Q2 2024 Dine Brands Global Inc Earnings Call
You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again Please be advised that today's conference is being recorded I would now like to hand the conference over to your first speaker today, Matt Lee, senior vice president finance and investor relations Please go ahead
Operator: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matt Lee, Senior Vice President, Finance and Investor Relations.
Matt Lee: Good morning, and welcome to Dine Brands Global's second quarter fiscal 2024 conference call. This morning's call will include prepared remarks from John Payne, CEO, and Vance Chang, CFO. Following those prepared remarks, Tony Moralejo, President of Applebee's, and Jay Johns, President of IHOP, will also be available to address questions from the investment community during the Q&A portion of the call.
Speaker Change: Following those prepared remarks, Tony Moralejo, President of Applebee's, and Jay Johns, President of IHOP, will also be available to address questions from the investment community during the Q&A portion of the call.
Matt Lee: Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors, which may cause 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 or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brands' Investor Relations website.
Speaker Change: During the call, management will 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.
Speaker Change: The forward looking statements are as of today and we assume no obligation to update or supplement these statements.
Matt Lee: For calendar planning purposes, we are tentatively scheduled to release our Q3 2024 earnings before the market opens on November 6, 2024, and to host a conference call that morning to discuss the results. With that said, it is my pleasure to turn the call over to Dine Brands CEO, John Peyton.
Speaker Change: For calendar planning purposes, we are tentatively scheduled to release our Q3 2024 earnings before the market opens on November 6, 2024, and to host a conference call that morning to discuss the results.
Speaker Change: With that, it is my pleasure to turn the call over to Dine Brands CEO , John Peyton.
John Peyton: Good morning, everyone, and thank you for joining us for our second quarter earnings call. Today, I'll share Dine's Q2 results and discuss trends in consumer behavior. I'll also discuss operational highlights across the portfolio, and then Vance will discuss our financial results and provide an update on our full year guidance. Dine began Q2 with a strong strategy to address economic challenges, broaden our appeal to guests, and build on the positive momentum we experienced toward the end of Q1. Despite this, we saw a pullback from guests as the second quarter unfolded.
John Peyton: Good morning, everyone, and thank you for joining us for our second quarter earnings call. Today, I'll share Dine's Q2 results and discuss trends in consumer behavior. I'll also discuss operational highlights across the portfolio, and then Vance will discuss our financial results and provide an update on our full year guidance.
John Peyton: While this affected our top-line growth, we were able to maintain our bottom-line performance. We recognize that our guests are in a tough spot in this economic cycle, and our data indicates that guests are reducing their restaurant visits industry-wide and choosing to eat more at home. When guests do choose to dine at our restaurants, they're managing their check by trading down from higher-priced menu items to less expensive options. This has been a consistent trend over the past few quarters, and we, along with our franchisees, have been actively managing our offerings to adapt to evolving guests' needs and behaviors. We deliver value through competitive pricing, generous portions, and an exceptional experience. This approach has earned our brand's enduring trust.
John Peyton: Dine began Q2 with a strong strategy to address economic challenges, broaden our appeal to guests, and build on the positive momentum we experienced toward the end of Q1. Despite this, we saw a pullback from guests as the second quarter unfolded. While this affected our top-line growth, we were able to maintain our bottom-line performance.
John Peyton: We recognize that our guests are in a tough spot in this economic cycle, and our data indicates that guests are reducing their restaurant visits industry-wide and choosing to eat more at home.
John Peyton: When guests do choose to dine at our restaurants, they're managing their check by trading down from higher-priced menu items to less expensive options.
John Peyton: Our strategy extends beyond temporary discounts, focusing on long-term guest satisfaction. Our franchisees are well-versed in how to adapt to evolving market conditions. This isn't the first time we've collectively had to navigate choppy waters, and we have a deep arsenal of profitable promotions, menu innovation, and marketing campaigns that we can deploy in the near term while remaining focused on positioning ourselves for sustainable value creation in the long term. We're making strategic refinements and real-time adjustments to respond to changes in guest behavior by shifting toward more value-driven promotions for the remainder of the year.
John Peyton: Our strategy extends beyond temporary discounts, focusing on long-term guest satisfaction.
John Peyton: Our franchisees are well-versed on how to adapt to evolving market conditions.
John Peyton: We're making strategic refinements and real-time adjustments to respond to changes in guest behavior by shifting toward more value-driven promotions for the remainder of the year. We'll continue to refine our approach to address the unique dynamics of the market and the consumer today.
John Peyton: We'll continue to refine our approach to address the unique dynamics of the market and the consumer today. Our asset-light model and iconic brands give us a solid foundation to tackle the current headwinds. And this is the Strategic Advantage of the Dine Platform, and you'll hear today how we're leveraging this in the best interest of our guests and our franchisees to create value for all stakeholders. It's also important to remember that the underlying fundamentals of our business model remain solid and continue to perform with limited impact on our bottom line.
John Peyton: Our asset-light model and iconic brands give us a solid foundation to tackle the current headwinds. And this is the strategic advantage of the Dine platform. And you'll hear today how we're leveraging this in the best interest of our guests and our franchisees to create value for all stakeholders.
John Peyton: It's also important to remember that the underlying fundamentals of our business model remain solid and continue to perform with limited impact to our bottom line. Our cash flow is strong and improved year over year, our margins continue to remain solid, and our leverage remains steady.
John Peyton: Our cash flow is strong and improved year over year, our margins continue to remain solid, and our leverage remains steady. And while we're taking a disciplined approach to manage what we can control in this tough market cycle, we remain focused on our long-term growth objectives and continuing to return value to our shareholders. Now for an overview of the numbers from this quarter, we generated EBITDA of $67 million compared to $67.3 million in the same quarter last year.
Speaker Change: Now for an overview of the numbers from this quarter, we generated EBITDA of $67 million compared to $67.3 million in the same quarter last year.
John Peyton: Our Q2 revenue is down 1% from the same quarter last year. Applebee's reported negative 1.8% comp sales. IHOP posted negative 1.4% comp sales, and adjusted free cash flow was $23.2 million.
John Peyton: In light of our performance to date in 2024 and our expectation that market pressures will continue throughout the remainder of the year, we are revising our full year financial and development guidance. Vance will speak to our guidance in greater detail later in the call, but I'll first say that although we're disappointed in the slow momentum on our top-line growth, it's driven largely by market conditions. We're applying our learnings from the last two quarters to refine our strategies, and we're committed to pulling all available levers to support the top line through the remainder of the year.
Speaker Change: We're applying our learnings from the last two quarters to refine our strategies, and we're committed to pulling all available levers to support the top line through the remainder of the year.
John Peyton: So with that, I'll turn to brand updates, and I'll begin with Applebee's. In Q2, Applebee's delivered an improvement in comp sales and traffic versus Q1. Key promotions and limited-time offers, like America's favorite boneless wings, resonated with our guests, allowing us to outperform black box traffic for the third quarter in a row. However, the macroeconomic headwinds we experienced at Applebee's this quarter were significant, putting pressure on the growth and momentum we started to develop at the end of Q1.
Speaker Change: So with that, I'll turn to brand updates and I'll begin with Applebee's. In Q2, Applebee's delivered an improvement on comp sales and traffic versus Q1.
Speaker Change: Key promotions and limited-time offers, like America's favorite boneless wings, resonated with our guests, allowing us to outperform black box traffic for the third quarter in a row.
Speaker Change: However, the macroeconomic headwinds we experienced at Applebee's this quarter were significant, putting pressure on the growth and momentum we started to develop at the end of Q1.
John Peyton: During the second quarter, we ran a diverse range of promotions that showcased how value at Applebee's extends beyond price, while also ensuring that the price is right. This helped us attract the consumer and drive traffic, while also testing new menu innovations such as the Whole Lotta Bacon Burger, which will remain on the menu following the success of its performance as an LTO. In June, we unlocked the opportunity for new capabilities with hand-breaded chicken in our restaurants.
Speaker Change: During the second quarter, we ran a diverse range of promotions that showcased how value at Applebee's extends beyond price, while also ensuring that the price is right.
Speaker Change: This helped us attract the consumer and drive traffic while also testing new menu innovations such as the Whole Lotta Bacon Burger, which will remain on the menu following the success of its performance as an LTO.
Speaker Change: In June , we unlocked the opportunity for new capabilities with hand-breaded chicken in our restaurants. The launch of our brand new hand-breaded chicken sandwich to our menu exemplifies Applebee's commitment to menu innovation and paves the way for further menu expansion.
John Peyton: The launch of our brand new hand-breaded chicken sandwich on our menu exemplifies Applebee's commitment to menu innovation and paves the way for further menu expansion. And as we look toward the second half of the year, we're very excited to work with one of the world's strongest brands, the National Football League. The opportunity to combine dining with entertainment, socializing, and connections through our NFL partnership is certainly timely, and it's exciting and fun. As the official grill and bar of the NFL, we'll partner with the league to enhance the guest experience and build loyalty for our nearly 8 million club Applebee's members.
Speaker Change: The opportunity to combine dining with entertainment, socializing, and connections through our NFL partnership is certainly timely, and it's exciting and fun. As the official grill and bar of the NFL, we'll partner with the league.
Speaker Change: to enhance the guest experience and build loyalty for our nearly 8 million Club Applebee's members, and we'll provide exciting menu items and engaging content all season long.
John Peyton: And we'll provide exciting menu items and engaging content all season long. Now, moving on to IHOP. Similar to Applebee's, sales and traffic improved versus the first quarter. However, as the quarter progressed, though, Q2 performance was challenged by the increase in competitive pressures and the promotional environment. So in response, IHOP successfully pivots during the quarter to meet our guests' needs, leveraging our operational agility and barbell promotion strategy to offer more affordable value-priced menu items. Our barbell strategy is simple; it balances our offerings to provide both premium menu options, like our Breck Feasts, while appealing to our value-conscious customers via our $6 2x2x2 combo.
Speaker Change: So, in response, IHOP successfully pivoted during the quarter to meet our guest needs, leveraging our operational agility and barbell promotion strategy to offer more affordable value-priced menu items.
Speaker Change: Our barbell strategy is simple. It balances our offerings to provide both premium menu options, like our Breck Feasts, while appealing to our value conscious customers via our $6 2x2x2 combo.
