Q3 2025 Dine Brands Global Inc Earnings Call
Speaker #1: Good day and thank you for standing by . Welcome to Dine Brands . Third quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #1: After the speakers presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .
Speaker #1: You will then hear an automated message advising your hand is raised to withdraw your question . Please press star one one again . Please be advised that today's conference is being recorded .
Speaker #1: I would now like to hand the conference over to your host today , Matt Lee , Senior Vice President of Finance and Investor Relations .
Speaker #1: Sir , you may begin .
Speaker #2: Good morning , and welcome to Dine Brands Global, Inc. third quarter conference call . This morning's call will include prepared remarks from John Peyton CEO and president of Applebee's and Vance Chang CFO .
Speaker #2: Following those prepared remarks , Lorence Kim , president of IHOP , will also be available along with John and Vance to address questions from the investment community .
Speaker #2: During the Q&A portion of the call . Please remember our safe harbor regarding forward looking information . During the call , management will discuss information that is forward looking and involves known and unknown risks , uncertainties and other factors which may cause the actual results to be different than those expressed or implied .
Speaker #2: Please evaluate the for 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 .
Speaker #2: 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 #2: With that , it is my pleasure to turn the call over to Diane Brands , CEO . John Peyton .
Speaker #3: Good morning , everyone . Thanks for joining us today . As usual , I'll start with an overview of dines Q3 performance and key brand updates , and then turn it over to Vance , who will discuss our financial results in more detail .
Speaker #3: Afterwards , I'm going to spend some extra time before the Q&A to share more details about our dual brand program , how it's unlocking a new lever to grow , and ultimately , why we're putting our money behind it .
Speaker #3: Vance will then cover our capital allocation priorities and how our asset light model is designed to create long term shareholder value . Now , to provide an overview of the third quarter and trends we've seen in consumer behavior in Q3 , we sustained the sales and traffic momentum from Q2 , driven by new menu innovation and targeted marketing campaigns .
Speaker #3: While we continue to operate in a competitive environment , Applebee's and IHOP held their ground , underscoring the strength and relevance of our brands as guests continue to seek value , variety and an exceptional dining experience .
Speaker #3: These are the same expectations that have been driving consumer behavior throughout the year . While spending patterns remained relatively consistent , we're observing slightly higher macroeconomic anxiety , leading to more intentional decision making , where every dollar spent must feel justified across the entire dining experience .
Speaker #3: Guests continue to manage their check by trading down to lower priced or value items on our menus . Ihop's value mix remained at about 19% , while Applebee's value mixed slightly increased to about 30% in Q3 .
Speaker #3: Despite the industry headwinds . Our focus on everyday value platforms , operational simplification and high impact guest centric marketing is delivering results . Lastly , I'll add that we recently completed our annual franchisee conferences that included participation from the leaders of each of our franchisee councils and across all three of our brands .
Speaker #3: The biggest takeaway is that our franchisees are aligned with our strategy and remain committed to grow , reinforcing this sentiment is the fact that franchisee health remains resilient with clear improvement at Applebee's .
Speaker #3: Given the sales growth we're seeing and encouraging momentum at IHOP . Now , while there's still more work ahead , I'm grateful to our team and franchisees for their ongoing dedication and unrelenting belief in the strength and potential of our iconic brands .
Speaker #3: So with that , I'll walk through our financial results for the quarter . Applebee's reported a 3.1% increase in comp sales , and IHOP posted comp sales of -1.5% .
Speaker #3: Notably , positive comp traffic was an important driver for both brands . Our adjusted EBITDA was $49 million , compared to $61.9 million in the same quarter last year and year to date , adjusted free cash flow was $68.2 million compared to $77.8 million in the same quarter last year .
Speaker #3: Now , I'll share some updates across our portfolio , starting first with some leadership updates at Applebee's in September , we welcomed our new chief Marketing Officer , Michelle Chin and Chief Operating Officer Jay Wong to Applebee's .
Speaker #3: Both leaders are passionate fans of Applebee's brand , and they bring fresh perspectives to elevate the guest experience as well as strengthen franchisee and team member relationships .
Speaker #3: Michelle spent two decades shaping consumer marketing and brand strategy for global brands like Starbucks , Godiva and Unilever , where she built high performing teams and launched impactful insight led campaigns .
Speaker #3: And Jay has led global teams and transformations at top tier brands , including Four Seasons , Starwood Hotels and Resorts . His focus on seamless guest experiences will help Applebee's further enhance how we serve our guests .
Speaker #3: I'm looking forward to working closely with both of them to continue to promote innovation , operational excellence and long term brand relevance . And now into the Applebee's results .
Speaker #3: In Q3 , Applebee's achieved its second consecutive quarter of positive comp sales and traffic , continuing the gains in traffic that started in March .
Speaker #3: New menu items are driving this traffic by appealing to core Applebee's fans , while also attracting new guests . Guests should expect to see this continued menu innovation driven by a robust menu pipeline with a new appetizer and a new entrée added to our menu each quarter .
Speaker #3: As we shared last quarter , we're introducing new entrees via the two four section of our menu , which is a pillar of our everyday value platform in Q3 , we launched Chicken Parmesan Fettuccine , which became our best selling standalone pasta dish representing approximately 13% of transactions and was a key contributor to our traffic and sales growth .
Speaker #3: Another important menu innovation from this quarter was the launch of our new Ultimate Trio appetizer Sampler . As part of our second season as the official grill and bar of the NFL .
Speaker #3: This offer has over 80,000 flavor combinations , highlighting the power of choice . The younger guests love without adding more SKUs or complexity to the kitchen .
Speaker #3: And it's been wildly popular . The ultimate trio has become one of the best selling appetizers , averaging 13.5% of transactions and contributing meaningfully to check growth .
