Dine Brands Global, Inc.

Good day, and thank you for standing by. Welcome to the Dine Brands Global Fourth Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 once again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead.

Good morning, and welcome to Dying Brands' fourth quarter and fiscal 2023 conference call. This morning's call will include prepared remarks from John Payne, CEO, and Vance Chang, CFO. Following those prepared remarks, Tony Miralejo, President of Applebee's, and Jay Johns, President of IHOP will also be available to address questions from the investment community 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 risk, 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-K filings. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will also refer to certain non-GAAP financial measures, which are described in our press release and also available on Dine Brand's investor relations website. For calendar purposes, we are tentatively scheduled to release our Q1 2024 earnings before the market opens on May 8, 2024, and to host a conference call that morning to discuss the results. With that, it is my pleasure to turn the call over to Dine Brand's CEO, John Payton.

Good morning, everyone, and thank you for joining us. On today's call, I will share Dine's fourth quarter and full year 2023 results. I'll discuss our strategy to increase the pace of restaurant openings, share the current outlook for our brands, and Vance will discuss in detail our financial results, capital allocation plans, and provide guidance for 2024. 2023 was a year of significant work in progress for Dine. First, Applebee's and IHOP both delivered another year of positive comp sales growth For Applebee's, 2023 was the third year of consecutive positive comps. Second, we generated year-over-year EBITDA growth. Third, we integrated Fuzzy's into our system, realizing our long-term objective to add an emerging, high-growth potential brand to the Dime portfolio. We opened our eighth IHOP Applebee's dual-branded restaurant internationally, gaining experience and knowledge as we contemplate introducing this concept in the U.S., And finally, we refinanced our debt while returning $210 million back to equity and bond investors. Of course, our success in 2023 would not have been possible without the hard work of our franchisees, their commitment to excellence, and their relentless focus on delivering a fantastic guest experience. As our franchisees focused on what they do best, so did we. We stayed focused on our recipe for growth, which is designed to drive long-term sustainable value creation for our brands, for our franchisees, and for our investors. Throughout 2023, we largely completed investments in technology to drive efficiencies and improve the guest experience. We leveraged our resources and scale to drive revenue and EBITDA growth. and we introduced menu innovation and marketing campaigns that drove traffic at IHOP and established a pipeline of new menu items and innovative offerings that will roll out this year to Applebee's. As we advanced our innovation agenda, we did so with the needs of our guests top of mind. During the year, we found that guests limited their discretionary spend in response to economic pressures and that this value-conscious behavior continued in the fourth quarter. While this certainly creates challenging and dynamic market conditions, it also allows us to leverage our expertise in delivering exceptional value. Our brands are known for delivering abundant value, and we are able to meet the guest at the right intersections, even in a price-sensitive environment. We successfully built our limited-time offerings and other offers throughout the year to ensure our promotions were highly visible and appealing to our guests. That's why it's no surprise that our 2023 top-performing campaigns included Applebee's Dollarita and All-You-Can-Eat Wings and IHOP's Kids Eat Free and All-You-Can-Eat Pancakes. We expect that the consumer will remain cautious in 2024, and we're planning for it with a compelling calendar of LTOs and value-driven promotions across our brands. We know our guests, and our strategy is grounded in consumer insights that differentiate us in the market and deliver an exceptional experience for our guests. In addition to our focus on driving traffic, we'll also place particular emphasis on strengthening our development capabilities. As we recently announced, Scott Gladstone has stepped into the newly created role of Chief Development Officer and will coordinate our development strategy. We