John Peyton: In the first three weeks of the 2x2x2 promotion, which launched in mid-June, IHOP outperformed the family dining segment in sales, traffic, and checks. Looking at the second half of the year, we have the support of our franchisees to be more aggressive with our value-driven strategies, and we've built a purposeful calendar to help drive sales and traffic. We also plan to deliver personalized offers to our nearly 10 million loyalty members
Speaker Change: Looking at the second half of the year, we have the support of our franchisees to be more aggressive with our value-driven strategies, and we've built a purposeful calendar to help drive sales and traffic.
Speaker Change: We also plan to deliver personalized offers to our nearly 10 million loyalty members. Our data shows that our promotions are most impactful with our loyalty guests, who overall frequent IHOP more often.
John Peyton: Our data shows that our promotions are most impactful with our loyalty guests, who overall frequent IHOP more often. And importantly, our internal data also shows that IHOP guest satisfaction scores are improving. This is validated by the results of the 2024 American Customer Satisfaction Index restaurant and food delivery study, which showed that IHOP's guest satisfaction score increased 8% while our peers remained flat. On the retail front, demand for our CPG coffee line remains strong, bolstered by the recent launch of two new varieties now available in retail locations nationwide and on Amazon.com.
Speaker Change: This is validated by the results of the 2024 American Customer Satisfaction Index restaurant and food delivery study, which showed that IHOP's guest satisfaction score increased 8% while our peers remained flat.
John Peyton: Last month, we also expanded our partnership with Kraft Heinz to introduce IHOP syrup to grocery shelves nationwide. Currently, the syrups are available in 3,500 Walmart stores, with distribution expected to expand to an additional 3,600 retail locations nationwide. Overall, while we're not satisfied with the performance of the quarter, we're actively pursuing initiatives to mitigate the ongoing headwinds and continue to believe in the long-term opportunity for the brand.
Speaker Change: Overall, while we're not satisfied with the performance of the quarter, we're actively pursuing initiatives to mitigate the ongoing headwinds and continue to believe in the long-term opportunity for the brand.
John Peyton: The brand was also impacted by market conditions during the second quarter, but it was in a better position to respond as a result of integration with the Dine platform and our value-driven strategy. Building on the success of its first-ever value promotion in Q1, Fuzzy's launched a new Cali-style steak taco this quarter, paired with a 32-ounce soft drink for $5, which was well-received by guests and franchisee We leveraged insights from successful promotions at Applebee's and IHOP to create this offering at Fuzzy's.
Speaker Change: Turning now to Fuzzies. The brand was also impacted by market conditions during the second quarter, but was in a better position to respond as a result of integration with the Dine platform and our value-driven expertise.
John Peyton: Using the proven formula from IHOP and Applebee's, we'll pair future Fuzzy's promotions with exciting innovations in the pipeline for additions to the Fuzzy's menu. A recent example of this is last week's launch of Fuzzy's Hot Honey Chicken Tacos and Spicy Watermelon Margarita Combo, developed in collaboration with country music star Thomas Rhett's tequila company Dos Prim On the marketing side, we announced at the end of April the appointment of Patrick Kirk as Fuzzy's Chief Marketing Officer.
Speaker Change: Using the proven formula from IHOP and Applebee's, we'll pair future Fuzzy's promotions with exciting innovations in the pipeline for additions to the Fuzzy's menu.
John Peyton: Patrick previously served as Vice President of Bar and Beverage for Applebee's. We see a significant opportunity to expand Fuzzy's bar and beverage platform, and having Patrick's expertise will be critical in supporting that initiative. Patrick has hit the ground running with work to continue to develop the Fuzzy's brand across all channels.
Speaker Change: On the marketing side, we announced at the end of April the appointment of Patrick Kirk as Fuzzy's Chief Marketing Officer.
Speaker Change: Patrick previously served as Vice President of Bar and Beverage for Applebee's.
Speaker Change: And we see a significant opportunity to expand Fuzzy's bar and beverage platform, and having Patrik's expertise will be critical in supporting that initiative. Patrik has hit the ground running with work to continue to develop the Fuzzy's brand across all channels.
Vance Chang: On the international side of the business, we have strong momentum and recently opened two new dual-branded restaurants in Saudi Arabia and Kuwait. These dual-brand locations are a significant point of optimism as they generate, on average, approximately twice the revenue of stand-alone IHOP or Applebee's restaurants of the same size. We're pleased to see that international dual-brand locations are performing according to our thesis, supporting our strategy for future expansion of dual-brand locations domestically.
Speaker Change: On the international side of the business, we have strong momentum and recently opened two new dual-branded restaurants in Saudi Arabia and Kuwait. These dual-brand locations are a significant point of optimism as they generate on average approximately twice the revenue of stand-alone IHOP or Applebee's restaurants of the same size.
Vance Chang: In fact, we have 15 sites approved for potential domestic dual-brand deals, with a target of the first restaurant opening as early as Q1 2025. Speaking of our development strategy, we're continuing to build our internal capabilities to support development across the entire Dine platform, and the team is actively reviewing opportunities for new sites, both traditional and non-traditional, and working closely with franchisees to expand their plans. As shared last quarter, our support team has introduced incentives for our franchisees to make restaurant development more approachable, with new programs to provide access to capital.
Vance Chang: We remain pleased by the cross-pollination of franchisees looking for new opportunities across the Dine system, an important pillar of the Dine development thesis. However, the industry is still experiencing headwinds from longer lead times and higher costs for construction and borrowing rates, which has impacted our timeline for openings. As Vance will expand on in a moment, we've adjusted IHOP's full-year development guidance to address these shifts and openings. However, we remain focused on the long-term development opportunity for all three brands to unlock further growth. And so with that, I will turn the call over to Vance.
Speaker Change: We remain pleased by the cross-pollination of franchisees looking for new opportunities across the Dine system, an important pillar to the Dine development thesis.
Speaker Change: The industry is still experiencing headwinds from longer lead times and higher costs for construction and borrowing rates, which has impacted our timeline for openings.
Vance Chang: Thanks, John. Despite the challenges faced this quarter, we generated strong free cash flow in EBITDA and continue to return cash to our shareholders while protecting our balance. In difficult environments like we're in now, our attractive asset life business model positions us well to weather this economic cycle. On the top line, consolidated total revenues decreased to $206.3 million in Q2 versus $208.4 million in the prior year, primarily driven by a decrease in franchise revenue and a decrease in rental segment revenue. Our total franchise revenues decreased 0.8% to $176.5 million compared to $177.9 million for the same quarter of 2023. Including advertising revenues, franchise revenues remain flat at $102 million.
Speaker Change: And so with that, I will turn the call over to Vance.
Vance: On the top line, consolidated total revenues decreased to $206.3 million in Q2 versus $208.4 million in the prior year, primarily driven by a decrease in franchise revenue and a decrease in rental segment revenues.
Vance: G&A expenses decreased 2.1 percent.
Vance: to $46.9 million in Q2 of 2024, down from $47.8 million in the same period of last year, mostly due to stopping the IHOP Flip Initiative in the prior year, offset by an increase in compensation-related expenses and an increase in depreciation.
Vance: Adjusted EBITDA for Q2 of 2024 decreased to $67 million from $67.3 million in Q2 of 2023.
Vance Chang: G&A expenses decreased 2.1% to $46.9 million in Q2 of 2024, down from $47.8 million in the same period of last year, mostly due to stopping the IHOPFlip initiative in the prior year, offset by an increase in compensation-related expenses and an increase in depreciation. Adjusted EBITDA for Q2 of 2024 decreased to $67 million from $67.3 million in Q2 of 2023. Adjusted diluted EPS for the second quarter of 2024 was $1.71 compared to adjusted diluted EPS of $1.82 for the same period of last year. Now, turning to the statement of cash.
Vance: Adjusted diluted EPS for the second quarter of 2024 was $1.71 compared to adjusted diluted EPS of $1.82 for the same period of last year.
Vance Chang: We had a free cash flow of $52.9 million for the first six months of 2024 compared to $24.1 million for the same period of last year, driven by reduced capex spending, as well as additional cash inflows from operations and principal receipts from notes and equipment contract receivable. Cash provided by operations at the end of the second quarter of 2024 was $52.2 million, compared to cash provided from operations of roughly $42.7 million for the same period of 2023. This increase was primarily due to a favorable increase in working capital, partially offset by a decrease in segment profit.
Vance: We had a just-to-free cash flow of $52.9 million for the first six months of 2024.
Vance: compared to $24.1 million for the same period of last year, driven by reduced capex spending, as well as additional cash inflows from operations and principal receipts from notes and equipment contract receivables.
Vance: Cash provided by operations at the end of the second quarter of 2024 was $52.2 million compared to cash provided from operations of roughly $42.7 million for the same period of 2023.
Vance: The increase was primarily due to a favorable increase in working capital, partially offset by a decrease in segment profit.
Vance Chang: CapEx through Q2 of 2024 was $6.8 million compared to $22.8 million for the same period of 2023. We finished the second quarter with total unrestricted cash of $153.5 million compared with $145 million at the end of the first quarter.
Vance Chang: Additionally, we continue to return capital to investors. Next, let me discuss Applebee's performance. Q2 same-store sales were negative 1.8%, reflecting challenging industry headwinds that moderated sales performance. Average weekly sales were over $53,900, including over $11,500 from off-premise, or over 21% of total sales, of which 10.8% was from to-go, and 10.6% was from delivery. IHOP's Q2 same-store sales were negative 1.4 percent due to challenging headwinds and strong year-over-year comps. Average weekly sales were $38,400, including $7,600 from off-premise, or 19.8% of total sales, of which 7.9% was from take-out and 11.9% was from delivery. On the labor front, franchisees are reporting that staffing and labor costs have continued to remain steady.
Vance: Additionally, we continue to return capital to investors.
Speaker Change: Next, let me discuss Applebee's performance.
Speaker Change: Average weekly sales were over $53,900, including over $11,500 from off-premise or over 21% of total sales, of which 10.8% was from to-go and 10.6% was from delivery.
Speaker Change: IHOP's Q2 same-store sales were negative 1.4% due to challenging headwinds and strong year-over-year comps.
Speaker Change: Average weekly sales were $38,400, including $7,600 from off-premise, or 19.8% of total sales, of which 7.9% was from to-go and 11.9% was from delivery.
