Q4 2024 Dine Brands Global Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Dine Brands 4th quarter and 5th school, 2024 earnings conference call. At this time, all participants are in a listen and only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: The forward looking statements are as of today, and we assume no obligation to update or supplement these statements.
Speaker Change: 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: For calendar planning purposes, we are tentatively scheduled to release, our Q1 2025 earnings before the market opens.
Speaker Change: May 7th 2025 and to host a conference call that morning to discuss the results.
John Peyton: With that it's my pleasure to turn the call over to <unk> CEO John Peyton.
Speaker Change: Okay.
Speaker Change: Good morning, everyone. Thanks for joining us today.
Speaker Change: First I want to express our sympathy and ongoing commitment to our team members and the community affected by the devastating fires in L a where.
Speaker Change: We're proud to be a Pasadena based company and we will continue to support our community. During this very difficult time.
Speaker Change: Now onto our remarks today, we will discuss our recent leadership changes review Q4, and full year 2024 financial results share our key priorities for improving performance in 2025, and our expectations for the year ahead, and then Vance will discuss our financial results and 2025 guidance in greater detail.
Speaker Change: In January we announced the Tony Mauro Leighow will step down as Applebee's President effective March 4th and for now I will assume the role of interim Applebee's President while continuing my in my current capacity as CEO of diet brands.
Speaker Change: I am grateful to Tony for the passion and commitment. He has brought to his work and Tony and I both share a deep respect for the DNA of Applebee's and we're all thankful for his contributions since he took on this role two years ago.
Speaker Change: We've initiated a nationwide search for a new leader for Applebee's with proven expertise and brand stewardship marketing and restaurant operations and in the meantime, Tony will serve as an advisor through June 4th to support the transition.
Speaker Change: This change together with new leadership in place at IHOP, and Fuzzies as well as recent steps to rightsize. Our organization is part of our broader strategic effort to capture the next generation of loyal guests unlock our growth potential and drive improved performance.
Speaker Change: Now looking at our financial performance during fiscal 2020 for di and generated $106 $4 million and adjusted free cash flow.
Speaker Change: And while other financial metrics were down year over year, the steady state of cash flow, which increased from $103.3 million last year speaks to our financial stability and highlights the resilience of our platform through market cycles.
Speaker Change: This puts us in a strong position to make the necessary investments needed to drive improved performance and realize value.
For the full year, we generated $239.8 million of adjusted EBITDA, which was down from $256 4 million in 2023.
Speaker Change: In Q4, adjusted EBITDA was $51 million compared to $62 2 million in the same quarter last year.
Speaker Change: Our revenues were down two 3% for the full year and decreased <unk>, 7% in Q4, partially offset by an increase in company restaurant sales due to the take back of 47, Applebees restaurants in November which I'll expand on in a moment and.
Speaker Change: In terms of comp sales IHOP had a full year comp sales decline of 2% compared to comp sales growth of three 5% in 2023.
Speaker Change: For the quarter IHOP posted comp sales of negative two 8%.
Speaker Change: Applebees comp sales were negative four 2% for the full year compared to 2020 three's comp sales growth of 6%.
Speaker Change: And in Q4, Applebees reported a decline of four 7% and comp sales.
Speaker Change: In 2024 macro headwinds significantly impacted consumer spending this especially affected guests with household incomes of less than $75000, which represents approximately two thirds of our guests. Our teams responded by introducing limited time offers and value driven promotions to attract cost sensitive consumers. Despite.
Speaker Change: These efforts market pressures continued in Q4 <unk>.
Speaker Change: However, the strategic refinements, we made in Q3 helped improved traffic slightly quarter over quarter and while the <unk> 'twenty 'twenty four performance didn't meet our expectations. We are confident in our ability to achieve more as we look to 2025, we see opportunities to leverage died and strong free cash flow scale and expertise to improve performance.
Speaker Change: Our brands are doing this by focusing on elevating the guest experience through improving operations and Applebee's re imaging program enhancing our menu and value offerings by focusing on the core of our brands and better communicating the value that our brands offer to our guests through dynamic marketing.
Speaker Change: These three areas will be our priority for the coming year as we work to deepen the connection between our guests and the core of our brands leaning into our strengths to best position us for growth.
Speaker Change: One of the many benefits of our asset light business is that we have the ability to strategically or opportunistically takeover restaurants across our brands to help advance our long term goals.
Speaker Change: This demonstrates our confidence in our brands backed by <unk> strong and flexible business model.
Speaker Change: In November died took over 47 applebees restaurants from two franchisees and this year, we plan to remodel 30 of those restaurants under the looking good re image program and convert five restaurants to our dual brand concept further expanding our domestic dual brand pipeline. Our goal is to re franchise these restaurants, which will help strengthen our.
Speaker Change: Our franchise base.
Speaker Change: Our take back strategy isn't new owning restaurants allows us to actively invest in our system and improve operations through innovation tests and create a blueprint for franchisee success and growth we have big ambitions for our brands and our business and we know there is work to do to unlock our full potential this isn't an overnight effort and it will take time.
Speaker Change: To see the full impact of our work, but I'm confident that in combination with targeted investments and enhance store level execution. It will provide a path to value creation for all stakeholders.
Speaker Change: And so now I'll get into some brand specific updates starting with applebee's.