are thrilled to have Scott in this role. He's a dying veteran who knows our business inside and out from his time at Applebee's, as well as his work in strategy, business analytics, and consumer insights. Scott will continue to serve as the leader of our international business. I'll discuss our development strategy and Scott's work to build out our development capabilities in more detail later on in the call. So with that, I'll walk through our key financial highlights. In 2023, we generated $256 million of EBITDA, which was up from $252 million in 2022. In Q4, our EBITDA was $62.2 million, compared to $57 million in the same quarter last year. Excluding the re-franchising of the 69 company-owned Applebee's units in October of 2022, our revenues were up 5% for the full year and up 4% in Q4. IHOP achieved full-year comp sales growth of 3.5%, on top of 2022's comp sales growth of 5.8%. And for the quarter, IHOP posted its 11th consecutive quarter of positive comp sales, with a Q4 increase of 1.6%. Applebee's delivered positive 0.6% comp sales for the full year, maintaining momentum from 2022's comp sale growth of 5.1%. And in Q4, Applebee's reported a slight decline of negative 0.5% in comp sales. And adjusted free cash flow was $103.3 million in 2023, which was an improvement from 2022's adjusted free cash flow of $64.6 million. Turning now to Applebee's. The highlight for Applebee's in Q4 was the success of our Dollarita promotion, which tapped into the promotional mindset of our guest and drove strong comp sales and positive traffic in October, helping Applebee's outperform BlackBox in traffic in Q4. Dollar Reader was supported by strong social media pickup, and more importantly, it was welcomed by our franchisees because it drove profitable sales and traffic. In fact, 93% of Dollar Reader purchases had an additional menu item attached. Dollar Reader also expanded our demographic reach, attracting a younger age group, many of whom visited Applebee's for the first time. We'll continue to execute on this successful formula via our Q1 partnership with Brian Cranston and Aaron Pauls Stoth Ombre's brand, and the launch of three new Mezcal margaritas, along with our $5 Tipsy Cupid Mucho and $6 Blue Moon. This builds on the success of Dollarita and recognizes the promotional mindset of our guest, as evidenced by 19% of transactions in Q4 were attributed to an LTO or promotion. Applebee's also has a full pipeline of new menu products and exciting marketing partnerships. The culinary team has now tested over 200 new menu concepts and and we're excited to start rolling out the top-performing items to Applebee's nationwide in Q2. We want to continue to be at the forefront of guest minds, and in an increasingly crowded space, being culturally relevant is essential, which is why we will be increasing the number of on-air weeks in our marketing calendar. Our approach is to weave together a strategic mix of promotions, new menu items, and to drive traffic, frequency, and check. In Q4, we also took a big step forward improving our guests' digital experience. In December, Applebee's launched its new website and mobile app, which features a fresh design and offers guests a personalized and elevated ordering experience. Applebee's site and app now allow guests to pick up their orders using CarSite2Go, in-restaurant pickup, or have it delivered straight to their door. Since the launch of the new website and mobile app, we've seen a higher percentage of guests choosing to place their order digitally, higher conversion rates, and increased check averages compared to our prior site and app. Now, while the off-premise side of the business remains above pre-pandemic levels, it has softened somewhat, and we believe that there are opportunities to improve on our off-premise offering and execution. We have new initiatives to drive this segment of our business. Our job in 2024 is to build on this progress by delivering innovative menu, technology, and marketing to propel this iconic brand in an increasingly value-driven market. We're optimistic about Applebee's continued performance and expect to deliver positive growth for Applebee's throughout 2024. Now moving on to IHOP. In the fourth quarter, we delivered our 11th consecutive quarter of positive comp sales. average weekly sales over $50,000 for the first time in the last week of December, and we opened 46 new IHOP restaurants domestically last year. IHOP is truly a growth brand, and its success reflects our steady and consistent investments in menu and marketing innovation, technology