Q3 2023 Dine Brands Global Inc Earnings Call

Good day and thank you for standing by welcome to the branch Global third quarter earnings Conference call. At this time, all participants are in a listen only mode.

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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

Please go ahead.

I'm Brett Levy.

President of Investor Relations in Treasury.

This morning's call will include prepared remarks from John Payton C E O advanced Chang CFO.

Following those prepared remarks, Tony moral Leighow president of Applebee's, and J Jon's President of by Hoppe will also be available to address questions from the investment community during the Q and a portion of the call.

Please remember our safe Harbor regarding forward looking information.

During the call management will discuss information that is forward looking and involve 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 10-Q filing the.

Forward looking statements are as of today and we assume no obligation to update supplement these statements.

We will also refer to certain non-GAAP financial measures, which are described in our press release and also available on dining brands Investor Relations website for.

For calendar planning purposes, we're tentatively scheduled to release our queue for 2023 earnings before the market open on February 28 2024.

And to host a conference call that morning to discuss the results.

With that it is my pleasure to turn the call over to Dine brands C. E O John Peyton, Thanks, Brett and good morning, everyone. Thanks for joining us today will provide updates on <unk> Q3 results and how we are advancing our strategic growth agenda or as we call. It a recipe for growth.

Vance will then provide a detailed financial update including an update to our full year guidance matrix and filing those comments, Tony NJ will join us for Q&A to start I'll share some thoughts on what we're seeing with respect to guess behavior and the consumer mindset.

During the quarter, we notice the guests are limiting their discretionary spending and have become more selective with where they choose to spend their money. Despite this we believe that eating out continues to be an occasion or gas value across our brands.

We're seeing our guest maintain spend in family and casual dining brands Wow tightening their wallets on quick service brands. We're also seeing guest traffic on weekends and key holidays outperformed the competition further indicating that gas prioritize a full service experience even if it means you'll have to skip out on their next.

Quick service starting occasion at the same time, we believe the decrease personal budgets are leading guest to ask where should we go to eat less and should we just cook at home more this means we're not competing with other restaurant brands, but also with home cooked meals.

In general, we see gas prioritizing dining in and enjoying a full restaurant experience, which aligns with <unk> core strengths are providing abundant value and exceptional experiences qualities deeply ingrained in the DNA of each of our brands.

This is particularly important during the upcoming holiday season, when restaurant visits increase.

So now turning to our results are third quarter results highlight the resilience of <unk> franchise model. Despite laughing strong comps in an increasingly competitive landscape, we posted solid EBITDAR results.

First Q3 revenue of approximately $203 million versus $230 million in the prior year. The difference is largely a result of the Refranchising of 69 company owned restaurants in October of last year to a franchise Z y.

Well company on revenues are now zero because of the Refranchising, we benefit from the consistency of royalty income combined with reduced operations related expenses second adjusted EBITDA is $66 million compared to $63.6 million in Q3 of 2022. The difference again is due to the <unk>.

Refranchising of the company owned restaurants.

<unk> posted it's 10th consecutive quarter of comp sales growth up 2% year over year and outperformed the family dining segment on sales for eight added a 13 weeks of the quarter average Q3 weekly sales for IHOP with $37800 exceeding pre pandemic highs.

And Applebee's same store sales declined 2.4%. However, average Q3 weekly sales for Applebee's were over $52000, which also surpassed pre pandemic highs.

Throughout the quarter, we continued to focus on initiatives to drive growth and efficiency first we leveraged investments in technology marketing and training to improve both guessed experiences and loyalty programs set.

Second we introduced menu innovations and supported marketing initiatives to further engage our guest and better understand what they're looking for in our brands. This has been a huge area of focus with activity across both IHOP and applebee's as we advanced culinary innovation and the opportunities to lean into abundant value and third we remain.

<unk> highly focused on new development initiatives and we're driving ahead with plants in this area to support unit growth over time.

These three areas make up our recipe for growth.

Now, let's review the quarter highlights for each brand starting with Applebee's as I mentioned at the start of the call Applebee's comp sales were down 2.4%. However, applebee's continued to maintain sales volumes by executing promotional tactics such as all you can eat wings to increase demand throughout the quarter, while still looking to advance its plan to drive track.

Nick over the longterm.

Applebee's gas, one compelling value and a great dining experience at an affordable price our strategy Leverages fan favorite menu items, new culinary options and promotional offerings that appeal to both new and existing guests. Although there's been a decline in guest traffic or check levels have shown an increase compared to 2022.

In Q3, Applebee's offered several promotions to drive profitable traffic for example, during our seven week. All you can eat wings program, we sold 7.1 million pounds, a bonus wings, that's about 114 million individual wings.

Campaign performed better than our internal expectations driving incremental sales tickets an' franchisee margin dollars and introducing new gas, particularly Jen Z to our brand.

Two months ago, we launched Applebee's guest experienced program using <unk> experienced management platform together valuable feedback from our guests were pleased guest participation surpassed industry benchmarks in our own expectations and this positive engagement highlights our guest strong connection with the brand and provides us with valuable insights to meet <unk>.

