Q4 2022 Dine Brands Global Inc Earnings Call
to raise and lower your hand during Q&A. You can dial star 11.
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Good day and thank you for standing by. Welcome to dying brands, Globals, Fourth Quarter and fiscal 2022 conference call. At this time all participants are now listen only mode. After the speech presentation there will be a question and answer session. To ask a question during the session you'll need to press the start 1 1 on your telephone.
You will then hear an automated message advising your hand is raised. Who will draw your question, please first start one one again. Please be advised that the day's conference is being recorded. I would now like to hand the conference over to your speaker today, Brett Levy, Vice President of Invest Relations and Treasury. Please go ahead. Good morning and welcome to Dine Brand's fourth quarter in fiscal 22 conference call. I'm Brett Levy, Vice President of Invest Relations and Treasury for Dine Brand's Global.
and I am joined this morning by John Payton, CEO , Mance Chang, CFO , Tony Moralejo, President of Appalies, and Jay Johns, President of IHOP. Please remember our safe harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves 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 in the context of these factors, which are detailed in today's press release and 10K filing. The forward-looking statements are as of today and assumes no obligation to update or supplement these statements. We may also refer to certain non- GAAP financial measures, which are described in our press release and also available on Dime Brand's Investor Relations website.
As it relates to this morning's release and our filed 10k, our fourth quarter and full year 2022 results include the company operated Applebee's restaurants, which were sold to one of our existing franchisees in October and our December acquisition of the Fuzzy's taco shop brand. For calendar planning purposes, we are tentatively scheduling the release of our first quarter 2023 earnings call Wednesday, May 3rd, 2023 before the market opens.
with that. It is my pleasure to turn the call over to our CEO , John Payton. Hello everyone and thank you for joining us this morning. On today's call we will discuss our investment initiatives including the recent acquisition of Fuzzy's Taco Shop. We'll share our fourth quarter and full year 2020-2 results. Vance will offer our initial 2023 guidance and thoughts on our capital structure. And to wrap up Tony and Jay will provide updates on Applebees and IHOP. Before we get into those details let me first welcome Tony, our new president of Applebees. Tony started in this role in January and brings decades of operations, development and franchising expertise to Applebees.
Tony is a veteran of Burger King and Church's Chicken. He joined Dine in early 2021 as president of our international business just in time to masterfully lead our international franchisees through the pandemic. And as a result of his stewardship, our international business achieved record openings last year. I'm thrilled for Tony and for Applebees and I appreciate the warm welcome and support that Tony's receiving from our franchisees. While Tony is the new face of our Applebees brand, we also have a new brand, Fuzzy Taco Shop, which fulfills our long-stated goal of adding a brand to our portfolio.
I was enamored with fuzzies from the moment I walked into the vibrant and colorful dining room and convinced after I sampled the fresh Baja inspired tacos and delicious Instagrammable beverages Specifically we chose fuzzies because it's nearly 100% franchise and like Apple bees in IHOP It's the value leader in its category Second in addition to its 137 restaurants It's nurtured a strong pipeline of 125 additional units expected to open over the next several years We love the Mexican category because it's vibrant and growing and we're attracted to the strong business model that includes a compelling lunch and dinner business
40% off-premise sales and 20% alcohol sales. And finally, we love what Fuzzy describes as its bold and badass attitude that creates strong emotional connections with its guests. Fuzzy's is led by Paul Domingo, a veteran of focus brands, most Southwest grill, and HMS host. During Paul's two years with Fuzzy's, he and his management team strengthened operations, marketing effectiveness, and menu innovation while building an impressive pipeline for future growth. We're extremely pleased to have Paul and his entire team as part of the Dine family.
Our focus now is to ensure that Fuzzy's benefits from the economies of scale that we offer from our technology, our shared services, and our supplier platforms, and to accelerate Fuzzy's already robust momentum. The Fuzzy's acquisition ended the year on a high note for us, but it didn't distract us from the continued impacts 2022 caused across the industry, inflation, hiring and retention challenges, supply chain delays, and of course, uncertainty regarding the strength of the consumer. And yet against this tough operating environment, Dine delivered solid results.
for the fourth quarter and for the full year 2022. I attribute our positive performance to the strength of our value-oriented brands, our operational and marketing agility, and the commitment and hard work of our franchisees and seasoned brand teams. Vance will provide more detail on our results, but key highlights are that Applebee's posted its eighth consecutive quarter of positive comp sales with a Q4 increase of 1.7% and full year comp sales growth of 5.1%. IHOP had its seventh consecutive positive quarterly gain at 2% and full year comp sales of 5.8%.
