Dine Brands(DIN)2023-05-03 19:21Financial Data and Key Metrics - Consolidated total revenues increased by 11% in Q1 2023 to $211 million, driven by strong franchise revenues which grew by 12% to $180 million [5] - Rental segment revenues improved by 11% to $32 million in Q1 2023 compared to $29 million in the same quarter of 2022 [5] - Adjusted EBITDA for Q1 2023 increased to $66.4 million from $65.2 million in Q1 2022 [133] - Adjusted diluted EPS for Q1 2023 was $1.97 compared to $1.54 in Q1 2022 [30] - Cash provided from operations for Q1 2023 was $16 million compared to cash used in operations of nearly $8 million in Q1 2022 [66] Business Line Data and Key Metrics - Applebee's average weekly sales per restaurant were approximately $56,800 in Q1 2023, with off-premise sales accounting for 23% of total sales [129] - IHOP's average weekly sales per restaurant were approximately $38,200 in Q1 2023, with off-premise sales accounting for 22% of total sales [129] - The rental segment margin increased due to lease buyouts and operating lease renewals, while company restaurant operations sales decreased by 97% to $1 million in Q1 2023 [2] - IHOP added 19 new restaurants globally in Q1 2023, with development numbers higher than usual due to rollovers from 2022 [8] Market Data and Key Metrics - The company opened 21 gross new restaurants globally in Q1 2023, demonstrating franchisees' belief in the brands [107] - International operations remain a growth engine, with 217 IHOP and Applebee's restaurants and 56 ghost kitchen locations in 16 countries and two U.S. territories at the end of Q1 2023 [114] - The first dual-brand Applebee's and IHOP location in the Middle East opened in Dubai, achieving record sales of $135,000 in its first week [1] Company Strategy and Industry Competition - The company is focused on providing superior guest experiences through menu and technology innovation, attracting new and returning guests through marketing and loyalty strategies, and expanding the global footprint of its brands [79] - Applebee's launched a financial development initiative to drive openings in 2024 and beyond, while IHOP introduced financial incentives to accelerate development [108][8] - The company is leveraging its asset-light model to invest in long-term growth, with a focus on maintaining a strong balance sheet and returning capital to shareholders [23][97] Management Commentary on Operating Environment and Future Outlook - Management expects commodity costs to moderate in the second half of 2023, with easing in coffee, eggs, and poultry prices, although wheat and beef remain elevated [3][115] - The company is closely monitoring guest behavior, commodity prices, and labor costs, with franchisees seeing revenue rise at a rate that offsets labor cost increases for the first time since 2019 [91][52] - Management reiterated full-year guidance, expressing confidence in the company's ability to deliver on its 2023 financial goals despite macroeconomic uncertainty [136] Other Important Information - The company completed a $500 million refinancing of senior secured notes, reducing debt by approximately $200 million [113] - IHOP's loyalty program has 5.5 million members, representing roughly 5% of sales, with app downloads increasing 3x following the program's launch [131] - Fuzzy's Taco Shop's loyalty program has over 500,000 active members, with loyalty guests visiting more often and spending more than non-loyalty guests [9] Summary of Q&A Session Question: Consumer health and value offerings - The majority of guests at both Applebee's and IHOP have household incomes below $100,000, with about half at the $50,000 level, a trend that has remained stable over time [17] - Applebee's has seen growth in the $100,000-plus income segment since 2019, while IHOP's value platforms have remained consistent [17] Question: Pricing strategy and inflation impact - Applebee's franchisees took a 5.6% price increase in Q1 2023 to protect margins, lower than direct peers, while IHOP franchisees took a 4% price increase [100][41] - The company expects inflation to continue moderating, with franchisees likely to be strategic in pricing decisions to minimize traffic impact [26] Question: Refinancing and balance sheet management - The company refinanced $585 million of debt, issuing $500 million in new notes, with the gap covered by cash on the balance sheet [25] - The revolver availability remains at $220 million, with $100 million drawn, and the company used cash to reduce debt and buy back bonds [84] Question: Development and investment strategy - The company is focused on ROI-driven investments, with flexibility to adjust G&A and CapEx if needed, and is not influenced by peers' investment decisions [43][28] - IHOP's development plans are progressing, with 19 new restaurants added globally in Q1 2023, and financial incentives introduced to accelerate future development [8] Question: Trade-down dynamics and industry trends - Applebee's has seen an increase in higher-income guests, while IHOP has not seen significant changes in guest demographics [59][63] - The company is monitoring industry trends and is prepared to adjust marketing and promotions if a significant slowdown occurs [104]