And exceed their expectations.

During the last five months Applebee's culinary team has tested more than 200, new menu concepts ranging from different cuisines to innovation if current menu items.

We also have new beverage concepts rolling out in 2024, which are also generating positive anticipation throughout the franchise system.

During the quarter, Tony strengthened his leadership team by hiring two industry veterans, a new vice president of culinary who brings a contemporary and innovative mindset to our menu and a new leader of development focused on conversions developing our new prototype and our remodel program menu innovation and development our key focus areas.

For the brand and we look forward to providing progress on these initiatives soon.

Now on to IHOP the quarters Cop sales growth was fueled by the introduction of the brands New menu combined with compelling offers the data were gathering from our loyalty program enables us to methodically planned promotions and menu offers that are most likely to appeal to our guests as a result, we continue to see the brand gaining traction.

Amongst a younger demographic during the quarter, we focused on breakfast equities that span dayparts balancing both sweet and savory options to meet all cravings first in early July we introduce pancake tacos, which came in sweet and savoury Flavours for a limited time with three pancake tacos for six Dodge.

<unk>.

We sold nearly 2 million pancake tacos in just four weeks and they were hit in the restaurants and on social media overall the campaign it over 1 billion media impressions at.

At the end of August we introduce biscuits with flavors like fresh strawberries, and cream and Bacon egg and cheese or biscuits premiered with a special introductory offer of breakfast biscuits with aside for $7 before becoming part of our core menu in September.

During the quarter. We also expanded our waffle category are original chicken and waffles is one of our top selling menu items for dining antigo and after receiving guests feedback asking for more variety, we expand its add new flavors, including our new Nashville Hot chicken and waffles.

And finally, as we discussed in our queue to call. We launched one of our most comprehensive menu updates and Q2 and the new and expanded categories of Benedix and crepes are performing well.

<unk> has always been known for its family oriented menu and guest experience. So to celebrate the brand 65th anniversary I have brought back it's kids eat free promotion during the month of August and it's all you can eat pancakes for $5, both helping IHOP outperform the black box family dining index in cop sales check.

<unk> traffic during the promotion.

One.

Shifting to technology, we're on track for the new point of sale system to be completed by early 2024, and the tablet rollout is progressing accordingly <unk>.

Loyalty program the International Bank of Pancakes is steadily growing now with 7 million members more information will be provided next quarter quicker.

Quickly touching on Fuzzies, we added fuzzies to our existing portfolio, because it's a young compelling brand with the potential for substantial growth over the next decade by capitalizing on a scale and resources of Dine in September I attended the Fuzzies annual franchisee conference called family reunion I was blown away by the terrific energy from the <unk>.

Franchisees, who all seemed energized by the brand and its plan for new menu offerings future restaurant designs and marketing innovation one of the biggest moments from the franchisee conference was the unveiling of fuzzies, new Baja strategy, a comprehensive plan and state of mind that takes the brand back to its roots embracing the <unk>.

Ahah lifestyle and cuisine. It includes new restaurant design elements Ah menu refresh and enhancements to the overall guest experience testing will begin in queue for with a full national rollout planned in Q1 of 2024.

On the international side of the business. We opened 16 units. So far this year. Our main focus remains on opportunities in our core international markets of Puerto Rico, and the Caribbean Latin America, the Middle East in Canada.

International Division delivered strong cop sales growth and as the incubator for our duel branded IHOP Applebee's restaurants of which there are now six open in the middle East in Canada.

Before I turn it over to Vance I want to emphasize that our brand teams and franchisees are expertly navigating Ah still challenging economic environment through smart compelling marketing engaging promotions and best in class service their commitment to upholding the highest standards is central to a recipe for growth and it will continue to Sierra.

Forward and with that I'll turn it over to Vance.

Thank you John.

So you just heard we had to mix quarter in terms of comp sales. We continue to see the strength of our business model reflected in our ability to generate steady cash flow and EBITDA.

On the top line consolidated total revenues, excluding the Refranchise applebee's restaurants increased to over $200 million in Q3 versus $195 million in the prior year.

Our total revenues decreased 13% to $202.6 million compared to $233.2 million for the same quarter of 2022.

The change was primarily due to the refranchising of the Applebee's restaurants in October of 2022.

If we exclude advertising revenues franchise revenues increase 6.4%.

Rental segment revenues for the third quarter of twins twenty-three remained flat at $29 million compared to the same quarter of 2022.

The rental segment margin increased three per cent.

Our company restaurant operation sales, where approximately point $3 million for this third quarter compared to $38.2 million for the same period of last year [noise] cause we only had one company operated a restaurant in Q3.

Ginny expenses increased nearly 5% to $48.6 million in Q3 of 2023 [noise] up from $46.3 million in the same period last year [noise], mostly due to an increase in compensation related cos offset by a decrease in occupancy costs.

