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

Good day, and thank you for standing by, and welcome to the Dine Brands Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead, sir.

Good morning, and welcome to Dine Brands Global's Third Quarter Fiscal 2026 Conference Call. This morning's call will include prepared remarks from John Payne, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, Chief Commercial Officer and President of IHOP will also be available along with Jon advance to address questions during the Q&A portion of the call. Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-Q filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release that is available on Dine Brands' Investor Relations website. With that, it is my pleasure to turn the call over to Dine Brands CEO, John Peyton.

Good morning, everyone, and thanks for joining us. Today, I'll begin with an overview of Dine's Q3 performance and share updates on the brand initiatives across Applebee's fuzzies and IHOP that are driving our results. And after that, I'll turn it over to Vince, who will walk through our financial results in more detail. Dine delivered Q3 results in line with our expectations, while continuing to make deliberate investments in the brands and the business. For the quarter, Applebee's reported a 0.9% increase in domestic comp sales, driven by a strong July, during which the brand outperformed Black Box on both traffic and sales. IHOP posted domestic comp sales of positive 0.8% and delivered its seventh consecutive quarter of traffic outperformance and the fourth consecutive quarter of sales outperformance versus Black Box. And our adjusted EBITDA was $49 million compared to $49 million in the same quarter last year. With those results as the backdrop, let me share some insights on what's driving them, starting first with the consumer. Over the last 3 years, consumer behavior has been remarkably consistent. In the context of persistent inflation on food away from home and higher gas prices, consumer sentiment has remained low, and guests are driven by a strong value proposition where they know the full price of the meal. Notably though, consumers are less likely to cut back on occasion dining, and that is a benefit to us, and we expect this dynamic to continue into 2027. Looking at guest behavior at our brands, specifically, average check levels have held steady, reflecting mild check management and value incidents also remained relatively consistent at 25% of transactions for Applebee's and 22% of transactions at IHOP, which is roughly in the middle to high end of our historical range. This is another indication that value is a big decision driver. Overall, casual dining has shown resilience this year, and ultimately, our performance comes down to our consistency in messaging and conviction in our strategy. So if you recall, in Q3 of last year, we made a deliberate set of changes. First, we introduced everyday value platforms at IHOP and amplified 2 for $25 at Applebee's. We dialed up menu innovation at both brands. We sharpened our operational focus within the restaurants and we rolled out a new marketing strategy to better integrate our brands into the cultural conversation. One of our greatest competitive advantages is that we own 2 of the most iconic American brands. We've managed through different economic cycles, and we've demonstrated our ability to evolve with our guest needs without sacrificing the core of what makes each brand so special. And as we look ahead, we're prioritizing investments that improve both comp sales and the overall footprint of our brand, which includes refreshing restaurant appearance through our remodel programs and expanding our dual brand concept both to drive more value out of each location and accelerating that work through our company-owned portfolio as well. Of course, these investments require upfront capital, yet they yield significant long-term upside. Over the past 2 years, we've been able to aggressively lean into the strategy for 2 reasons: First, our asset-light model generates strong, consistent free cash flow, which gives us the flexibility to invest in our brands without compromising our financial discipline. And second, we continue to see real commitment from our franchisees who are investing in our brands and the strategy alongside of us. With the progress we're making on these strategic initiatives, we're well positioned to deliver long-term sustainable value for our franchisees and shareholders. And so with that, I'll share some updates across our portfolio, beginning with Applebee's. Comp sales at Applebee's returned to growth in Q3, up 0.9%, with traffic also improving versus the prior quarter. The quarter started strong with the return of our iconic Dollarita and the introduction of the Bacon Cheeseburger wanton Taco on the 2 for $25 platform. Leveraging the strength of our value platform and our bar and beverage program, these promotions delivered positive sales and traffic during the period and outperform Black Box. In fact, the Bacon Cheeseburger on ton Taco became our strongest new appetizer launch since the pandemic, outperforming our previous best loaded potato waves that we launched just last quarter. Now I want to take a moment to put a finer point on this. Since reinvigorating our menu innovation engine about a year ago, each new menu item has built on the popularity of the last. And looking ahead, we expect to have