In 2022, we returned over $150 million to our shareholders via dividends and buybacks, and we retired $40 million of our outstanding debt last quarter. Despite economic pressures across the industry, the strength of our value-oriented brands was apparent as we were able to meet guests where they are because our franchisees excel at providing delicious food, great experiences, and fun welcoming restaurants. Meanwhile, our brand teams excel at delivering innovative marketing, menu, and
experience like flyby, server handhelds, functionality for our apps that includes dining, order and advance, and joining wait lists for seating, payment options, and the ability to review the restaurant. Third, we're focused on building on our portfolio of virtual brands that currently includes thrilled cheese and super mega-dea, and we're now testing a chicken and a cheese steak concept.
We're also leveraging IHOP's brand equity into national CPG partnerships, launching IHOP branded coffee with craft hines and cereal with general mills. And finally, we're testing new brick and mortar concepts like dual branded restaurants, kitchen of the future, pickup windows, as well as offering compelling and targeted incentives to franchise ease to accelerate the construction of new restaurants. The past few years have reminded us to expect the unexpected. 3 Spot Designed Media.
We've learned to react quickly and decisively to new challenges and opportunities. And as a result, our teams are better equipped and more prepared to meet the changing needs of our guests. In 2023, we anticipate that Dime will deliver steady results against a still difficult macro environment. We'll continue to invest in innovation and technology that transcends us for the long term, and we'll diligently focus on managing our balance sheet, optimizing our debt structure, and returning cash to shareholders. We're confident that our team, our strategy, and our momentum will serve us well in 2023 and beyond. And with that, we'll turn to Vance, who will offer more details on our financial performance. Thank you, John . As you mentioned, Dime is well positioned to leverage our cash flow generation ability to drive long-term growth.
percent higher than the prior year, despite the re-franchising of the 69 restaurants.
GNA for the fourth quarter of 2022 was $59 million compared to $49 million for the same quarter of last year.
We ended a year with $191 million of GNA expenses up from $172 million last year due to strategic growth investments resulting in increased professional services including one-time items such as Fuzzy's acquisition costs.
These higher costs also were related to our return to normalize operations to support franchisees including higher occupancy costs and travel, conference expenses and software maintenance costs. Excluding the various one time items, our 2022 GNA would have been approximately $182 million.
just below our expectations for the year. We generated consolidated adjusted EBITDA of $57 million in this quarter compared with last year's $60 million quarterly results.
Our consolidated adjusted 2022 EBITDA of $252 million was ahead of our guidance and modestly below last year's $253 million. Finally, adjusted earnings per diluted share for the fourth quarter and four year were $1.34 per share and $6.20 per share respectively. Outpacing last fourth quarter's $1.32 per share but below 2021's.
$6.54 per share. Inflation on restaurants food costs and supplies remain elevated, although more pronounced at IHOP given continued cost pressure on eggs and wheat. Applebee's and IHOP experienced 18% and 21% inflation for the year respectively.
Without the impact of eggs and wheat, IHOPs 2022 inflation would have been around 17%. Apple V's Q4 inflation was 11%, an improvement from 23% during the first half of 2022. IHOP's Q4 inflation remained at about 20%, consistent with the 21% during the first half of 2022. On menu pricing, our Apple V's franchisees continued to focus on their value positioning with an approximate 7.5% average
$96 million in the prior year. The variance was primarily due to the change in working capital we saw in Q1 of this year and discussed in the prior three quarters. Our capital structure, including the undrawn capacity of the Upsized Variable Funding Note and our asset light model, continue to provide the business with ample liquidity and operational cushion related to our covenants.