Speaker Change: As 'twenty 'twenty four progressed applebee's continued to execute an aggressive marketing calendar with profitable promotional campaigns and more limited time offers to meet evolving consumer needs and to stay competitive in Q4, we further refined our offerings as consumers sought all in affordability and clear meal pricing there.
Speaker Change: Really big meal deal, which launched in Q4 represented 20% of transactions and boosted off premise sales and ticket volume growth. This supported a slight improvement in traffic and sales compared to Q3.
We know there's more work ahead and our team has identified four priorities for Applebee's in 2025 focused on elevating the core of the business and attracting new and returning guests first marketing remains a key priority for 2025, we're evaluating our current media and creative capabilities, including digital advertising to better connect with our guests.
As part of this we're taking a new dynamic approach to social media and we're making a significant investment in our social media strategy to drive engagement.
Speaker Change: And lastly, we're beginning to roll out new exciting enhancements to our club Applebee's loyalty program.
Speaker Change: Our second priority is launching a new everyday value platform in the second half of the year using insights from our recent consumer segmentation study. This platform will target individuals' payors and groups and is designed to have a more consistent value offering for our guests as part of this effort you can expect us to build on our fan favorite too.
Speaker Change: For 25 dollar deal and we'll also continue to evolve the really big meal deal for guests seeking all in affordability.
Speaker Change: Our third priority is innovating the core menu items at Applebee's is best known for and that are most popular with our guests appetizers handhelds and beverages, we're planning to roll out new menu items throughout the year through limited time promotions permanent menu items, and even additions to our new value platform all at attractive.
Speaker Change: <unk> points.
Speaker Change: And lastly, we are focused on enhancing the applebee's guest experience, which starts with the appearance of our restaurants. We launched are looking good re image program in Q1 of this year. It's an extensive multi year effort to ensure that the look and feel of all our restaurants exceed guest expectations and with our marketing products.
Speaker Change: In 2025, we plan to remodel 30 company owned restaurants and to accelerate the program system wide diners offering incentives to early adopter franchisees.
Speaker Change: The initial response since launching this initiative in January has exceeded our expectations six of our top 10 franchisees, representing 57% of the Applebee's system have already elected to accelerate remodels of the restaurants by the end of 2025 based on a looking good program.
Speaker Change: In addition to the <unk> program will also be sharing designs for our new prototype in Q2, which will be more contemporary and appearance built to better facilitate our off premise business and more cost effective for franchisees.
Speaker Change: <unk> will build the first restaurant with the new prototype in 2025, and we look forward to sharing more details as we get closer to that opening.
Now to discuss IHOP in 'twenty 'twenty, four IHOP focused on refining our value offerings, creating new craveable breakfast menu items and enhancing our in restaurant experience for guests. We also continued to deepen our loyalty program, increasing by over 30% or 2.4 million members during 2024.
Speaker Change: <unk>, taking total membership to over 10 million guests.
In Q4, IHOP traffic improved versus Q3, and outperformed black box for eight weeks out of the quarter, primarily driven by the launch of our house faves value menu.
Speaker Change: As a reminder, we launched our house faves menu in October to lean into our guests' desire for more everyday value options and to put a greater focus on what we do best our core breakfast offerings.
Speaker Change: And by that we mean breakfast all day long as nearly 60% of our items sold during the dinner day part our breakfast items.
Speaker Change: To support the launch we enhanced our media and creative efforts to highlight the value and pricing of our core breakfast offerings and we're pleased to see the house faves value menu resonating with our guests. It's a validation of our value strategy, which we plan to build on in 2025.
Speaker Change: And as we focus our attention to 2025, we're excited to lean into the fresh perspective and industry expertise that lorence Kim brings as <unk> new president.
Lawrence Kim: He officially stepped into the role on January 6th as President Lawrence is focusing on three key areas to drive sales growth and amplify brand loyalty in 2025 and beyond.
Lawrence Kim: The first is going back to basics and by that we mean, highlighting IHOP is core brand fundamentals and evaluating what we're known for our incredible pancakes and breakfast offerings.
Lawrence Kim: In Q4 breakfast items represented 72% of total food sales showing that breakfast is the core of who we are and what we offer.
Lawrence Kim: We will continue to leverage not only the value of our offerings, but the made to order quality of our food and fresh ingredients to attract new guests and increase the frequency of our existing guests driven by our core craveable breakfast items.
Lawrence Kim: At the same time IHOP continues to refine its value offerings to drive profitable traffic and sales.
Lawrence Kim: House Phase has been a success to date and we're looking to build on that positive momentum. In fact, we recently launched a test in four key markets to expand the house faves menu from five to seven days a week. The results from this test will provide important insights on how we can evolve the house faves menu.
Lawrence Kim: We will share updates on the results in the coming quarters.
Lawrence Kim: The second is ease of operations, we're working to reduce the complexity of our restaurant operations with a calendar that includes fewer product windows and leveraging upgraded technology in the front and back of house.
Lawrence Kim: We're also simplifying food preparation procedures and optimizing operational workflow to increase table turns our goal is to improve overall speed of service and franchisee margins and these measures will help us continue to deliver the best in class experience that our guests expect from IHOP.