Speaker #3: As a part of our off premise strategy . The ultimate Trio is also available for to go and delivery , contributing to a 9% increase in off premise sales in Q3 .
Speaker #3: Building on 3.7% growth in Q1 and 7.6% growth in Q2, our success in the off-premise channel is driven by pairing LTOs with digital promotions to encourage off-premise occasions.
Speaker #3: Our off premise remains a growth opportunity for Applebee's , and we're pleased with the momentum and our capabilities to meet guests where they are .
Speaker #3: An important way to connect with both our dine in and off premise guests is reaching them on social media . Throughout the year .
Speaker #3: We've expanded our marketing capabilities and social media prowess to deepen engagement and reach a broader audience . Since Q3 2020 , for Applebee's has increased postings by over 300% , and as a result , we've seen a 266% increase in engagement , proving that we are more effectively reaching our guests in real time .
Speaker #3: And this ties into our ongoing efforts to modernize the brand and elevate the guest experience . Over the past year , guest satisfaction scores are improving and it's a direct result of our focus on efficiency across both the front and back of house functions .
Speaker #3: The look and good remodel program also continues to progress . Franchisees are reporting strong post remodel sales , lifts and an increase in guest frequency .
Speaker #3: Approximately 80 restaurants have been remodeled to date , and we expect to exceed our 100 remodel target by year end . There's more to do , and plenty of opportunity ahead , and we're committed to strengthening the brand's relevance , sharpening our competitive edge , and driving long term growth .
Speaker #3: Now moving to IHOP , where positive traffic trends continue to be the highlight for the brand , IHOP outperformed Black box traffic metrics every month in 2025 , making Q3 our third straight quarter of traffic outperformance versus industry benchmarks .
Speaker #3: More importantly, this is IHOP's first quarter of positive traffic in many years. I want to take a moment to fully recognize the significance of IHOP returning to positive traffic.
Speaker #3: Comps . This is a big win , especially in a category where traffic has been challenged for years . Traffic is a core indicator of customer connection and demand .
Speaker #3: Our steady industry outperformance, now further supported by positive absolute gains, shows that we're successfully connecting with guests, especially as they seek exceptional value, abundance, and a great dining experience.
Speaker #3: In fact, recent third-party research on search trends identified IHOP as the most searched diner chain in the U.S., underscoring its continued relevance with consumers.
Speaker #3: And as it relates to traffic trends , the momentum really accelerated when we launched our IHOP value menu and expanded and rebranded version of the House faves menu .
Speaker #3: Now available seven days a week . Notably , this is the first time IHOP has introduced an everyday value menu as part of its core offering .
Speaker #3: Early results are strong , with positive impacts on sales and traffic . Since its launch in mid-September , and we're seeing continued momentum into the fourth quarter , the IHOP value menu is one of the largest launches in the brand's history , made possible through strong partnerships with our franchisees .
Speaker #3: As always, this platform was designed and tested to be profitable, and we continue working to improve margins and protect profitability for our franchisees.
Speaker #3: While our value offerings are important for bringing guests through our doors , we're also focused on increasing check and margin in Q3 . Our updated barbell strategy improved check month over month by drawing more attention to some of our higher priced menu offerings , resulting in a decrease in value incidence on weekdays from about 25% of checks to roughly 15% .
Speaker #3: Looking ahead , we're continuing to optimize checks through upselling sides and introduce premium offerings like our limited time breakfasts in Q4 . Operationally , we remain focused on strengthening our foundational basics as a result , table turn times has reached multi-year lows , and we continue to identify potential for further improvement .
Speaker #3: And now to discuss fuzzies . We saw modest improvements across sales and traffic at fuzzies as we work diligently alongside our franchisees to improve technology , streamline the menu , and enhance the Inn restaurant experience for our guests .
Speaker #3: In Q3 new delivery campaigns exceeded expectations , driving growth in off premise channels . This is one of the many benefits of our multi-brand platform .
Speaker #3: The ability to use learnings from one brand and apply it to another to enable further growth , and turning to our international business .
Speaker #3: We continue to have positive engagement with both new and existing international franchisees around development , and we remain on track to double our total international dual brand restaurants by the end of the year .
Speaker #3: The increase in unit growth is helping offset some macroeconomic headwinds impacting sales, and we remain bullish on the growth opportunities across our key international markets.
Speaker #3: Now , I'll touch on our company owned portfolio . As a reminder , we now have 70 company operated restaurants representing approximately 2% of our total restaurant count .
Speaker #3: Our strategy is to invest in these restaurants to improve the health of our brands . But ultimately refranchising the restaurants back to our franchisees .
Speaker #3: We're seeing our strategy deliver results at our company operated restaurants with sequential comp sales improvement versus Q2 . Assuming all restaurants have alcohol licenses , Applebee's locations are now performing in line with the system average and IHOP locations are now outperforming the system average .
Speaker #3: Although profitability in the quarter continues to be impacted by temporary closures for remodels and dual brand conversions , and one time costs related to catch up of repairs and maintenance and training .
Speaker #3: We are optimistic about the upside potential of these initiatives . 12 restaurants have now been remodeled and we are seeing traffic driven sales growth validating the brand's core strength when paired with refreshed physical environment .
Speaker #3: Additionally , 60% of restaurants now have alcohol which is supporting Czech growth . We also recently completed our first company owned dual brand conversion , and while early are excited to see sales increase to four x Pre-conversion levels , this further adds to our confidence around the potential of dual brands , which I will detail later .
Speaker #3: And so now I'll turn the call over to Vance . Thanks , John .
Speaker #4: On the top line , consolidated total revenues increased 10.8% to $216.2 million in Q3 , versus $195 million in the prior year , primarily driven by an increase in company restaurant sales , offset by a decrease in franchise revenues .
