a three pronged approach to our marketing strategy by first positioning our brand in a relevant way by focusing on the quality of our made to order food and the joyful atmosphere that IHOP provides second we're taking an omni channel approach to meet our guests in the channels, they frequent and trust or.
Our plan is designed to engage our guests both new and old through online mobile social media traditional TV and more.
And lastly, enhancing our one to one relationships with our guests with the recent launch of our unique loyalty program.
Tells us tie this all together, we announced the selection of our new AD agency of record Hero, Dell, which we partnered with our new campaign and tagline, let's put a smile on your plate.
The inspiration for the campaign was based on the happiness guests feel when enjoying a great IHOP food.
We believe this campaign will be a differentiator because it encapsulates a strategic new phase for the brand.
Which includes launching not only in new campaign, but also our new IHOP Dot com website, and mobile App and of course, our new loyalty program the international Bank of pancakes.
As I discussed with you at our Investor Day. This is a true earn and burn program designed to enhance our direct relationship with our guests and ultimately drive additional visits IHOP.
The program is a one of a kind in a first in our category.
To briefly recap it allows our guests to collect what we're calling pan coins, which is our pancake currency three pain coins will get you one short stack at IHOP for example paint.
Pain points can be redeemed for menu items and other non food items in the future.
We began marketing the program in mid April through social media in restaurant signage National TV and digital.
Switching gears to an update on operations labor supply continues to be impacted by factors primarily outside of our control at the end of the first quarter I App was approximately 90% staff nationally based on input received from our franchisees.
I'd like to highlight that there is a degree of variability, though with some areas doing better than others.
Regarding S O P hours the percentage of our domestic restaurants that are open for standard operating hours or greater improved approximately 91% from approximately 86% last quarter.
We continue to expect potential upside to sales as additional progress is made.
On our to go business, we made operational improvements to our off premise platform. We recently completed the implementation of fly by which enhances our curbside pickup and delivery platforms and reduces guest friction flybe.
Fly by provides our guests with the ability to alert us through the IHOP app that they've arrived in the parking lot for their to go orders.
Turning to development, our franchisees opened 10, new restaurants globally in the first quarter of which eight were domestic openings I'm optimistic about our development outlook due to the multiple formats, we can offer our franchisees and the overall health of the brand.
In addition to our brick and mortar footprint. We also expanded our presence through virtual brands. We recently announced the test of our first virtual brands through our partnership with next byte Supermajor idea and thrilled cheese.
As of today, our virtual brands are available through 280 restaurants up from 80 at the end of Q1, we're still on track for about 1000 restaurants actor a virtual brands over the next several months.
To wrap up we've accomplished a great deal in early 2022.
As we continue to transition to the next phase of the brand I'm very enthusiastic about our road ahead.
I'll now turn the call back over to John Payne for his closing comments, John Thanks, Vance and John and Jay Your comments made it Super clear that we're laser focused on the three levers of growth for dine were focused on comp sales. We're focused on unit growth and we're focused on developing new sources of revenue the work that you and your.
Teams did lead to a terrific quarter and thank you for that.
Operator, we're now ready to open the call for questions.
Thank you ladies and gentlemen.
Uh huh.
Just to clarify.
I would like to clarify that this is the dine brands Global first quarter earnings Conference call well now open the call for questions. If you have a question or comment at this time. Please press Star then one on your telephone keypad again, if you have a question at this time. Please press Star then one on your telephone keypad.
In order to facilitate as many participants as possible. We ask that you. Please limit yourself to one question and one follow up.
Again, if you need to ask a question in place plus strong then one on your telephone keypad. Our first question or comment comes from the line of Eric Gonzalez from Keybanc capital markets. Your line is open.
Hey, Thanks for the question.
It will be a macro question here based on what you know about the consumer.
The potential macro pressures in the future what does your gut tell you about your ability to sustain as the really strong sales momentum.
And into 'twenty, three and how portable value would be as you balance that against the low to mid teens inflation outlook.
Hey, Eric.
This is John from Applebee's.
Confidence is high on our ability to sustain.
None of our metrics here.
I may have been muted Eric can you hear me.
Yes, we can hear you.
None of our metrics at Applebee's suggest anything other than robust growth average unit volumes decelerated throughout the quarter as I referenced attributes are at all time highs.
Our consumer we believe given our average check is.