Lawrence Kim: And finally, the third is culture centric marketing Lawrence has an extremely strong track record of driving success with this marketing strategy is already done the initial work to optimize <unk> media spend to create bigger more exciting moments to connect with our guests and drive social engagement as.
As part of this initiative Lawrence has completed a review of our agency and production spend that yielded almost a 20% increase in working marketing dollars. In addition, Lawrence has expanded our internal creative and social media teams to better capitalize on cultural moments to drive greater awareness and improved traffic trends and now to talk about fuzzies.
Lawrence Kim: Throughout 2024, we've been focused on refining our value offerings to introduce new Taco and beverage promotions supported by insights and strategies from dine.
Lawrence Kim: While financial results for the year did not meet expectations and our Q4 performance remain challenged we have more clarity than ever on the best practices and resources. It fuzzies requires to reset its brand strategy in 2020 five.
Lawrence Kim: First we will take advantage of fuzzy bar and beverage capabilities to build out more beverage promotions.
Lawrence Kim: Second we will elevate our menu offerings by improving the quality of our ingredients, especially as we look to compete in the popular Taco category and last we're leveraging better technology to standardized key processes across our brand to support a consistent and seamless in restaurant experience and to improve operations.
Lawrence Kim: And now onto our international business.
In 2020 for our International Division performed well and met internal expectations opening 15 restaurants in Q4 and 35 for the full year driven by encouraging performance at our dual brand locations.
Lawrence Kim: Our work to expand the footprint of dual brands internationally served a double purpose driving international growth. While also surfacing valuable insights to support the U S launch of our dual brand concept in 2025.
Lawrence Kim: We remain optimistic about the international growth potential in our core markets of Canada, Mexico, and the Middle East.
Lawrence Kim: This provides significant white space for us that we've only recently started tapping into and we think that the dual brand concept presents an exciting efficient and cost effective way to introduce our brands to new markets. We now have 18 dual brand restaurants opened internationally, which includes five added in Q4.
Lawrence Kim: Now to discuss our development plans in more detail at the start of 'twenty 'twenty four we expanded our development team and we're seeing results through the following first the continued success of the dual brand concept internationally, which we're now replicating domestically.
Lawrence Kim: Applebee's re image program and prototype development and third securing non traditional development deals.
Lawrence Kim: The dual brand concept is now a core pillar of our development strategy and we're optimistic about the long term upside potential.
Lawrence Kim: Having two iconic brands, whose day parts complement each other is a competitive advantage and on average we've seen these locations achieved 1.5 to two X the revenue compared to a single brand restaurant.
Lawrence Kim: Our guests love the choice and variety offered by the combined menu.
Lawrence Kim: In February we opened our first U S dual brand locations in Seguin, Texas. The restaurant is a stunning renovation of an existing IHOP and has exciting dishes on the menu that are exclusive to dual brands, including Buffalo Chicken Omelets Mimosis espresso martinis in its opening week, the restaurant and achieved sales of <unk>.
Lawrence Kim: Almost three times the amount of its performance as a standalone IHOP we.
Lawrence Kim: We expect the performance to settle to a steady state below this amount, but we're very encouraged by the initial results of this location.
Lawrence Kim: Given the positive impact on unit economics, there is strong demand from both the 14th franchisees, who attended the Seguin opening as well as from other franchisees. This demonstrates the promise that they see in this concept it domestically.
Lawrence Kim: In fact demand is multiples higher than our projected 'twenty twenty-five pipeline of 12 to 14 in the U S. And we are currently evaluating our development capabilities to see how fast we can execute on this strong pipeline.
Lawrence Kim: We're also optimistic about the prospect of dual brands related to non traditional development. We recently approved several dual brand locations in travel centers and airports, which are some of our key focus areas and we'll share more information. When these open later in the year.
Lawrence Kim: With Fuzzies, we're pleased to see traction with the brand among our existing franchisees in 'twenty 'twenty four fuzzy signed five new development agreements for 44 restaurants with IHOP franchisees accounting for 27 of these new restaurants. This is absolutely an area of continued focus in the year ahead.
Lawrence Kim: Vance is going to provide more details on 2025 development guidance in a moment.
Lawrence Kim: Before I turn the call over to him let me conclude by once again acknowledging that while 2024 was challenging we're confident in the strength of <unk> business, leveraging our strong cash flow our scale, our resources and our expertise we will refresh our brands value offerings and core menu items, we will reinvest in growth initiatives.
Lawrence Kim: And reinforced our brand's unique value through improved marketing and storytelling.
Vance: And so with that I'll turn the call over to Vance.
Speaker Change: Thanks, John Despite the challenges in 2024, we generated strong free cash flow of $106 million and returned $43 million of capital to shareholders, while maintaining a healthy balance sheet.
Speaker Change: Our asset light business model continues to position us well to perform even in the midst of ongoing headwinds on.
Speaker Change: On the top line consolidated total revenues decreased <unk>, 7% to $204 $8 million in Q4 versus $206 $3 million in the prior year, primarily driven by a $8.7 million decrease in franchise revenues, partially offset by an increase in company restaurant sales.
Speaker Change: Due to the take back of 47 Applebees restaurants in November.
Speaker Change: Excluding the tape box revenues would have been down four 7%.