Speaker #4: Our total franchise revenues decreased 3% to $161.3 million , compared to $166.4 million for the same quarter of 2020 . For excluding advertising revenues , franchise revenues decreased 3.6% .
Speaker #4: Rental segment revenues for the third quarter of 2020 decreased $1 million compared to the same quarter of 2020 . For primarily due to lease terminations .
Speaker #4: G&A expenses were $50.2 million in Q3 of 2025 , up from $45.4 million in the same period of last year , primarily due to compensation related expenses and an increase in travel and conference expenses .
Speaker #4: Adjusted EBITDA for Q3 of 2025 decreased to $49 million , from $61.9 million in Q3 of 2020 for adjusted diluted EPs for the third quarter of 2025 was $0.73 , compared to adjusted diluted EPs of $1.44 for the third quarter of 2020 .
Speaker #4: For now , turning to the statement of cash flows . We had adjusted free cash flow of $68.2 million for the first nine months of 2025 , compared to $77.8 million for the same period of last year , driven by an increase in additions to property and equipment , primarily related to CapEx .
Speaker #4: Investments in our company owned restaurants . Cash provided by operations at the end of the third quarter of 2025 was $83.3 million , compared to cash provided from operations of $77.7 million for the same period of 2020 .
Speaker #4: For . The increase was primarily due to a favorable change in working capital due to the timing of federal tax payments postponed due to wildfire relief and of interest payments postponed in connection with our June 2025 debt refinancing , offset by the decrease in segment profit and higher G&A expenses .
Speaker #4: CapEx to Q3 of 2025 was $21.3 million , compared to $10.3 million for the same period of 2024 . Due to investments into our company owned restaurants .
Speaker #4: We finished the third quarter with total unrestricted cash of $168 million , compared with unrestricted cash of $194.2 million at the end of the second quarter .
Speaker #4: Regarding capital allocation , I'll provide an update and a more detailed overview of our framework later in the call , but want to mention that we continue to make progress on our key initiatives , including remodeling the Applebee's system , which includes providing an early adopter incentive for franchisees and remodeling and or converting company owned restaurants to dual brand restaurants on buybacks and dividends .
Speaker #4: We repurchased $22.5 million in stock and paid $7.8 million in dividends in Q3 of 2025 , as a reminder , as a franchisor , we obtain debt financing through the whole business securitization market , which allows us to have investment grade cost of debt , capital .
Speaker #4: This is evidenced by the successful refinancing a few months ago . Of our $600 million senior secured notes with a fixed rate coupon of 6.72% .
Speaker #4: We continue to monitor the market and will look to refinance our 2023 senior secured notes when the economics are more favorable , given the current macro premium of approximately $20 million and the part called window does not open until December of 2026 .
Speaker #4: Next , let me discuss Applebee's performance Q3 same restaurant sales were positive 3.1% average weekly franchise sales in 2025 were $52.6 thousand , including approximately $12,000 from premise or 22.9% of total sales , of which 11.7% is from to go and 11.1% is from delivery .
Speaker #4: Our premise saw a positive 9% lift in comp sales in Q3 , compared to the same period last year . Ihop's Q3 same restaurant sales were -1.5% .
Speaker #4: Average weekly franchise sales were $36.7 thousand , including $7.5 thousand from off premise , or 20.4% of total sales , of which 7.8% is from to and 12.5% is from delivery .
Speaker #4: Turning to commodities , Applebee's commodity costs in Q3 increased by 0.3% and IHOP commodity costs increased by 5.7% versus the prior year . Our supply chain co-op , CSX , now expects commodity costs in 2025 at Applebee's to be roughly flat versus prior outlook of flat to slightly down , due to higher beef and seafood costs .
Speaker #4: At IHOP , we continue to expect commodity costs to increase by mid-single digits for the full year , driven by elevated egg pricing , pork and coffee .
Speaker #4: As we mentioned on our prior call , the tariff situation remains fluid . As a result , our forecast for commodity costs incorporates the effects from existing tariffs to date , but do not reflect the potential impact of future tariff changes or trade policy .
Speaker #4: CSCS continues to work across both systems to identify additional cost savings opportunities and support restaurant profitability initiatives through both operational improvements and input costs .
Speaker #4: Today . In 2025 , we have implemented projects resulting in over $42 million of annualized savings across both systems , and we continue to partner with CSCS to leverage our scale and make progress on our cross-functional restaurant profitability initiatives .
Speaker #4: Before turning the call back over to John for strategic update on our dual brand opportunity and our capital allocation framework , I'd like to add that we are maintaining our full year financial guidance at this time , specifically with our EBITDA guidance .
Speaker #4: We are anticipating to be on the low end of the range due to investments to improve our company restaurants , which includes remodeling and dual brand conversion process .
Speaker #4: In Q3 , approximately 10% of our restaurants were temporarily closed due to remodeling and dual brand conversion for a portion of the quarter , impacting our performance , and we expect an even greater number to be temporarily closed in Q4 .
Speaker #4: With that , I'll hand it back over to John .
Speaker #3: Thank you . Vance . Now , I know we've talked about our dual brand strategy before , but today I'd like to provide more insight into the opportunity we see what it is , why it's unique , and why we and our franchisees are excited about it .
Speaker #3: We've done extensive research into how exactly dual brands fit into our long term growth without cannibalizing the independent growth trajectories of the individual brands .
Speaker #3: The results , as I'll walk through today , are compelling . To start , we are the only franchisor with two iconic full service brands that serve guests across all Dayparts IHOP in the earlier hours of the day and Applebee's in the later hours .
Speaker #3: Our thesis is that combining these two complementary Daypart brands into one dual branded restaurant will drive higher sales and create efficiency , resulting in increased profits for our franchisees and growth for dine through higher system sales and unit growth .
Speaker #3: After an early prototype in Detroit , we began testing this idea in earnest internationally . Two years ago , and since then we've opened 20 international dual branded restaurants that approved our thesis .
