Dine Brands Global, Inc. (DIN) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. I'm Brian Vaccaro, the restaurant analyst here at Raymond James, and we're excited to continue day 1 of our conference with the team from Dine Brands. Of course, the Dine Brands franchise is 2 of the largest full-service restaurant concepts, both IHOP and Applebee's combined sales of over $7.5 billion. Today, we're joined by CEO, John Peyton and CFO, Vance Chang. So gentlemen, thanks so much for joining us today.

So John, you just reported your fourth quarter results last week, maybe for anyone that might be newer to the story in the room, maybe just kick us off with the high-level state of the union, and then we'll get into some specifics.

Thank you, Brian. Hey everybody. Just high level to understand our company, we are 3,500 restaurants that generate that $7.5 billion in revenue, and we're split almost 50-50 between IHOP and Applebee's. There's about 100 more IHOPs and Applebee's and all but 200 of those restaurants are here in the U.S. And in terms of most recent performance, 2025, including Q4 was a whole lot better than 2024. We're proud of IHOP because it beat its comp set in traffic every month of the year, including having absolute traffic growth in the fourth quarter. And Applebee's had positive comp sales for the year in 2025, which it had not done in more than a year. And like we said on the call, none of those things happened by accident. They were the results of focusing on a value message that guests are looking for right now that's 2 for $25 at Applebee's, which is 2 entrees and an appetizer for $25. And everyday value at IHOP, which is 4 All You Can Eat combo -- 4 combos at $6 or $7 on the coast, wrapped up in new marketing, new social media and a big emphasis on restaurant renovations. And that programming drove the good performance of '25 that we've seen roll into the first quarter of this year as well.

That's great. Maybe before getting into brands, we'll talk another high level just on the industry and the consumer. You have a pretty good purview of the U.S. consumer across different income and age cohorts. Just curious what trends you're seeing in your businesses that relates to the lower, middle and upper income consumer? And anything worth noting sort of the younger generation versus older generations that you're highlighting?

We do have good insight into consumers. $7.5 billion of revenue looks something like $150 million or $200 million -- 250 million people coming to the restaurants every year. And our sweet spot is a household income of about $50,000 to $100,000 to give you a sense of what that looks like. You could sort of think about it as the Walmart shopper. And what we've seen since 2024 is an increasing focus on value, and really the definition of value has changed. In the past, where you could represent a promotion that was some version of a, call it, a discount on an appetizer, right? Buy one, get one free, $0.50 wings, All You Can Eat apps wasn't enough to move the market in '24 and '25, guests wanted to know the full cost of the meal, which is why you see everyone from QSR to full-service dining, advertising some version of the sandwich, the fries and the beverage for one price. And our guests has been exactly the same. So our 2 for $25 menu represents about 1/3 of the tickets. So 1/3 of our customers are taking of the value menu, 20% of IHOP. And when it comes to consumer behavior, it's been remarkably steady now for almost 2 years in terms of pursuing value, we're seeing gains in the top end of the income. So we're gaining more guests who are earning over $100,000 than we are losing lower income guests. So that's -- the net effect of that is what's been driving our traffic. And to your point, they're very specific about when they spend their dining dollars, and how they spend their dining dollars.

All right. That's helpful. So we'll touch on -- we'll dig into a couple of the individual brands, and maybe we'll start with Applebee's if that's all right. So comps, like you mentioned, up 1.5% in 2025. You saw some good traction on new value promotions, 2 for $25. One thing we also noticed was that takeout really accelerated and really just the strength of the off-premise channel. So maybe you could touch on, first, what some of the strategies have been within off-premise? And then also just on broader menu innovation as well?