We ended the year with total unrestricted cash of $270 million versus $355 million at the end of the third quarter as we utilize our liquidity to fund Fuzzy's acquisition and to retire $40 million of bonds in Q4. The bond buybacks were done at a discount to face value, averaging below 97% of par, with a net impact of $1.2 million of principal savings and over $1.5 million of annualized interest expense savings.
as we prepare for the upcoming anticipated repayment date of our Class 821 bonds in June of 2024. We're currently encouraged by the improvements in the securitization markets and will look for the best window over the next several months to refinance our notes. Capital Allocation
In addition to organic investments to drive growth, our capital allocation focus going forward will include both debt and equity buybacks. We returned over $151 million of capital to shareholders in 2022 through dividends and stock buybacks, outpacing our pre-pandemic average. We also have a $100 million authorization from the board for bond buybacks to optimize our capital structure opportunistically.
Before I turn to our 2023 guidance, I wanted to share additional color on our recent Fuzzy's Tackleshop acquisition, which closed in December of 2022. This 137 unit fast casual taco concept generated over $220 million in 2022 system sales. Its efficient square footage units generated $1.6 million in average unit volumes, with the newer cohorts achieving sales well in excess of that average. We're encouraged by the integration process thus far and optimistic about the value creation opportunities as part of our investment thesis. Finally, I would like to share our financial guidance for 2023. First, let me touch on development. Our Applebee's development plans call for 10 to 20 fewer restaurants in the world.
33 gross cat-back spending to be in the range of $33 to $38 million. Although the effective cat-back levels will be about $10 million lower due to TI reimbursements related to certain projects which will flow through our operating cash flows for gap accounting purposes. Overall, this guidance reflects our current view of the headwinds and
Tony Maralejo for his perspective on the business as our new president of Applebee's. Tony.
Thanks, Vance. Yes, I'm absolutely proud and excited to be leading Apple Vs. A brand that I personally and professionally admire so much. Having worked in restaurant franchising across multiple categories for nearly 30 years, I know a franchise or win when franchisees succeed.
Based on my experience and involvement with the Applebee's leadership team over the last few years, I can confirm that we have an incredibly talented and stable team committed to a successful strategy that doesn't waver and produces winning results. We would not be in this position if not for the intelligent and passionate base of Applebee's franchisees that work closely and collaboratively with the Applebee's leadership team. Together, we remain committed to driving business results. 2022 is the second consecutive year of strong sales performance. Applebee's closed out 2022 with a Q4 Comp sales increase.
of 1.7 percent on top of last year's 9.1 percent increase versus the same period in 2019 and a full year comp gain of 5.1 percent. Q4 marked Apple B's eighth consecutive quarter of positive comp sales growth. Our solid momentum resulted in Q4 average weekly sales of $52,500 per restaurant. Volume across our sales channels will split with 76 percent generated by on-premise sales and 24 percent from off-premise sales with 13 percent coming from to go and 11 percent from delivery.
Applebees continues to be recognized as a leader in the sector. From a brand attribute perspective, Applebees leads the casual dining category in key metrics such as convenience, affordability, variety, family friendly, and brand awareness.
Applebee's also leads on team engagement and great place to work rankings. At the same time, the brand and franchisees remain dedicated to positively impacting the communities we serve and recognizing local heroes through our Doing Good in the Neighborhood platform.
Applebee's category leadership position and overall success is driven by our relentless focus on the guest experience, while we aim to exceed expectations of service and quality. Our marketing efforts continue to bring innovation, fun and value for our guests.
as evidenced by our aided and unated brand awareness, which hit all time highs. Beyond our traditional brand approach, we partnered with Paramount and Tom Cruise on Maverick Top Gun. We also leveraged our guest strong relationship with live sports thanks to our partnership with Football Night in America and Sunday Night Football on NBC America's number one prime time show. Most importantly, we launched campaigns focused on affordability and value, which remained top of mind for our guests during these inflationary times.
Our marketing, culinary and operations plans in 2023 will continue to build emotional connections with our guests by listening to what they want while keeping a pulse on emerging trends to deliver the products, services and interactions they crave. Touching briefly on development, in 2022 the brand opened 16 restaurants globally with four of those openings occurring domestically while effectively managing restaurant closures to minimize the impact on the portfolio. We ended 2022 with just 13 restaurant closures. Over the last two years now.
the restaurant industry experienced rising land acquisition costs and construction cost inflation, while franchisees experienced downward pressure on operating margins. While our franchisees remain on solid financial footing, thanks to an all-time high AUV, these factors resulted in low new build ROIs, hampering our ability to ignite new unit growth. My top priority is to ensure our franchisees are successful.