Speaker Change: For the full year, we generated $812 3 million in total revenues, which was two 3% lower than prior year, primarily due to negative comps and a decrease in rental revenues, partially offset by an increase in company restaurant sales due to the take back of Forty-seventh Applebee's restaurants in November.
Speaker Change: Explain to take take backs revenues would have been down three 2%.
Speaker Change: If we ex who advertising revenues franchise revenues in Q4 decreased five 1% year over year and two 5% for the full year.
Speaker Change: Rental segment revenues for the fourth quarter of 2024 decrease compared to the same quarter of 2023, primarily due to operating lease terminations.
Speaker Change: G&A expenses were $52 3 million in Q4 of 'twenty 'twenty four up from $55 million in the same period of last year.
Speaker Change: We ended the year with $196 $7 million of G&A expenses down from $198 1 million last year due to stopping the IHOP flip initiative in the prior year, a decrease in professional services, including acquisition costs and a decrease in occupancy costs, partially offset.
Speaker Change: By an increase in depreciation expense and organization restructuring costs.
Speaker Change: Adjusted EBITDA for Q4, 2024, it decreased to $51 million from $62.2 million in Q4 of 2023.
Speaker Change: Adjusted EBITDA for 2024 decreased to $239 $8 million below the low end of our guidance and down from last year's $256.4 million.
'twenty 'twenty four EBITDA includes approximately $10 million of incremental marketing investments made to the brand advertising funds.
Adjusted diluted EPS for the fourth quarter and full year of 2024 was 87.
Speaker Change: And $5.34 respectively.
Speaker Change: Compared to adjusted diluted EPS of $1 40, and $6 65 for the fourth quarter and full year of 2023, respectively.
Speaker Change: Now turning to the statement of cash flows we generated adjusted free cash flow of $106 4 million in 2024 compared to $103.3 million for the same period of last year, driven by a $23.1 million decrease in capital expenditures and a $2 $9 million increase.
Speaker Change: In principal receipts from notes and equipment contracts receivable.
Speaker Change: Offset by a $23 million decrease in cash flows provided by operating activities.
Speaker Change: Our full year 2024 cash provided by operations was $108 $2 million compared to cash provided from operations of $131 1 million for the same period of 2023.
The decrease was primarily due to the decline in segment profit and a decrease in working capital partially offset by a decrease in G&A expenses.
Speaker Change: Capex for 2024, it was $14.1 million compared to $37 $2 million for 'twenty two 'twenty three.
Speaker Change: We finished the fourth quarter with total unrestricted cash of $186 $7 million compared with unrestricted cash of $169 $6 million at the end of the third quarter.
Speaker Change: Regarding capital allocation, we returned $43 million to shareholders in 2024 through dividends and stock buybacks.
Speaker Change: We continue to maintain committed to our current dividend while also ensuring we're investing in our business and maintain a healthy balance sheet.
Speaker Change: In 2024, <unk> system sales were $8 billion, demonstrating the scaled that are enduring brands have through the past decade.
Speaker Change: Applebee's 'twenty 'twenty four same restaurant sales were negative four 2%.
Speaker Change: Average weekly sales in 2024, or 52 point $3000, including approximately 11 point $3000 from off premise.
Speaker Change: For over 21% of total sales of which 11% is for them to go and 10% is from delivery.
Speaker Change: IHOP has 2020 for same restaurant sales were negative 2%.
Speaker Change: Average weekly sales were at 37 point $7000, including $7 $6000 from off premise or over 20% of total sales of which 8% is from to go and 12% is from delivery.
Speaker Change: Turning to commodities overall, we're seeing costs continue to stabilize.
Speaker Change: Colby's commodity costs in Q4 increased by <unk>, 3% and IHOP commodity costs increased by four 7% versus the prior year.
Speaker Change: Our supply chain co op C. S. C. S is expecting pricing in 2000, and twenty-five applebee's to be flat to slightly down.
Speaker Change: At IHOP, we expect commodity costs will increase by low to mid single digit for the full year driven by the avian influenza outbreak impacting egg pricing.
Speaker Change: While our egg costs have increased us with the rest of the industry C. S. E. S continues to keep the system in supply of eggs at prices that are competitive to the overall marketplace.
We have tremendous supplier supporting the needs of our system in a very challenging environment.
Speaker Change: CSC is also continues to work across both systems to identify additional cost saving opportunities and support restaurant profitability initiatives through both operational improvements and input costs in 2024, we implemented projects, resulting in over $53 million of annualized savings across the system and we can.
Speaker Change: <unk> to partner with <unk> to leverage our scale and make progress on our cross functional restaurant profitability initiatives.
Speaker Change: On the labor front franchisees continue to report that staffing and labor costs remain relatively stable before turning the call back over to John for Q&A I'd like to share our financial guidance for 2025.
Speaker Change: As John mentioned on 2025 development for Applebee's, we're expecting 20 to 35 net fewer domestic restaurants.
Speaker Change: This reflects an increase in gross openings from dual branded domestic openings and new development agreements for Standalone applebee's restaurants, offset by similar amount of closures as prior years.
Speaker Change: For IHOP, we're expecting between 10 net fewer domestic restaurants to 10 net domestic openings. This reflects continued growth of standalone locations nontraditional and dual branded locations offset by expected closures as a result of exploration of franchise agreements.