enhancements, and the build-out of the loyalty program. To expand a bit more on the loyalty program, when we embarked on the International Bank of Pancakes, it was based on the theory that loyalty drives frequency, and the results have surpassed our own goals. Last year, we enrolled over 3.5 million new members, bringing our total loyalty members to 8 million people. Our dine-in loyalty members are, on average, visiting nearly twice as often as non-members, and they spend, on average, 5% more than non-loyalty members. The IHOP app is being downloaded 8,000 times per day, and Newsweek, for the second year in a row, recognized our loyalty program as one of the best in America. I believe that there is much more upside here. Notwithstanding the quick growth of the program, loyalty only accounts for approximately 6.5% of total sales for IHOP, up from less than 3% in 2022. We're just beginning to scratch the surface in terms of the loyalty program's ability to drive incremental traffic and sales, and we're also starting to learn the purchasing habits of our loyalty members that will lead to more personalized marketing. 2023 was also an important year for IHOP's menu, With the knowledge that 70% of our sales are breakfast items, including at dinner, we added the new categories of biscuits and benedicts and refreshed the French toast and crepes categories. These additions all sustained their performance during the fourth quarter, and both the menu items and the visual design of the new menu were industry award winners. Under marketing, IHOP's omnichannel approach to marketing connects with guests, focusing on limited-time promotions and the basics of great value. For example, our fourth quarter partnership with Warner Brothers, Wonka, included a film-inspired limited-time menu that enhanced brand awareness and drove sales. In fact, IHOP outperformed Black Box in family dining and comp sales four out of five weeks during Q4's Wonka campaign. On the technology front, 92% of our IHOP restaurants have implemented the new POS system and server tablets. Our preliminary data shows that franchisees that have fully enabled their server tablets are experiencing a higher beverage attachment rate, improvement in ticket time, higher average check, and higher tips for servers. Last year, IHOP also made significant strides in advancing our consumer packaged good program. According to Kraft Heinz, our IHOP coffee became one of the fastest growing new launches in dry coffee, over-indexing with Gen Z and Millennials. Momentum continues to grow as marketing support and social media ramp up. Additional sizes are being added in Q1, and new flavor innovations and formats are on track for Q2. The new-to-market iced lattes offer cafe-style beverages at home, making inroads with younger consumers. Kraft Heinz gained exclusive distribution of the new IHOP iced lattes in Walmart in 2023, and we launched nationally in 2024. Overall, IHOP solidified its market leadership last year, and we expect its momentum to continue in 2024, supported by ongoing innovation and operational enhancements. Turning now to Fuzzy's. The highlight here, of course, is that the integration process was completed last year, and Fuzzy's is now set up to benefit from Dine's shared resources. We're excited about the cross-pollination underway, as existing Dine portfolio franchisees are looking to opportunities across all three brands in the Dine family portfolio. Alongside integration, we've also been applying IHOP and Applebee's tried and tested insights and expertise, including menu optimization and innovation and analytics to improve pricing and to drive smarter data-informed decisions. We're pleased that Fuzzy's LTOs last year, such as the Margarita Shrimp Taco, Chicken Elote, and its newest Berea Taco Bowl and Queso, were the best in the brand's history. Already in Q1, Fuzzy's has launched its new traditional Baja fish taco and premium Baja menu category. This is the first step of bringing the Baja program to life in 2024. Starting Q1 2024, we will provide more details on Fuzzy's performance. And finally, our international division had a strong year of growth in 2023, with a total of 23 openings for the year, resulting in 11 net new restaurants. Our IHOP and Applebee's dual branded prototype continues to perform well in its markets. And we opened our eighth dual branded restaurant in January in Leon, Mexico, which represents a compelling opportunity for further growth since Mexico is one of our largest international markets. And with that, I'll hand the call over to Vance.