more new food items launching over the next 12 months than we have had in the last few years. Regarding off-premise, we extended our streak of positive comp sales to a seventh consecutive quarter with comp sales growing 1.8%, supported by delivery growth. This is particularly notable given that only 1 of our 3 campaigns this quarter was available off-premise, which tells us that demand is broadening beyond specific promotions. Applebee's also saw strengthening social media performance this quarter with third-party data from UBS showing that interactions more than tripled year-over-year, ranking among the top-performing restaurant brands. On remodels, we've completed 107 Applebee's looking good remodels year-to-date, already exceeding our target of 100 for the year as part of a broader refresh cycle that will bring us to roughly half the portfolio remodeled by the end of 2027. On average, these restaurants continue to see at least a mid-single-digit lift to sales, driven by increased traffic following a reimage. From an operations standpoint, our focus on driving excellence through simplicity and accountability continue to produce measurable results. Order accuracy has improved, manager visibility in the dining room increased, Google ratings are up, all contributing to improving guest satisfaction. And last, I want to mention that we recently hosted our Applebee's global franchisee conference bringing together franchisees from across the system to align on priorities for the year ahead. Our conversations reinforced our strong sense of partnership and our franchisees were engaged on the initiatives driving the brand forward menu innovation to remodels. Now moving on to IHOP. In Q3, comp sales at IHOP grew 0.8%. The brand also outperformed Black Box on both sales and traffic for the fourth consecutive quarter with traffic outperformance now extending to 7 consecutive quarters. Clearly, this isn't a 1-quarter story and it coincides with the launch of the everyday value menu last year. It's a steady performance and that consistency is exactly the validation we're looking for in our strategy. The growth in comp sales was supported by a healthy growth in check driven by strong in-store activations including server incentives and in-restaurant point of purchase materials that drew attention to higher-priced items. The everyday value menu is a foundational element of IHOP's barbell strategy providing accessible value while creating space for premium innovation-led offerings as well. This quarter, the premium end was fueled by products like the Dubai Chalco pancakes and our signature break feasts. Together, these offerings leverage cultural trends and menu innovation to drive incremental engagement and trade-up opportunities. Off-premise recorded 5.6% comp growth with 10% growth at our first-party online to-go channels. We're also seeing early strength in catering, a newer part of our business, where sales grew 44% compared to a year ago. That growth reflects new technology and packaging built specifically to handle larger catering orders, and we believe there's still meaningful upside in this channel. Our social and earned media efforts also showed meaningful growth with third-party data from listen first, indicating engagement across all channels climbed 54% quarter-over-quarter. And finally, operationally, we continue to make good progress. Table turn times improved and reached a new all-time low post COVID, and average Google ratings also increased year-over-year, reflecting improved and consistent in-restaurant experience. Turning to fuzzies. Traffic improved sequentially every quarter this year, driven by technology enhancements, menu simplification and a better in-restaurant experience. Off-premise remains a meaningful and consistent contributor to the brand's quarter-over-quarter progress. We are encouraged by Fuzzy's performance and are focused on sustaining this momentum through the end of the year. On development, our dual brand platform is 1 of our strongest long-term growth levers. Dual brand sales continued to perform well, averaging roughly 1.5 to 2x the sales of the original stand-alone restaurant. As of today, we have 60 domestic dual brand restaurants open, including 9 company-owned with 14 more under construction. We remain on track to reach 80 domestic dual brands by year-end. As the platform has scaled, we've also refined how we operate. We've invested in additional training to help IHOP franchisees, run the bar program more effectively and we've adjusted Applebee's kitchen operations and equipment to handle the volume of IHOP's scratch-made breakfast daypart. With each new opening, we learn more. And together with our franchisees, we are getting better at running these restaurants, and that matters just as much to long-term returns as the pace of our openings. Before turning the call over to Vance, I'll note that Q4 trends have been mixed across the brand so far. Applebee's started the quarter somewhat soft, while IHOP is continuing its momentum, supported by the return of Stuff French toast in mid-September. We're tracking toward the lower end of our full year guidance. All in all, we're pleased with the progress we're seeing across the business this quarter, and we remain confident in the strategy we've laid out. Building long-term value through consistent execution today and disciplined investment in our future growth. And with that, I will turn it over to Vance.