Speaker Change: On the labor front, franchisees are reporting that staffing and labor costs have continued to remain steady.
Vance Chang: Turning to commodities, we're seeing costs stabilize, and our expectations for the fall year continue to be consistent with what we discussed in Q1, which is low single-digit inflation on IHOP and low single-digit deflation on Applebee's due to varying market baskets at the brink. As a result of these differences, Applebee's commodity costs fell 2.9 percent this quarter, and IHOP commodity costs grew 0.6 percent Our supply chain co-op, CSCS, continues to work across the Applebee's and IHOP systems to identify additional cost savings opportunities and support restaurant profitability initiatives through both operational improvements and input costs, to date, with implemented projects resulting in over $35 million of annualized savings across the system.
Speaker Change: Turning to commodities, we're seeing costs stabilize and our expectations for the fall year continue to be consistent with what we discussed in Q1, which is low single-digit inflation at IHOP and low single-digit deflation at Applebee's due to varying market baskets at the brands.
Speaker Change: As a result of these differences, Applebee's commodity cost this quarter fell 2.9%, and IHOP commodity cost grew 0.6% versus the same period of 2023.
Speaker Change: Our supply chain co-op, CSCS, continues to work across the Applebee's and IHOP systems to identify additional cost savings opportunities and support restaurant profitability initiatives through both operational improvements and input costs.
Speaker Change: To date, in 2024, we've implemented projects resulting in over $35 million of annualized savings across the system.
Vance Chang: Before turning the call back over to John for Q&A, I'd like to provide an update on our guidance for the year. Given what we shared today and the continued market pressures we anticipate during the second half of the year, we're revising our fiscal year guidance as follows. Starting with the top line, we now expect Applebee's domestic system-wide comp sales to fall between negative 4 to negative 2 percent, compared to the previous range of 0 to 2 percent.
Speaker Change: Before turning the call back over to John for Q&A, I'd like to provide an update on our guidance for the year.
Vance Chang: At IHOP, we expect domestic system-wide comp sales to range between negative 2 to 0 percent compared to the 1 to 3 percent range of growth we initially provided. On the bottom line, we're bringing down the top end of our GNA guidance to $205 million, with the bottom end remaining at $200 million. And this total includes non-cash stock-based compensation expense and depreciation of approximately $35 million. On EBITDA, we're reducing our range to $245 million to $255 million compared to our previous range of $255 million to $265 million.
Speaker Change: At IHOP, we expect domestic system-wide comp sales to range between negative 2 to 0 percent compared to the 1 to 3 percent range of growth we initially provided.
Speaker Change: On the bottom line, we're bringing down the top end of our G&A guidance to $205 million, with the bottom end remaining at $200 million, and this total includes non-cash stock-based compensation expense and depreciation of approximately $35 million.
Speaker Change: On EBITDA, we're reducing our range to 245 million dollars to 255 million dollars compared to our previous range of 255 million dollars to 265 million dollars.
Vance Chang: Lastly, we're lowering our 2024 CapEx spend to be in the range of approximately $14 million to $16 million compared to the previous range of $15 million to $20 million. On 2024 development, we now expect 0 to 10 net new domestic IHOP restaurants compared to the previously provided range of 15 to 25 net new restaurants, reflecting delays in new store opening timelines and an increase in closures compared to last year. Applebee's guidance of 25 to 35 net fewer domestic restaurants remains unchanged. With that, I'll hand the call back over to John. Thank you, Vance.
Speaker Change: Lastly, we're lowering our 2024 CapEx spend to be in the range of approximately $14 million to $16 million compared to the previous range of $15 million to $20 million.
Speaker Change: On 2024 development, we now expect 0 to 10 net new domestic IHOP restaurants compared to the previously provided range of 15 to 25 net new restaurants, reflecting delays in new store opening timelines and an increase of closures compared to last year.
John Peyton: Dine's fundamentals remain strong, and while our results this quarter reflect the challenging economic landscape we're all navigating, we're committed to our long-term strategy. We believe in the resilience of our business model and remain confident in our strategy and recipe for growth. So now, I'm happy to open the call for any questions you may have. As a reminder, in addition to Vance, Tony and Jay are also here with us and are prepared to address your questions. And so, with that, please go ahead and open the line for our first question.
Speaker Change: With that, I'll hand the call back over to John.
John Peyton: While our results this quarter reflect the challenging economic landscape we're all navigating, we're committed to our long-term strategy. We believe in the resilience of our business model and remain confident in our strategy and recipe for growth.
Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star-one-one on your telephone and wait for your name to be announced. To withdraw a question, please press star 1 1 again. Please stand by while we compile our Q&A list. Our first question comes from the line of Eric Gonzalez, with KeyBank.
John Peyton: Comes from the line of Eric Gonzalez.
Eric Gonzalez: Hi, thanks. Good morning.
Eric Gonzalez: My question is about the competitive environment. You know, it's obvious that the industry is struggling right now as consumers pull back on discretionary spending. But I'm sure it didn't help Applebee's case, having a direct competitor go viral by highlighting
Eric Gonzalez: the value that it offers relative to fast food.
Eric Gonzalez: So I'm wondering, you know, first, how much of an impact you think that might have had. Because in the past, I believe you said there wasn't much of a geographic overlap between the two brands. And to the extent that Chili's outside results did impact your business, I'm wondering if your Stinks for Sales outlook might actually prove conservative, assuming Chili's content normalized.
Eric Gonzalez: https://www.youtube.com
Eric Gonzalez: And relatedly, what can you do to mitigate such an impact in the future, and has Chilean success caused you to re-evaluate the way you approach your marketing strategy? Perhaps, there's something... Learn from Chili's and replicate Applebee's. Thanks.
Speaker Change: Learn from Chili's and Replicate Applebee's. Thanks.
John Peyton: Hey, Eric, it's Sean. Good morning. Thank you for the multi-part question about chilies.
John Peyton: We'll try to get to as much of it as we can. I'm going to make a couple of comments, then, of course, turn it over to Tony to specifically talk about Applebee's. You know, I would say a couple of things.
John Peyton: The first is that we have a strategy for Applebee's. There is certainly more than one way to approach a difficult market, and we're confident with our strategy, not only for Applebee's but for all of our What we did learn from the first two quarters is that we do need to be flexible and agile and that when we put calendars together 18 months ago for what we thought the right promotions were for 2024, you know, we learned from the first two quarters that we have to lean more toward the, you know, the value portion of our promotions.
Speaker Change: We have a strategy for Applebee's. There are certainly more than one way to approach a difficult market, and we're confident with our strategy, not only for Applebee's, but for all of our brands.
John Peyton: And, you know, that's what we're doing. And we're making, we're making adjustments in that regard. All you can eat appetizers and endless fries is a good example of that. And the market has started to, you know, sort of converge in the sense that full service, as you alluded to, select service, and quick service are all becoming closer competitors to one another as prices become closer to one another.
Speaker Change: and you know that's what we're doing and we're making we're making adjustments in that regard all you can eat appetizers and endless fries is a good example is a good example of that.
Speaker Change: Conflate in the sense that
Speaker Change: Full service, as you alluded to, you know, select service and quick service.
John Peyton: You know, and we believe that, you know, a $10.99 burger or chicken sandwich at Applebee's is a very competitive price with a great experience. So we're certainly cognizant of what's happening in the market and that we have an opportunity to go after quick serve. But we're sticking with our, with our plan based upon what we're learning from the first two quarters. I can also say that, you know, our data continues to tell us that Applebee's is not losing significant share to Philly's and that we are, um actually gaining traffic the last three quarters particularly because what we believe is our franchisees you know modest approach to pricing which will serve us well in the long term uh Tony I may have stolen some of your thunder there but um forgive me and and what would you like to add?
Speaker Change: So, we're certainly cognizant of what's happening in the market and that we have an opportunity to go after quick serve, but we're sticking with our plan based upon what we're learning from the first two quarters.
Speaker Change: I can also say that our data continues to tell us that Applebee's is not losing significant share to Chili's and that we are
Tony Moralejo: Thanks, John. Good morning, Eric.
Speaker Change: Thanks, John . Good morning, Eric. So, you're correct. It's a great question. We have seen aggressive promotions by competitors. So, as a result of that, we recently conducted a deep dive to determine if any of this promotional activity, whether it was Chili's or any other
Tony Moralejo: So, you're correct. It's a great question. We have seen aggressive promotions by competitors. So, as a result of that, we recently conducted a deep dive to determine if any of this promotional activity, whether it was Chili's or any other competitor, lost us share to any one brand. And from our research and from the modeling that we've done, we've concluded that it's not any single brand. In fact, the most meaningful factors that have impacted our performance are external factors, as John mentioned, like household income and pricing.
Tony Moralejo: There isn't one single casual dining brand that's impacting our results. It's why today our strategy remains to focus on the guests, where our core guest is highly, highly sensitive to pricing based on their income. So, in this environment, value becomes incredibly important if we're going to maintain our market share. And, as John mentioned, we outperformed the category of traffic during the quarter. So, all of this aggressive discounting and promotional activity that we're seeing didn't really materially impact our guest visits during the quarter.
Speaker Change: It's why today our strategy remains to focus on the guests, right? Our core guest is highly, highly sensitive to pricing based on their income.
Speaker Change: So in this environment, value becomes incredibly important if we're going to maintain our market share. And as John mentioned,
Speaker Change: So, like, all of this aggressive discounting and promotional activity that we're seeing, it didn't really materially impact our guest visits during the quarter.
Eric Gonzalez: But that's really helpful. And maybe if I could sneak one more in, you said last quarter about 28% of orders were on LTO. I'm just wondering if you could give us an update on that number for this quarter and how you think that might shake out in the second half.
Eric Gonzalez: Transcription by Trans-Expert at Fiverr.com
John Peyton: Yeah, Eric, just to clarify that number, and then Tony can talk about his approach in the second half, that the way we're looking at that number is the number of tickets that are LTOs, as well as the everyday value portion of the Applebee's menu, which is, you know, the two for 20 portion of the menu. And so, you know, that percentage of tickets is about 33%, which is up from the, you know, mid to low 20s same time last year. And then, Tony, do you want to talk about how you're thinking about the back half of the ear?
Speaker Change: Just to clarify that number, and then Tony can talk about his approach in the second half.