Thank you, John. Overall, we delivered a solid performance in 2023. In addition to the significant operational gains, We generated $103 million of free cash flow, three consecutive years of positive comp sales at Applebee's, and continued sales momentum at IHOP. We exceeded our EBITDA guidance, reduced leverage to 4.2 turns, and we have successfully completed the refinancing of our Class A21 notes while continuing to return capital to shareholders. Our fourth quarter total revenues were $206.3 million, which declined 1% on a year-over-year basis, primarily due to the refranchising of the 69 company-operated Applebee's units in October of 2022. Excluding the refranchising, fourth quarter total revenues would have been up 4%. For the full year, we generated $831.1 million in total revenues, which was 9% lower than prior year, again, primarily due to the refranchising. Excluding the re-franchising, revenues increased 5% due to the positive comp sales at IHOP and Applebee's and four years revenue contribution from Fuzzy's, which we acquired in December of 2022. If we exclude advertising revenues, franchise revenues in Q4 increased 6.5% year-over-year and 8.7% for the four-year. Rental segment revenues for the fourth quarter of 2023 remain flat at $29.5 million compared to the same quarter of 2022. G&A for the fourth quarter of 2023 was $50.5 million compared to $58.8 million for the same quarter of last year. We ended the year with $198.1 million of G&A expenses up from $190.7 million last year due to costs resulting from the inclusion of Fuzzy's operations, stopping of the IHOP flip initiative, and increases in compensation-related and software maintenance costs offset by the re-franchising of the company-operated restaurants and transaction costs related to Fuzzy's acquisition in 2022. We generated consolidated adjusted EBITDA of $62.2 million in this quarter, compared with last year's $57 million quarterly results. Our consolidated adjusted 2023 EBITDA of $256.4 million was ahead of our guidance and up from last year's $251.9 million. Finally, adjusted earnings per diluted share for the fourth quarter and full year were $1.40 per share and $6.65 per share, respectively. Outpacing last fourth quarter's $1.34 per share and 2022's $6.20 per share. Despite higher interest expense from our refinancing, we increased EPS primarily due to an increase in segment profit and the benefit of our share repurchases. Turning to our cash flow statement, balance sheet, and strategic usage of capital. We generated a just free cash flow of $103.3 million in 2023. This compares favorably to $64.6 million for 2022. Our full year 2023 cash flows from operations came in at $131.1 million compared with $89.3 million in the prior year. The increase was primarily due to a favorable change in working capital and an increase in segment profit. CapEx for 2023 was $37.2 million compared to $35.3 million for 2022. Our 2023 CapEx number does not reflect the $11 million of TI reimbursement that we received, which would have lowered our effective CapEx. We ended the fourth quarter with total unrestricted cash of $146 million. This compares favorably to unrestricted cash of $98 million at the end of the third quarter. Our leverage ratio also improved by 0.4 turns due to a combination of EBITDA growth and strong cash generation, which is a testament to the strength and stability of Dyn's business model in challenging environments. Regarding capital allocation, we continue to remain disciplined We returned $58 million of capital to shareholders in 2023 through dividends and stock buybacks. In addition to that, we returned capital to bondholders of $151.7 million through debt buybacks and the refinancing. We know that capital return is important to our shareholders, and we continue to evaluate the optimal mix of dividends and buybacks, while also ensuring we invest in our business for growth and maintain a healthy balance sheet. In 2023, dine system sales reached over $7.9 billion, demonstrating the scale that our brands collectively have. Applebee's 2023 same restaurant sales increased 0.6% year over year. Applebee's system sales results have remained fairly steady in 2023, as average weekly sales were $54,000, including close to $12,000 from off-premise, or about 22% of total sales, of which 11% is from to-go and 11% is from delivery. IHOP system sales continued their positive momentum in 2023, with same-restaurant sales growth of 3.5%. Average weekly sales in 2023 were a little over $38,000, including approximately $8,000 from off-premise or 21% of total sales, of which 9% is from to-go and 12% is from delivery. On the commodities front, Applebee's Q4 commodity costs improved by 2.9% versus a year ago, and IHOP's commodity costs improved by 2.3% versus 2022. Our supply chain co-op CSCS is expecting pricing in 2024 at Applebee's to be flat to low single-digit deflation, indicating further potential tailwind for our franchisees. And at IHOP, we're expecting pricing to remain steady in the range of flat to low single-digit inflation. In partnership with the CSCS, we continue to leverage our scale and make progress on our cross-functional restaurant profitability initiative. In 2023, we implemented several projects with the Applebee's and IHOP franchisees that resulted in about $53 million in annualized savings for our franchisees. We're pleased with the results of this initiative and continue to actively identify new savings ideas for the future. Based on data we've collected from the franchisees, while labor wages have gone up over the last couple of years, restaurant staffing has improved, and we're seeing labor as a percent of sales at levels similar to pre-COVID levels at both brands. On the food side, food as a percent of sales has declined from its peak in 2022 and is improving, but it is still elevated relative to pre-COVID levels at both brands by approximately 50 bps. However, we continue to leverage the purchasing power of our brand's co-op CSCS, which continuously evaluates cost savings from market basket to equipment. As mentioned, we expect food costs to stabilize in 2024 and will continue to support our franchisees to drive additional efficiencies. Lastly, to recap Q4 and full-year development numbers, Applebee's had net domestic closings of 33 restaurants in 2023. IHOP opened 46 restaurants domestically in 2023, 17 of which were in Q4. For the year, IHOP had net domestic openings of 19 restaurants in 2023. And this brings me to a discussion of our fall year guidance for 2024. As John mentioned, we're reintroducing comp sales into our guidance. In 2024, we're expecting Applebee's domestic system-wide comp sales to range between 0% to 2%. We're expecting IHOP's domestic system-wide comp sales to range between 1% and 3%. We're forecasting a G&A range of $200 million to $210 million, including non-cash stock-based compensation and depreciation of approximately $35 million. On EBITDA, we're guiding to a range of $255 million to $265 million. We anticipate 2024 capex spend to be in the range of approximately $15 million to $20 million. On 2024 development, we're expecting 25 to 35 net fewer domestic Applebee's restaurants and 15 to 25 net new domestic IHOP restaurants. With our new development strategy in place, we feel confident in our ability to continue to open up new restaurants and scale the footprint of our brands over time. Now I turn the call back to John to further discuss our development strategy and to close out today's earnings. John?