Speaker #3: These restaurants are delivering 1.5 X in sales versus single branded restaurants , and are generating significant incremental margin this year , we're on our way to doubling our international dual branded restaurant count to 40 .
Speaker #3: With these compelling results . We brought this concept to the US in February . For those who haven't yet had a chance to see it from the exterior , both brands are prominently displayed around the building and there is one shared entrance inside the aesthetics and seating for each brand are represented in different sections , one being Applebee's iconic Red and the other is Ihop's iconic Blue .
Speaker #3: The guests can choose to sit on either side and are presented with one menu organized by daypart that has been simplified to include the best of both brands.
Speaker #3: The menu also includes some dual brand exclusive items like our popular Buffalo Chicken Omelet to experience our dual brand concept , you can find a video explaining and touring the first two domestic locations on the Dine Brands Investor website .
Speaker #3: There are several key highlights that support our belief in this opportunity . First , from the restaurant operator's perspective , there is one kitchen , one POS , across trained staff and the same number of menu items as a single branded restaurant .
Speaker #3: The simplification of operations allows our team members to focus on our guests and ensure they have a great experience that is representative of both brands' core values from a guest perspective. Feedback is strong.
Speaker #3: In particular , they're enjoying the expanded choice provided by the combined menu from both brands . In fact , for each daypart , the off brand represents the least 15% of sales .
Speaker #3: For example , Applebee's items represent at least 15% of sales in the morning , and IHOP items represent at least 15% of sales in the evening .
Speaker #3: And so far , in terms of financial performance , we have seen sales performance approximately 1.5 to 2.5 x higher Post-conversion sales are relatively consistent throughout the day , with no day part exceeding one third of total sales , further showcasing the complementary nature of the two brands .
Speaker #3: We're seeing a meaningful increase in franchisee profitability with forward margins nearly doubling , and we've seen a reduction in construction costs and timelines for dual brand conversions .
Speaker #3: As the process becomes more efficient and standardized , which we expect will result in a payback period of less than three years . Our initial target was to have 12 to 14 domestic dual branded restaurants open in 2025 , and as of today , we can share that we expect to have approximately 30 opened or under construction by year end .
Speaker #3: And we expect to achieve at least 50 dual brand openings in 2026 . From a long term perspective , our internal analysis of the US whitespace opportunity shows potential for approximately 900 dual branded restaurants over the next decade .
Speaker #3: While near-term openings will primarily be conversions , we also see potential for approximately 50% of these opportunities to be new builds . It's important to note that dual branded restaurants are only one strategic development lever for us .
Speaker #3: It's not a solution for all markets , and we continue to greenlight single brand restaurant concepts to summarize , the dual branded opportunity is a big one .
Speaker #3: Guest and franchisee feedback is strong. It significantly enhances the unit economics for a franchisee by potentially doubling four-wall revenue and margin.
Speaker #3: It represents an approximately 900 unit whitespace opportunity . We expect to have approximately 30 open or under construction by year end , and we expect to achieve at least 50 dual branded openings in 2026 .
Speaker #3: Now I'll pass the call back to Vance, who will discuss our updated capital allocation.
Speaker #4: Thanks , John . Given that we are one of the largest franchisors in the full service restaurant segment , our asset light model generates best in class return on invested capital and margins .
Speaker #4: We take disciplined approach to capital allocation to drive shareholder value , focusing on three key priorities organic investments , balance sheet management and returning capital to shareholders .
Speaker #4: This financial strength gives us the flexibility to invest in our brands , our company owned restaurant portfolio and development pipeline , while also returning meaningful capital to our shareholders , something we have consistently done over the past several decades .
Speaker #4: And that will not change the current time . However , we believe our stock price is currently undervalued , which represents a unique opportunity to be more aggressive with share repurchases to create long term shareholder value .
Speaker #4: As a result , the board has declared the reduction of our dividend from $0.51 per share per quarter to $0.19 per share per quarter , which would imply an annual dividend yield of approximately 3% based on today's stock price .
Speaker #4: This will continue to generate one of the highest yields amongst our peers. We will reallocate our capital towards a larger share repurchase program.
Speaker #4: We will commit to buy back at least $50 million of shares over the next two quarters , which would represent a share reduction approximately 11 to 13% at the current price .
Speaker #4: This is on top of the approximately 8.5% shares that we have repurchased year to date , which would total a nearly 20% reduction in shares versus the beginning of 2025 .
Speaker #4: We're maintaining our current investments into the franchise system , either as an ongoing or as needed basis , such as our Applebee's . Looking Good remodel incentives worth IHOP franchisee egg subsidy .
Speaker #4: Earlier this year, I want to reiterate that the dividends reduction, increased share repurchases, and investments into our business are proactive changes we're making to our shareholder return strategy to drive increased shareholder value.
Speaker #4: It demonstrates confidence in our plan and our principle view that the stock is undervalued , reaffirming the board's alignment with investors , with the momentum that we continue to see in the business and the alignment and shared excitement from our franchisees , now is the right time to be aggressive in investing in our own stock .
Speaker #4: I will now pass it back to John to close.
Speaker #3: Thank you . Vance . I'll end the call by summarizing our key initiatives that will create long term value for our shareholders at the brand level , our focus is on .
Speaker #3: Menu innovation , high impact marketing and social media , simplified operations and enhanced guest experience in terms of development , we will drive unit growth by capitalizing on our dual branded opportunity , continuing to open single branded restaurants , especially at IHOP , which has for over a decade consistently opened double digit restaurants every year and introducing a new , lower cost Applebee's prototype .
Speaker #3: And last , we will remain prudent with our capital allocation and accelerate share buybacks to take advantage of a significant discount in our valuation , which we believe will be highly accretive to our shareholders .