Sure. To go is actually a success story coming out of COVID, if one could put the word success with COVID together in that before the pandemic, both IHOP and Applebee's had off-prem sales of about 6%, 7%, 8% of total sales. And in the last couple of years, we are at 22%, 23% of total sales, including the absolute dollar value growing as well. And we became part of that off-premise consideration set in a way that we weren't before the pandemic. And so the good news is that for our business, that business has stuck with us, and we've learned a lot about how to package our food to go. We used to put pancakes and eggs together in the same container and everything sort of came wet and mushy. And so we've innovated a lot about how we deliver our food off-prem. And the other thing that's really significant is the vast majority of that off-premise business, that off-premise customer is incremental and does not typically dine with us in the restaurant. So these are new guests who are enjoying our food outside of the restaurant because that's the way they like to do it. When it comes to menu innovation, Applebee's is a good example of that. We've now built out an 8-quarter view of what our new entrees and appetizers will look like, and we introduced a new entree and a new appetizer each quarter via the 2 per $25 menu. So in Q4, we introduced the Grilled Cheese cheeseburger, which sounds exactly like what it is. It's a burger and a grilled cheese put together. That became our best-selling burger ever in Q4 and was a big part of Applebee's success at the end of the year, and it only lasted that long because in January, we introduced the O-M-Cheese Burger, which is, if you know Applebee's, we have our sizzling skillets and you fill the sizzling skillets with sizzling cheese, you cut a burger in half and you put it in the cut side down so that when you lift it up, you get this big cheese pull. That's now become our best-selling burger ever because it ticks a lot of the boxes that particularly young people are looking for. It's very Instagramable because of the experiential nature of it. It is unique because you can't replicate that at home, and it's on trend. We actually found that idea in Japan, where they've been doing it for the last year or 2. And so we brought it here in a mass way. And we're now selling 35 of those O-M-Cheese Burgers per restaurant per day, which is a big number for us for any individual menu item, particularly for a new product advancement. So our goal is to have menu innovation like that in both brands every quarter to make sure we have new news in conjunction with the everyday value message and the 2 for $25 message.

That's a good segue into my next question. Just around -- I think you said around 1/3 of sales mix at Applebee's is on some sort of value platform, which is sort of towards the upper end of casual dining peers. But at the same time, through '25, your mix was down only 30, 40 basis points. Vance, correct me if I'm wrong on that, but in that 30, 40 bps. So just elaborate sort of where some of the offsets are that's keeping mix more balanced. What's the other end of the barbell, if you will, or how you're achieving that?

The other end of the barbell is our beverage items, which we have -- we've also had a lot of innovations in as well as appetizers. And so the idea is use the 2 for $25 and everyday value on the IHOP side to -- as a customer acquisition tool. And then once they're in, there's training, there's technology involved in terms of how to upsell our guests on the higher-margin items and enhance the experience that they have inside the restaurants.

So you're seeing some increased attach on some other categories that helped to offset that essentially?

Definitely. Yes.

Okay. Okay. Great. Great. Sticking with Applebee's, just on pricing. I think that's been stepping up at Applebee's through the year, just if we think about gross pricing within average check and I know that's the franchisees that are making the pricing decisions. But now the system faces sort of mid-single-digit food inflation in 2026. So I guess, how do you think the average franchisee is approaching pricing as they think about 2026? And how do you walk the line of maintaining value while insulating against some of these inflationary pressures?

Well, what we've seen the franchisees do, and it's been like -- it's been this way for 1 year, 1.5 years now is they've brought many pricing back down to low single-digit menu inflation range. And that's important to us because even though, right, we as a franchisor collect 4%, 4.5% off the top line, we want to make sure that we keep the core guest traffic by not pricing the menu too high. And so that's been a lot of discussion. So the way the franchisee -- franchisees protect their margins is, one, driving traffic by not pricing the menu too high; two, we have the supply chain co-op that does all the franchisees buying in terms of food market baskets. And so we're constantly tweaking and fine-tuning in terms of restaurant profitability initiative to protect franchisee margins by switching different SKUs or using technology to drive efficiency out of the restaurants. And so the combination between top line improvement and margin refinement, I think, is allowing them to stay healthy and protecting margin bottom line.

It's also worth noting that we have an extensive committee structure of franchisees that work with us. So we've got a committee of franchisees on the menu committee, on the operations committee. And so any food item or promotion or campaign that we put into the market, we do after extensive discussions with the franchisees around the profitability target that they're looking for and we construct when we've got 1/3 of our menu, for example, it's 2 for $25. That is constructed to be at the profit level franchisees are looking for. And the 2 for $25 is the entry, right? Then you can get $2 more, you get this $3 more, you get steak. And their service are all geared towards upselling beyond the $25. So there's nothing that we do that the franchisees are not aligned with, particularly when it comes to the cost of items of what we promote.