Thanks so much, Vance. I'll wrap up by speaking a bit more about our development efforts. We're in the fortunate position that as a result of our healthy balance sheet, strong cash flow generation, and prudent use of capital, we are able to enhance our strategy and execution on development. As I said at the start of the call, we believe that there is plenty of opportunity to grow the global footprint of our three brands. However, development is not a one-size solution for our brands, nor for our franchisees. Our brands each have different starting points and areas of focus. Specifically, IHOP has a track record of growth upon which to build. Applebee's focus is on conversions and developing a prototype with an ROI that will return the brand to net unit openings. As the largest brands in their respective segments by unit count, both brands are focused on infill opportunities. In fact, this week we reached an agreement with our largest franchisee, the Flynn Group, reflecting the to develop 25 restaurants over the next seven years. With Fuzzy's, our approach is to recruit new franchisees to develop new markets while also tapping into our IHOP and Applebee's franchisee network. This approach is the same in our international markets. Attract new franchisees and also leverage the dual brand option. Similarly, our franchisees also have different needs. Some are looking for different forms of financial support. Others may need help finding real estate opportunities. Others need assistance with the permitting and construction process, while some may desire help with the pre-opening marketing. We will address these specific needs in a targeted and analytical way to create profitable growth for Dine and our franchisees. Lastly, it's important to note that we're funding the investment and development by reallocating costs within Dine's existing cost structure and not by increasing overall spend. So to wrap up, I want to thank our franchisees and team members for a strong performance in 2023 and reiterate my confidence in the outlook of our business. Dine is uniquely positioned and the attributes that make us so, our asset-light model, our iconic brands, our scale, and our expertise are all the more impactful in the current economic environment. In an environment in which our guests remain price sensitive, our brands are known for delivering abundant value. We're further strengthening our recipe for growth in 2024 with our methodical development strategy that will generate sustainable value over the long term for our shareholders and franchisees. And with that, I will return the call to the operator to open up for questions.