Adjusted EBITDA for Q3 of 2023 decreased to $60.6 million from $63.6 million in Q3 of 2022.

Justin diluted E. P. S for the third quarter of 2023, it was a dollar and 46 cents compared to what Justin diluted EPS of one dollar and 66 cents for the same period of last year now, let's turn to the statements cashless.

We had a just a free cash flow of $54 million for the first nine months of 20 twenty-three [noise] compared to $52.4 million for the same period of last year.

Cash provided by operations at the end of the third quarter of 2023, it was $79.3 million compared to cash provider from operations of roughly $63.5 million for the same period of 2022.

Capex through Q3 of 2023 was $32 million compared to $19.5 million for the same period of 2022.

We finished the third quarter with total unrestricted cash of $98.2 million compared with unrestricted cash of $98 million at the end of the second quarter.

Additionally, we continued to return capital to investors.

Through Q3, 2023 year to date [noise], we've returned approximately $203 million of capital back to equity and bond investors, including debt reduction is part of our refinance demonstrating our prudent capital allocation strategy.

Next let me discuss applebee's performance Q.

Q3, same store sales worth negative, 2.4% as relapse strong comps from the year prior and will continue to face a price sensitive consumer environment.

However, as John mentioned earlier Appleby sales results have remained fairly steady as average weekly sales were over $52000, including over $11000 from off premise or close to 22% of total sales of which 11% is from to go and 11% is from delivery.

I hope sales continue their positive momentum throughout the quarter with Q3 same store sales growth of 2% <unk>.

<unk> weekly sales were over $37000, including over $7000 from off premise or close to 20% of total sales of which 7% is from to go and 12% is from delivery.

On the labor front, our franchisees are reporting that restaurants staffing continues to steadily improve.

As more and more people returned to the workforce labor shortages are reduced helping alleviate operational challenges in our restaurants.

And a commodities front or I'll look for the full year for our franchisees remains consistent with what we previously provided.

Both brands in the flat too low single digits range through the remainder of the year is cost turned deflationary.

Applebee's commodity costs improve by over 2% versus a year ago, [noise] and over 80% of Appleby's purchase prices are protected through the end of the year.

<unk> hops commodity costs have improved 3% versus last year and is baskets needs are locked at a similar level to applebee's.

While our data indicate that overall consumer inflation continues to ease [noise], we do expect inflation levels to remain moderately elevated in 2024.

Now I would like to provide an update on our financial guidance for the year.

Starting with our G&A, we're reducing the top end of our expected G&A range for the year as we take proactive measures [noise] and managing our TNA spending.

Our new 2023, G and a forecast guidance is $200 million to $205 million compared to our prior guidance of $200 million to $210 million.

With EBITDA, we're raising the lower end of our adjusted EBITDA range are expected adjusted EBITDA range is now $245 million to $255 million compared to our prior guidance of $243 million to $255 million.

We're also maintaining our capex range of $33 million to $38 million.

Finally, moving onto development.

Development is important growth driver and we have strategies in place across both brands to sustainable expand our footprint, both domestically and internationally.

Three year to date IHOP has open 29th domestic restaurants, and many of those were conversions. However.

However, as we entered a fourth quarter, our franchisees are still experiencing some near term development headwinds, including permitting and construction delays, which could cause some of the openings to slip through 2024.

As a result, we now expect IHOP development to be between 20 to 30 net openings for 2023 [noise] compared to 45 to 60 net openings. We previously stated.

Again, I want to emphasize that this change to guidance is results of ongoing construction delays [noise] that have made it more challenging to accurately forecast the timing of these openings.

I hope still has a strong development pipeline is franchisees are excited to expand the brand and we remain bullish on I hops longterm growth.

An apple beside our development guidance remains unchanged and the brand continues to execute the three part plan, we outlined last quarter, which includes the creation of a new restaurant designed that matches the motto nice of our guests.

Despite the mixed quarter in terms of comp sales would continue to see the strength of our business model highlighted are steady cash flow generation and EBITDA [noise] and we remain focus on executing on our strategic priorities to drive long term shareholder value.

So now I have a call back to John and we'll open it up for Q&A.

Hey, Thanks, so much Vance and as a reminder, J Antonio <unk> on the line along with me in advance and they're here to answer your questions. So Kathy. Please open up the cue and we'll take the first questionnaire, yes. Thank you as a reminder to ask a question pets starve.

One one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby lovely compile Archie Renee roster.

Our first question comes in the line of Eric Gonzales with Keybanc capital markets. Please proceed with your question.

Alright. Thanks, Good morning, my questions about Applebee's and I'm wondering if you talk a little bit more about how the quota for the rest of the traffic perspective, you on Eric Boneless wings.

The good part of the quarter and so can you talk about had a promotion when what you saw that promotion zoloft and also I'm curious after each of the <unk> you can talk about what drove that decision to bring it back after the monthly I eight eight and you can.

Sure about your expectations that promotions have you tried to get treatment.

Thanks.