Speaker #3: And now with that , we'll turn the call back to the operator and open up the line for Q&A .
Speaker #1: Thank you . Ladies and gentlemen , as a reminder to ask the question , please press star one one on your telephone . Then wait for your name to be announced .
Speaker #1: To withdraw your question , please press star one one again . We ask that you limit yourself to one question and one follow up .
Speaker #1: Please stand by while we compile the Q&A roster . Our first question comes from the line of Eric Gonzalez with KeyBanc . Your line is open .
Speaker #5: Hi . Thanks for taking the question . And congrats on the positive traffic in both brands . I want to ask about the company owned stores .
Speaker #5: You had a decent sized loss . Maybe 4 or $5 million in the quarter , and I recognize that you had some catch up expenses and repair and maintenance and training and and remodels , etc.
Speaker #5: , but do you have a sense of how much of a drag we should expect from these stores going forward ? And maybe when you kind of when that maybe goes away ?
Speaker #3: Thanks , Eric . Good morning . Vance can address that question .
Speaker #5: Good morning Eric .
Speaker #6: Just to give you a little bit more context on on the sort of the disruption . So year to date , we had close to 50 restaurants without liquor license for 30 plus weeks per restaurant .
Speaker #6: And then on the construction side , year to date , we had approximately 500 days of construction closures across 30 plus restaurants . Or , you know , if you do , the average math , roughly 15 days of closure per restaurant .
Speaker #6: And so that's what happened year to the point that out to to let you know that . Although , you know , that's that's noise and headwinds this year we're coming you know , by and large those factors won't be there next year .
Speaker #6: Right . So so it's a one time investment that we're making to to improve the restaurants , you know , for this year we're expecting .
Speaker #6: Roughly 9 to $10 million of segment profit hit from company restaurants . To answer your question specifically . And then that includes about $2 million of DNA .
Speaker #6: So hopefully that helps .
Speaker #5: Okay . That's very helpful . Thank you for that . And then maybe just a question on the IHOP side . Again , congrats on the positive traffic .
Speaker #5: But the overall comps , they were down a little bit . So just wondering you're leaning pretty heavily on value . What are you doing to address the Czech side .
Speaker #5: And do you think you can get that that mix up in the quarters ahead ?
Speaker #3: Thanks , Eric Lawrence , we'll take that .
Speaker #7: Eric , how's it going ? Yeah . So as I shared , in an earlier calls or earnings calls , we have a three pronged approach .
Speaker #7: When it came to driving transactions and traffic . The first was of course , launching the value platform , which we did last October .
Speaker #7: And actually we've now evolved , as John shared earlier , where we launched an everyday value menu this past September . So we're continuing to drive that transactions .
Speaker #7: And as John shared , you know , we've continued to do so since the beginning of this year . But to your question , in regards to check and overall sales , the third phase of it is actually balancing the value and the transaction growth from that with our barbell strategy to drive check .
Speaker #7: And so we're doing that in multiple ways, from upsell strategies with our tablets and our servers. But, of course, also featuring some premium-priced items, such as our premium-priced pancakes like our Pumpkin Spice and our Coffee Cakes pancakes.
Speaker #7: In addition to combo features which are prominently displayed in our restaurants with pop , like our recent breakfasts , which perform really well last year .
Speaker #7: So, we brought them back this past September and a few weeks ago as well. This is already helping to drive our check balance, improve check flow, and overall profitability for our restaurants.
Speaker #7: And we're going to continue to drive this as we drive value in the next quarter .
Speaker #3: Hey , Eric , it's John . I would just add one more point to what Lawrence said , which is since they've moved into phase three , which is driving the barbell strategy and featuring the higher priced items in the restaurants , the the incidence of the value was 25% of checks weekdays .
Speaker #3: And since they started this new program , it's fallen to 15% . So we're seeing a good response to the program to to to upsell once they're in the restaurant .
Speaker #5: Great . And maybe just the last one for me , I think you said three Q momentum sustained . Did you talk about fourth quarter at all yet ?
Speaker #5: I think you said momentum sustained , but I couldn't tell if that was either an Applebee's and IHOP comment or both .
Speaker #3: Vance . .
Speaker #6: Eric . So what we're seeing is that the sales volume for Applebee's really sustained from Q3 and Q4 , and then it's accelerated for IHOP from Q3 into Q4 .
Speaker #5: Got it . Very helpful . Thank you .
Speaker #1: Thank .
Speaker #8: You .
Speaker #1: Our next question comes from the line of Dennis Geiger with UBS . Your line is open .
Speaker #6: Great. Thank you, guys.
Speaker #5: Encouraging to hear .
Speaker #6: Some of the insights .
Speaker #5: There on the dual branded concepts .
Speaker #6: Appreciate that .
Speaker #5: And what sounds like good franchisee demand . Can we unpack a little more . The franchisee demand . Are there . Are there certain characteristics for those that have kind of signed up already for the dual branded box ?
Speaker #5: And then maybe what are the biggest hurdles that you're finding from those that that you feel should but aren't yet ? Do they just want to see that the proof point anything on on that ?
Speaker #5: John would be great .
Speaker #3: Yeah , sure . Dennis , happy to talk about that . So in terms of franchisee demand , I would characterize the the initial wave of dual brand restaurants as number one conversions versus new build , which which makes sense .
Speaker #3: Number two , more ihop's than Applebee's . And we attribute that to the fact that Applebee's I'm sorry that IHOP is currently open for dinner .
Speaker #3: Right . And dinner has always been a challenge for that brand . So to add an Applebee's solves a existing challenge for that brand , for Applebee's , they're not open for breakfast , so they're not trying to , quote , fix an issue .