Eric Gonzalez: The way we're looking at that number is the number of tickets that are LTOs as well as the
Speaker Change: The Everyday Value portion of the Applebee's menu, which is, you know, the 2 for 20 portion of the menu. And so, you know, that percentage of tickets is about 33%, which is up from the, you know, mid to low 20s same time last year. And then, Tony, do you want to talk about how you're thinking about the back half of the year?
Tony Moralejo: Yeah, so for the second half of the year, Eric, you can see that you're going to count on us to have a heavy dose of disruptive value and abundant value offerings because of the inflationary pressures that we spoke about. But we'll also dial in on the playful side of our brand with the NFL partnership, right? We think our relationship with the NFL is going to unlock sort of a playful side of our brand in sort of a fun and unexpected way, and it'll feature promotions that'll re-solidify that the NFL and Applebee's are really a natural partnership for our guests.
Tony: But we'll also dial in on the playful side of our brand with the NFL partnership, right? We think our relationship with the NFL is going to unlock sort of a playful side of our brand in sort of a fun and unexpected way.
Tony: And it'll feature promotions that'll re-solidify that the NFL and Applebee's are really a natural partnership for our guests.
Eric Gonzalez: Thanks, I'll pass it on.
Operator: Thank you for your question. One moment, please. Our next question comes from the line of Denise Geiger or Denise Geiger from UBS. The floor is yours.
Speaker Change: Thanks for passing on.
Speaker Change: Thank you for your question.
Speaker Change: One moment, please.
Speaker Change: Our next question comes from the line of Denise Geiger or Denise Geiger from UBS. The floor is yours.
Denise Geiger: Great. Thanks very much, guys.
Denise Geiger: Great. Thanks very much, guys. First, I just wanted to ask about sentiment across both the Applebee's and the iHop systems right now, particularly, I guess, as it relates to development. It sounds like a lot of this is sort of macro and a challenging
Denise Geiger: First, I just wanted to ask about sentiment across both the Applebee's and the IHOP systems right now, particularly as it relates to development. And it sounds like a lot of this is sort of macro and a challenging development environment. But could you talk about both brands as it relates to sort of demand to build timelines, just any kind of incremental color on the development side of things for both?
Speaker Change: Development Environment. But could you talk for both brands as it relates to sort of demand to build timelines, just any kind of incremental color on the development side of things for both, please.
John Peyton: Sure. Hey, Dennis, we do have your name pronounced correctly. So, we've got it. And it's John. I'll comment broadly and then ask Jay specifically to talk about IHOP since that's where we did change our guidance. And it's important to reinforce that for international, for Fuzzies, and for Applebees, we are on track for the plans for the year. It's IHOP specifically where we made an adjustment based upon that, the dynamics of that portfolio.
Jay Johns: And Jay can give you some more.
Jay Johns: Hey, Dennis, this is Jay. Look, I think to answer your question directly is that we still have a lot of desire and demand by our franchisees to open more IHOPs. You know, we have challenging timing on trying to predict this. It's one of the toughest things we do from a guidance standpoint to predict when these are going to open. We still have similar issues as we've had in past years. I know it's an old story, but things have changed since the pandemic, and you know, the situation is that you've got a different set of circumstances every year. It's not like it's the same thing every year. You deal with different municipalities, different contractors, and different franchisees. They're not exactly the same ones every day, and you've got to manage through that.
Jay: Hey Dennis, this is Jay. Look, I think to answer your question directly is we still have a lot of desire and demand by our franchisees to open more IHOPs.
Speaker Change: You know, we have a challenging timing on trying to predict this. It's one of the toughest things we do from a guidance standpoint is.
Jay: We're still predicting when these are going to open. We still have similar issues as we've had in past years. I know it becomes an old story, but things have changed since the pandemic.
Jay Johns: We're trying to do a better job this year of making a correction to our guidance early on if we see something that, instead of hoping they're still going to get in those last weeks of the year, I think we're trying to be a little more realistic with the timeline and what we put out there for guidance, et cetera. So there's a little bit of softening in the numbers compared to where we thought we were going to be in the fiscal year this year.
Jay: And you've got to manage through that. And we're trying to do a better job.
Jay: This year to make a correction to our guidance early on if we see something that instead of hoping they're still going to get in those last weeks of the year.
Speaker Change: I think we're trying to be a little more realistic with the timeline and what we put out there for guidance, etc. So there's a little bit of softening in the number compared to where we thought we were going to be in the fiscal year this year. So we backed off the new openings and our closures have ticked up a little bit this year as well. And that's all kind of cyclical as far as
Jay Johns: So we backed off the new openings, and our closures have ticked up a little bit this year as well. And that's all kind of cyclical as far as when the renewals come due and how many you have and how many get activated late in the cycle with leases and things like that.
Jay: When the renewals come due and how many you have and how many, you know, get activated late in the cycle with leases and things like that. So, we're just trying to be realistic. We still have great demand for IHOPs and our pipeline is still getting filled up for future years. And we've still already opened almost a dozen restaurants so far this year. So, we're going to keep opening IHOPs. We're still bullish on our development and our future.
Jay Johns: So we're just trying to be realistic. We still have great demand for IHOPs, and our pipeline is still getting filled up for future years, and we've already opened almost a dozen restaurants so far this year. So we're going to keep opening IHOPs. We're still bullish on our development and our future.
John Peyton: Dennis, it's John. Just a little bit of context there is we're talking about the net number for IHOP being 0 to 15 and you know it's important to also note that you know that means we're going to open about 40 restaurants this year plus or minus which is remarkable for a 65 year old brand and you know at the same time with with very little marketing and just reaching out to a couple franchisees to test the waters on dual brands we've got a pipeline of already 15 restaurants that are looking to add a second brand to their existing box so you know we are encouraged by franchisees interest and willingness in building restaurants and as Jay said in any given year you've got a unique composition of what's supposed to open as well as closures you know and that's that's an important part of the story is understanding you know how we get to that net.
Jay: Dennis, it's John . Just a little bit of context there.
Dennis: You know, we're talking about the net number for IHOP being 0 to 15, and, you know, it's important
Dennis: to also note that, you know, that means we're going to open about 40 restaurants this year, plus or minus.
Speaker Change: which is remarkable for a 65-year-old brand.
Speaker Change: At the same time, with very little marketing and just reaching out to a couple franchisees to test the waters on dual brands, we've got a pipeline of already 15 restaurants that are looking to add a second brand to their existing box.
Speaker Change: So, you know, we are encouraged by Franchisees.
Speaker Change: interest and willingness in building restaurants. And as Jay said, in any given year, you've got a unique composition of what's supposed to open as well as closures, you know, and that's an important part of the story is understanding, you know, how we get to that net.
Denise Geiger: That's helpful, guys, and if I could get another one in, I just want to come back to guest satisfaction scores. I think you spoke of the solid scores at IHOP, but I was wondering if there's anything more to add on Applebee's, how the scores are trending, and, I guess, really, what the customers are telling you about maybe the biggest opportunities to increase frequency. Tony, you might have mentioned or alluded to a couple minutes ago that it was kind of mainly macro. Is there anything sort of brand-specific, anything to share on some of those learnings on feedback scores as it relates to how you can drive frequency in the back half and beyond? Thanks.
Speaker Change: That's helpful, guys. And if I could get another one in. Just want to come back to guest satisfaction scores. I think you spoke to the solid scores at IHOP. But I was wondering if there's anything more to add.
Speaker Change: on Applebee's, how the scores are trending, and I guess really what the customers are telling you about maybe the biggest opportunities.
Speaker Change: to increase frequency. Tony, you might have mentioned or alluded to a couple of minutes ago that it was kind of mainly macro. Is there anything sort of brand specific, anything to share on some of those learnings on feedback scores as it relates to, you know, how you can drive frequency in the back half and beyond? Thanks, guys.
Tony Moralejo: Sure, that's a good question for Tony. Thanks, Don, and good morning, Dennis.
Tony Moralejo: Thanks, Don, and good morning, Dennis. So when we think about frequency, it's obviously certainly an ongoing focus, but to drive greater frequency, Dennis, you have to provide more access to your brand. And we've been doing that. Like, for example, we've improved the functionality and the convenience of our new website and app. We're working with franchisees to solve some late-night stacking issues so that restaurants can stay open later. We've got to make sure we have a compelling calendar and stay top of mind with our value offerings.
Speaker Change: Sure, that's a good question for Tony.
Tony: And we've been doing that, like for example, we've improved the functionality and the convenience of our new website and app.
Tony Moralejo: And we have to enhance our off-premise offerings, right, to be more inclusive. So, for example, at the beginning of this quarter, we were able to leverage a dine-in promotion, which was America's favorite phone, wings at 50 cents, and we made that available to our off-premise guests. So it's really about driving greater frequency. It's about making the brand more accessible and meeting the consumer where they want.
Speaker Change: Thank you for your question.
Operator: comes from the line of Jeffrey Bernstein of Barclays. The line is yours.
Speaker Change: Our next question
Jeffrey Bernstein: Great. Thank you very much.
Speaker Change: Barclays. The line is yours.
Jeffrey Bernstein: Two questions. The first one, just following up on the comp trends, I was wondering if you could share any color in terms of sequential trends through 2Q or into 3Q and maybe the components of the comp at each brand. I know you mentioned that you're outpacing the industry on traffic, so just some support, or at least the details behind the comps at each brand to kind of support that idea and whether or not the sequential trends changed materially over the past few months, and then how to follow up.
Vance Chang: So our panelists will take that first question.
Vance Chang: Good morning, Jeff. As we said last quarter, in Q1, we were really encouraged by the momentum, right, in the second half of Q1 into the early part of Q2. And as Q2 progressed, the macro pressure intensified and persisted. And so, based on the trends we've seen in the last, you know, the past two months or so, we anticipate the pressure to continue throughout the year. And so we've taken this conservative approach to updating our guidance.
Speaker Change: or Vance will take that first question.
Speaker Change: Good morning, Jeff. So, you know, as we said last quarter in Q1, we were really encouraged by the momentum.
Speaker Change: in the second half of Q1 into the early part of Q2.
Speaker Change: and as Q2 progressed, the macro pressure intensified and persisted. And so based on the trend we're seeing in the last two months or so, we anticipate the pressure to continue throughout the year. And so we've taken this...