Boyle and and our franchisees are really bullish on your second question value is essential we're a value brand affords.
Affordability, we lead.
And you'll see a balance of.
What I'll call emotional connection opportunities for the brand as well as <unk>.
Value propositions, there may be a bit more overt.
All with with healthy profit margins for our franchisees. So in a nutshell very bullish on what the balance of this year represents for the Applebee's brand.
Hey, Eric It's John Peyton I'm going to I'm going to jump in for a moment and give you. Some some statistics that I think are worth sharing here that applied at both brands and we've talked about headwinds and tailwind right and I think implied in your question is is the challenge right now of predicting the future when we see things like inflation cost of fuel going up.
Certainty and supply chain, all exacerbated by Ukraine at the same time there is.
Some encouraging data for.
For one thing the cost of eating at home via grocery is rising faster than the cost of dining out right. So that's a that's a tailwind for us and I think in part drives our success in Q1 that John alluded to.
The other thing is is that <unk> menu pricing is increasing faster than ctr.
Also as favorable for us and when we look at wage rate growth.
Bottom quartile of earners in the U S actually grew wages faster than the other three courthouse, which.
Which tends to be our customer they grew eight 5% to 6% last quarter.
Which gives them some confidence in a time when prices are rising so in this.
Its moment of headwinds and tailwind. There is there is some compelling data from a consumer standpoint that that explains I think our success in the first quarter and May give us momentum for the rest of the year and then the last thing I'll say is we continue to look at all the third party research as well as our own about.
Consumers intends to return to restaurants and that remains endemic high as well.
That all makes sense and maybe if you could just touch on franchisee profitability.
Given that inflation outlook.
You mentioned, the five to six points of price at Applebees, which which probably offset the commodity side and maybe have a little bit of labor. So can you just talk about where we stand and how the franchisee profitability look and how you expect that could trend through the year given that inflation outlook.
Yes, Vince why don't you take that.
Sure Eric So as you know, we don't report franchisee financials, but here's what we do now.
We are seeing.
Strong same store sales.
Theres no bad debt no way our issues.
We have interest from franchisees in development.
And franchisees have take appropriate menu pricing adjustments.
And also I think one nice thing that's worth mentioning is that.
Our our co op supply supply chain.
Had formed a cross functional team.
With our operations, our franchisees and in beverage and food routine Chicago.
140, plus cost item cost saving idea to lower production costs and reduced food waste or usage improved restaurant labor.
While that negatively impacting the guest experience. So overall I think those are the facts that we could share and things are looking looking.
We're all cautiously optimistic about what about the outlook.
Thanks for that.
Thank you. Our next question or comment comes from the line of Jeffrey Bernstein from Barclays. Your line is open.
Great. Thank you very much.
Couple of questions. One just on the healthy comps you talked about I.
I think you acknowledged that March.
Here to have been a slowdown on a one year basis. So just trying to get your perspective on that two year.
Obviously, removing seasonality and whatnot, but just any concern about that March slowdown I was actually based on AWS has marched the best for the quarters best of the months.
Color you can provide on April just to get us more current would be great.
Sure.
Geoffrey This is Jay Johns at IHOP I can say from the standpoint of my brands. This was fairly well expected. If you just look at the rollovers from previous year. Both of the margins you can think about two years ago. The pandemic started which impacted that March which meant it last year, we were already up quite a bit and start.
That's where the recovery really started rolling over the original.
So margins results last year were taking up tremendously compared to January and February so.
It's pretty naturally youre going to get a slowdown this year as the.
The recovery.
<unk> continued.
From our standpoint that recovery is continuing nicely.
Yeah. It was pretty much in line with what we had expected as we went into the month of March we knew that it was going to drop down compared to January and February a lot of the country was still shut down last year January and February in fact, if anything.
January was probably negatively impacted because of omicron, we should have been up even more if it wasn't for that even though we did have a really nice January we expected more of that.
And Jeff with respect to Applebee's no indication.
Indications of a slowdown whatsoever to your comps are very strong including March.
As our three year cost.
Any color to provide on the month of April or refrain from any intra quarter.
No.
It's Geoff it's John we're going to refrain.
Gotcha, Okay, and then just on the virtual brands that you mentioned, obviously cosmic <unk> been around for a little while I'm just wondering whether you can share any.