Speaker #3: And so it's it's a different decision for an Applebee's to add the IHOP and grow the revenue . What we're seeing now and what I would call sort of phase two , is we move toward a robust pipeline of at least 50 for next year is we're seeing our Applebee's franchisees begin to explore 1 or 2 opportunities .
Speaker #3: Among the more major , major franchisees in terms of the the the hurdles . It's I think it's less about the franchisee and more about what we're learning as we go .
Speaker #3: So , for example , we're learning that IHOP franchisees who don't typically have bar experience , we need to give them extra training and support to run a really great bar , which is which is a key element of of an Applebee's .
Speaker #3: And so we're learning things like that along the way, which is the kind of things we expected to learn and that we can address with our training and our coaching.
Speaker #5: That's helpful . Thanks . I appreciate that . And then one more , if I could just more broadly , I guess you touched on it some .
Speaker #5: But in thinking about franchisee sentiment , more broadly in this environment that we're in , you touched on the commodities piece . Just if you could touch on that both across Applebee's as well as IHOP right now and maybe just tying broader new open demand in and how you're kind of thinking about net growth , maybe longer term if there's anything to to share there across either closure closures as well as gross opens , would appreciate anything there .
Speaker #5: Thank you guys .
Speaker #3: We're not putting a firm date or timeline on net unit growth . Dennis , but we're getting we're getting close , that's for sure .
Speaker #3: What we like about our program now is we have multiple products and almost a product to fit every situation . So to develop to develop a single unit IHOP , which we've been doing 30 to 40 a year for the last several years , 80% of those are conversions .
Speaker #3: So IHOP is a great conversion . Brand and a good solution for opportunities to repurpose buildings . As I mentioned , Applebee's , we've got a new prototype that takes about $1 million in cost out of it for a much better return , and we're going to build one of those next years , next year to prove that out on the international side .
Speaker #3: Same thing we've been opening about 40 restaurants a year consistently , increasingly dual branded restaurants there . And now we have the dual brand concept here in the US and each market is unique and each solution has to make sense for that .
Speaker #3: For that market . But the dual brand is giving us a catalyst to get back to to net unit growth sooner rather than later .
Speaker #6: Hey Dennis . this is one more point . I would add is that , you know , when even even without net development growth , just , just the context is that the closures that we've had are obviously lower AUV boxes .
Speaker #6: Right ? So they're averaging sort of 1.21 . You know , low , low ones . And then the new restaurants were opening are , you know , $1.82 million .
Speaker #6: So it's not a 1 to 1 ratio . It , you know , even even though the net development number , as you pointed out , has has not been positive .
Speaker #6: So just want to make sure at that point is clear .
Speaker #5: Makes good sense. Thanks, guys.
Speaker #8: Thank you .
Speaker #1: Please stand by for our next question . Our next question comes from the line of Jeffrey Bernstein with Barclays . Your line is open .
Speaker #9: Great . Thank you very much . First question is just on the broader consumer backdrop , hearing from lots of restaurants as they look at their data , more and more companies , I guess , have data on the age of their consumer .
Speaker #9: The income level , the ethnicity . And there's been seemingly a big change in trend in recent quarters . I'm wondering , one , whether you have any degree of data on any of those cohorts and whether you've noticed any change in trend among any of those , for better or for worse .
Speaker #9: And then I had a follow-up.
Speaker #3: Yeah , sure , Jeff , it's John . I can take that and speak to both brands because the , the , our observations are consistent with , with both IHOP and Applebee's .
Speaker #3: We're seeing a slight shift in the guest mix this quarter . We've had more higher income guests joining us than lower income guests , leaving us , which is what's , you .
Speaker #3: The net of that is what's driving our traffic growth , you know , so that that is good news . You know , the two cohorts that we're seeing who are most price sensitive right now are the lower income guests and Gen Z .
Speaker #3: They're dining out less in than they have in the past . But all of our guests , that being said , are hyper focused on value .
Speaker #3: And that hasn't changed all year or for for last year as well . And we and that's our plans for the future as we think that that focus on value is , is what's going to be on consumers minds throughout the rest of this year and into next .
Speaker #3: And that's why we believe that the Everyday Value program at IHOP and the Two for $25 program enhanced at Applebee's are driving our traffic right now because it's the match that consumers are looking for.
Speaker #9: Understood . And then just following up on that value mix , I think you kicked off your commentary by saying Applebee's was at 30% mix , depending on the way you define it , but you said that was up modestly .
Speaker #9: So just curious what that was up from . An IHOP at 19% , I think you it was unchanged , which was surprising considering the negative check , which seems significant .
Speaker #9: So just wondering , you know , how to kind of balance the significant negative check with no increase in there value sales mix .
Speaker #3: So Applebee's is at 30% , which is pretty close to where it's been . It's been 28 , 29% last quarter . So you know , you can consider that about about flat .
Speaker #3: We define value . We calculate that as the two for 25 menu plus ltos . So any instance of those as a ticket is about a third 30% of what we see at at IHOP .
Speaker #3: Just to clarify the value mix grew to 19% . It wasn't down . It grew to 19% during the quarter because of the rollout of house faves , you know , and then turning that into everyday value .
Speaker #3: So it grew to 19% . And we expect that 19% to be a little bit higher next quarter , because we're going to seven days a week .
Speaker #3: And that only happened the last two weeks of the quarter .
Speaker #9: It grew to 19 from what was the number that you most recently talked about .
Speaker #3: Last quarter ? I'm going from memory .
Speaker #6: It was like 18.9% to 19.1% is slight , slight increase .
Speaker #3: But pre pre everyday pre house faves it was more like more like 10% right before we introduced .
Speaker #6: Yeah yeah about low to mid teens last year is where we're averaging .
Speaker #9: Got it. And just lastly, just to clarify, you said that there would be 30 dual brand locations open or under construction by year-end this year.
Speaker #9: So, I'm just curious how many do you think would be open by the end of this year. And then you said something about 50 for next year.