Thank you.

As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Bernstein from Barclays. The floor is now yours.

Great, thank you very much. A couple of questions. The first, just thinking about the comp trends, I'm wondering if you could talk about whether there was any change in trajectory through the quarter, 4Q I should say, or the first quarter, quarter to date, whether you're seeing any change in consumer behavior. I know you mentioned that it's definitely a more challenging environment. And I think you mentioned you expect positive comps at Applebee's throughout the year. I wasn't sure whether that was a reference to reversing the negative trend and therefore getting back to positive even in the first quarter despite the weather. And then I had a follow-up.

Sure. Good morning, Jeff. It's John. Thanks for the question. It all addressed the first question about the comp trends in general. And then Tony will talk to you about the Applebee's trend specifically. So, you know, you all have known, many of the people, our competitors, said the same thing. The trends in January were tough, right? Weather took its toll on all of us in January. But since then, as the weather eased at the end of January and through February, we've seen traffic improving each week throughout February. I think it's heading in the right direction. And Tony, do you want to address Applebee's specifically?

Yeah. So, Jeff, we're confident in our plan for the year. That confidence is rooted in the performance of our brand over the last three years. As we said from the outset, we've delivered positive comp sales in 21, 22, and 23. And so I think that bodes well for 24. As John mentioned, there were some headwinds in January, but we're looking to repeat the success of 23 and 24. Our plan centers around what we believe are three really important drivers of our business. We've got a really strong promotional strategy with new disruptive campaigns and aggressive value. We're rolling out much-needed menu innovation starting in Q2 of this year. And there's a renewed focus on our off-premise business centered on improving our operational efficiency and marketing tactics. If we execute against those initiatives, we should enjoy another really strong year of comp sales growth.

Understood. And then, John, as you talk about development, just curious your thoughts on a return to Applebee's net unit growth We know there have definitely been some franchisee headwinds. I'm assuming there's some pushback to net unit growth. But, you know, the U.S. system is fairly mature. Should we expect more of a discipline switch to more the international whitespace opportunity? I know you talked about the dual brand, but just trying to size up when you internally expect Applebee's to get back to net unit growth and whether or not that international could become a greater lever going forward. Sure.

Thanks, Jeff. So for Applebee's, our goal is absolutely that it will return to net unit growth. The world has changed. The world today is different than it was three years ago when we first started talking about that, particularly because of the cost to build an Applebee's. And so we're very focused right now, and Tony can offer more detail, on assembling a prototype for Applebee's that has an ROI that our franchises are looking for. We're doing that with them together, and that work is underway. Applebee's is focusing on conversions, and that's an important pivot for the brand. And most importantly, we mentioned in the scripted remarks that we've just agreed this week to a new development deal with the Flynn Group for 25 restaurants over the next seven years, which is a great indication of our largest franchisee's commitment to the brand. and commitment to and belief in its future. So we've got work to do to build the pipeline for Applebee's over the next couple of years to return the brand to net unit growth. When it comes to international, that's where the white space is for both brands. And what we're really pioneering internationally is this dual branded concept. We just opened the eighth dual brand restaurant in Leon, Mexico, outside Mexico City. You know, the concept there is a shared back of house and a combined and blended front of house for the two brands. And what we're seeing on average is that the revenues for the same size box as one brand or the other is 2x or more what it was before, what you'd expect, because with the two brands, we can address all four day parts. That's a big innovation that we're nurturing overseas and that our intent is to eventually bring to the U.S. when we find the right opportunity to introduce it.

Just lastly, Vance, I think you mentioned talking about the optimal mix from a cash usage perspective with the share pullback. I mean, the dividend yield is now in the 4.5% range. That's well above your casual dining peers. I'm just wondering whether you're getting credit for such a yield or whether money might be better spent buying back more shares at the valuation level. Sounds like you're contemplating that as well, but just curious your thoughts and whether you think about leveraging 24 now that you're in the low four turns range, where you'd expect that to go from here. Thank you.

Thanks for your question, Jeff. Our capital allocation priorities remain the same. So right now we're focused on protecting and strengthening our balance sheet while returning capital to shareholders at the same time. The dividend yield that you referenced, we've kept our dividend payout ratio roughly the same, and the dividend yield is more of a reflection of where the stock is trading. But we are focused on the optimal mix between the two, and we will do buybacks as we've done in the past opportunistically. And we understand how important capital return is to our shareholders, and we've done over $200 million of capital return in the past two years, and we've paid down our debt by $200 million. So we'll continue that trajectory. No meaningful change to how we think about it. We understand the importance of return capital.

Understood. Thank you so much.

Thank you.

One moment as I prepare the next question. Our next question comes from the line of

Dennis Geiger from UBS. Your line is now open.

Great. Thanks, guys. First one, curious if you could speak a little more to the customer reception to the value that you had in the fourth quarter and maybe the value incidents at Applebee's. I think you mentioned, I think it was 19% of transactions were attributed to LTOs or promos. Can you just remind us where that has been historically? And then just on the stickiness maybe of those value occasions, I think you talked to the dollar readers being you know, new customers and somewhat sticky. So just anything more there on that stickiness on kind of, you know, potentially keeping some of those customers coming in for the value occasions.