Tourists attorney wanting to take both those questions about <unk>.

Happy to Hey, Eric.

We don't traditionally talked in detail about traffic, but it's it's obviously something we we monitor closely what I'll say about the quarter is that we were pleased with the performance of.

All you can eat Bon swings, we experienced quarter over quarter traffic improvement profitable sales and we we brought younger guess into applebee's as for dollar Rita I'll save the specifics on on <unk> performance for for next quarter, but we're really excited about what <unk>.

<unk>, so far and.

You know I'm happy to share that 93 per cent of all the transactions involving daughter eat it dollar Rita.

Included the purchase of a food menu items.

As for why you know guess want two things from Applebee's every time, they visit us they want great value and they want a great experience and dollar Rita delivers on both so you'll continue to see applebee's innovate with best in class marketing campaigns that'll continue to surprise.

Delight our guests.

Got it and then they can maybe just ask about the the overall operating environment.

Value from an industry <unk> ticket promotional offers offers from your competitors and.

And how's the brand reacted to one of your largest competitors coming back on the other values seen any any sort of an app when they're back on here.

Yeah happy to take that one as well, where where Brandon it's built on value, Eric and guess snow they can count on us when the economy struggling or they face financial uncertainty Uhm again with with the all you can eat boneless wings promotion, we strength, we we had <unk>.

Wrong results. It's it's an excellent example of abundant value and you know it ignited a tick tock challenge that again introduced or get or get a brand new younger guess it's compelling.

And provide value that our guest increasingly seek in this environment.

Eric It's John I would just add in that you know both brands.

About value in three buckets.

Everyday value, which is on the menu.

Mmk.

They're special moment in time L. T O offerings, and then there's no exclusive value via the loyalty programs and with both these brands.

Do well since they've been positioned at the value brand in the category for a decade is they know how to read the market. They have great data about their customers, particularly uhm IHOP. Most recently with this new 7 million members in Lilly program and so the meanings one of those three categories everyday value L. T O third fourth one <unk>.

P S.

As they see the need and that they read the market and that they all do the competitors are doing so with that a sophisticated.

<unk> when.

When they need to.

I saw it back in the queue.

Thank you.

One moment for our next question.

This question comes on the line and <unk> Alright, Let's address Securities. Your line is now open.

Great. Thanks for taking the question Yeah mine was really about that the sales drivers ahead that you see specifically the applebee's and you talked about and a lot of tests menu new menu innovation and at 24, I think it's gonna be more of a catalyst there.

What is it what is the <unk> that you expect should respect kind of a more meaningful and innovation really kind of out of the gate and 24 is that something that you think is gonna just build throughout the year.

Yeah, Tony you're on your on center stage today [laughter], Yeah, we're focused on innovation in multiple areas. So up with respect to our value offerings were looking to create new compelling value offerings and to complement those with our you know our our true and tried uhm favorites like like a <unk>.

<unk> like an all you can eat bono's sweet we're focused on innovation on the culinary side with our with our menu. We know that we need new menu options appeal to a younger guest we're focused on innovation with respect to our prototype, which you know being as mentioned in his opening remarks.

Really you're gonna see innovation throughout different parts of our business and on top of all that you'll see a renewed focus on our assets you know a lot of Ah restaurants are over 20 years old and so they may be uhm and they need to evolve and it needs to be renovated. So we've got a reunions program that we're launching later this year so you'll see it through.

Different stages. These are all work streams that currently are being addressed in parallel uhm, but you'll see them come to fruition over time over the course of the next year.

Okay and I wanted to build on on Eric's question about you know really the the trend throughout the quarter and I know you.

Typically you know don't provide too much detail there, but you didn't mention that that you're stressed at IHOP with very consistent throughout the quarter. So.

Guess that leads me to wonder how you'll have a applebee's trying to throughout the quarter.

If you can help us just with a trajectory you'll get that'd be help us we look forward to talk to the fourth quarter.

Yeah. So.

I'm happy to take that one as well you know we don't typically talk about Uhm Intraquarter trains. We're just a few weeks in the in the queue for server isn't much I can share with you for Q4, otherwise as well.

Okay, but I think you mentioned that Applebees, which consists in in the third quarter month to month, but you can't say the same for for for for Applebee's I assume.

<unk> sorry.

Sorry, so for Applebee's.

In in the third quarter at August the all you can eat promotion I think met or exceeded our expectations. So it was probably a stronger period within the quarter.

Okay, and then and then my last question is on G&A and lowered.

Lower the guidance a little bit for that for the year. I'm wondering you know how much of that was was kind of tightening the belt, there maybe pulling back and some of the initiatives a little bit in the near term versus you incentive comp and things like that which we would be temporary the basis. Other question was trying to figure out you know what the impact of the lower.

<unk> outlook. This year, you know or what the implications for 24.

Survey.

Question.

<unk>. So so it's it's a mix of both so we are constantly evaluating what to pull back what has slowed down what to accelerate with within our G&A with with all the initiatives for working out. So so the the short answer to your questions, it's a little bit about but.