Speaker #9: I wasn't sure if that's just the cumulative total number or whether that's incremental openings . So just trying to get a sense for how many actually will be open end of this year and how many in total will be open end of next year .
Speaker #9: Thank you .
Speaker #3: So it's 30 plus 50 for a total of 80 . And in terms of this year , the vast majority of that 30 will be open .
Speaker #3: But as you know, sometimes opening dates slip from December to January. So, not giving a precise number, but the openings will be much closer to 30 than not.
Speaker #9: Understood . Thank you .
Speaker #8: Thank you .
Speaker #1: Please stand by for our next question . Our next question comes from the line of Brian Vaccaro with Raymond James . Your line is open .
Speaker #5: Hi .
Speaker #10: Thanks and good morning . I just had a quick question on the guidance . Vance . I just wanted to confirm . Has there been any change to your previously communicated comp guide at either Applebee's or IHOP or any change to your unit growth expectations that you gave us in the second quarter ?
Speaker #5: No . Those are .
Speaker #6: Staying the same .
Speaker #10: Okay .
Speaker #6: No change , no change to guidance . Yes .
Speaker #10: Okay. And I guess I heard some of your comments about how IHOP is accelerating and Applebee's seems to be holding in. I guess if I do the quick math on Applebee's, and I think my notes are right on this, but I think your previous guide on comp was down 2 to up 1 at Applebee's.
Speaker #10: If I have my notes correct . So that would embed . I think . Go ahead . Sorry . Like basically trying to get at what it is .
Speaker #10: Yeah . What's a reasonable expectation for for Q on comps just to level set because we didn't have the guide in the release ?
Speaker #6: Yeah , the Applebee's guidance , we actually bumped it up from positive one to positive three . So so that didn't change that .
Speaker #6: We changed that last quarter . And then for IHOP it's negative one to positive one . And we didn't change that either . So that implies sort of a decent Q4 for Applebee's and a strong Q4 for IHOP .
Speaker #10: Okay . Great . Thank you . And you also obviously highlighted the traffic being positive at both brands . Could you firm up just the comp components within that sort of where average check was versus traffic for each brand and Q3 .
Speaker #6: Yeah . So for Q three , I think our check . So let's see . So traffic was positive for both brands . We have negative p mix for for IHOP and sort of flat p mix actually negative p mix for Applebee's as well .
Speaker #6: And then about two ish percent menu price increase . So that kind of gives you the rough break breakdown .
Speaker #10: Okay . Great . Great . And then last one for me , you talked about the Applebee's remodel program with over a hundred planned for this year .
Speaker #10: I think you said . I'm just curious how you see that potentially accelerating into 26 and beyond . What sort of a reasonable on on remodels might be ?
Speaker #10: Thank you .
Speaker #3: Yeah , Brian , it's John for that for that question . Yeah . We over 100 this year and we expect to do at least that number next year .
Speaker #3: If not more . And our goal is to have two thirds of the portfolio renovated by the end of 27 .
Speaker #10: Great . Thank you .
Speaker #8: Thank you .
Speaker #1: Please stand by for our next question . Our next question comes from the line of Nick Seppanen with Mizuho . Your line is open .
Speaker #11: Thank you . Just on the remodels , I'm not sure if I missed this , but did you say the kinds of lists you're seeing ?
Speaker #3: Hey , Nick . Good morning , it's John . Welcome back . We're glad you're here . I'll take that question .
Speaker #6: Nick: So it's obviously early days, right? A lot of the restaurants that have been remodeled are pretty new, but we're seeing franchisees are very happy with what they're seeing.
Speaker #6: And from company restaurants , you know , the ones that we've done , we're seeing sort of double digit lifts for for our own portfolio .
Speaker #6: Now , again , one caveat is early two is that I think the starting point for our restaurants are a little bit lower than system average .
Speaker #6: So so I'm not underwriting that sort of lift for , for the entire portfolio . But so far we're very we're very encouraged by what we're seeing .
Speaker #6: And as well as the franchisees .
Speaker #3: And Vance , it's fair to .
Speaker #11: Say that .
Speaker #3: I'm sorry , Nick . It's fair to say that the franchisees that have renovated recently following the renovation package that we have are , are seeing lifts that more than cover the cost , the return is good .
Speaker #6: Definitely .
Speaker #11: Got it. Thank you for the kind words, John. It's good to be back.
Speaker #6: Yeah .
Speaker #11: Good to have you back, Nick. The...
Speaker #3: You've had a .
Speaker #11: Couple .
Speaker #3: You've had a couple of quarters to .
Speaker #11: Think .
Speaker #3: About this . Nick . You've had a couple quarters to think about it . So this has got to be like the question of all time .
Speaker #3: Now .
Speaker #11: Well I mean for Rex on the dual on the dual conversions . That's a great number . You know , in terms of just the , the the number of actual conversions where it gives you confidence that that kind of lift is possible .
Speaker #11: Is that something that we can commit to or is it is that also kind of a too early . And the numbers of conversions are too small to really be able to project that out ?
Speaker #12: Well , it .
Speaker #3: We can't speculate on , on , on forward looking data . Right . And we can't make a firm commitment . All we can do is report on what we've seen so far , what we've seen so far in the close to 40 international dual brands is a 1.5 x improvement in revenue or more .
Speaker #3: And what we're seeing here in the 15 or so that are open in the US , we're seeing a range of 1.5 to 2.5 in in sales lists .
Speaker #3: But again, it's a sample set of 15 in the U.S.
Speaker #11: Got it . And then just in terms of pricing and how we're thinking about just menu price versus mix , you know , going into 2026 , is there any kind of early indication you can give us in terms of what we can think of as the right price number in 2026 for both brands ?
Speaker #3: Vance can provide an update . There .