So I'm going to leverage my development background and work closely with FranchiseE's to create new, financially attractive development opportunities for the entire Applebee's system. To wrap up, I see continued momentum for Applebee's because the brand, our strategies, and our talented brand and FranchiseE teams represent the necessary ingredients for future success. And with that, let me hand it over to Jay. Thank you, Tony.
As you've already heard, IOP delivered its seventh consecutive quarter of positive comp sales, illustrating our progress and resilience despite continued volatility. While the operating environment may be challenging, it isn't detracting from our strong consumer connection and purpose to serve more joy to more people. IOP posted positive 2% comparable store sales growth in the fourth quarter, and it represented the brand's seventh consecutive positive quarterly gain. Average weekly sales of 38,200 were modestly ahead of the prior year's 37,500.
Our Togo business was 22% of sales and intended to be led by the 14% mix for delivery and traditional takeout generated remaining 8% of sales. The off-premise business is also supported by our two virtual brands with over 1200 restaurants offering thrilled cheese and super mega-dea. We're excited to celebrate our 65th anniversary in 2023 throughout the year. Our brand's food and restaurant experience remain as relevant today as it ever has been. We continue to leverage our marketing strength not only through our brand's legacy and value proposition, both of which were on display as we kicked off the year by bringing back our iconic Rudy Tutti fresh and fruity at a value price of $6.
but also by leveraging our relationships. One example is our recent partnering with Marvel Studios for an exclusive value movie tie-in to Ant-Man and the Wast Quantumania. It's been $30 and get a movie ticket with Fandango. Our current quality and value campaign focuses on our new suite and savory crates Bogo, which is running through March. We're also driving innovation across all aspects of our business. Our International Bank of Pancakes loyalty program has been well received as interest in the program far exceed our expectations. Not only have we seen our IHOP app downloads triple year over year and lead our category.
but we added 4.4 million members in its first nine months, nearly 2 million more members than expected, and this accounted for 5% of sales by year-end. We're excited with our loyalty program's initial progress and look forward to greater engagement with our guests and its potential. While still early, we're receiving excellent data and developing more KPIs as the data set becomes richer and deeper, which we hope to share at this time next year. Additional evidence of our standing with consumers can be seen through our retail collaborations. We partnered with General Mills.
and recently introduced an IHOT Mini Pancake Serial, which they viewed in restaurants stores in January . And today, we're excited to announce a new multi-year partnership with Kraft Hines as part of our coffee business. In April , IHOT Brand and Coffee will be on retail store shelves nationwide. These are great examples of how we're taking new and unexpected approaches across product categories.
Turning to virtual brands, which are now in more than 1200 restaurants, we're about to launch our third virtual brand, TenderFix, a chicken tender concept, which serves to complement our two existing offerings, thrilled cheese and super mega-dea. These partnerships speak to eye-ops and brand strength and relevance, and enable us to expand our reach, allowing us to be top of mind to more customers. Our 2022 development activities were below our expectations, as we highlighted on our last call, as macro issues have affected the timing of our pipeline.
We opened 37 new restaurants in 2022 with more originally planning Q4 slipping into Q1 of this year, 10 of which have already opened in 2023. The pipeline remains robust, although macro factors continue to impact the timing of openings.
We're targeting 45 to 60 net new unit openings in 2023, which represents a more normalized and solid development year. Understanding macro factors could still influence our activity. I'm confident in the momentum we have at IHOP going into 2023, and I proudly speak for the IHOP system where we collectively look forward to all we'll do together to spread more joy this year. Let me now turn the call back over to John . Thank you, Tony and Jay and Vance.
If the last few years have taught us anything, it's to expect the unexpected. Our philosophy is to focus our time and resources on the aspects of the business that we can control, while ensuring that we remain agile and decisive when confronting immediate challenges. This approach will guide us in 2023, as we invest in our business, deliver exceptional value and experiences to our guests, and drive returns for our shareholders. One final note, with the addition of Fuzzies and our refreshed focus on international.