Greater financial metrics in recent months, obviously diamond is returning so maybe there's some easing of virtual.
And then any early test results on both IHOP brands, which seem really exciting to have that second make line and a whole lot of afternoon evening available capacity. So any early learnings on the IHOP virtual brands would be great.
Hey, Jeff John C here with respect to cosmic wings I'll resist on providing any detail.
Sales wise since we're still in process.
Expanding this to our third delivery partner, well I have a pretty good.
Handle on this business when we get around to Q2, but I'll resist at this point.
This is Jeremy again.
On our virtual brands, we're really excited about the way. This has begun a little soon to be able to predict what's going to happen as we expand to more and more restaurants.
We're still very bullish on the way this looks I think at the Investor day I shared that.
The first.
Set of test restaurants.
These two brands were each doing around a thousand dollars a week in sales per restaurant and now we've expanded to 280 restaurants is expanding very rapidly.
And as I said I think within the next several months, we have the potential to get up to about 1000 restaurants on the program.
As we expand out further.
It may drop slightly, but it's maintaining pretty well.
Got it and just lastly specific to Applebee's I.
I know you guys have talked about the big pivot to net unit growth next year I'm wondering if you can share to what magnitude.
Maybe where international falls within this it would seem like international as a huge opportunity for your brand, but it doesn't seem like it's as much of a growth vehicle or at least not talked about as much.
Jeff John C. Here I'll speak domestically international by the way is a meaningful growth opportunity domestically our confidence level is high on returning to net new unit growth in 'twenty three.
It will come pretty close this year.
But I referenced the detail for 2022.
We're reestablishing a pipeline, we know where those trade area opportunities are and in particular, the very high volume trade area opportunities. We have a new prototype we have franchisee demand and and our expectations are not only to return to net new unit growth in 'twenty, three but then too.
Accelerate that level of development on an annual basis moving forward in the U S.
And Geoff it's John Peyton.
Comment on international.
The mix for international growth.
You may recall from Investor Day is about two thirds, two thirds or more for IHOP and then the mix internationally as a greater proportion of ghost kitchens as well.
Our goal there our aspiration is to go from about 200 restaurants internationally.
500 over the next four years.
Thank you.
Thank you. Our next question or comment comes from the line of Jake Bartlett from Truest Securities. Your line is open.
Great. Thanks for taking the question.
It was really on the consumer and things for the macro perspective.
Didn't hear my comments I think that maybe a focus on a little more value at applebee's. So so I'm just wondering.
If you could expand on that what your what your approach is for the rest of the year and weather.
If it is a bit of a more weight towards the value side is that because you are who you know some trade down in the menu or any any sort of.
Packed from that maybe lower lower income consumer.
Hey, Jake John C regarding applebee's.
We love our guest profile as I referenced that's it.
The average household income is about $75000.
At the lower end of.
The average check continuum as I mentioned.
And there are a number of ways to deliver value. Some of those are overt in March we offered five boneless wings for Buck with any hand crafted Burger, which performed very well for applebee's.
There there are other opportunities to connect emotionally in January February .
Really wanted to write our regulars are most loyal guests are there were no actors or actresses in.
And those ads.
Incredibly.
Popular among our guests that those as really resonated in January February with America, and so whether it's value added whether it's overt.
Whether there is some co branding or perhaps even.
Entertainment based propositions moving forward.
We have clear visibility to our innovation pipeline and the ability to be very nimble and change course as needed has been done over the past two years. So.
We will deliver value, we'll just do it in a number of creative and innovative ways that applebee's always with our finger on the pulse of that.
That guest who has you know reasonably limited discretionary income at the moment.
Great that's helpful.
Next question is for.
Jay on Applebee's.
You mentioned the opportunity for hours and you're recovering the hours.
That had been lost so far here.
What's the opportunity in breakfast, if you could maybe talk about where breakfast sales stand maybe on an average weekly sales basis versus <unk> 19 in relationship to overall.
I think my math is down about 5% in the first quarter, how much room is there to recover in breakfast still.
Well this is Jay.
Okay.
We've got opportunities I think across the board to continue to work on our comp sales as we move forward. You know breakfast is actually recovered more than any other day part for US right. Now so breakfast is strong and I mean, you can.