Vance Chang: And, but, you know, it's, it's, Jeff, it's worth noting that our brands and our franchisees have been through many, many cycles like this before, right, in our core companies. It's always been about values in an up or down cycle, because that's important to our guests. So we may need to turn up our value offering a bit in tough times like this, but we're comfortable running our core play
Vance Chang: and the components of the car for each brand in terms of price and traffic mix.
Vance Chang: Yes, thank you for reminding me. So, for Applebee's, the menu pricing increase was 2.6%, and then our Pmix was down about 2-ish percent as consumers managed their check. And then for IHOP, the menu pricing increase was 7%, and Pmix was also down about, call it, the 2-percent-ish range. So that's the, those are the components.
Speaker Change: PMIX was down about 2-ish percent as consumers managed their check. And then for IHOP, menu pricing increase was 7% and PMIX was also down about, call it 2%-ish range. So those are the components.
Jeffrey Bernstein: understood, and then my follow-up is just conversations with franchisees. I know you mentioned that you've been through these cycles many times, which is actually quite encouraging, and it seems like franchisees, based on your thoughts about more deals in the second half of the year, are seemingly supportive of this discounting to try and return to stronger traffic. But I'm just wondering how those conversations go.
Speaker Change: I know you mentioned that you've been through these cycles many times, which is actually quite encouraging. And it seems like franchisees...
Speaker Change: of this discounting to try and return to stronger traffic.
Jeffrey Bernstein: I mean, I know some industry peers talk about the damage that more aggressive discounting can cause to a brand. You know, maybe the consumer only comes in for a deal. So I'm just wondering if you could talk about how you avoid that risk and maybe the profitability of these promotions. By all means, if these are profitable promotions, I guess it's just the marketing of them that gets people in. And then, at the end of the day, they're profitable. I was just trying to talk about the bigger picture risk of aggressive discounting and how those conversations go with franchisees. Thank you.
John Peyton: Hey Jeff, it's John. I can take that for all three brands because the process is the same for all three brands. We have extensive committees made up of franchisees for each brand, including a marketing and advertising committee, and those committees plan promotions like this collaboratively with our brand team at headquarters. And there are some principles that they all follow, which is number one: promotion has to be profitable. There's an art and a science to constructing a promotion.
Speaker Change: Hey Jeff, it's John. I can take that for all three brands because the process is the same for all three brands.
John Peyton: The science part of it is we share a lot of math about what we think it should drive in terms of traffic, which protein we select based upon the cost in the marketplace, and then we do a postmortem with our franchisees on whether it did what we said it would do, and unique adjustments going forward. So there isn't a promotion that any one of the brands runs that is not in alignment and agreement with our franchisees in support of it. You know, the time period on that. I'll leave it; I'll leave it there.
Speaker Change: And then we do a post-mortem with our franchisees on did it do what we said it would do, and unique adjustments going forward. So there isn't a promotion that any one of the brands runs that is not in alignment and agreement with our franchisees in support of it.
Jeffrey Bernstein: And lastly, can you just comment, I know you said labor inflation was stable. Just wondering, I know you gave it for commodities, but what was the inflation in the second quarter and maybe what you're thinking for the back half or the full year for the labor inflation by age brand?
Speaker Change: And lastly, can you just comment, I know you said labor inflation was stable, just wondering, I know you gave it for commodities, but what the inflation was in the second quarter, maybe what you're thinking for the back half or the full year for labor inflation age brand?
Vance Chang: Jeff, you know, labor inflation is harder for us to predict because it definitely varies by market and it's the franchisees' labor. It's easier for us to talk about commodity food cost inflation expectations because that's managed centrally by our supply chain co-op. But what we have seen based on the financials that franchisees are sharing with us is that labor cost is stabilizing, right? It's still elevated, you know, but it's not increasing anymore, and so that's a positive sign.
Speaker Change: Jeff, you know that the labor inflation is harder for us to to predict because it definitely varies by market and it's the franchisees labor. It's easier for us to talk about commodity food cost inflation expectations.
Speaker Change: You know, so because that's that's managed centrally by our supply chain co-op.
Vance Chang: But outside of that, right, you know, obviously, the pressure franchisees are facing is top-line pressures more than the cost side, so that has shifted. But as John mentioned, the franchisees are as engaged as ever to work with us on value campaigns while they're implementing, you know, these restaurant profitability initiatives, and, you know, we talked about that being $35 million of annualized savings in the system, which helps not just improve P&L but also helps offsetting increases elsewhere on their P&L. understood. Thank you very much.
Speaker Change: Obviously, the pressure franchisees are facing are top line pressures more than the cost side. So that has shifted. But as you, as John mentioned, you know, the franchisees are as engaged as ever to work with us on value campaigns.
Speaker Change: while we're implement while they're implementing, you know, these restaurant profitability initiatives And you know, we talked about that being thirty five million dollars of annualized savings in the system Which you know helps not just improving P&L but also helps offsetting increases elsewhere on their P&L
Operator: Thank you for the question. Our next question comes from the line of Nick Setyan from WeBush. The line is yours.
Speaker Change: Understood. Thank you very much.
Operator: From WeBush: The line is yours.
Speaker Change: comes from the line of Nick Setyan.
Nick Satyan: Thank you. Just kind of going forward, how are we thinking about pricing decisions just given the competitive environment? And, you know, if you could just talk about franchisee health and profitability overall. I know you've said
John Peyton: Hey Nick, it's John. Let's start with Franchisee Health, and Vance can talk about that overall. Yeah.
Vance Chang: Yeah, Nick, I touched on it a little bit earlier, but the health of the system is relatively stable, right? And then, of course, we have some franchisees that are doing better than others, as you would expect from a system, you know, of our size. But as I said earlier, the cost pressure has come down as inflation comes under control, and so now what we're working on is sort of the top line pressures.
Vance: franchisee health and Vance can talk to that overall. Yeah Nick you know I touched on it a little bit earlier but the health of the system is relatively steady.
Vance Chang: And as I said before, franchisees are engaged with us, and we're working on addressing that with the campaigns. And John talked about how the campaigns we run are profitable campaigns. We don't typically run lost leaders. So that should give you a sense of their health currently. And when it comes to pricing, Nick, you know what we've said.
Vance: Addressing that with the campaigns, and John talked about that the campaigns we run are profitable campaigns. We don't typically run lost leaders, so that should give you a sense of their health currently.
John Peyton: In fact, Applebee's is pretty close to that year over year, just at just 2.6%. Year over year price increase, which we think the franchisees have done a great job of being really, you know, moderate and cautious with their price increases. I think that's what's driving the three quarters in a row of overperformance in traffic versus versus black box. And they're, you know, they're thinking about the long term in the future as they take price, you know, that at that modest rate.
John Peyton: And when it comes to pricing, Nick, you know, what we've said now for a couple of years, right, post COVID, is that historically, our franchisees have raised prices 2 to 3% a year. And, you know, in the last two years, they've been running at a rate above that. But what we're seeing is that that peaked last year, and the increases, the annual increases are beginning to come back down to that historical run rate of 2 to 3%.
Speaker Change: Yeah, and when it comes to...
Speaker Change: Pricing Nick, you know what we've said now for.
Speaker Change: I'm back down to that historical run rate of 2-3%. In fact, Applebee's is pretty close to that year-over-year, just 2.6% year-over-year price increase.
Speaker Change: which we think the franchisees have done a great job in being really moderate and cautious with their price increases. I think that's what's driving the three-quarters in a row of overperformance in traffic versus black box. And they're thinking about the long term in the future as they take price.
Speaker Change: at that modest rate.
Speaker Change: Thank you.
Operator: Our next question comes from the line of... Brian Vaccaro from Ramey James. The floor is yours.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of...
Speaker Change: Brian Vaccaro from Ramey James. The floor is yours.
Brian Vaccaro: Hi, thanks and good morning. Just following up on the value mix; could you provide the value?
Brian Vaccaro: Next for IHOP as well, and as it relates to profitability.
Brian Ficarro: Hi, thanks and good morning. Just following up on the value mix, could you provide the value mix for IHOP as well? And as it relates to the profitability of your recent more aggressive value promotions, what type of a traffic lift do you need for them to be profitable for franchisees?
John Peyton: The profitability of your recent more aggressive value promotions, what type of a traffic lift do you need for them to be profitable for franchisees? Hey, it's John, Brian.
John Peyton: I'm going to pass it on to Tony and Jay in a moment to talk about the mix, the lift that they're looking for. But the corresponding number to Applebee's 33% for IHOP is about 12.5%. And the reason that that number is lower, to give you the context, is that the 2 for 20, the 2 for 25 portion of the Applebee's menu attracts more tickets than the standing portion on the IHOP
John Peyton: Hey, it's John , Brian . I'm going to pass it on to Tony and Jay in a moment to talk about the mix, the lift that they're looking for. But the corresponding number to Applebee's 33% for IHOP is about 12.5%.
Speaker Change: And the reason that that number is lower, to give you the context, is that, you know, the 2-4-20, the 2-4-25 portion of the Applebee's menu attracts...
Speaker Change: and Vance. Thank you. Thank you.
Speaker Change: Tickets, then the standing portion on the IHOP menu, and that's an area that IHOP is actually focusing on going forward.
John Peyton: And that's an area that IHOP is actually focusing on going forward. So Jay, why don't we begin with you talking about the value strategy going forward, as well as how you think about the lift you're looking for in it on any
Speaker Change: So Jay, why don't we begin with you to talk about the value strategy going forward as well as how you think about the lift you're looking for on any given promotion.
Jay Johns: Hey, Brian, it's Jay. You know, when you think about what it takes to make these initiatives possible, or whatever, number one is the only thing that's a real risk, you know, making money on all of these things. The risk for franchisees is trade down, right? If someone was coming in to buy a full price item at $14, and they trade down to what they see that's on a discount at $6, that's the risk. What's a trade down? And it just depends what the offer is and what it trades with. So this is where there's that art and science to figuring this out.
Speaker Change: Hey Brian , it's Jay. You know when you think about what it takes to make these initiatives possible or whatever, number one is the only thing that's a real risk you know
Speaker Change: You make money on all of these items. The risk for franchisees is trade down.
Speaker Change: If someone was coming in to buy a full-price item at $14 and they trade down to what they see that's on a discount at $6,
Speaker Change: That's the risk, is what's a trade down, and it just depends what the offer is.