Yeah, Dennis, thanks. It's John. I'll start as well. And then Tony, we'll ask you to give a little bit more detail. You know, at the highest level, 2024, from our perspective, for both brands, remains, you know, a promotion-driven environment. And our guests are attracted to that. So, you know, we view 2024 as a fight for market share. We have seen that our guests have been remarkably resilient in 2023, as well in 2024, in terms of their intent to continue to dine out. But what we're also seeing from consumer behavior perspective is that they are making choices about where and when to dine out. You know, they're dining out a little bit less often. And when they are in our restaurants, they are finding our our value portion of our menus, whether it's the everyday value portion or the LTO like you alluded to for Applebee's. That 19% is up about two points over earlier quarters, but not drastically so. Tony, can you add some more color about Applebee's approach for the year?

Yeah, so a couple of points. One of the points you asked about was the value menu. I think John answered that. Our value menu continues to perform well, but the share of tickets has remained fairly stable in 2023. It tends to go up a little bit when we promote really abundant value like some of our all-you-can-eat campaigns. You also asked about Dollarita. Dollarita was a standout success, right? We think there is a level of stickiness that's associated to it. Our guests absolutely love the promotion. And our franchisees, more importantly, are as thrilled with it as we are. We sold more than 6.3 million dollaritas in the month of October. That's about 135 per restaurant per day. The ticket order incidence was higher than we originally launched it back in 2017. So from a brand perspective, dollarita exceeded all of our internal targets, whether it was value, draw, frequency. It exceeded our internal product scores. And then more importantly, it exceeded our financial targets. It drove incremental sales, incremental tickets, and the all-important franchisee margin dollars.

Yeah. And Tony, speaking of franchisee margin dollars, it's a great number to share, right? Which is that 94% of those dollar-y tickets included another menu item, which is exactly what our franchises are looking for in a promotion like that. Correct.

Great. Very helpful, guys. And then just one other. I think you talked about increasing number of weeks on air. Just curious if anything as it relates to 24, I forgot the time frame you framed that up, but what 24 looks like maybe versus prior years from a marketing and number of weeks on air perspective, if anything there to share to highlight the things you're doing this year. Thank you.

That's a good question for Tony.

Yeah, absolutely. I'm not going to go into too much detail on our promotional strategy, but we revisit our marketing spend annually, and it's relatively flat this year versus 2023. We're not necessarily spending more. We're just spreading the total spend, spend across more windows. So our strategy, our promotional strategy for the year is allowing us to add additional on-air advertising while we still maintain our reach and frequency goals. You'll see an uptick in more digital spend on certain promotions this year as well.

Great. Thank you, guys. Thank you for your question. One moment as I prepare the next. Our next question comes from the line of Jake Bartlett from Truist.com.

Your line is now open. Great. Thank you. Thanks for taking the question. You know, mine was on just a follow-up really on the Applebee's seems for sales trends. And, you know, it sounds like October was very strong with the dollar reader and then it would have gotten more negative after that. But you sound pretty confident in, you know, the current trajectory. I mean, my read is that you're implying a positive seems for sales expectation in the first quarter. So what is driving that, you know, what do you think is driving that improvement from what you saw in November, December to kind of what you're seeing now.

Yeah, Jake, it's John. The one thing I wanted to also mention about October is that, you know, we beat Black Box through that entire period, you know, driven by the Dollar Eater promotion. And then, yes, it was a little bit softer in November and December. We can't give you specific guidance on Q1, but Tony, I think it's helpful if you speak to Applebee's, you know, plans for the year around menu innovation, et cetera, that give you the confidence for the year?