Speaker Change: In 2025, we're expecting domestic system wide comp sales for applebee's to range between negative, 2% and positive 1%.
Speaker Change: Comp sales range reflects the current trends as well as the introduction of our new everyday value platform in the second half of the year continued menu innovation and marketing optimization.
Speaker Change: At IHOP, we are expecting domestic system wide comp sales to range between negative 1% and 2%.
Speaker Change: The comp sales range reflect the benefits of house faves marketing optimization and growing loyalty program.
Speaker Change: We're forecasting that G&A range of $200 million to $25 million, including noncash stock based compensation and depreciation of approximately $35 million.
Speaker Change: This reflects normalized incentive compensation levels and an increased investment in support for applebee's restaurants, but that we took back in November offset by a reduction of approximately 9% of our corporate office workforce in Q1 of 'twenty 'twenty five.
Speaker Change: On EBITDA, we're guiding to a range of $235 million to $245 million.
Speaker Change: We anticipate 2025 capex spend to be in the range of $20 million and $30 million, our I T. Capex remains relatively consistent to 2024, but the increase in 2025 Capex is a result of our plan to remodel the applebee's restaurants, we recently took back.
Speaker Change: As John mentioned, we're committed to our asset light model, but we will opportunistically and strategically take back restaurants with the plan of Refranchising them over time with that I'll hand, it back to John.
John Peyton: As we wrap up our call. It's clear that 2025 offers opportunities to enhance our performance.
John Peyton: I want to thank our franchisees our team members and restaurant teams for their continued support and extraordinary work to serve our guests every day in our restaurants.
John Peyton: We'll now open the call for Q&A, Lawrence and Vance are here with me ready to answer your questions. Operator, please share the instructions for joining the Q and open the line for our first question.
John Peyton: Thank you.
John Peyton: At this time, we will conduct a question answer session.
John Peyton: 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. Your question. Please press star one one again, we ask that you. Please limit yourselves to one question and one follow up question.
John Peyton: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Eric Gonzalez from Keybanc. Your line is now open.
Speaker Change: Hi, Thanks for the question and good morning last quarter, you pointed to the marketing strategy and the primary source of the recent underperformance of your brands.
Speaker Change: The messages you shared in the kind of value that you communicated was not as compelling as you needed as opposed to there being some sort of operational problem or issue with guest satisfaction. I think there is some hope that the issues with value would've been addressed in the fourth quarter, but it seems that some of your promotions once again didn't cut through so I'm. Just wondering if you still think it is the messaging that was the miss versus there being a REIT.
Speaker Change: And why customers are not coming back after their initial trial.
Speaker Change: Hey, Eric Good morning, I. Appreciate the question so our comments about last quarter, it's John by the way remain the same as our.
Speaker Change: Our guest.
Speaker Change: And the guests for restaurants in general we're looking for value, particularly the all in value of the meal and we leaned in hard on applebee's to that.
Speaker Change: The really big meal deal and we leaned in on IHOP to the house phase in both of those we started pushing.
Speaker Change: Mid to late fourth quarter, and we saw progress from both we saw an increase in traffic from the really big meal deal and an increase in traffic from from the IHOP how space late in the quarter and so both of those for US are programs that we intend to build on.
Speaker Change: The really big meal deal in particular, Eric drove incremental sales at lunch.
And we also over performed on our digital channels for for Applebee's. So yeah. The marketing is really important the story, we tell and it's also important to note that it was a crowded space in terms of communication you couldn't watch a football game on Sunday in the fourth quarter without seeing restaurants, promoting some version of a full <unk>.
Speaker Change: A full meal value and so breaking through in one quarter was not necessarily our objective is to start to make progress and build on it which is exactly what we did.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Dennis Geiger from UBS. Your line is now open.
Dennis Geiger: Great. Thanks, guys first one if I could maybe just a follow up on the value helpful. Helpful color.
Speaker Change: You gave the mix on.
Speaker Change: On the <unk>.
Speaker Change: Could you touch a bit more on maybe just what the total value incidents was if you guys have that number and more on the kind of the exciting news coming particularly at applebee's in the back half of the year.
Speaker Change: I'm sure not too much to share, but anything more there.
Speaker Change: Tested yet will you be testing that over the coming months before the launch and into age anything more on the on those value plans as you look to kind of expand that.
Speaker Change: That news on value and 25.
John Peyton: Sure. Thanks, Dennis It's John again, I can take that for both brands so for total mix.
John Peyton: We define that as the <unk> for the period plus the value portion of our menu. So for applebee's that would be really big meal deal plus the 2% or 25 portion of the menu and for the quarter that was about 27, 28%, which is consistent with where we've been the last couple of quarters.
John Peyton: On the IHOP side that would be the house phase plus the over 55 menu, which is our value portion of that that menu and they were at about 17%, 18%, which is also consistent with where they've been the last couple of quarters, but an increase of a couple of points from the prior year in terms of.
John Peyton: Where applebee's is headed.
John Peyton: I'm excited about the value program that we're building out the everyday value platform. So the core of it is $2 25, which has been in place for more than 15 years, It's a fan favorite and as you alluded to is 20% of applebee's mix, but as we talk to our guests. We've done a lot of research in the last six months.