Going forward, we're going to modify our approach to this call. Beginning next quarter, our scripted remarks will be limited to Vance and Me, and then Jay and Tony will join us for Q&A. We're making this change to ensure that we effectively manage the time of our remarks to leave as much time as possible for your questions. Thanks again for joining us this morning and have a great day. Thank you. We'll begin our Q&A session. As a reminder to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again.
Moving forward, we're going to modify our approach to this call. Beginning next quarter, our scripted remarks will be limited to Vance and me, and then Jay and Tony will join us for Q&A. We're making this change to ensure that we effectively manage the time of our remarks to leave as much time as possible for your questions. Thanks again for joining us this morning, and have a great day. Thank you. We'll begin our Q&A session. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be in the chat.
Please limit yourself to one question and one follow-up. Please stand by, while we compile your KNA roster one moment. Question comes from the line of Eric Gonzalez with Keybank. So line is now open. Hey, thanks for the morning. My first question maybe on the GNA outlook. You know, you called out having some investments, I think, in the guidance and the release. So these investments, they're going to roll in the 23. So maybe you're looking at a little bit higher GNA next year. If I were to go back to the analyst a year ago, you know, the idea was that GNA would step up in 22 and these investments would start to generate returns by the end of the year. So I'm just kind of wondering where we are in that cycle. I know some of the investments have happened.
So overall, we expect our 2023 G&A level to be about the infrastructure that we need to support the growth going forward. As long as we continue to see progress with franchisee support, guest behavior, and profitable growth.
in sort of a more normalized operating environment. So, and to answer more specifically on returned, you know, first of all, like I think for 2023, we know it's a complicated operating environment, right? And but despite the complications, we are starting to see progress with, you know, the initiatives that we've made last year in the context of comps, development, and new revenue sources. So our guidance effectively implies that our continued investment in GNA will be funded.
by the early innings of growth that we're seeing in 2023, and of course with longer term upside through E-Doc growth in 24 and beyond. And Eric, it's John , just to give a specific example of the way it's something like that flows out. Jay mentioned the loyalty program for IHOP. So 21 was about designing it and beginning to build it. 2022, we spent on the technology to enable the app, et cetera. By the end of 2022, we had about 5 million members enrolled, and those members accounted for 5% of IHOP sales. So we head into 23, it's about now using our marketing capability and the investment we made in the tech to start to market.
directly to those people with promotions, we're adding artificial intelligence and predictive analytics to help recommend to them what their next purchase should be. And so, you know, that's a way to think about the cycle of how one initiative will impact 23. That makes sense. And if I can ask about development here, Tony, your comments sort of suggested that the ROI is maybe not quite where you'd like them to be, do the borrowing costs, the construction, inflation delays, and maybe the store little margin. So, I think this begs the question of where we are in terms of store level, we've done and how much that declined in 22. And, you know, I think if I go back to, again, that discussion we had a year ago, you know, the idea was that unit growth would go to that, would sort of be five or so this year. I guess I'm wondering, is this a function of closing more stores or are you just opening fewer to offset the closures on that basis?
And then Jay, on the IHOP side, you know, you missed the bottom end of the guidance, even that you updated a quarter ago. I think he's finished the year. He did 30 for the year. And so that presumably means that some of those units would filter into 23, but yet the, the guidance that you gave today is maybe below with the, you know, what you had thought initially from a normal year development perspective. So, he's wondering what that means about the ability to accelerate unit growth, I think, and reach that 2100 unit target by 2026 that you laid out not too long ago. Yeah, so we'll start with Tony. I'll tackle that question first. So. Look, we're going to open more new restaurants this year than we did last year.
which is a significant improvement. But it's not where we want to be in the future. Based on my experience across multiple global restaurant brands, the rate or the pace of development, it comes down to franchisees believing there's an attractive value proposition. The brand leadership team I think has delivered all time high AUDs. However, those gains have been offset by inflationary pressures on operating margins, but really rising real estate costs, higher construction costs, higher cost the capital. So I'm going to use my experience as I said in my opening remarks and my expertise. And we're going to make sure that the brand leadership team focuses on those factors that are within our control.
