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“All three of our brands are positioned as value-oriented and that is one reason you saw our resilient guests and our steady performance during the quarter,” Dine Brands CEO John Peyton said during an interview following the company’s earnings call.

‘Resilient’ guests drive strong sales at IHOP, Applebee’s

IHOP and Applebee’s franchisee revenues offset labor cost increases for the first time since 2019.

Dine Brands reported Q1 results Wednesday morning that included a same-store sales increase of 6.1% at Applebee’s and an 8.7% increase at IHOP. These numbers marked the ninth and eighth consecutive quarter of gains, respectively, and exceeded analysts’ expectations on the quarter as their consumer base found favor in the brands’ value offerings and promotions.

“All three of our brands are positioned as value-oriented and that is one reason you saw our resilient guests and our steady performance during the quarter,” CEO John Peyton said during an interview following the company’s earnings call.

On the value side, he points to Applebee’s two-for-$25 offer featuring two entrees and a full-size appetizer, as well an all-you-can-eat boneless wings, riblets and double crunch shrimp offer for $14.99. IHOP has been able to better target promotions through its loyalty program, launched in Q1 2022, that generated 5.5 million members in its first year, representing about 5% of sales.

“We’re also seeing more than 8,000 downloads per day – a 3x increase following the launch,” he said.  “Loyalty drives frequency, share of wallet and average check.”

Also of note, the off-premises business continues to hover in the low-20% range, accounting for 23.1% of the mix at Applebee’s and 21.7% of the mix at IHOP, versus 24% and 22%, respectively, in Q4. While other companies have started to see a decline on delivery due to its premium pricing, that hasn’t been the case at Dine Brands.

“We’ve been steady on off-premises for many, many quarters and it’s roughly about 50% between takeout and third-party delivery,” he said. “We’re seeing some moderate shifts toward takeout in terms of the mix, but not in a major way. We invested heavily in those channels because we thought we could maintain that revenue and we are.”

Despite this stickiness, Peyton said American consumers are becoming more discerning about the value they expect.

“Not just on price, but also on cleanliness, speed and convenience,” he said. “The key to success now more than ever is the on-premises guest experience.”

Franchisees and their teams are prioritizing these experiences accordingly and an improved labor picture is helping. Staffing levels continue to improve from the past two years, though filling late-night hours continues to be a challenge for the company. That said, for the first time since 2019, franchisees on average are seeing revenue rise at a rate that offsets increases in labor costs.

Dine Brands is also optimistic about easing inflationary prices and Peyton said Applebee’s may achieve favorable pricing by the end of this year, while IHOP is expected to be at 2%.

“That is taking pressure off of the margins that franchisees are experiencing in a big way,” he said.

On the consumer side, neither Applebee’s or IHOP is seeing a noticeable trade down despite continued macroeconomic pressures, and Peyton said the company is well positioned if the slowdown exacerbates.

“We appeal to multiple demographics, including financial demographics. We’ve always been positioned as value brands that have performed well during tough times. That’s in our favor where we sit in this category and we know our guests continue to value experiences over goods and we’re benefiting from that,” he said.

Dine Brands also briefly touched on Fuzzy’s Tacos performance, though the brand was just acquired in December and its integration into the system continues. Peyton said Fuzzy’s recently kicked off its Baja branding initiative, which differentiates it from other fast casual taco brands, and its loyalty program has over 500,000 active members who visit and spend more than non-loyalty guests.

“We’re leveraging Dine’s scale to support the brand’s expansion and we’re seeing interest from existing Applebee’s and IHOP franchisees,” he added.

The company’s focus right now is the integration of Fuzzy’s, but Peyton said additional acquisitions aren’t out of the question.

“Our strategy all along has been around building scale and our Fuzzy’s integration is going really smoothly. Our focus is to prove to ourselves and our investors and the community that Fuzzy’s is better with us versus without us,” he said. “Once we’ve demonstrated that, maybe we can give ourselves permission to consider a fourth or a fifth brand.”

Contact Alicia Kelso at [email protected]

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