John Peyton: What we can do to build on it is if you imagine two for 25 being the center column of that platform to the right. We want to have more offerings for groups and families in terms of being able to share larger portions and to the left of it we want to have more promotions that are relevant to single individuals who aren't necessarily looking to share too.
John Peyton: <unk> appetite to entrees and appetizers, so that larger value platform for singles for payers and for groups.
John Peyton: Is what we're building and we expect it to rollout late spring early summer. It will include some new menu items as well and some new combinations that are appealing not only particularly to new guests and particularly the younger guests as well.
Speaker Change: Thank you one moment for our next question.
Pratique Patel: Our next question comes from the line of Pratique Patel from Barclays. Your line is now open.
Speaker Change: Great. Thanks, This is product on for Jeff at Barclays.
Speaker Change: John the release mentions the ongoing partnership with franchisees can.
Speaker Change: Can you talk about the confidence that they have in the turnaround plan and how much they are willing to invest further in their brands just how have those conversations gone and then I had a follow up thanks.
Speaker Change: Sure perfect. Thank you for the question.
Look I want to take I want to take a step back.
Speaker Change: Because when you look at our performance since Covid right are our brands Applebee's in particular had three years in a row of beating the comp set in having positive and have positive comps.
Speaker Change: We're disappointed with our 2024 results, but you put it in the context of the last four years I think it's important to keep that in mind and when you ask me what our franchisees they like us want to do better than we did in 2024, and we're very aligned on our plans for 2025.
Speaker Change: I've mentioned before.
Speaker Change: Between my my 18, 19 years at Starwood hotels, four years at Realogy and now five years here I've never seen in my career.
Speaker Change: Cooperation and communication.
Speaker Change: And consensus building, among franchisees and the franchise or which we have through our extensive committee network and so when it comes to our plans for 2025 in both brands our marketing committees are aligned with us in the direction. We're heading our operations committees are aligned et cetera, and when it comes to franchise.
Speaker Change: Disease willingness to invest in the brands.
Speaker Change: It remains I think as strong as it's ever been and examples of that include.
Speaker Change: We opened 40, IHOP restaurants last year, and we'll do that about it's about the same number again this year.
Speaker Change: We opened our new dual brand in Seguin with Fabulous results over the last two weeks. We've got 12 to 14 of those that are going to open this year and based upon what our franchisees are seeing there. We've got a pipeline building a 50 to 60 into it into next year.
Speaker Change: And the last thing I'll say is the applebee's franchisees, we offered an incentive to begin the renovation process. This year and it's already oversubscribed, including seven of our top 10 franchisees who've signed up to renovate restaurants with just in the first few weeks of the promotion so all of that to meet.
Speaker Change: Put points to our franchisees strong commitment to investing in their brands and to working with us on our plans to grow in 2025.
Speaker Change: Great.
John Peyton: That color John and then my follow up with just about the guest experience.
Speaker Change: Obviously, a strong effort in elevating the guest experience and you've talked about the renovations and the remodels that have been oversubscribed John.
Speaker Change: John just beyond those remodels like what do you see as the greatest opportunities to elevate the guest experience and.
Speaker Change: What sort of timeframe are we looking at and what sort of costs.
Speaker Change: There will be to achieve that in the near term strategies you can call out.
Speaker Change: Yes.
Speaker Change: Protect the restaurant business is extraordinarily competitive.
Speaker Change: Has been for years. It certainly was in 2024, and we expect it will be in 2025 and.
Speaker Change: I think I've said in the past there isn't a single silver bullet that will transform the performance of any one of our brands or any.
Speaker Change: For that for that matter what needs to happen is that we need to execute excellently.
Speaker Change: The board and that means we have to have excellent and relevant marketing, including social media and the promotions that we have we have to have.
Speaker Change: Excellent guest experiences in the restaurant, which includes both the service the experience from our team members as well as the preparation of the food. We also have to have a great.
Speaker Change: Physical restaurant that has us.
Concern Pereira: Concern Pereira and welcome welcoming and modern and we've got to hit all of those those at the same time and we've got plans at both Applebee's and IHOP around those key.
Concern Pereira: Moments that matter in the restaurants, and I'm very confident you'll expect to see improved performance.
Concern Pereira: In 2025.
Speaker Change: Great. Thank you very much John.
Concern Pereira: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Nick <unk> from Wedbush. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Given the industry volatility and pressure, we've seen quarter to date.
Speaker Change: Across the industry and the peer set.
Speaker Change: Really helpful. If you guys gave us.
Speaker Change: No.
Speaker Change: Commentary around where trends are.
Speaker Change: In Q1, and at least relative to the full year guidance in terms of the comp that would be very very helpful and possible.
Speaker Change: Okay. Thanks, Nick advance and it would be great. If you could go through what we saw in Q4 and Q1.
Speaker Change: Sure. Good morning, So what we saw in Q4 for IHOP, we did see stronger performance towards the later part of Q4, and Thats really driven by the launch of our house phase value menu.
Speaker Change: We'll be on the other hand.
Speaker Change: Mixed performance throughout the quarter.
Speaker Change: <unk> over Q3, it was really driven by the launch.
John Peyton: As John mentioned.
John Peyton: And we are expecting Q1 to continue to improve moderately modestly from from Q4, but.