We'll continue to drive AUVs. We're going to continue to improve franchisee profitability. And we're going to reassess our prototype to help with the, to help Apple V's return to positive net unit growth. Yeah, this is Jay. From the IHOP side, look, we did not hit the target we wanted to hit last year. We had, as we talked about on the last call, we had macroeconomic factors and supply chain and the supply chain kept moving to different items. We actually took positions to try to help ourselves get these restaurants open later in the year, but new pieces of equipment, new things started coming into play that you couldn't open a restaurant without it. So they started pushing into the next year.
And I think as we developed our guidance this year, while it sounds like we're not on target, long term we still feel confident over the five years of where we can get the openings to, but we're trying to be responsible here also. The macroeconomic factors have not completely gone away. Supply chain is not proven to move at the same rate that it was before. Timelines are getting extended compared to pre-pandemic. And one of the big things to keep tapping is that local municipalities are just taking longer and longer to approve plans, etc. So one of the things that we've done is since the pandemic, we have started to get our franchisees to pivot toward doing retrofits of previously other restaurants. We're very successful doing this. We've got about 600 of them in our system.
Okay, just the last one for me. Can you maybe comment on the P&L impact of these tacos in the fourth quarter and maybe expectations for that? Contributions needed down next year?
Okay, just the last one for me. Can you maybe comment on the P&L impact of these tacos in the fourth quarter and maybe expectations for that? Some contribution to either down next year? Yeah, Vance will walk us through that.
So Fuzzy, we closed and laid of Q4, so there's really not material impact Q4 financials. But going forward for 23, obviously built into our guidance. But the way I would think about it for modeling purposes is in terms of GNA and EBITDA contribution. Fuzzy's roughly replaces the company-owned restaurant, of course with a lot more growth potential in future years. Perfect, I'll get back in the queue. Thank you. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Todd Brooks with the Benchmark Company. Your line is now open.
So Fuzzy, we closed and laid of Q4, so there's really not material impact Q4 financials. But going forward for 23, it's obviously built into our guidance. But the way I would think about it for modeling purposes is in terms of GNA and EpoDal contribution, Fuzzy roughly replaces the company-owned restaurant, of course with a lot more grotex, you know, potential in future years. Perfect, I'll get back in the queue. Thank you. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Todd Brooks with the Benchmark Company. Your line is now open. Hey, good morning, everybody. Thanks for taking my question.
I'll try to limit it to here. One is, as you look at the Fuzzies opportunity, can you talk about your long-term vision for how big you think that concept can be? And are you having an early discussion with Applebee's or IHOP franchisees about potential cross-sell opportunities that could really ignite the unit growth there, especially if we get to a more normalized construction environment? Hey Todd, it's John . Thanks. We're interested in Fuzzies because we thought it was a great brand. We love the Mexican category and the fast casual category. We view that as a combination of fast growth and high potential. In terms of how big, I can't put a number on it, but we certainly intend it to become a material part of our business and that was the vision behind it. As we mentioned, there's 125 additional restaurants in the pipeline for the next several years.
And we're just now beginning to work with our development team and the Fuzzy's team to see what we can do to expand that. We did a lot of research before we made this choice on several companies and landed on Fuzzy's, including pretty elaborate national tests and confirmed that we believe that the cuisine and the tacos and the design of the restaurants are applicable literally across the country and that we can achieve a national footprint. You know, when it comes to thinking about what any of our existing franchisees at Applebee's are IHOP be interested in a Fuzzy's, we have thought about that. And we've had a conversation with a few of them. You know, but our point of view there is, you know, investing in a Fuzzy's would be great, but that is over and above their current commitments to, you know, IHOP and Applebee's based upon their development agreements with us. Take that.
but the lower scene is a softening of the inflation for 2023. Just to follow up to that, I guess where do franchises seem to feel as far as...
the value that both brands are still delivering with the price increases that they've taken. Do you sense any, maybe, catch up on incremental pricing as you guys have been pricing behind the inflation of the both brands have experienced? Thanks. I'll take that in, and I'll ask Tony and Jada comment if they want to add on, but, you know, as you said, about on average, our franchisees have raised prices about half of the cost of, you know, inflation of costs of goods into the restaurants. And we like where they are because I think they're aligned with us strategically about.