Thanks, John. On the top line, total revenues increased 15.1% to $248.9 million in Q3 versus $216.2 million in the prior year, and is driven by $36.9 million increase in company-owned restaurant revenues from restaurants acquired and opened since the third quarter of 2025. So if we take out advertising revenues, franchise revenues in Q3 decreased by 1.5% due to a reduction in the number of franchise restaurants, lower franchise termination fees due to fewer closures and lower proprietary product sales due to the removal of gluten-friendly product offerings. Rental segment revenues for the third quarter of 2026 decreased to $25.5 million versus $27.3 million in the prior year period, primarily driven by restaurant closures as well as our decision to work with our franchisees to exit subleases as they expire in favor of stimulating future development. G&A expenses were $51.6 million in Q3 of 2026 up from $50.2 million in the same period of last year from higher professional services fees and higher employee-related costs associated with our investment in company-owned and dual brand restaurant initiatives. Adjusted EBITDA for Q3 of 2026 was flat at $49 million from $49 million in Q3 of 2025. Adjusted diluted EPS for the third quarter of 2026 was $0.82 compared to adjusted diluted EPS of $0.73 for the third quarter of 2025. Now turning to the statement of cash flows. We had adjusted free cash flow of $12.8 million for the first 9 months of 2026 compared to $68.2 million for the same period of last year. This decrease was primarily driven by a decrease in cash provided by operating activities, which includes the impact of remodel and development incentives and the increase in CapEx related to company-owned restaurant remodels and dual-brand conversions. CapEx through 2026 was $31 million compared to $21.3 million for the same period of 2025. We finished the third quarter with total unrestricted cash of $91.1 million compared to unrestricted cash of $97.5 million at the end of the second quarter. On buybacks and dividends, we returned $9 million of capital to shareholders in Q3, including $7 million of shares repurchases and $2 million of dividends. Year-to-date, we repurchased $35.9 million of shares, which was approximately 8% of our shares outstanding at the beginning of the year. We continue to believe our shares are undervalued and remain committed to share repurchases. Our $500 million Series 2023 notes become callable at par in December. We will continue to monitor the market for opportunities to refinance these notes beneficial to us. Next, let me discuss Applebee's performance. Q3 domestic same-restaurant sales increased 0.9% year-over-year. Domestic average weekly franchise sales per restaurant were $53,000 to $700 and including approximately $12,400 from off-premise or 23% of total sales, of which 11.2% is from to go and 11.9% is from delivery. On-premise saw a positive 1.8% lift in comp sales in 2026 compared to the same period of last year. IHOP's Q3 domestic same-restaurant sales increased 0.8%. Domestic average weekly franchise sales per restaurant were $38,500, including $8,100 from off-premise or 21% of total sales, of which 7.6% is from to go and 13.4% is from delivery. Our premise saw a positive 5.6% lift in comp sales in 2026 compared to the same period of last year. Now turning to commodities. Applebee's commodity costs in Q3 increased by 5.4% and IHOP commodity costs increased by 1.3% versus the same period last year. Our co-op supply chain partner, CSCS, continues to expect commodity costs in 2026 at mid-single digits for Applebee's and low single digits for IHOP. The primary driver for both rents commodity costs is higher beef prices including the lapping of favorable beef contracts Applebee's last year. To date, in 2026, we implemented projects resulting in over $22 million of annualized savings across both systems and we continue to partner with CSCS to leverage our scale. Lastly, our company-owned portfolio remains a focus in strengthening the health of the brands and supporting long-term value creation for the business. As a reminder, we opportunistically took over restaurants with good opportunity for turnaround and value creation as we accelerate our dual brand and remodeling initiatives. As of Q3, we own 136 restaurants including 7 dual-branded restaurants, which represents approximately 4% of our system. We believe we have an appropriate balance between a number of company-owned restaurants versus franchise restaurants, and there's no reason to add to our company-owned portfolio at this point. Our goal is to ultimately refranchise the restaurants as operations improve, and we have already started to engage with various franchisees who are interested in acquiring some of our restaurants. It's important to remember that because we have taken back these portfolios over time, each restaurant and portfolio is at a different stage in its multiyear investment plan, which is why the portfolios are currently performing differently. While we have seen an impact from increased lost operating days due to more dual brand conversions and remodels, we're encouraged by the portfolios that have had the longest time to benefit from our ownership. Based on what we have seen in those cohorts, we expect our more recent portfolios to follow a similar path of improvement as they move through the same investment life cycle. Before turning the call back over to John for Q&A, I'd like to add that we are maintaining the low end of our full year financial guidance at this time. With that, I will hand it back over to John.