John Peyton: We do expect the consumer environment remains challenged for the rest of the year. So that is built into our guidance.
John Peyton: We are.
John Peyton: Part of that a portion of our calls talking about our focus areas for 2025, we are driving forward.
John Peyton: My focus areas.
John Peyton: With guests experience with menu value offering.
John Peyton: This dynamic marketing that we're working on that.
John Peyton: Ill health.
John Peyton: Proved to performance and hit the guidance that we provided.
John Peyton: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Brian Vaccaro from Raymond James Your line is now open.
Hi, Thanks, and good morning. My question is on high hopes food cost outlook can you just help us understand what does that assume for <unk>, specifically and I'm curious if there is other items in the basket.
Speaker Change: Capability on that help offset that pressure.
Speaker Change: Franchisees taken AG surcharges like we've seen from some other concepts in recent weeks.
Speaker Change: Thanks, Brian Vance can walk us through that IHOP market basket.
Speaker Change: Hey, Brian So for IHOP as I had mentioned, we're expecting sort of low to mid single digit inflation cost for the year and that's really primarily really driven by.
Speaker Change: Outside of that I think there's there's there's some headwinds.
Speaker Change: In coffee as well.
Speaker Change: You asked specifically about some of the tailwind, we're seeing chicken strips and breast chicken breast, Turkey and risks.
Speaker Change: It's more for Applebee's.
Speaker Change: Basket that's.
That's helping.
Speaker Change: And our franchisees have not taken surcharges are today from.
Speaker Change: Pricing.
Speaker Change: Yes, yes.
Speaker Change: Really working hard on maintaining the availability of eggs at prices that are very competitive to the market right now.
Speaker Change: We have tremendous support supplier supporting our system.
Speaker Change: Challenging environments, so but.
Speaker Change: As I said.
Speaker Change: Franchisees have not implemented surcharges.
Speaker Change: And we are monitoring.
Speaker Change: The situation very closely.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Jake Bartlett from <unk> Securities.
Speaker Change: Your line is now.
Speaker Change: Great. Thanks for taking the question language on innovation, it's something that you've talked about for a little while here.
Speaker Change: I'm not sure how much I guess.
Speaker Change: If you can kind of frame what you did in 2000 and for that really kind of you think this kind of.
Speaker Change: Innovative in and then also just what Youre looking to in 25 I think on the last call. You highlighted 14 items on the Applebee's side that were tested and were kind of ready to go on maybe just your confidence that innovation is going to be a meaningful driver of accelerating comps here.
Speaker Change: And then I had a follow up thanks.
John Peyton: Okay. Thanks, Thanks, Jake it's John.
John Peyton: There's so much to talk about when it comes to innovation you know I'll start with the dual brand.
John Peyton: If you find yourself in Seguin, Texas, you've got to stop in the restaurant looks fantastic. It was an IHOP that had been there for many many years.
John Peyton: In the two weeks since it's opened its doing three X. The revenue it did when it was an IHOP and stronger in the second week in the first week, which is unusual.
John Peyton: What we're seeing is two really compelling findings one is clearly the economics for the franchisee are terrific and the franchisee with whom we partner there is ecstatic and in terms of in terms of.
John Peyton: The guest reaction, they're loving the choice and variety and Thats exactly what guests are looking for today, so to be able to choose from both the applebee's and IHOP menu all day is really.
John Peyton: He is really terrific and when I was there for a couple of days I saw at 10 30 in the morning, or four top two of whom had omelets and end to end two of whom had.
John Peyton: And the same thing in the afternoon seeing stakes come out for dinner, along with pancakes and so guests are really.
John Peyton: Are really enjoying the the variety there and that is absolutely tremendous innovation, including new menu items are there.
John Peyton: In terms of of.
John Peyton: Of innovations throughout the year, we had some really good marketing programs and I'll give you just applebee's as an example, the NFL partnership which is a three year deal for us.
John Peyton: Did a lot to raise visibility and drive traffic, particularly with the <unk> six on Mondays of free wings date.
John Peyton: Date night performs really well and what Youll see is a new idea in 2025 is club Applebee's, we're going to lean into club applebee's and growing out the loyalty program.
John Peyton: In a way that we haven't before having learned from IHOP and having learned from from Applebee's and just in the last couple of weeks, we've had the big easy promotion.
John Peyton: Which is a new new Orleans themed extension of you know our existing existing menu that has been performing really well and we've had a terrific couple of weeks.
John Peyton: That so.
John Peyton: There's a lot of innovation there from last year and a lot of new ideas for this year Youll see particularly on the menu side.
John Peyton: Great I appreciate it and then my next question I was wondering if maybe I'm trying to understand what's coming in the back half with the everyday value menu.
Speaker Change: Is it more of a reorganization of the menu so that kind of all of the value.
John Peyton: Items or kind of put it in one place.
John Peyton: Is it about marketing or this is about kind of new.
John Peyton: New offerings that youre going to be.
John Peyton: You can be adding to the menu or was that just for kind of a reorganization kind of a more of a marketing push then is a real change to what.
John Peyton: Options that consumers have.
Speaker Change: It's all three you outlined the strategy perfectly rents. So it's all three one is it's it's reorganizing some of the menu around more clearly around $2 25, which is one of the most.
John Peyton: Sought after and purchased pieces of our menu.
