Here's why Applebee's owner Dine Brands hasn't found Chili's recent success

Chili's surpassed Applebee's in U.S. systemwide sales for the first time in 2024, with Chili's sales growing from $3.6B to $4.6B between 2021-2024 while Applebee's remained flat at $4.1B; this shift comes as Chili's saw a 31% spike in same-store sales in its most recent quarter, while Applebee's domestic same-store sales declined for the eighth consecutive quarter by 2.2%. Dine Brands, Applebee's parent company, is down roughly 40% over the past year and is attempting a turnaround by remodeling locations, offering financial incentives to franchisees, and rolling out combination IHOP and Applebee's restaurants.

Analysis

Chili's has surpassed Applebee's in U.S. systemwide sales for the first time in 2024, marking a significant shift in the casual dining landscape. Technomic data reveals Chili's sales grew from approximately $3.6 billion in 2021 to $4.6 billion in 2024, contrasting sharply with Applebee's stagnant $4.1 billion sales over the same period. This divergence is further underscored by recent performance, with Chili's reporting a 31% spike in same-store sales in its latest fiscal quarter, while Applebee's experienced a 2.2% decline, its eighth consecutive quarter of negative domestic same-store sales. Consequently, Dine Brands (DIN), Applebee's parent company, has seen its share price fall by roughly 40% over the past year. The differing operational models appear pivotal: Chili's, under Brinker International (EAT), operates primarily company-owned restaurants, facilitating rapid execution of system-wide initiatives such as a 34% increase in labor spending and a 28% rise in restaurant expenses (including advertising and maintenance) in 2024. Conversely, Dine Brands' asset-light, franchise-heavy model for Applebee's, while typically offering earnings stability, presents challenges in operational control and swift turnarounds. Dine Brands is actively addressing these issues through a multi-pronged strategy, including plans to remodel all locations within three years, offering financial incentives to franchisees for early adoption, and piloting IHOP/Applebee's combination restaurants, one of which has reportedly tripled its annual sales rate from $2 million to $6 million. Dine Brands' CEO, John Peyton, believes the current stock valuation does not reflect the company's fundamentals or growth potential, while analysts suggest a return to positive same-store sales growth could be a significant catalyst for DIN.

Key Decisions for Investors

• Investors in Dine Brands (DIN) should closely monitor the progress of its restaurant remodeling program and the performance of new IHOP/Applebee's combination units, as successful execution of these turnaround initiatives could provide a catalyst for the stock, despite current negative same-store sales trends.
• For Brinker International (EAT), the strong sales growth and positive same-store sales momentum at Chili's, coupled with its operationally agile company-owned model, present a comparatively favorable outlook in the current casual dining environment.
• Consider the contrasting impacts of company-owned versus franchise-heavy business models on revenue growth, operational agility, and turnaround capabilities when evaluating investments in the restaurant sector, as evidenced by the divergent paths of Chili's and Applebee's.
• Evaluate the risk-reward profile for Dine Brands, as its depressed share price may offer upside if turnaround efforts gain traction, but continued weak same-store sales and franchisee execution risk remain significant headwinds.