Thanks, Vance. And to wrap up before Q&A, as you may have seen earlier this week, we filed an 8-K confirming receipt of an unsolicited offer for the company. The Board, with the assistance of its outside advisers, carefully evaluated the offer and determined that the proposal was inadequate and substantially undervalued the company and the Board has since rejected that offer. Last week, the company also put in place a stockholder rights plan that protects all our sets -- that protects all our stockholders from opportunistic share accumulations. Any further disclosures regarding this matter will be made by the Board, who act in the best interest of all of our stockholders. As such, we won't be answering any questions on this topic on today's earnings call. And as a management team, we are focused on delivering against our strategic priorities for the benefit of all of Dine Brands stockholders and operating business as usual. And so now I will turn the call over to Jonathan to open up for Q&A.

[Operator Instructions] Our first question for today comes from the line of Nick Setyan from Mizuho.

Just on the dual brands that you do on, I think you did the 77 that's under your control. Would you mind telling us like what the economics are in terms of sales for all margin and the cost now in terms of the conversion?

Nick, Vance can address that question. .

With our own dual brands, they're all fairly new, but we are seeing slightly higher top line lift than the franchise units just because the starting point is a little bit lower for these restaurants. And also the cost to convert for these restaurants are slightly higher. We're pricing somewhere in the $1 million to $1.5 million range, including some of the deferred maintenance costs that we have to put up to convert these restaurants. But all in all, pleased with the progress, and we're going to continue to refine and improve the operations.

Got it. And then just in terms of the quarterly cadence of the Applebee's comp, I think you said it kind of started off strong and then maybe slowed down a little bit. October started off slow, are just so we're all on the same page? Are you implying negative same-store sales growth at Applebee's in Q4?

Nick, actually, this is Vance again. What we're seeing is a similar sort of sales volume in Q4 versus Q3. And so that's how we're getting to the lower end of our full year financial guidance for both of our brands. .

And our next question comes from Dennis Geiger from UBS.

Encouraging to see some of that progress on the Applebee's traffic and sales driver plans. Wondering following up on Nick's question, just on that quarter-to-date period, if that's something that's a bit more transitory in your view on the Applebee's side. Anything that's kind of driven some of that incremental pressure. I know you guys wouldn't be the only ones to see. Is there anything more there? And sort of how you're thinking about the underlying trend from here if that is a bit more transitory? That's point one.

Dennis, it's John. I think for the quarter, we can point to a couple of specific issues or items that drive it. In July, as we mentioned, we overperformed Black Box riding Dollarita and the Cheeseburger Taco. We were dark for 2 weeks on television in August, which is -- often correlates to a slowdown in traffic for us. And then in September, the market response to our promotion then was not as strong as it was for the Taco Cheeseburger. That said, as we moved into the fourth quarter, we saw September, similar to October and since then getting stronger. .

Got it. Very helpful. And then just another 1 on the dual branded. I appreciate the color and encouraging to see those early results. Can you talk a bit more about the demand beyond the 80 that you're on track for by the end of the year? Anything more on sort of what the demand pipeline might look like? Maybe it's a little early to share that. But as we look beyond '26 on that front as far as with the franchisees go .

Yes. It's still, John. So like we said, we've got 60 open and we'll have 80 open or under construction by the end of the year. we haven't given guidance yet, to your point, in which we'll do that next year. However, I can tell you that as we look to the pipeline for 2027, it is strong and the strongest it's been in the 6 years that I've been here. .

[Operator Instructions] Our next question comes from the line of Todd Brooks from Benchmark StoneX.

One, Vance, I was just wondering if kind of a bookkeeping question here, but what the average check ran at both brands in Q3.

For Applebee's 39 for IHOP 36. .

I mean from a composition of same-store sales, what the average check contribution was, sorry? .

Yes. So both brands had sort of 3 anything increased -- we saw a negative mix that is traffic for 1 and a check for both of them. .

Sorry to ask you to repeat that, Vance, but you broke it during the answer.

Yes, Vance and Sean. It was hard to hear you. .