Jay Johns: But what we do is we do financial analysis based on what we're proposing the offer would be. We look at what the cost is; we look at what the price will be. And based on historical postmortems, looking at what other promotions have done with similar-type items, we can pretty much predict what it's going to trade with, you know, which items will trade out of which items does it trade on the menu.
Speaker Change: and what it trades with. So this is where there's that art and science to figuring this out. But what we do is we do financial analysis based on what we're proposing the offer would be.
Speaker Change: We look at what the cost is, we look at what the price will be, and based on historical post-mortems, looking at what other promotions have done with similar type items,
Speaker Change: We can pretty much predict what it's going to trade with, you know, which items will it trade out of, which items does it trade on the menu. So you can kind of project a potential impact to check by that trade down.
Jay Johns: So you can kind of project a potential impact to check by that trade down. So then it becomes just an algebraic equation to figure out how much incremental traffic it takes to make that break even, and then you flip to positive after that.
Speaker Change: So then it becomes a just an algebraic equation to figure out how much incremental traffic does it take
Jay Johns: That's another reason also, though, why we choose to do a barbell strategy because when you put out an offer that's a discount, rather than getting everyone to trade into that discount, you also attract people that maybe don't need the discount and get them excited about maybe some new innovation or something new that's out there. Like right now, we have a pancake of the month promotion. So every month we've got a brand new innovation on new pancakes.
Speaker Change: Because when you put out an offer that's a discount, rather than getting everyone to trade into that discount, you also attract the people that maybe don't need the discount, get them excited about maybe some new innovation or something new that's out there. Like right now, we have a pancake of the month promotion. So every month, we've got a brand new innovation on new pancakes.
Jay Johns: Those are actually at full price. So while we're running a promotion, we'll also simultaneously be having some new innovation. So we try to balance out guest demand on these different areas of the menu, which makes it very profitable for the franchise. And Tony, would you like to add anything to the Applebee's menu?
Speaker Change: Those are actually at full price. So while we're running a promotion, we'll also simultaneously be having some new innovations. So we try to balance out guest demand on these different areas of the menu, which makes it very profitable for the franchisees.
Tony Moralejo: I'll make it brief, but I'll just add that everything that Jay just said, which was a terrific answer, applies to Applebee's as well. It's the same methodology, and it's the same approach.
Speaker Change: And Tony, would you like to add anything for Applebee's?
Tony: I'll make it brief, but I'll just add that everything that Jay just said, which was a terrific answer, applies to Applebee's as well. It's the same methodology.
Brian Vaccaro: I'll add two, I think, important additional add-ons to what Jay said. One is that we're not going to be implementing loss leader promotions. We don't believe in loss leader promotions. Every promotion that we run tends to be profitable. And then the second thing I'll add is, because I think it's important in this environment, we have the full support of our franchisees to be more visible, and to be more aggressive with our value-based strategies during the second half. And I think that's important in this environment if you're going to drive profitable sales and traffic.
Tony: And it's the same approach. I'll add two, I think, important additional add-ons to what Jay said. One is that we're not going to be implementing lost leader promotions. We don't believe in lost leader promotions. Every promotion that we run...
Tony: And the second thing I'll add is, because I think it's important in this environment, is we have the full support of our franchisees to be more visible, the support to be more aggressive with our value-based strategies.
Tony: during the second half and I think that's important in this environment if you're going to drive profitable sales and traffic.
Jay Johns: All right, that's helpful. Thank you. And at IHOP, if I could just follow up there, could you elaborate on what you're seeing, Jay, from a daypart perspective, any differences in the most recent quarter versus prior quarters? And I'm also curious, are you seeing any difference in comp trends weekend versus weekday?
Speaker Change: All right. That's helpful. Thank you. And at IHOP, if I could just follow up there, could you elaborate on what you're seeing, Jay, you know, from a day part perspective, any differences in the most recent quarter versus prior quarters? And I'm also curious, are you seeing any difference in comp trends weekend versus weekday that might be worth calling out?
Jay Johns: be worth calling out. Again, this is usually, no great difference overall. You know, the one place we have seen a tick up is actually overnight. That's been our best performing comp increase over the last few quarters. Most of that's just because we continue to get more and more restaurants open overnight, and we're up to within about 100 restaurants, I think, of our highest level of 24-hour restaurants. So, that helps to keep driving that overnight comp. But there is no huge difference.
Jay: Again, this is usually, no great difference overall, you know, the one place we have seen a tick up is actually overnight.
Jay: That's been our best performing comp increase.
Jay: over the last few quarters. Most of that's just because we continue to get more and more restaurants open overnight. And we're up to within about 100 restaurants, I think, of our highest level of
Jay: 24-hour restaurants. So that helps to keep driving that overnight comp, but no huge difference. Part of it, though, depends on what we're promoting. Sometimes we'll do promotions to spur that weekday traffic.
John Peyton: Part of it, though, depends on what we're promoting. Sometimes we'll do promotions to spur that weekday traffic that's a money-through-Friday-only promotion. Well, if you do one of those kind of promotions, you'll see an over-indexing toward weekdays as opposed to weekends. But again, it's about managing the guests, the traffic, and what their spend is going to be. Do you want a discount at your highest traffic volume times on the weekend? So, it just depends what promotion we're running and what our strategy is at that moment.
Jay: That's a Monday through Friday only promotion.
Jay: Well, if you do one of those kind of promotions, you'll see an over-indexing toward weekdays as opposed to weekend. But again, it's about managing the guests.
Jay: The traffic, what their spend is going to be, do you want a discount at your highest volume traffic times on the weekend? So it just depends what promotion we're running and what our strategy is at that moment.
John Peyton: Hey, Brian, it's John. And thanks, Jake. Context, I would add there is that for both big brands, Applebee's and IHOP, restaurant dining is about flat. It's off-premium for both brands, that's a little bit soft. And that's the opportunity for
John Peyton: Hey Brian , it's John , and thanks Jake. The context I would add there is that for both big brands, Applebee's and IHOP, in-restaurant dining is about flat. It's off-prem for both brands, that's a little bit soft, and that's the opportunity for us.
Brian Vaccaro: Okay, great. And if I could just squeeze one more in on the lower development targets at IHOP, is that due to reduced gross openings or not?
Speaker Change: Okay, great. And if I could just squeeze one more in on the lower development targets at IHOP.
Brian Vaccaro: increased closures. Perhaps
Speaker Change: Is that due to reduced gross openings or increased closures? Perhaps you could just level set us on each of those and kind of more broadly just your level, speak to the level of concern internally just regarding future potential closures.
Brian Vaccaro: Level Set, us on each of those, and kind of more broadly, speak to the level of concern internally just regarding future potential closures at both IHOP and Applebee's. Any stats you could provide on the percent of stores that might be close to negative?
Brian Vaccaro: Both IHOP and Applebee's; any stats you could provide on the percent of stores that might be close to negative store level EBITDA or are generating negative EBITDA would be helpful. Any perspective there would be helpful.
Speaker Change: At both IHOP and Applebee's, any stats you could provide on the percent of stores that might be close to negative store-level EBITDA or are generating negative EBITDA, any perspective there would be helpful. Thanks again.
Speaker Change: Yeah, Brian , it's John . I'll take question number four quickly. It's a little bit of both. A couple more closures, a couple fewer openings.
John Peyton: Thanks again. Yeah, Brian, it's John. I'll take question number four quickly. It's a little bit of both. A couple more closures, a couple fewer openings, and we are not concerned about the long term. As I mentioned, our franchisees are continuing to open a significant number of restaurants, particularly for a brand of the tenure and size of IHOP.
Speaker Change: And we are not concerned about the long term, as I mentioned.
Speaker Change: You know, our franchisees are continuing to open a significant number of restaurants, particularly for a brand, you know, of the 10-year in size of IHOP.
Operator: Thank you for your question. Our next question comes from the line of Jake Bartlett, of Truist Securities. The floor is yours. Great.
Brian Ficarro: Thank you.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of Jake Bartlett.
Jake Bartlett: Great, thanks for taking the question. Mine was a follow-up on what you're seeing in the trajectory of the business and, really, underlying demand. You mentioned that demand softened in the past couple of months. I'm wondering whether you could characterize it as stable at this point, kind of lower but stable, or is it still very much in flux and kind of uncertain at this point? How would you characterize the stability of demand at this point?
Jake Bartlett: of Truist Securities, the floor is yours.
Jake Bartlett: Great, thanks for taking the question. Mine was a follow-up on what you're seeing in the trajectory of the business and really underlying demand. You mentioned that the demand softened in the past couple of months.
Speaker Change: I'm wondering whether you could characterize it as stable at this point, kind of had lowered but is stable, or, you know, is it still in very much in flux and kind of uncertain at this point? How would you characterize the stability of demand at this point?
Vance Chang: Yes, Jake, so it is, I suppose.
Speaker Change: Yes, Jake, so I suppose, you know, we could say that
Jake Bartlett: Just want to make sure that when you say stable, are you implying flat comp? We're not quantifying. No.
Jake Bartlett: Just want to make sure, when you say stable, are you implying flat comp? We're not quantifying it. No, no, I'm not. I guess I'm trying to say not getting incrementally worse. Demand seems to have taken a step down over the summer, I think, across the industry. And what we heard from...
Jake Bartlett: No, no, I'm not, I'm guessing, I'm trying to say not getting, you know, incrementally worse. Demand seems to have taken a step down over the summer, I think, across the industry. And, you know, what we heard from, you know, most of the fast food concepts, for instance, was that, you know, there was stability; it stepped down in June, but it remained, you know, roughly the same level in July.
Speaker Change: You know, most of the fast food, you know, concepts, for instance, was that, you know, there was stability. It stepped down in June , but it remained, you know, roughly the same level in July . So, I'm just trying to understand the trajectory of the business, understanding that the last two months, as you mentioned, you know, had decelerated or kind of stepped down, but wondering whether, you know, it continues to step down, you know, incrementally over the last couple months or whether it's stabilized, would you characterize the demand environment as stable? In that context, yes.
Jake Bartlett: So I'm just trying to understand the trajectory of the business, understanding that the last two months, as you mentioned, have decelerated or kind of stepped down, but wondering whether, you know, it continues to step down, you know, incrementally over the last couple of months, or whether it's stabilized, which characterizes the demand environment as stable.