Think about it that's what we're most known for its probably what our guests we're missing the most about IHOP if they hadn't been in a long time. So I think the other thing to remember is the beginning of the pandemic the whole world shutdown in knowing what's going to work and I think that negatively impact your breakfast business as well and I think as people are getting back out.
Even though there's a lot of flex work now and people may not be going to work as many days as they were in the past they are back out now, which which kind of tells you how high is up we're just not sure.
And frankly, I don't know how much the headwinds are causing pressure to prevent a recovery from being even bigger and faster than it could be so I think there's still a lot of opportunities both in the weekend breakfast, which gets negatively impacted if a restaurant is stack you can't turn tables as fast you can get as much.
Throughput through those restaurants, if youre not staffed on the weekend. So that's our weekend breakfast opportunity weekday breakfast I think obviously if you can.
Go back accounts multiple years ago, I think we've got opportunity there just because even though people are getting back to work now.
Quantity, but I think the breakfast behaviors, there's a paradigm shift in how people are behaving and I don't know how much of this is permanent and how much of this will will morph over time, but people.
People are fine in a way and I think they have new flexibility from their jobs now to work a little more on their own time, which in a weird way also gives them the opportunity to go sneak out and have breakfast to start working two hours later.
So it is a strange dynamic going on right now, but I think theres still a considerable upside both on the weekend and weekday for breakfast, but it is recovering nicely.
Great. Thanks, that's very helpful.
Thank you. Thank you.
Thank you. Our next question or comment comes from a line of Brian Vaccaro from Raymond James Your line is open.
Yes, Thanks, and good morning could you provide the monthly average weekly sales at IHOP like you did at IHOP.
Sorry, like you did at Applebee's and I guess, just talk about how the brand performed exiting omicron.
And I'm thinking about multi year stacks back to 19 and it seems like March maybe didn't come back as strong as some other sectors have and just your broader thoughts on why that might be any changes in behavior for the IHOP for consumer.
That might be worth worth highlighting.
Thanks, Brian for the question.
I don't have those at my fingertips.
I did say that the average for the entire quarter I'll try to grab those real quick I did say for the whole quarter I think it was 36000 a week.
Average.
And then we topped out at 41000 in March so it did keep improving after we got past, the omnipod, which where we struggled a little bit was in the.
In the first probably five or six weeks because of the omnicom variance compared to prior years et cetera. So if you. If you look on opponents have right now is to tell you here. So in the first month. It looks like we averaged in January about 32 that it was 36 and then animal 30 now.
Nine in March so you can see it kept building once we got past asami.
Most of the February softness was before Valentine's day. So it was those first five or six weeks will speak and then it started building from that I think that March did improve greatly and was pretty strong and I think when you look at the it's like I answered on the first question. When you look at the comp sales it looks like we dropped off but that's really in relation to the comp you are rolling over from.
Last year.
Covered was already on last year, so it looks like it tailed off at the weekly sales kept growing.
Right, Yeah, no definitely focus more on average weekly sales than the comps given the lapse in the recovery that we started I've been doing this spring of last year on on commodity inflation.
Just circle back on that as well can you share what the year on year inflation was for each brand in the first quarter and then.
Just sort of how each brand how each one you expect to.
Play out in terms of inflation, considering the differences in their baskets for 2022.
Yes, yes.
Yes, Brian So we are seeing for the first half applebee's.
Are we expecting 22% inflation and by about 20% inflation for the first half.
So that and then moderate somewhat in the second half so.
Year over year inflation by it gets down to.
Low teens in the second half of the year, so that averages out to about 13% to 16% for the year is what we're expecting.
Okay great.
Okay.
Paul and then.
Last one for me I wanted to just ask about menu pricing and John I heard you say that I think you said the Applebees recently took 5% to 6% what does that bring the year on year pricing too could you just clarify that and then also speak to the level of menu pricing on the IHOP side.
Sure Brian .
Probably the best way and this is John C. A T.
Think about applebee's pricing in Q, what are these on average took 5% to 6%.
And they're very measured and thoughtful moving forward and last year, probably 3% to 4%.
So if you think about that on a two year basis, Theyre clearly attempting to balance margin protection with continue.
Continuing to deliver great value for the guests I think they've been very successful I anticipate that success.
Yeah, Amit this is Jay on the IHOP side, if you look at that.
Year over year pricing you look at Q1 versus this.