You know, our our G&A reflects sort of the existing commitment to to improve franchisees support and to improve guest guest experiences.

They take time these projects, but they're building blocks to any successful franchise word right. So.

So you know we have and will continue to apply this discipline approach to G&A, you know kind of as as evidenced by this court won't be a cheap spending level blow Street expectation.

Great I appreciate it thank you.

Thank you.

This question comes from Jeffrey <unk> with Barclays. Please.

Please proceed.

Great. Thank you very much.

Two questions. The first one is just on the.

The unit growth and I know you mentioned, it's an important part of the story temperate IHOP guidance, but it seems like it's too permanent construction delays I should say.

Not a lack of franchisee demand.

I know you maintain the guidance for declines applebee's on that basis, but.

All that said as we look out to to next year I'm. Just wondering how you think about franchisee sentiment.

Whether there's any perhaps more cautious tone from franchisees.

Whether due to a more challenging macro or higher interest rates.

Whether there's any reason to believe that you know.

The growth outlook might be challenge going into 24, because of those issues or whether perhaps you're not hearing anything about that at all from the franchise. The conversations and then I had one follow up.

Alright, Jeffrey it's John you know I'll make a general comment confirming what you said.

<unk>.

Bush from fourth order into the first quarter Uhm, consisting what happened last year is about timing related to the news the construction environment.

Needs to be the new normal and that our franchisees are meeting their commitments and building as they work and for her applebee's.

We we just had that guidance, reflecting in part the work we're doing on our prototype new franchisees working with us to be ready to do that.

I don't know J, you have anything to add about <unk> specifically.

Yeah, John Hey, Thanks, Jeffrey for the question.

I think that's <unk> insistent about IHOP as we've been a steady developer for many many years now and we've got a pretty steady pipeline. We've got a good pipeline and the thing that has just been tough in this environment is predicting when they're gonna open. So that's been a little bit of a challenge for us.

You said.

Okay. So it doesn't sound like in terms of conversations with franchisees that there's <unk>.

Temperate of enthusiasm for either brand because of the broader macroenvironment at this point I guess looking to 24, it seems like you're on track for.

Return to perhaps net openings at the Applebee's brand.

Yes, I'll I'll I'll I'm happy to take that one we're not gonna provide guidance beyond 2023 on net openings, but we we still remain optimistic about applebee's return.

Send that unit growth.

Three of our last four restaurant openings, our conversions and they generate an average adv's that exceed the system average. So we shifted our short term focus to conversion opportunities are franchisees recognize the benefits of conversions right, including <unk>.

As we leverage the benefit of Cougars work on new efficient and economical prototype for the system.

Collectively the strategies they should drive in that unit growth. That's that's still the goal and we'll keep you posted as we work through these challenges.

Jonathan conversions as a key a key focus for both brands, 70% of Ihasz openings, this year or conversions and immediate debate that that'll be a focus for both brands next year as well.

Understood and then just to follow up.

You made reference to 2024 briefly at least that you still see.

Moderating, but still elevated inflation just wondering if you can offer any specifics in terms of your outlook franchisees outlook, perhaps for commodities in labor, whether you can share what the baskets were in the current quarter or whether you're talking about directionally, what you're thinking for 2024, as we think about the pricing environment going into next year. Thank you.

<unk> <unk>.

<unk> just so.

We talked about.

The fact that we're seeing deflationary.

Commodity pricing for our franchisees for the rest of this year, which is which is a positive no N and our franchisees, we're working with our franchisees closely to to record your everyone to take that into consideration when setting menu prices right, but <unk>.

And most of that that the improvement that where it seems really driven by.

You know probably not not a surprise to you bye bye copy by eggs my poetry, but we can be sort of remain elevated.

For our baskets, but but next year.

What we're seeing is still early and we will have more color next year, but before now we are expecting sort of moderately you know.

<unk> for for next year, but but not a ton of details just yet and that that's a.

Pretty pretty fast moving environment that that we're we're managing through but for now it does seem like things have had.

Meaningfully moderate.

Do you guys share the component of the cop, maybe in the current quarter, how much of that is price versus the other components. Just so we can gauge the pricing contribution.

You mean in terms of our our menu pricing as part of the top.

That was that the question that'd be great. Yes. Please so I think or Apple B, let me see so applebee's menu price increase for Q3 year over year is about 4% or I have it's about 8%.

Thank you.

Thank you.

One moment for our next question.

This question comes on line as Nick sat in which quite fresh. Please proceed.

Thank you thank.

Thank you.

Yeah. He was obviously pretty nice <unk> quarter, despite the lower cost at Applebee's.

You know I was kind of look at Q4 sounds like the dollar either has resulted in some kind of an acceleration versus Q3, I know you guys don't want to quantify it.

Yeah G N a guidance lowered slightly and so the implied EBITDA would.

Kind of <unk>.

<unk> pretty.