John Peyton: Number two it will include some new menu offerings and so our innovation will some of our innovation and our new combinations will launch via that platform and of course, we're going to introduce it into our marketing and storytelling.
John Peyton: In a big way next year, so it's all three.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Todd Brooks from the Benchmark Company. Your line is now open.
Todd Brooks: Hey, Thanks for taking my question.
Todd Brooks: Wanted to explore the take back of the two.
Todd Brooks: Applebee's franchisees in those four years.
Todd Brooks: Seven units I guess historically, you've had good success kind of shifting units between.
Todd Brooks: Franchisees and getting them to stronger operators.
Todd Brooks: What was the impetus for the take back here at this time, if you think about.
Todd Brooks: The amount of time that you would expect these to stay in the portfolio before having them ready to re franchise anything that you can kind of frame up for details about why in the duration of this potential transaction.
Speaker Change: Yes, so as you mentioned Todd from time to time Opportunistically, we've got the ability to take back restaurants, and we've done that in the last quarter and we will we will do it again in the future if necessary.
Speaker Change: <unk> now for doing this is that.
Speaker Change: In conjunction and in conversations with the franchisees. We felt this is a better path forward for these restaurants and then if they remained in the status quo.
Speaker Change: But it's more than just there's really three reasons to take back. These restaurants that are exciting to us. The first is of course, we believe that we can revitalize and refresh them and spin them off back to franchisees.
Speaker Change: And about a three year timeframe, plus or minus and obviously.
Speaker Change: Increase the value of those restaurants and have a return for dine on that but we also take them back at a time when we are launching our remodeling campaign.
Speaker Change: For Applebee's and so we'll remodel 30 of these restaurants ourselves and that allows us to demonstrate the franchisees what that remodel looks like.
Speaker Change: It enables us to focus on what the ROI is and obviously.
Speaker Change: Put our our our money where our mouth is and do the same thing that we're asking of our franchisees and the last thing. It does is probably about a half a dozen of them that are candidates to convert.
Speaker Change: The dual brand, which again is going to advance our strategy and our mission there to rollout the dual brands and 25% and 26, and we will invest there as well because we believe so strongly in the concepts. So for US It was really driving three key initiatives at the same time, that's a super valuable.
Speaker Change: In time for us.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Brian Mullan from Piper Sandler.
Speaker Change: Okay.
Speaker Change: Then.
Speaker Change: Thanks, a question on I have I believe you said warrants was on the call I just wanted to make sure before I.
Speaker Change: As Lawrence on the call.
Speaker Change: He is he's dying for a question Brian Thank.
Brian Vance: Thank you I just want to make sure for it okay. So laurence would be great to hear what attracted you to the opportunity at IHOP.
Speaker Change: Specifically.
Speaker Change: Talk about how you thought about the chain and we dining segment traffic trends have tend to be negative I'm sure you knew that coming into the role. So just a thesis for a hypothesis you have on the category or the brand.
Any color on how you thought about it would be great.
Speaker Change: There you go along.
Speaker Change: Alright good.
Speaker Change: Morning.
Speaker Change: When I was evaluating coming in speaking with John and the team. The first thing I did was really go deep into the restaurants.
Speaker Change: And in the industry.
Speaker Change: The restaurant industry for over a decade, now and I just saw.
Speaker Change: In a chronic brand I spoke with a lot of consumers, obviously, a lot of peers in the industry, who have also left GSR and gone into casual dining and I just saw amazing amazing potential and when you look at the incredible food.
Speaker Change: You are cooked in a lot of kitchens now at IHOP.
Speaker Change: Gone deep into restaurants spoken with team members.
Speaker Change: And you just see the passion.
Speaker Change: You see the magic that is happening in the back of house you see the prep time.
Speaker Change: The time they spend the love that comes into the back of the house and the preparation of the food and what I really saw was true love.
Speaker Change: That's what really got me excited because when you speak with.
Speaker Change: Even consumers are guests in our restaurants I remember the one trigger that really got me excited is I sat down I met this girl and.
Speaker Change: She was with the family and I asked her how many times she comes into Iowa.
Speaker Change: Sure.
Speaker Change: And I Didnt expect any number of ships of 30.
Speaker Change: And then I knew there was this area that just I had to focus on from consumer loved brand excitement and there are just so many opportunities to drive growth for the brand and that's really what attracted me.
Speaker Change: I understand the reality transaction declines, but I also know.
Speaker Change: That this can be reversed and there are so many areas of opportunity that we can drive growth for and Thats whats keeping the team excited and we have a lot of work that we're doing right now around it.
Speaker Change: Thank you.
Speaker Change: I'm showing no further questions at this time I would now like to turn it back to John Payne Dine Brands' CEO for closing remarks.
Speaker Change: J J, thanks for taking such good care of US we always appreciate it.
Speaker Change: All of you who joined and ask questions. Thank you and I'll, just wrap by reinforcing where I started which is.
Speaker Change: We all our franchisees and all of us at Applebee's by these.
Speaker Change: IHOP and dine intend to have a strong 2025, we're not satisfied with our 2020 for results and we are working very hard to focus on those moments that matter.
Speaker Change: Implementing our plans.
Speaker Change: To have a really great 2025. So appreciate your questions. Thanks very much.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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