the being value oriented brand they understand where their guests are right now and the effect of the economy on them and I think they've taken prudent and responsible pricing that is balancing both their own margins as well as you know remaining attainable to our guests when you look at our performance of the quarter and our comp sales you know we think we hit that sweet spot of the franchisees protecting as much margin as they can but also not driving their customers away with prices that are too sweet Tony do you want to add anything? Yes thanks John you know pricing is just part of
than just an attractive price. You need to deliver what we call a value experience which it triggers a feel-good element with your guests. This can come from indulgence or sharing a meal with family and close friends. And so for those reasons, Applebee's and the Applebee's franchisees were focused on elevating the total guest experience.
in addition to offering compelling value offerings? Yeah, this is Jay. From an IHOP standpoint, I think the franchisees, as John said, are being very prudent about this. But some people refer to it as a barbell strategy. We have places where guests can get value at our restaurants, even though they've needed to take some price, they've been very smart and continue to support value initiatives.
You know, we have everyday value with our Happy Hour program. We do limited time offers like the Bogo on our crates we're doing right now or the Rudy 2D we did for $6 in the first year. We can even offer exclusive value now because we're loyalty program. We can send offers directly to people that are in our program that you need value just for them and a reason for them to sign up for the program. So I think they're doing a good job of balancing that and as prices come down I'm sure they're...
their costs come down. I'm sure that their prices to their guests are going to moderate as well and go back to more reasonable levels. There may be a catch-up opportunity at some point, but they're not going to do anything to hurt the guest experience and run off their guests because of it. Thank you. One moment for our next question. This question comes from the line of Nick Settian with Wed Bush. Your line is open. Thank you. You're just given the outsized performance, ported date and Q1. What would be possible for you to make make an exception this one time and just talk about your clients?
coordinating Q1 at least, you know, in general terms. Nice try, Nick. I'll see what I can see what I can do. It's job. You know, we're not going to give specific numbers about Q1, but what I can tell you is that the trend and the pace and the momentum that we see ending last year is certainly baked into our guidance for this year.
Got it. You know, one of the big worries out there is that we're going to see incremental competition, particularly in the Applebee's peer set with one of your bigger competitors being more on television and advertising some aggressive price points on an ongoing basis. You know, I guess what's your response to that? How are you positioned in terms of your marketing cadence? How do you feel about sort of incremental competition at this year?
category. And so, you know, heading into 23, which again is an uncertain year in terms of consumer behavior. I'd much rather be where Applebee's is. You know, the brand that has a clear position has, you know, off-the-charts awareness scores from its guest and has a consistent winning message on television than having to...
I'd rather be there than spending a lot of money to create a new point of view about a brand from scratch. Tony, you want to add on to that? Yes, thanks, John . You know, well said. I'll start, Nick, great question. I'll start by saying we're very confident with the Applebee's brand position. We're very confident with our value proposition. And we're very confident with the marketing calendar that sits for the entire year. More importantly, you know, the entire Applebee system is nimble.
agile and we're prepared to pivot if necessary. We'll make changes should any competitor or market force you know want such action but while others are trying to figure out their new campaigns we've got a five-year track record we've got proven sustainable playbook and it's producing winning results so we're going to remain focused on our playbook we're going to continue to use our strategy to drive business results we're going to continue to connect with our goal guess through great marketing and a restaurant experience. Thank you very much. Thank you. As a reminder Ladies and gentlemen that star one one to ask your question.
One moment for our next caller. And our next question comes from Brian Vacaro with Raymond James. Your line is now open. Thanks and good morning. Just piggybacking on next question on Applebees and Tony, you mentioned the strength across various brand attributes. I was hoping you could hone in maybe a little more specifically on brand awareness. Is there any quantification you can provide on how much Applebees awareness metrics have increased versus category peers?
or perhaps to what degree you think Applebee trends over the last couple of years of the pandemic have benefited from that awareness. Thanks, Brian . I don't have specific metrics results to share with you today, but let me say this. When it comes to indicators, what gives us confidence, it first starts with sales. And we've had a nice three year-long sales. And in addition to stringing together three strong years, we had, you know, as part of that eight consecutive quarters of strong sales performance. But from a brand attribute perspective specifically, we lead the casual dining category in metrics such as affordability, which is incredibly important in this environment. Unnated brand awareness.