Big deceleration. Thank you 30, Q for maybe even no growth versus Q4 of last year and so they're just giving the expectation that dollar either has might be normalized to even.

Result in a little bit of an uptick in and cop in queue for you know why should why should that be the case western and he would that'd be a little bit higher.

Dan.

Eight at yes, I will address that so that part of the big part of that <unk>. We talk about this in the prior quarter Z Q for our G&A just for seasonality and cool purposes, G&A tends to be a little higher than another corner. So that's primarily the reason that you were gonna see this this.

Quarter over.

Warner dropping in in Zebra.

It's it's more related to that than than any of the top of my chest.

That is that what you're saying.

Okay fair enough and as we kind of look at the 2024 you know.

How're you thinking about G N a in this environment versus 2020th Jeremy can we actually C. G N it'd be a little bit lower than 2023 and 2024.

No <unk> so as I mentioned earlier, you know our our G&A. It's one of the increase reflects you know <unk>.

Increase the improved franchisees support and and you know all efforts in improving the guest experiences and and they they didn't take a little bit of time myself.

What what we've said before is at.

2023 level is is possibly the run rate that we that we need to to run the business and and with with these initiatives that we're running services.

<unk>, we're still looking at sort of that that level of G&A for for a future.

For future years.

Okay and I'm just last question for me during Q3, a lot of your peers are side of seasonality.

As in a one major driver of of of some of the comp weakness in Q3 <unk> you know when we get your Compaq, both I happen and Applebee's you.

C N you see any of that seasonality impact or do you think you'll comscore a result of some other factors.

Joshua that should I take yeah.

<unk> Yep Yep, so so it <unk> <unk>.

There is there is certainly you know that this sort of typical back to school trends that we see within within the quarter, but but a lot of it is really also driven by what campaigns. We ran last year versus what can painting <unk>. We're running we read this year so.

They don't always match and we we mix it up with with this and can thank you. So there's there may be some noise with that but that's probably a bigger driver than than traditional seasonality.

Other than back to school I would say.

<unk>, we've said in the past that you know.

We don't have it.

Particular quarter that is stronger or weaker than the others. So from a seasonality perspective fairly consistent with me a tribute to the side, both brands and their distribution across the country. So.

It wouldn't mean seasonality advances.

Okay. Thank you very much.

Thank you.

One moment, Sir next question.

This question is from the line of Brian Carl with Raymond James. Please proceed.

Hi, Thanks for your morning, Uhm I just wanted to follow up on the healthier consumer and and I heard your comments earlier, but could you elaborate on any changes you're seeing as it relates to frequency across different income levels. And then you know understanding it's likely up giving your promotional strategies could you also comment on a per cent of <unk>.

Sales that are occurring on some sort of discount or value L. T O and how that's trend it over the last couple of quarters.

Hey, Brian it's not you know when it comes to the the consumer.

He didn't see any significant change what are the order in terms of income levels.

R for consumer household income for both brands.

50 to $75000 as <unk> as we reported in the past we didn't see a significant change there what what we what we what we did see you know based upon the multiple sources of data that began about a consumer at.

At large is we saw that day.

Slightly decreased their spending habits are and when they when they came to us they maintained their average check uhm. So.

You said also in the past consistent with the last quarter since we've raised prices.

I have a check they are finding some of the value items on our menu, but when they come out to dine. They they still wonderful service experience. They want the expectation that they have a applebee's and I <unk>.

Together with family and friends.

And they're still spending when they're when they're with them.

And that was your second question can you just repeat the second question.

Yeah, just just the the the percent of sales mix on some sort of value promotion or discount and how that's trended over the past few quarters.

Bank My belief is that we don't disclose typically the myth of associated with a specific promotions.

Right and then you know Brian I think that what you were C is that.

We talked about our menu price and increase and and that the average check is fairly steady. So so that the makeup of that as a shifted Phoenix and the P. Mixes what you know what you're referring to in terms of the consumers manage into your checking and dropping what they are ordering from us but the sticking.

With a similar checks I. So so we are seeing that in offices.

Okay and thank you for that van so just to clarify that that's is that an applebees specific comment where pricing is at four but check is flattish and the traffic is down around two year on year and my interpreting that correctly.

We didn't we didn't comment on the traffic part of the topic is is down for for both man, but we didn't quantify it Ah directionally, 4% and menu pricing for applebee's and 8% for <unk> that's correct.

Okay, and then and on the off premise side, assuming I got my numbers, correct and and did like quick mass correct. It seems like the off the year on year declines in off premise may have accelerated a little bit maybe more so it <unk>.

Will be then I hop is that accurate and maybe just comment more broadly on what you're seeing an off premise the channels that both brands.

I I can address that Johnson, so yes that that is correct I think that the.

The premise volume is is dropping a little bit for for us and and most of that is.

Really coming from the D. S D.

So so as consumers are managing.

How they're they're dining budget the delivery fees are are a part of the decision factor. So that's that is driving some of the decision making process for I guess.