Speaker #6: You know , Nick , as you're seeing and as we're seeing sort of with menu pricing right now , we're both both sets of franchisees are in the low , you know , around low middle , low single digit range , which , you know , we do expect that to be the case going forward given the fact that commodity costs have sort of come under control .
Speaker #6: Egg pricing is still elevated , but it's come under control . And it's getting better . So so that's what we're expecting now , obviously , the disclaimer we always have is that we don't control pricing .
Speaker #6: So it's the franchisees that set this . But there's we're not anticipating any outsized menu pricing for for next year though . Having said that .
Speaker #11: Great . Thank you so much .
Speaker #8: Thank you .
Speaker #1: As a reminder , ladies and gentlemen , that's star one one to ask a question . Please stand by for our next question .
Speaker #1: Our next question comes from the line of Todd Brooks with the Benchmark company . Your line is open .
Speaker #5: Hey .
Speaker #13: Thanks for taking my questions, Vance. I want to start off with the capital allocation update and just walk me through why we needed to cut the dividend to fund the $50 million in share repurchases.
Speaker #13: Is there a third component around additional franchise keeping firepower drive for additional franchisee location acquisitions? I think you guys said you'd be willing to take that portfolio up to maybe a couple hundred at a premium? Or just kind of walk me through why one lever had to be pulled to accomplish the share repurchase.
Speaker #6: Sure . Todd , you so first of all , you know , our dividend yield implies a dividend yield of approximately 3% , as we said .
Speaker #6: And it's still one of the highest amongst our peers . And second , you know , our asset light model really generates healthy free cash flow .
Speaker #6: So , you know , it allows us to return meaningful capital to shareholders consistently . And that's that's not going to change . So so it has nothing to do with cash flow or ability concerns on that matter .
Speaker #6: And lastly , the goal , you know , to to hit your point , the goal is always for us to deliver strong returns to shareholders .
Speaker #6: Currently given how undervalued the stock is right ? Especially given what we're seeing with , you know , with the momentum with our business , the best way to increase TSR over time is through buybacks .
Speaker #6: And while we invest in company restaurants and franchise franchisee restaurant remodeling and development . So we just think at this point in time , this is the most efficient way to to increase shareholder return over time .
Speaker #13: Okay . So price dependent obviously . But this you've just you've signed up for the two quarter commitment . But it sounds like share repurchase is a bigger component of returning capital to shareholders .
Speaker #13: Going forward .
Speaker #6: Price dependent . But that's a fair fair statement . Price dependent . Yes .
Speaker #13: Okay . Great . Thanks . And then wanted to ask Lawrence about with with house faves expanding to seven days a week . How has the brand been able to handle that operationally ?
Speaker #13: I know that typically those weekend periods or peak periods for IHOP to begin with . Now you're bringing potentially a value seeking customer to try to get to the box during those peak periods as well .
Speaker #13: How are the units handling it , and is there an efficiency gain to happen as we get more than six weeks into having the menu available , seven days a week ?
Speaker #7: Yeah . So as thanks for the question , Todd . You know , one thing that we're very methodical about is ensuring our franchisees and our restaurants are equipped to handle any new type of promotion and especially when it comes to something like an everyday value menu .
Speaker #7: So we tested this across several months in , across different markets to ensure not just , you know , is it a , you know , transaction and traffic driving , but also profitable program for the franchisees .
Speaker #7: And also that ties to your question, which is the operational capabilities. So the main focus of our value platform, in particular, is leveraging core items.
Speaker #7: So , you know , I cook a lot in the restaurants and , you know , it's back with the cooks and the chefs back there .
Speaker #7: And we wanted to make sure they focused on our core items . You know , pancakes , eggs , bacon , omelets , items that from a speed standpoint , could be managed thoroughly and have no impact whatsoever in terms of speed .
Speaker #7: And so that's why , as John alluded earlier , our speed is actually improved continuously , even with the everyday value menu , because we've optimized it our core .
Speaker #7: And so from , you know , a cooking standpoint , they're just masters of the trade . They're okay .
Speaker #13: And just to follow up there, Lawrence, if customers were coming anyway on the weekend and the house faves are focused around core items, that kind of transference into the value bucket, is that greater on the weekends at peak periods?
Speaker #13: Is it less? Is it pretty consistent with what you've seen during the week?
Speaker #7: It's still early , as we've only been in the everyday value menu launch since mid September , and so we're continuously tracking . But even throughout the test data , as we did it for several months , stayed fairly consistent .
Speaker #7: Actually with based on the barbell strategy , we are seeing , you know , potentially value increasing on the weekends . But the check .
Speaker #7: Counter , which is our barbell strategy , introducing new premium items and featuring them , you know , on the table with pop and even with the menu inserts , we're seeing a good balance in terms of check growth , even including on weekends .
Speaker #13: Okay , great . Thanks .
Speaker #8: Thank you .
Speaker #1: Ladies and gentlemen, I'm showing no further questions at this time. I would now like to turn the call back to John Dion, Brand CEO, for closing remarks.
Speaker #3: Thanks , Tawanda , for taking such good care of us . As you always do . And thanks guys for your for your questions .
Speaker #3: I'll just sum up with a few key points . We know we've got more work to do , but we are pleased with the effects of the retooling and refocus that both brands have put in place .
Speaker #3: We're pleased with the from the last two quarters . We're pleased with the potential that Dual Brands is posing to accelerate our return to net unit growth .
Speaker #3: And as Vance mentioned , you know , our stock is undervalued in our opinion and we are directing our shareholder return strategy through this buyback program because we believe in our strategy , we believe in the future of the company .
Speaker #3: And we think that's a very good investment right now. So, we appreciate your questions and look forward to talking to you later today.
Speaker #1: Ladies and gentlemen , that does conclude today's conference call . Thank you for your participation . You may now disconnect .