A lot of companies that are offering these value platforms 2 for $25, they're seeing quite a bit of trade up to the higher-priced tiers. What do you see on that? The percentage of folks who are ordering 2 for $25 versus trading up within the platform?

It's about 50% that trade up from $25 to $25 plus $2, $25 plus $4.

Okay. Okay. Got you. Last one on Applebee's, big marketing budget and that's across both brands, you have a big marketing budget, I think almost $300 million. But at Applebee's, you talked about seeing traction on social media and other digital channels. Are you seeing tangible evidence that you're attracting more younger consumers maybe reintroducing them to the brand to some degree. Any metrics you could share around that? And then as a follow-up, maybe more broadly, how you see that spend and focus sort of shifting to digital and maybe a little bit away from traditional channels?

Both Applebee's and IHOP have a similar approach to the way in which they manage their marketing funds. So number one, as an example, in 2025, Applebee's for the first time, reached an inflection point where more spend was going to digital and social channels than TV. We were 48% TV, 52% digital and other. And that's the first time in this long journey from television to digital. When it comes to social, both Applebee's and IHOP built and full-time teams in our office last year, we've always been relying on agencies for that and weren't getting the results we needed. So we've now got the young pierce tattooed 25-year-olds that you would imagine, excel on social media who are in the office sitting together, watching the screens all day long, and they're just posting and generating content, and our engagement scores and our reach scores have literally gone up 100% to 200% in both brands in just 6 months since we started doing that. And we do know that while our brands do skew older, we're growing the fastest in the younger segments and the younger age categories. And that's because of our effectiveness now on social media. The O-M-Cheese-Burger is a great example of that. It really was pushed on social, and that's what drove a lot of the younger traffic into the restaurants.

I took my piercing off for the foot of record for this conference today.

I love that, Vance. All right. Well, let's transition to IHOP for a moment if we can. Maybe we'll just start highest level talking about the broader breakfast category, full service, broader breakfast category or the overall category, including women as well. But some of the challenges over the last few years, and just curious to get your view on the category overall heading into '26?

The category that IHOP competes in breakfast or family dining, which is full-service dining without alcohol versus Applebee's, which is in casual dining, full service plus alcohol. The breakfast category is more challenged than casual dining, I would say, for 2 reasons. The first is coming out of COVID, we were all working from home. And so even today, many companies are not back to 5 days a week in the office. So the weekday breakfast business for breakfast concepts like ours did take a hit in the years coming out of COVID and is now returning to where it once was, but it's still not quite at 100% compared to 2019. The second challenge for the breakfast category is unlike casual dining, there have been a bunch of new entrants over the last 10 or 15 years. First Watch is an example, and Broken Egg as an example. And so it's puts even greater challenge on a brand like ours, if you want to call it a legacy brand. IHOP was invented in 1967 in L.A. And so when you're a brand that's almost 70 years old, you've got to work hard to stay fresh and stay relevant. And we're doing just that, not only in the way the restaurants are being physically renovated but certainly in the way it shows up on social. So IHOP has gotten really good at what they call stunt moments that get -- they just generate a lot of buzz. Last summer, they set the Guinness Book of World Records for cooking and serving the most pancakes in a day, right? So that was huge for us on social. Later last year, they launched their Dubai pancake, while it was in all the restaurants in L.A., New York and Austin, there was a $300 version of the pancake that included edible gold, right? That was huge for us. And then we've most recently had a big moment with the neighbors of the giants who was in everybody's draft pick, got hurt on day 1, blew up all their fantasy leagues. And if you follow a fantasy, sometimes the punishment for losing is you've got to spend 24 hours at an IHOP and have a pancake stack every hour. We don't view that as a punishment. But working with him, we had a really fun time sort of turning that on its head. So they've gotten really good at free publicity, mostly through social, and that's also driving a lot of the younger guests.

All right. Well, great. I guess transitioning a little bit to your recent trends at IHOP, so you mentioned fourth quarter, slightly positive comps, but importantly, the second quarter of positive traffic. Talk about the traction you're seeing on the value House Faves platform, the every day. And I know it's pressuring check a little bit, but -- how do you think about stabilizing mix into 2026? What are the levers you're pulling on the other ends of the menu? And what do you think you could see positive check growth? At what point does that happen sometime in '26 or where you like it to...