Okay. Thank you and then this last one for me I I. Appreciate the color you gave on menu pricing during the call and the third quarter and I know, it's a franchisee decision, but I guess to what degree do you expect menu pricing that year round near tailwind to moderate in the fourth quarter or even.

You know over the next few quarters as the installation moderate environment has moderated thank you.

Yes, Brian <unk> I'll I'll take that I mean.

You're correct. Thank you for saying it the franchise you'd make that decision. We don't what we've reported is that in the past is that typically franchisees raise their prices, 2% to 3% a year, obviously last couple ears been.

Been an exception to that.

<unk> B C. The cost of goods in particular declining advance described.

We would we would anticipate the franchise either begin begin to feel less pressure to raise prices. So if this if this.

Cost a good environment.

Within the next year, then there is the potential.

Alright, Thank you very much.

Thank you.

Okay. The next question comes from Brian Marlin with Piper Sandler. Please proceed what's your question.

Hi, Good morning. This is actually aisling on for Brian. My question is just an update on how the late nineties part is doing at IHOP, if you're seeing any material traffic changes there and if you're running any promotions to kind of drive traffic back in that day art. Thanks. Thanks.

<unk> I'll take that.

Yeah, I actually thanks for the question actually we're not seeing a tremendous amount of change in the the late night business. It's been pretty steady we have added on over the last couple of quarters. We've added on about 50 more restaurants that are doing some form of 24 hours either what we call 24, two or two.

847, and I think we're back up to almost 800 restaurants, where so probably 100 or 200 restaurants below or we were pre pandemic, but it does slowly keep adding back a little bit of restaurants to that time period as far as the sale of themselves.

We typically have not done national advertising for overnight hours, just because it is so localized to participate and he doesn't so they may be doing some individual things <unk>.

Got themselves locally.

But that's that's more independent and less of an organized national promotion that we do for for the late night business, but but it's pretty steady it's been running you know pretty consistent all your force.

That's great. Thank you for the caller I'll pass it back.

Thank you.

As a reminder to ask a question. Please press start one one on your telephone and wait for your name to be announced to withdraw your question plus are one one again.

Standby for our next question.

This question comes to the line is tied Brooks with a benchmark company. Please proceed.

Hey, Thanks for taking my questions I have one follow up and then one other question the follow up.

You talked about a focus on finding conversions for new units and.

I don't know it seems to speed. Some other construction time, if you can go into an existing facility chemo through quickly.

Economics open via <unk> conversion versus a new bill just trying to think about from something that could.

Could be enhancing the return for franchisees in.

In Ah Toughing higher costs construction environment going forward.

J why don't you take that.

70% of your Okay for conversions visitor yeah. Thanks, Todd we we do a lot of these and there's no one exact number to tell ya depends what you're converting it depends on the work needs to be done sometimes it has kitchen equipment left inside it sometimes you're starting with new equipment depends on the amount of repairs has to be done, but I can tell.

This compared to a new build you're probably gonna save 30, 40% on the construction cost sometimes can be a little last a little more than that but it's significantly cheaper to go in and convert an existing structure than it is to completely start from the ground up you.

The permitting goes a little faster permitting it's been a problem with a lot of places around the country. A day, you know with with people going remote and not everybody works back in an office again it just <unk>.

Things have slowed down I'm trying to get approvals and trying to move paper you know across the desk. So to speak so it's it's still a little bit of a challenge, but it is still faster doing the conversion to get permitting done than it is to get all the approvals from it for a ground up facility. So we've really been <unk>.

Rising our franchisees to look at opportunities that are out there because there's there's still quite a few there's more happening in all the time and and for.

For ourselves, we've even got a.

Smaller prototype and that that opens up even conversions of some some quick service locations that I'd pick up one knows et cetera. So there's a lot of things you can do with the buildings that are out there in the franchisees are becoming more and more excited about those as they see more and more results from others around them.

That's very helpful things Cherry and then my other question.

A lot of talk about value on the call and justly abundant value that.

<unk> branch are focused on delivering so there's there's an offensive element you've got everyday you've got <unk> got through loyalty how.

How about.

Defensively in an environment, where value is becoming more of a focus for both customers and competitors <unk>.

Juba reactive value capability to kind of counterpunch when you see promotions from really close competitors that you have for both concepts. Thanks.

Yes, it's John I'll take that on behalf of both brands.

Brand.

<unk>.

Both brand plan their marketing calendar.

We're planning 24 now right as you can imagine and that includes the beverage in the in the food item promotions for for the year. So I like your character is the calculation of it is that we do it offensively based on what we believe it necessary at a point in time.

Based upon our history based on what we expect for the future and the answer back can we react actively of course, we can write it because we're always looking about our competitors do and we're always looking at the current market conditions, and we we would and wheel if we need to but you know our strategy uhm.

Primary Saturday for US is to is to focus on what we do best tell our story from a marketing perspective, and and not be overly reacted to what.

Competitor does any getting border.

That's helpful. John <unk> would you characterize the competitive intensity right now in the market as expected or something that.