Vance Chang: In that context, yes, sort of stabilize in that sense. So we are forecasting the rest of the year to be similar trends as what we saw in June and July. Curing, not getting worse, sort of stabilizing. In the context that you provided, that's helpful.
Speaker Change: It's sort of stabilized in that sense. So we are forecasting the rest of the year to be similar trends as what we saw in June and July , not.
Speaker Change: deteriorating, not getting worse, it's sort of stabilizing. In the context you provided, that's helpful. Yes.
Jake Bartlett: Okay, great. You know, and then the other question I had was on menu innovation, specifically at Applebee's. It was part of the story, you know, an incremental driver to Saves for Sales in 2024. They had done a lot of work building the pipeline there. We got the whole lot of bacon burgers, but from what I can tell, you know, kind of not much else. And so the question is, you know, how much menu innovation should we be expecting for the rest of the year in the context of kind of leaning in on more value in the back half. Could there be value around menu innovation or just the value kind of maybe crowd out what otherwise would have been a more heavy pipeline or heavy promotional environment for menu innovation?
Speaker Change: Okay, great. You know, and then the other question I had was on menu innovations, you know, specifically at Applebee's, you know, it was part of the story, you know, an incremental driver to Save for Sales in 2024, had done a lot of work building the pipeline there, we, we got the whole lot of bacon burger,
Speaker Change: But from what I can tell, you know, kind of not much else.
Speaker Change: And so the question is, you know, how much menu innovation should we be expecting for the rest of the year in, you know, in the context of kind of leaning in on more value in the back half, you know, could there be value around menu innovation or just the value kind of maybe crowd out what otherwise would have been a more heavy
John Peyton: and Jake. Before I pass this to Tony, I've got to say, what? Not a lot of innovation. Have you tried the new hand-breaded chicken sandwich? I thought that was an improvement, but not a new concept, but a new product. But yes, I get it. The better chicken and the hand-breaded chicken sandwich are fantastic. But Tony, why don't you talk about menu innovation?
Tony Moralejo: I will, and it's an amazing sandwich. Good morning, Jake. So we've actually had a lot of innovation this year, which is John's point. In fact, we probably rolled out more new products in the first half of this year than we did in the prior four years in total, collectively, right? We started the year off with our cheddar and bacon skillet, which was a new item that was part of our 2-4 campaign in February.
Tony Moralejo: Then in April, we had the whole lot of bacon burger, as you mentioned, which was, again, one of our best-tested new menu items in years, so much so, that it performed well, meeting most of our targets, and it's now part of the permanent menu. We followed that with the crispy chicken-loaded fries, which was a new appetizer that we promoted along with a Dollarita in May. In June, we launched our new hand-breaded chicken sandwiches, and there's more to come.
Tony Moralejo: I don't want to give away a lot of our promotional calendar for the back half of the year, but just stay tuned, because there's a lot more menu innovation on tap later this year and in 2025 and beyond.
Speaker Change: There's a lot more menu innovation on TAP later this year and in 2025 and beyond.
Jake Bartlett: Okay. And, you know, my last question is about IHOP and the virtual brand. You didn't mention, I don't believe, you know, the kind of the, obviously, you had lost a partner last year. I think you're starting to, you know, you're going to be lapping that. I was under the impression that that should be a, you know, a real incremental as you bring on Virtual Brands, an additional kind of you would cover that business, that would be a significant, you know, comp driver potentially in the back half. Is that still the case? What is the dynamic with virtual brands and IHOP for the remainder of the year?
Jay Johns: I'm sure you'll take that question.
Jay Johns: Yeah, this is Jay. Just to address virtual, you got the story right from the last time, is that the Next Byte Brands went away almost at this point last year, at the end of Q2. They went away. We did roll out two new virtual brands, kind of late in the first quarter. The NASCAR brand and the Major League Baseball brand that we rolled out. They have been adapted into quite a few of our restaurants.
Jay Johns: Again, these are voluntary programs. They're not mandatory. So, you got hundreds of restaurants that have added those on, probably not quite to the level of the Next Byte restaurants.
Speaker Change: Kind of late first quarter, NASCAR brand and Major League Baseball brand that we rolled out. They have been adapted into quite a few of our restaurants. Again, these are voluntary programs, they're not mandatory. So but you got
Speaker Change: Many hundreds of restaurants that have added those on. Probably not quite to the level of the Next Bite restaurants.
Jay Johns: So, I don't know if they will cover a full, you know, making up the difference on that in the second half of the year. We'll have to wait and see what that looks like. But it will help relative to, you know, not having that at all in the first part of the year. So, it'll give us a little bit of assistance. It's just too soon to tell how much that's going to actually be. All right, then. Thank you so much.
Speaker Change: So, I don't know if they will cover a full, you know, making up the difference on that in the second half of the year. We'll have to wait and see what that looks like, but it will help relative to, you know, not having that at all at the first part of the year. So, it'll give us a little bit of assistance, it's just too soon to tell how much that's going to actually be.
Jake Bartlett: All righty, thank you so much. I appreciate it.
Speaker Change: All righty, thank you so much, appreciate it.
Operator: Our next question comes from the line, "Brian Moulin from Piper Sandler." The floor is yours.
Speaker Change: Thank you for the question.
Speaker Change: Our next question comes from the line of Brian Moulin from Piper Sandler. The floor is yours.
Brian Moulin: Thank you. Just a question on the balance sheet. You know, Vance, I think you've got until June the 26th before you might have to address the maturity or key date on a tranche of debt. So you've got plenty of time, but you just may or may not be entering a tougher macro environment. So, just curious if that influences how you plan to approach this as we move forward and what your current thinking is on that topic. Just any thoughts would be great.
Brian Moulin: Thank you. Just a question on the balance sheet. You know, Vance, I think you've got until...
Speaker Change: June the 26th, before you might have to address.
Brian Moulin: Another maturity or key date on a truncheon debt, so you got plenty of time But just may or may not be entering a tougher macro environment, so just curious if that Influences how you plan to approach this as we move forward and what your current thinking is on that topic just any thoughts would be great
Vance Chang: Yeah, Brian, the WBS market, the whole business securitization market, has actually materially improved based on, if you look at the secondary levels of trading levels for our bonds, as well as deals that got printed, the general demand for this product versus other products available for investors. So it's a deeper market. So I'm fairly comfortable and optimistic about the refi, the upcoming refi.
Brian Moulin: Yeah, Brian , the market, the WBS market, whole business securitization market, has actually
Speaker Change: pretty materially improved based on if you look at the secondary levels of trading levels for our bonds, as well as
Speaker Change: deals that got printed.
Speaker Change: the general demand for this product versus other products available for investors. So it's a deeper market. So I'm fairly comfortable and optimistic about the upcoming refi for us.
Brian Moulin: Okay, thank you. And then a question on fuzzy specific to the franchise unit counts. There's been a handful of closures this year, you know, not a lot, but a handful. You just address that and then speak to whether or not you'd expect to see any more over the balance of this year or enter next. I just imagine it's a cleanup of the system, but any color on that dynamic would be great. Hey Brian, it's John. That's exactly right.
Speaker Change: Okay, thank you. And then just a question on Fuzzy, specific to the franchise unit counts. There's been a handful of closures this year, you know, not a lot, but a handful. Can you just address that and then speak to whether or not you'd expect to see any more over the balance this year or entering next? Just, I imagine it's a cleanup of the system, but any color on that dynamic would be great.
John Peyton: Hey, Brian, it's John. That's exactly right. It's a handful.
Speaker Change: Hey Brian , it's John . That's exactly right. It's a handful. It's really focused on cleaning up some of the, you know, the older restaurants, you know, where markets have moved away or they don't really reflect the current prototype that we're building and particularly outside of Texas.
John Peyton: It's really focused on cleaning up some of the older restaurants, you know, where markets have moved away, or they don't really reflect the current prototype that we're building, particularly outside of Texas. I would reiterate, you know, we signed two large agreements last quarter in Arizona and in Houston for a total of 40 new restaurants. And, you know, we are investing in the pipeline, and we're pleased with what we're seeing.
Speaker Change: I would reiterate, you know, we signed two large agreements last quarter in Arizona and in Houston for, you know, a total of 40 new restaurants, and, you know, we are investing in the pipeline, and we're pleased with what we're seeing there.
Operator: As a reminder, please ask one question and one follow-up. Thank you. Our next question comes from the line, Todd Brooks, from the Benchmark Company. The floor is yours.
Speaker Change: Thank you.
Speaker Change: Thank you for your question.
Speaker Change: As a reminder, please ask one question and one follow-up. Thank you. Our next question comes from the line...
Todd Brooks: of Todd Brooks
Todd Brooks: Hey, thanks for taking my questions. First question. If I look at the magnitude of the same-source sales guidance decline at Applebee's and then try to match it up with what we've heard on the call about, um, better and maybe more novel approaches to value, a little bit more focus on value, and then obviously, a deeper partnership with the NFL as we get towards late Q3 and Q4. Can you just walk us through what drove the magnitude of the guy down 400 basis points and how you balance conservancy in a tough environment versus these opportunities that you laid out?
Speaker Change: From the Benchmark Company, the floor is yours.
Todd Brooks: Hey, thanks for taking my questions. First question, if I look at the the magnitude of the same source sales guidance decline at Applebee's and then try to match it up with what we've heard on the call about
Speaker Change: better and maybe more novel approaches to value, a little bit more focus on value, and then obviously a deeper partnership with the NFL as we get towards
Speaker Change: Late Q3 and Q4, can you just walk us through what drove the magnitude of the guide down the 400 basis points and how you balance conservancy in a tough environment versus these opportunities that you laid out on the call?
Vance Chang: Todd, this is Vance. So, you know, that's part of the reason why we provided a range, an upside and a lower end of the range. So, the magnitude of what's going to happen in the second half largely depends on the macroeconomic headwinds that we saw in June and July. But, you know, and to the extent that, you know, the value campaigns that Tony talked about working out, and then there's an easing of pressures, I think that, you know, that's how we could see sort of the higher end of the range that we're guiding on, and then the lower end is, so it's hard to predict exactly where it's gonna land, hence the range we're providing.
Speaker Change: Todd, this is Vance. So, you know, that's part of the reason why we provided a range, an upside and a lower end of the range. So, the magnitude of what's going to happen in the second half largely depends on
Speaker Change: The macroeconomic headwinds that we saw in June and July , and to the extent that the value campaigns that Tony talked about...