So believe it or not, up until a year ago, the only value portion of the IHOP menu was the senior citizen menu. And that only led to about 2%, 3% of sales. And like we said at the beginning, the consumer in the U.S., particularly at our price point, is very much looking for the full price of the meal and a much more accessible, attainable and thorough value proposition. So early in 2025, we introduced House Faves, which is these 4 combo meals for $6 or $7. We evolved that and to everyday value, we changed the name, changed the marketing because everyday value is clearly more meaningful on its own to a consumer than House Faves. And based upon the success of 5 days a week, the franchisees agreed with us and voted to extend it to 7 days a week, which we did in the fall. And so we view that as Phase 1 of our attempt to drive traffic and ultimately, check and comp sales at IHOP. And we did just that, right, Brian, as you mentioned, IHOP had positive traffic versus Black Box, which is how we measure market share, our fair share all year and then had actual absolute traffic growth at the end of the year. Now we're focused on taking that everyday value message, using it to drive guests into the restaurant. We take the everyday value portion, and we put it on the back page in fairly small print. And when we get to the restaurant, between the menu, between the window clings, the tabletop collateral is all about pushing the higher-end, higher-margin products, and that's literally the barbell strategy.

So Brian, in fact, Q4's check was higher than Q3's check for IHOP and then Q1 so far is higher than Q4. So we're seeing that progress already.

Okay. All right. That's great to know. I guess we can ask one on commodity inflation. Obviously, an outsized year of inflation last year, and it's kind of flipping, right? You had eggs to deal with last year, now we've beef to deal with this year a little bit. But maybe just walk through the commodity outlook for each brand quickly and then we'll touch on dual brand as well?

Yes. You got it right. I think this year, Applebee's we're expecting slightly higher inflation cost pressure for Applebee's than IHOP. IHOP, we're probably looking at low single digit, and Applebee's, we're looking at mid-single digit because of beef. What's driving IHOP's is there's a beef component to it as well, but it's coffee for IHOP.

Got it. All right. So moving on to the dual brand strategy, where you're bringing Applebee's and IHOP under one roof. So talk more about the concept, where you see it working best, sort of what types of markets? And then just the investment proposition to your franchisee base who might be -- some might be operating a unit that's underperforming? Or how could this improve results there?

So dual brand is a really big idea. If you haven't seen it or it's helpful to visualize it, we have a video on the IR portion of our website at dinebrands.com. But the idea is exactly that, which is take an Applebee's and an IHOP and put it together in the same roof -- under the same roof, the front of the building is co-branded as both restaurants, where there's 1 front door, 1 greeter, when you walk inside the center of the restaurant around the bar is Applebee's decor and it's wrapped in IHOP. So you've got the red section, you've got the blue section. By design, we're not creating a third brand here. There's no purple brand. It's both -- it's the best of both brands in the restaurant. It's 1 all-day dining menu where we've taken the best products from both menus and created a combined menu that's the same number of items as any of the individual brands and everything from pancakes to ribs and [indiscernible] are available all day long from morning through evening when the restaurant closes, if it does close. We've got 30 restaurants opened outside the U.S., and that's where we tested and sort of perfected the brand. We brought it to the U.S. with the first one opened in Seguin, Texas in February of last year. We now have 32 open here in the U.S. We'll open 50 more this year, so we'll have 80 by the end of the year, which is a lot in a short amount of time. And the economics are what makes the case here. So when an existing Applebee's or an existing IHOP adds the second brand, the revenue is growing 1.5x to 2.5x the original restaurant. The margin on that incremental revenue is flowing through at 4x or 5x the rate of the original revenue because we're adding revenue with not adding fixed cost, right? The rent is still the same, et cetera. The cost of the renovation is about $1 million. So guests -- franchisees are recovering that investment in 3 years or less, which is a very compelling investment for them. And guests love it. So one of the things about innovation, Brian, is giving consumers or in our case, guess, something they didn't know they wanted or needed. No one came to us and said, "Gosh, guys, you should put Applebee's and IHOP in the same building". But once the guest comes to the building, they're actually ordering items off of both menus 2 out of 3 times, 2 out of 3 tickets have items from both menus. So we're satisfying a need for them that they're really enjoying. The average check is $4 more than IHOP alone, $2 more than Applebee's alone. So they're enjoying more of the menu as well. And it's a great competitive advantage for us because Dine Brands is the only company that has the premier AM brand and one of the premier PM brands put together. The dayparts are entirely complementary and they're not cannibalizing each other. And so you're taking a restaurant that if it was an IHOP is primarily a morning business. If it was an Applebee's, it's primarily a PM business and you're now activating all 5 dayparts, including late night and overnight. And the sales mix in the restaurants right now that are open is about 52% Applebee's, 48% IHOP, which is essentially perfect in terms of the way the dayparts are spreading out. So we do think this is a big idea. And we've mentioned on our calls that we see 900 opportunities for these additional dual brands that are the easy ones to go for because there's no conflict in the market. So of those 900, 450 are in markets where there are currently no Applebee's and no IHOP. So you can build a new restaurant and not be in conflict with an existing restaurant. Another 450 are in existing restaurants today that could add the second brand and not be in conflict with another restaurant. So it'll take us 8, 9, 10 years to do those 900. And at the same time, you can also do some horse trading like give me your IHOP in that market, so I can open this restaurant, and we can do those as well. But the opportunity is very large. And our franchisees on both sides are -- have built already a very significant pipeline for '26 and '27.

