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Dine Brands experienced a slowing consumer in Q1 2024 at its Applebee's and IHOP concepts.

Price sensitive consumers pulled back from Applebee’s, IHOP in Q1

Dine Brands CEO John Peyton said more consumers are trading down for lower-priced items, but he remains confident in the restaurant brands’ promotional strategy.

Dine Brands’ first quarter results included same-store sales declines at both Applebee’s (-4.6%) and, for the first time in 11 quarters, IHOP (-1.7%), highlighting a continuing narrative across the industry about increasing consumer sensitivity. Despite a few exceptions, that narrative has impacted concepts across segments, from McDonald’s and KFC to First Watch and Starbucks.

Weather also impacted several concepts during the early part of Q1, and Dine Brands was no exception. Notably, Dine Brands also lapped a robust Q1 2023 in which Applebee’s same-store sales increased by 6.1% and IHOP’s increased by 8.7%. Because of these latter factors, as well as sequential improvement throughout the first quarter, Dine Brands reiterated guidance for the full year, while CEO John Peyton remained optimistic about the brands’ strategies despite the Q1 slowdown.

“Like others, we saw … consumer caution persist in the post-holiday period. The consumer is more price sensitive as indicated by their response to our limited-time promotions,” Peyton said during the earnings call Wednesday morning. “Guests are trading down for lower-priced items, which is another indicator that guests are managing their wallet.”

At Applebee’s, for example, 28% of orders were tied to a limited-time promotion, up from 19% during the previous quarter. That said, Dine Brands executives are encouraged by the company's value-driven strategy it has put into place to mitigate consumer pressures. Applebee’s innovation pipeline is strong and spaced out to entice consumers to return, for instance. Its boneless wings promotion in March was the first time the chain extended a value promotion to off-premises channels, which drove a strong finish to the quarter, Peyton said.

CFO Vance Chang added that those promotions are designed alongside franchisees to be profitable, versus just pure discounting opportunities.

“It’s all about driving incremental, profitable traffic. The Dollarita is more than just a Dollarita. There are different shots, flavors, additions we’re adding that adds margin to that drink, in addition to the higher food attachment rate,” he said. “The point is to drive the lifetime value of a guest and increase the long-term market share of the brand. We’re not giving things away; these are methodical, creative campaigns.”

At IHOP, sales trended positive toward the end of the quarter following its Pancake of the Month launch. Those sales trends continued in April following the launch of a TV advertising campaign to support the promotion. Further, IHOP has been focused on pairing new menu launches with exclusive loyalty benefits, which has driven an uptick in loyalty signups; the company now counts 9 million members in its loyalty program.

IHOP’s Q1 comps were impacted by the closure of its Nextbite virtual brands last year. The company is confident it will re-gain momentum in this space as it just added two new virtual brands through a partnership with Virtual Dining Concepts, NASCAR Refuel Tenders & Burgers and MLB Ballpark Bites. Over 1,000 IHOPs now offer at least one of these virtual brands, while 50% offer two or more, driving incremental sales growth during off peak hours.

Peyton is also optimistic about IHOP’s retail presence, with two new coffee varieties launching soon, and its tech stack on the heels of its point-of-sale system rollout. The POS rollout has allowed the company to shift to tablets and payments devices, leading to higher transactions, higher beverage attachment rates, improved table turns, lower voids, and higher tips, Peyton said.

“These initiatives give us confidence throughout the remainder of the year,” he said.

 Dual-branded Applebee’s/IHOP locations

Dine Brands sparked plenty of buzz in Q4 with a discussion around Applebee’s/IHOP dual branded locations in some international markets that could very likely be translated domestically. There wasn’t much of an update on the Q1 call, though Peyton did say those international locations are doing well and are serving as a testing ground for future domestic development opportunities.

“The demand for the dual-branded locations and the interest we’re receiving from franchisees are positive,” he said. “There is still plenty of work and research to do around the concept and we’re glad to see the positive reaction from franchisees and guests.”

Overall, development remains a priority for the company, which spent much of the first quarter building internal capabilities to support its plans. Dine Brands is investing in nontraditional development, key hires, market reviews for new sites, and development incentives for franchisees.

“We continue to see and are pleased by the cross pollination of franchisees looking for opportunities across the Dine platform,” Peyton said.

For the year, Applebee’s plans 25 to 35 net closures this year, a strategy put into place to return to net new unit growth, while IHOP expects to open net 15 to 25.  

Fuzzy’s Taco Shop

The integration of the Fuzzy’s Taco Shop into the Dine Brands system was completed in Q1, following the December 2022 acquisition worth $80 million. Peyton said the integration is starting to yield benefits, including an ability to leverage capabilities across brands, like value-driven promotions and marketing. Fuzzy’s recently tested a new, “first-of-its-kind” advertising campaign and the company is pleased with the results.

“Over the past year, Fuzzy’s has been focused on cleaning up its system, which included strategic closures. We recently signed two multiunit deals – an existing franchisee has committed to developing 15 new units and an IHOP franchisee has committed to developing 25 new units over the next several years,” Peyton said. “These deals speak to the potential of Fuzzy’s.”

 As of the end of the quarter, there were 128 locations, more than half of which are in Texas.

By the numbers

  • Applebee’s year-over-year same-store sales declined 4.6%. Off-premises sales accounted for 22.1% of sales in Q1, versus 23.1% in Q1 2023
  • IHOP’s year-over-year same-store sales declined 1.7%. Off-premises sales accounted for 21% of the mix, versus 21.7% in Q1 2023.
  • Revenues were $206.2 million, compared to $213.8 million in Q1 2023.
  • Consolidated adjusted EBITDA was $60.8 million, versus $66.4 million in Q1 2023.
  • Applebee’s same-store sales performance is expected to range between 0% and 2% for the full year.
  • IHOP’s same-store sales performance is expected to range between 1% and 3% for the full year.

Contact Alicia Kelso at [email protected]

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