I made it at awareness, aided to go awareness and delivery awareness. And also, I'll add that our advertising under the leadership of Joel Nishinsky or Chief Marketing Officer, it continues to deliver award-winning campaigns that really resonate with our guests. And you'll continue to see amazing value-added partnerships throughout the year that I referenced examples of in my opening comments. So, all of these factors are very, very encouraging and our brand health today remains robust.
Okay, and then I also wanted to circle back on franchisee profitability. Could you provide any more color just kind of exiting 2022? Just ballpark where average store level EBIT on margins might be for each brand. And just how you expect that to trend through 2023. I think Vance had said mid single digit food inflation, but how about what do you, what do the expectations on wage inflation and any specific savings initiatives that are worth highlighting? So a couple questions to peel back there. So first overall franchisee profitability, without getting into the specifics of our franchisees P&Ls, let me say that our portfolio is very strong overall.
Thanks in part to finishing 2022 with all time high annual average unit restaurant volume of 2.8 million per restaurant. As our average unit volume is improved, the health of the system continues to get better and better. With respect to the cost side of the equations, you know, print-tensy margins, especially food costs, they were impacted, but they remained healthy. And the good news here is that we're now seeing some moderation and anticipate more relief later this year.
In terms of specifically of food costs for this past year, we saw our basket increase by 18% as Bans mentioned. Hey Brian , and the food cost for Applebee system, it's roughly 25% of sales. So the math there is, you apply the inflation percent to our food costs. It's sort of the P&L impact, right? But...
You know, you asked about specific cost saving initiatives. So each one of our brands, we have cross-functional teams between the purchasing co-op operations, the franchisees, to come up with cost saving ideas to lower production costs, reduce waste or usage, or improve restaurant labor, while just, you know, obviously not negatively impacting the guest experience. So, you know, some of these ideas include like packaging, distribution, shrink reduction, initiatives, you know, server tablets, they help save labor, energy efficient equipment, reviewing products, specific locations, you know, all these things are the conjunction to help offset sort of the inflation that the franchise is using.
Okay, thank you for that. And then just one last one if I could on the development guidance. How many openings and closures does your net unit guidance embed at each brand? And then how many fuddies do you expect to open in 2023? Thank you.
We haven't guided on gross versus closure, where we guided was the net number. And Fuzzy's also, I think right now, think of it like our international business is not significant enough just yet on a consolidated level for us to break it out. So we're not providing separate guidance, but obviously we will report accordingly as the system grows over time. All right, I'll pass it along. Thanks very much. Thank you. We'll take a moment for our next question.
Our next question comes from the line of Jeffrey Bernstein with Barclays. Your line is now open. Great. Thank you very much. Just following up on the fuzzy, I know you mentioned that I guess it's already built into guidance and I think you just mentioned that it's not material enough. But is there any quantification in terms of sales or EBITDA or any specifics you can provide as we try and build out fuzzy as an incremental layer to the 2023 guidance? So in terms of sales, we talked about fuzzy system sales about, it's roughly 220 plus.
So we provide the detail in terms of one, what's contracted for the franchisees and two, how much pricing may be corporate suggesting or how those pricing conversations have gone with franchisees. Right now, I think we're at sort of 40 to 60% of our fee cost pricing is locked in for the next 12 months. I think this is still at a lower fixed pricing level than we know.
to the franchisees to determine menu pricing. But the conversation we're having is obviously focusing on the longer term, grab market share, and focus on traffic. That's what's going to drive enterprise value for themselves and for us. Understood. Lastly, just based on the assumption for positives.
Traffic as we move through 23 just trying to compare what you're thinking for your brands and maybe how you think that compares to the relative industry for 2023 on traffic. Well, we haven't guided on traffic before and so, you know, I think that the reason being different industry players have different definitions of traffic. So but it's a key focus as you could imagine for us and all the campaigns old investments are our aim to to improve our guess, guess experience and drive traffic, but we haven't guided on that point specifically before. Okay. Thank you. Thank you.
As a reminder, ladies and gentlemen, that's star 11 to ask your question. At this time, I would like to turn the conference back over to Dines Chief Executive Officer Mr. John Payton for closing comments. Thanks very much. We appreciate everybody's questions this morning and always appreciate the time you take to talk with us and I know we'll be speaking with some of you throughout the day. And have a great day and take care. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.