All right. That's great. Well, we're almost out of time. So I'll just put this down and see if there's any questions from the field. Yes, Tony. Maybe speak up. I'll try to...

[indiscernible]

Maybe repeat the question?

Yes. So the question was there's a trend, particularly among younger guests to drink less alcohol. How is that affecting us? And the second question is about the weight loss drugs and how is that affecting us? So on the alcohol part of the equation, yes, we are seeing less alcohol consumption, particularly among younger guests. Our response to that has been to aggressively develop our non-alcohol menu. We're doing that in a bunch of different ways. One version of that is dirty sodas in partnership with Pepsi and their products, as well as the things we're concocting in the restaurant themselves. And we're seeing an uptick in sales of nonalcoholic items. One of the benefits of the dual brand is IHOP can now have a liquor license, and it's serving boozy weekend brunch alcohol. So they can do Bloody Mary's, they can do mimosas, which IHOP couldn't do before. The other thing we're seeing is at the dual-branded restaurant, the absolute dollar of alcohol sales is greater than the typical Applebee's or the Applebee's it was before. So because of IHOP, in particular, they're selling more alcohol as a dual than they were before, which is offsetting that loss. When it comes to the weight loss drugs, our approach is not to shrink portion size, but to ensure that we have menu items that appeal to those that are either focusing on protein or focusing on lower calories. So we are continuing to innovate healthier for you category. We just introduced 2 new salads under 600 calories, and then it might be surprising to some, but Applebee's has a grilled salmon and broccoli, right, which is a very friendly sort of item for someone who is thinking about managing what they eat. We just want to make sure that we don't lose the veto vote and then we've got something for everybody.

Any other quick ones? One in the back?

[indiscernible]

[indiscernible] from each other. We are Applebee's -- Applebee's point-of-sale system for the last 25 years has been a homegrown system that is held together by rubber bands and Band-Aids and there's too many people on the planet [indiscernible] was written in. So we are in the process of converting to Toast at Applebee's as our nationwide point-of-sale system. We're in 50 restaurants now as our alpha and are on our way to having the whole system, including handheld devices for servers by the end of the year. We are one of Toast's larger and first enterprise-wide clients. So we're learning together. What we can say about Toast is extraordinarily professional, very buttoned up, very talented teams and the product itself is very user friendly. It's easy to configure and it's easy for servers to learn how to use the new handheld where we're collaborating a lot is on the training and what training is needed, how much of it needs to be delivered by a human, how much of it can be chopped up into 30, 60, 90-second videos that servers can watch on their phones, et cetera. But so far, sir, it's been actually very, very smooth in terms of both sides working together.

All right. Well, unfortunately, we're out of time, but we'll continue in the breakout. Thank you.

Well, thanks, everyone.