This year versus Q1 last year at seven 9% as what Chuck overall.
Alright, great ill pass it along thank you.
Thank you. Thank you.
Okay.
Our next question or comment comes from the line of mix Adrian from Wedbush Securities. Your line is open.
Thank you can.
Can you just remind us just the historical seasonality relative to March in terms of average weekly sales.
In April May and June .
For both sure Nik.
For Applebee's. This is John C marches, a high volume month as you look at the flow of sales volume across the year March would likely be our highest volume month September perhaps our lowest volume months. That's a good way to think about it and think about indices that range from a.
Kind of a 90 to 110, depending upon the month.
Makes sense.
Yeah, and what about I hope.
<unk> side, we don't have any if you look quarter to quarter, you don't have any true seasonality overall as John said you have individual months that tend to go up and down a little bit and probably very similar.
March anytime you got as many spring break week.
Kids are out of school that tends to help them in March.
So that's one of our busier months and then back to school.
And in August September period, it's also a little bit slower time, but it's probably not material for us.
And then what about marketing weight throughout the.
The year any quarter stand out in terms of.
Maybe a higher marketing weight within that quarter versus some others for a prescribed for each brand.
Nick This is John C. So, we deploy $130 million to $140 million and working media on an annual basis pretty evenly dispersed.
By quarter up.
A bit versus last year on a full year basis.
We did lean into a heavier mix of 32nd ads in January February in Q1.
And bringing to life those edge I referenced called the regulars.
That really resonated, so probably a little bit of a heavier dollar spend in January February versus year ago, because of that 32nd AD investment, but very balanced year over year quarter.
Quarter over quarter.
As we look at balance of year.
Yes. This is Jay on the IHOP side.
Very similar we tried to spread this out fairly evenly throughout the year in fact, even more so now than we used to.
We've changed our strategy as I mentioned to more of an omni channel strategy and what that enables us to do is to not just be on national TV.
Different messages to different audiences in different times to try to move all of our day parts for different.
Advantage of reasons and in doing that you know the philosophy. We have is really kind of an always on.
Marketing streams, so because.
Because of that you're spending money pretty evenly throughout the year.
Great. Thank you very much.
Thank you. Our next question or comment comes from the line of Brett Levy from MK Partners. Your line is open.
Hey, Thanks for taking the question.
Just two questions largely again.
Net sales in capacity.
First if you could just give a little bit more color. Since you have such great scale, what youre seeing across the country from a demand as well as the.
Operational challenge.
And then specifically on operations can you talk about the 90% of the SLP.
How important is it to get that last 10% and what kind of sensitivity do you see in terms of incremental sales incremental profitability. If you are able to get there. Thanks.
Thanks This is Jay.
I think if you look across the country.
Yeah.
Shut down and the recovery was not even across the country right. So that that causes some waves as.
As far as the recovery coming back et cetera. So for example point is doing really well right now by the simple fact that they were the last ones pretty much to open back up and you are rolling over numbers, there where they were still closed down pretty much last year. When you look at other parts of the country, the southeast et cetera.
The impact wasn't as severe and closures they opened up sooner. So they're rollovers now we're already harder this year. So it's not an even playing field as far as how the recovery goes and it hasnt been.
The whole time, it wasn't even when it shut down either so.
So that's one dynamic that goes on and then your question about staffing you know there are pockets of the country were there recoveries and faster than the economies hotter.
Staffing is harder to to maintain that does hazard.
And action to our restaurants to the last point you asked about is the hours of operation and we're getting closer and closer to making progress every quarter to get to full standard operating procedure of ours.
The big opportunity for US really is though is to get back the overnight hours.
We're still missing about half of our restaurants did overnight business and.
We're very bullish on eventually getting that back we think the virtual brands will actually help us with that a lot of that business comes in the evening and much of those sales you have opportunity overnight windows failed and frankly franchisees have to make the P&L decision on is it worth being open overnight in a market where they used to pay.
An example, if you paid for.
Cook in your market to get wanted to work overnight you made make 25. So the economics are different on getting people to work. So the hurdle you have to get over to make it worthwhile to expand those extra hours that they used to have well if I can get a virtual brands going now it makes much more sense to also open up the IHOP business and do.
Both of them at once so the more we can get that out there I think the more that will also help our overnight.
Okay.
Yeah.