Speaker Change: working out and then there's easing of pressures. I think that's how we could see sort of the higher end of the range that we're guiding on.
Speaker Change: It's hard to predict exactly where it's going to land, hence the range we're providing.
Todd Brooks: Okay, great. Thanks, Vance. And then my follow up. I know we've talked in the past about the need to lower the billed cost for new units. Just wondering, especially on the Applebee's side, but across both brands, what we're seeing as far as efforts bearing any fruit there, and then with these dual-branded boxes, I would love to get some color around kind of the build costs there if we hold that kind of revenue lift of 2x that you're seeing in international markets with some of those early dual-branded locations.
Speaker Change: Okay, great. Thanks, Vance. And then my follow-up, I know we've talked in the past about the need to lower build cost.
Speaker Change: for new units. Just wondering, especially on the Applebee's side, but across both brands.
Speaker Change: What we're seeing as far as efforts bearing any fruit there, and then with these dual branded boxes, we'd love to get some color around kind of the build costs there if we hold that kind of revenue lift of 2x that you're seeing in international markets with some of those early dual branded locations.
John Peyton: Thanks, Todd. It's John. For the dual brands, we're not prepared yet to reveal the costs because we haven't actually built them in the U.S. That's part of our test and learn process in partnership with a couple of franchisees. However, Applebee's is making progress with its efforts, and Tony, do you want to add some color to that?
Speaker Change: Thanks.
John Peyton: Thanks, Todd. It's John . For dual brands, we're not prepared yet to reveal the costs because we haven't actually built them in the U.S. That's part of our test and learn process in partnership with a couple of franchisees. However, Applebee's is making progress on its efforts, and Tony, you want to add some color to that?
Tony Moralejo: Yeah, I'm happy to. Good morning, Todd.
Tony: Yeah, I'm happy to. Good morning, Todd. We're incredibly pleased and encouraged with what we've seen so far.
Tony Moralejo: We're incredibly pleased and encouraged with what we've seen so far with our value engineered prototype. I'm happy to report that it's on track. The next step is we're going to assess the new value-engineered design with the consumer in September to make sure it resonates with them. And then we're going to conduct an operations test because we've optimized the entire back of the house of an Applebee's, and we'll do that test in October. From there, we'll refine and adjust as necessary, and then the plan is to introduce the new prototype to the system in 2025. Okay.
Tony: With our, you know, value-engineered prototype. I'm happy to report that it's on track. The next step is we're going to assess the new value-engineered design with the consumer in September to make sure it resonates with them. And then we're going to conduct an operations test because we've optimized the entire back of the house.
Tony: of an Applebee's and we'll do that test in October . From there we'll refine and adjust as necessary and then the plan is to introduce the new prototype to the system in 2025.
Todd Brooks: Okay, great. Thanks, guys. Thank you for the question.
Tony: Okay, great. Thanks, guys.
Operator: Our last question comes from Andrew Wolf of CLI.
Tony: Thank you for the question.
Tony: Our last question comes from Andrew Wolf of CL King.
Andrew Wolf: Great. Thank you.
Speaker Change: The floor is yours.
Andrew Wolfe: Great, thank you. I just wanted to ask also on the NFL partnership that you...
Andrew Wolf: I just wanted to ask also about the NFL partnership that you announced earlier in the year. If I understand it correctly, Applebee's has already been doing, you know, like Sunday night football night. Maybe not in partnership but on an ad hoc basis. So how much of a step up in commitment is this? Was the prior way of marketing football games more of a regional basis, or is this gonna be more of a national thing? So what kind of scale and magnitude of increased commitment is this for Applebee's?
Andrew Wolfe: was announced earlier in the year.
Speaker Change: If I understand it, Applebee's has already been doing, you know, like Sunday night, football night, and...
Speaker Change: May be not in a partnership, but you know on an ad hoc basis. So how much of a step up in a commitment is this was the prior
Speaker Change: way of marketing, you know, football games more of a regional basis? And is this going to be more of a national thing? So what kind of scale and magnitude of increased commitment is this for Applebee's?
Tony Moralejo: That's a question for Tony.
Tony Moralejo: Thanks, John. You know, in the spirit of the Olympics and of, say, archery, so the relationship we had before with NBC and Sunday Night America, it was more about, we were on the edges, right? We weren't riding the bullseye. We were, you know, pre-game, halftime show, post-game, et cetera. And that relationship has worked well for us, and we continue to maintain that relationship. The new partnership with the NFL is the bullseye, right? It's drop-dead gorgeous in the center.
Speaker Change: That's a question for Tony.
Tony: Thanks, John . You know, in the spirit of the Olympics and, let's say, archery, so the relationship we had before with NBC and Sunday Night America, it was more about, we were on the edges, right? We weren't riding the bullseye. We were, you know, pre-game, halftime show, post-game, etc. And that relationship has worked well for us, and we continue to maintain that relationship.
Tony Moralejo: It's full access to the entire power of the NFL brand. It's the world's most popular and watched sporting event throughout the year. And so we're going to have the ability to leverage and have access to their full catalog of assets. And you'll see that come to life in September. I don't want to give too much away, but you'll see promotions that bring out the best attributes of both the NFL and Applebee's. And I think our guests are going to enjoy great value, incredible fun, and an incredibly engaging restaurant.
Tony: The new partnership with the NFL is the bullseye, right? It's drop-dead in the center, it's full access to the entire power.
Tony: of the NFL brand, it's the world's most popular and watched.
Tony: Sporting event throughout the year and so we're going to have the ability to leverage and have access to their full catalog of assets
Speaker Change: And you'll see that come to life in September . I don't want to give too much away, but you'll see promotions that bring out the best attributes of both the NFL and Applebee's. And I think our guests are going to enjoy great value, incredible fun, and an incredibly engaging restaurant experience.
Andrew Wolf: And just a bit of a follow-up because you know, it's novel, right? And I think you're the first restaurant brand or bar and grill to partner with this. Is there flexibility within? You know, the agreements to expand it if things are going great or contracted or not, not fulfill it, you know, not do as much or if things don't take off as much. Is it, you know, kind of built that way, or are the commitments between you to the NFL pretty ironclad?
Speaker Change: And just a bit of a follow-up because you know it's novel right and I think you're the first restaurant brand or bar and grill to partner this way.
Speaker Change: Is there flexibility within the agreements to expand it if things are going great or contracted or not do as much?
Speaker Change: If things don't take off as much, is it, you know, kind of built that way? Or are the commitments between you to the NFL pretty ironclad?
Tony Moralejo: I'm not going to get too much into the specifics of the legal agreement, but it's a multi-year agreement that does give us a certain amount of flexibility. It's not a one-year deal and done, and it's not a long-term, five, 10-year commitment either, so we've got some flexibility built in.
Speaker Change: Yeah, I'm not going to get too much into the specifics of the legal agreement, but it's a multi-year agreement that does give us a certain amount of flexibility. It's not a one-year and done, and it's not a long-term five, ten-year commitment either. So we've got some flexibility built in there.
Andrew Wolf: Got it. And just a couple of housekeeping. You know, if Applebee's has had a gap to black box, casual dining, just give us a sense of, you know, on traffic, you know, is that like a percent or in the basis points, or what that gap looks like about performance, relative to performance?
Speaker Change: Got it. And just a couple of housekeeping. You know, if Applebee's has had a
Speaker Change: A gap to black box, casual dining, just give us a sense of on traffic, you know, is that like a percent or in the basis points or what that gap looks like about performance, relative outperformance? Thank you.
Tony Moralejo: Tony, do you want to take that and do a snappies question?
Tony Moralejo: Happy to. So we don't share specific traffic numbers. We do provide some color as to the competitive set, specifically using BlackBox as a tool. In terms of traffic, Todd, we've outperformed the category in 2023, and we've continued to outperform the category over the last three months as well. And again, as we mentioned earlier in the call, a lot of that credit goes to the pricing. Our franchisees have been very conservative and strategic with their pricing. So we're happy relative to the category where we stand in terms of traffic. I think that will set us up well for the long term.
Tony: Tony, do you want to take that as an athlete's question?
Tony: Happy to. So we don't share specific traffic numbers. We do provide some color as to the competitive set, specifically using BlackBox as a tool. In terms of traffic, Todd, we've outperformed the category in 2023, and we've continued to outperform the category over the last three months as well. And again, as we mentioned earlier in the call, a lot of that credit goes to the pricing that our franchisees have been very conservative and strategic with their pricing. So we're happy relative to the category where we stand in terms of traffic. I think that sets us up well for the long term.
Andrew Wolf: Okay, thanks for the answers.
Operator: Thanks for your questions. That concludes the question and answer session. I would now like to turn it back to John Peyton, Dine Brands CEO, for closing remarks.
Todd Brooks: Okay, thanks for the answer.
Speaker Change: Thanks for your question.
Speaker Change: That concludes the question and answer session. I would now like to turn it back to John Peyton, Dine Brands CEO , for closing remarks.
John Peyton: Thanks, Cheryl. I appreciate it. And thanks, guys, for all of the questions. You know, I would just add that, from my perspective, I'm super excited about the NFL program as well. I particularly like it because, in addition to the advertising on television on their digital channels, we have the ability for great activation in the restaurants because we've got access to the team marks, to the Super Bowl mark.
John Peyton: Thanks, Cheryl, appreciate it. Thanks, guys, for all of the questions, and I would just add that, you know, from my perspective, super excited about the NFL program as well.
John Peyton: We'll have a trip for one of our guests to go to the Super Bowl. So it's a great way to get our team members in the restaurants involved and, again, create that extra level of fun that Applebee's is all about. And it's actually cost-efficient for us as well, so we're super pleased with that. And we are the first and only restaurant in the CDR space to take on this partnership. So thank you all for your questions. I appreciate it. And have a great day!
John Peyton: to the Super Bowl, Mark. We'll have a trip for one of our guests to go to the Super Bowl. So it's a great way to get our team members and the restaurants involved.
John Peyton: and again create that extra level of fun that Applebee's is all about.
John Peyton: And it's actually, you know, cost efficient for us as well. So we're super pleased with that and we are the first and only restaurant in the CDR space to take on this partnership. So thank you all for your questions, appreciate it, and have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Hope you guys have a great week!