That you do think about maybe okay, we need to react to a little bit.

We we would characterize it as expected given given the general consensus about the economy in this data.

The state of mind of our guest in particular.

Alright, Thanks John.

Thank you.

One moment for our next question.

This question comes in the line of <unk> Securities. Please proceed.

Great. Thanks for taking the the follow up to your just real quickly and following up on Brian's question earlier <unk>.

He asked about the value mix and and you guys have shared in this is an applebees you've shared in the passenger's last quarter was 19% in the first quarter is 15 per cent. So that's the number I'm looking for an update on and that's L. T as in value oriented menu that section.

Welcome back Ache.

Do we <unk> do we call you did disclose it yeah. It was 19 last quarter and 15 per cent and the first call and I just do we have that for this quarter.

<unk>.

Bertone I don't I don't know that we have it.

I don't have it handy Sean.

Alright, so what we'll have to think about <unk> gotta get done John I don't <unk> I don't have it handy either <unk> I can add a little color to the to the value question and that is we did we did see gas trade down into the lower tiers of our of our value menu or two for 25.

Uhm value me as well as trading into it. So there was a little bit of a of a check management with respect to that but we can we can follow up with you directly to get Ya.

The exact percentage I appreciate it I appreciate it then.

Take one second.

March from our highest helping.

Helping out 13% 13th so it went down a bunch.

Okay. Thanks, and then the other question was on was on Capex and just wanted to make sure I understand your guidance versus kind of what's reported on the on the cash flow statement. I think it's you know 32 million <unk> reported for Capex and then the guidance is you know 33 to 38, so just want to make sure that those are the same.

<unk> measures so I wouldn't imagine would go down so much in the fourth course, just to clarify there and then and then what you expect really kind of big picture for Capex Uhm moving into 24, whether you think it should be.

Be coming down with some of these check investments are are laughed or just you know some some.

Big picture directional commentary for 24 in Capex sure Hey, Jake This is NASA again so.

Capex you know we are.

<unk> pretty much cause to most of the initiatives that we've been working on so now that the capex been here today and in our guidance for for this you just just as a reminder, it's does not reflect about $10 million a T.

Reimbursement that we received here today, Sir so comparatively speaking versus last year, it's already down meaningfully and then we do expect going forward.

The the cat back level will be more in line with historical levels, unless we have no great return projects at and.

Our business in the restaurant sector evolve over time, but overall.

<unk> <unk>.

<unk> you know.

Capex initiatives.

Thank you one moment for our next question.

Yeah final question comes from Andrew Voss, Lucy L. King.

Thanks <unk>.

Hi, Thanks, Mike.

My question is on if I heard it right.

I think one of y'all up talking about Applebee's mentioned that volumes were flat despite the cops coming in down.

So.

I think that you know that speaks to the the level of discounting.

That you know obviously people who came for the all you can eat promotions enjoyed.

And my question is you know as you look at the supply chain.

Given you know the vendors, whether it's ribs or whatever is being promoted.

You know they're volumes going up logistics are getting cheaper on a case basis because of the volume and such.

Is this discount something that the vendors participated so that your franchisees to some extent.

Aren't kind of.

Uhm absorbing most of that discounting.

Is that one way that the scale of the company.

Is able to kind of in an efficient manner for the franchisees bump up the promotionality.

I will confess that I don't know the answer that question Uhm dance to Ya.

Yeah, you know that's.

That's the way we plan to promotions Andrew is.

John talked about this earlier, we planted a year ahead and we have some visibility in terms of.

Got any expectations. So we do that is part of the decisions in terms of what campaigns for running you know so if we know port pricing is favorable we tend to you know.

The heavier with that with those promotion. So so it's not that we're asking specifically what the vendors as parts of sniper we factor in the expected inflation into the campaign decisions.

[noise], Okay. So there's a planning calendar.

Okay, alright, thanks, Okay.

Great is it always a year or can you on an AD hoc basis change. The these kind of you know large scale promotional.

ZIP of promotions.

We can definitely do do with all that hot at AD hoc basis and add.

It depends on the situation John talked about this earlier when we can.

We can we play office, we can be reactive if we need to add I can't think of any recent examples that we've done that because things have been sort of going on as we expected. So so we haven't had to pull any last minute type of things that that were on plan.

But we have the capability to do so.

[noise] Okay. Thank you that's it for me.

Mmm.

Thank you.

I would now like to turn the conference back to Jon Payton Tangram C E O for closing remarks.

Thanks, Kathy appreciate your consultation today, thanks, everybody for your or your your questions and come back around a second time for some questions.

We're pleased with the quarter in particular wireless pilot.

The average weekly sales for both brands has been in excess of 2019, all year for for both brands and we think we're seeing the results of the resilience of our brands irrelevant and our efforts around technology and menu Martin innovation as well as Psycho <unk>. So thanks, everybody for the <unk>.

<unk> and we will see you again next <unk> take care.

This concludes today's conference call. Thank you for participating and you may now disconnect.

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