Thank you.
Next question or comment comes from the line of Brian Mullan from Deutsche Bank. Your line is open.
Thank you I, just coming back to the advertising environment, you know maybe broadly across casual dining over the course of this year be curious if you expect.
It will be it appears to be out there spending on advertising in a more meaningful way.
So you know it's not something you can plan for ahead of time or incorporate.
And to your plans or maybe you just kind of run your own race.
Can't control.
Curious if you would feel that and how quickly you'd have a sense if things do get more competitive.
Hey, Brian John C. Here.
Very thoughtful on the landscape competitively I do anticipate casual dining.
Large casual dining players being more aggressive in 2022.
We pay attention to that and we have formidable competitors with that said.
We had a terrific marketing plan.
That we you know we're fairly disciplined we validate with our guests before we execute our level of execution is.
Is superior.
And with that said, while we pay attention to our competitors.
We also did outperformed by 740 basis points last year. So we.
We genuinely believe.
On a post pandemic basis that we've earned the trust of America.
And that's that's going to pay meaningful dividends for the Applebee's brand.
We have very strong culture in particular of our 31 franchise groups you combine.
Loyalty and preference based upon that trust with superior execution and strong culture and.
In some respects may not matter, what our competitors choose to do we have a clear strategy and we're going to execute against it.
Understood that's very clear. Thank you and then just as a follow up.
If you could give your current thinking on the company owned stores that I believe with all the strength of the brand.
Do you think you might look to sell those in the coming quarters, you'll have the operations in a really good place or Conversely, maybe if there's some benefit you've seen the owning those over the longer term, even if that wasn't the original thought.
Hey, Brian It's John Payne I'll take.
Our thinking hasn't changed we're proud of what our operating team has done it's taken that portfolio, which was.
In one of our lower quartile has alluded to the top quartile in terms of performance. So we're very proud of that but the philosophy of not being a long term holder remains can't give you any information about when we might.
Have a transaction, but our intent remains to flip those restaurants.
At some point in the future and as we've talked about it was deferred because of COVID-19, but the strategy of the same.
Thank you.
Thank you.
Our final question is from the line of Todd Brooks from Benchmark. Your line is open.
Hey, Thanks for squeezing me in just one question if we look at the 90%.
Kind of staffing to plan that both brands communicated.
If you look if you look at the three buckets kind of App can flow.
Training people up on board and getting them experienced enough to be able to man, maybe a late night shift and retention, where do we stand on each of those buckets and and Where's the opportunity to really move the needle it feels like kind of industry wide. We're leveling out in these kind of low 90% of targeted staffing level. So I'm wondering where you are.
See the most opportunity within those three buckets. Thanks.
Hey, Todd John C. Regarding Applebee's, we held a national hiring day applicant flow was really great.
<unk> significantly higher than when we executed that in the prior year, our need quite candidly was lower.
Meaning we're in a pretty good position.
Restaurants can be fairly selective training is strong again that comes back to culture.
Which is equally strong retention always a challenge in this particular environment. So I don't want to paint an overly rosy picture what I would say is we're very pleased with our staffing levels. It allows us to execute everything that we're contemplating including perhaps.
Even late night propositions, which would've been a challenge last year.
Yes, I think on this Jay on the on the IHOP side.
You know I think that.
Finding qualified staff that we want to hire is probably still our biggest challenge right.
You can get a lot of applications, but not anybody gets to work for us right and so the pickings are thinner than they used to be and I think that's our biggest challenge. We've made great improvements and has really good training programs now we can get people trained up pretty quickly I think for us it's still finding.
The staff and again I refer to those over nine hours, you're also gonna find people willing to work.
The overnight shift and that's a little harder for us to source and that's one of the reasons, we've not been able to get all these hours back as well so.
Again as you as you get your business is coming back to servers make more intense more tests that are out there and the more people want to work for them and it's all a little bit of a flywheel once things really get cranking than just helps the thing overall.
Okay, great. Thank you both.
Thank you I'm showing no additional questions in the queue at this time I'd like to turn the conference back over to management for any closing remarks.
Thanks Howard.
Thanks to our team for.
A great quarter and thanks to all of you for your good questions. Today, we appreciate it and I know, we'll be on the phone with some of you later on today as well to go little bit deeper. So thanks for the time you spent with US this morning and have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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