Yeah, so I did mention it earlier. Let me start by going back to Q4 and what we saw there during the quarter. We outperformed BlackBox in traffic for the quarter, so we were obviously pleased with that, but we did underperform in sales. Dollarito was successful, as I mentioned earlier. It drove business in October. But our holiday combo promotion during November and December, it had limited appeal. And so what that told us was that guests were expecting stronger value offerings. So we'll take that learning, which is part of our confidence into 2024. I'd also say that November and December were impacted by macroeconomic conditions and our guests were making a little bit more selective decisions for their wallets. And we did see, we are seeing a continuation of that trend In Q1, we're seeing that tightening of discretionary spending following the holidays. It had an impact in January, and February has improved. And we'll give you more color on Q1, obviously, when we report results in May.

Great. Just wanted to make sure that the guidance that we gave is for the full year, not Q1 specifically. And if you look at, you know, how we did last year, what we're coming over, that will give you a sense of how the trend should be, but we're not guiding on Q1 specifically.

No, that's a good clarification because you said throughout 24, and to me that was implying that it was going to be positive throughout, meaning each quarter, but that is not the implication. Just to make sure, just to kind of reiterate that, that is not what you're trying to imply. That is not what we're trying. You're right. Got it. Great, great. And then the other question was on development. You know, I understand the, you know, the unit economics being impacted by the build costs, but It seems like what we're also seeing, you know, is an acceleration of closures or maybe just a, you know, continuation of closures at Applebee's. I'm not sure. Maybe you can kind of clarify the moving pieces for, you know, the lower development, net development at IHOP. But we're seeing a fair amount of closures, yet it seems like the, you know, margin pressures are easing, you know, given what you kind of the metrics on. labor and commodities that you provided. So what is driving that elevated level of closures? And then building on that, on IHOP, roughly two years ago at the analyst day, you mentioned, I think we were talking about roughly 100 store openings at this point. Now we're talking about significantly less. So what are the biggest things that have changed? It feels like You're talking fairly confidently about development, yet the development is actually much less than we would have expected even just a year or two ago.

Yeah, Jake, it's John. I'll briefly say that the environment has changed in several ways in terms of the availability of financing, the cost of financing, the cost to build a restaurant, and also just the cyclical pattern of large brands like ours. and when contracts expire and the renewal process. Jay, why don't you talk specifically about IHOP, and then we'll go to Tony for comments on Applebee's closures.

Yeah, thanks, Jake. You know, I think that at IHOP, clearly, as John just said, the environment has changed significantly post-COVID with inflation and how people are viewing things, interest rates, etc., But overall, we've been a steady developer. We might not have hit the 100 number we had talked about a few years ago. But, you know, we own 46 restaurants this past year and have been pretty stable and steady and a consistent grower and a pretty consistent net growth. While comp sales have been going up as well. So we are growing. We do have a good pipeline headed into this year. And if you recall, we were having all kinds of issues. I think the industry was, too, with kind of timelines and permitting and delays and everything. I think we're looking at this now when we look at our guidance this year, that's the new normal. We probably shouldn't think so much about how many roll into next year. There's always some that push into next year was accelerated and there are more of them the last couple of years, but that's probably the new normal on, you know, what the timeline looks like. And we're trying to be realistic in our guidance this year with let's just build all that into our thoughts. And, you know, we really think that's what we're going to be able to accomplish this year now with that guidance we've given.

Yeah, this is Tony. Let me add a little bit more color on the question on closures for Applebee's. Our closure rates are between 1% and 2% of the system. That's a normal attrition rate for a mature brand like Applebee's. What we need to do now is leverage our new development structure, leverage the initiatives that are underway, like the new prototype, to build a more robust pipeline of new openings so that we can finally return to positive net unit growth. I'll add that these closures, these closures aren't a sign of struggling franchisees. They're often a sign of struggling trade areas. And I can assure you that our leadership team, we're pulling every lever we have to offset the downside of closings. Closing a restaurant is an incredibly difficult decision. It's really a decision of last resort for a franchisor and a franchisee. So we'll work closely with our franchisees to minimize closures, and then build the pipeline of new openings to get us back to net unit growth.

Great. I appreciate it. Thank you.

Thank you for the question. One moment, please.

Our next question comes from the line of Eric Gonzalez with KeyBank Capital Market. The floor is yours.

Hi, thanks, and thanks for taking my question. My first is on the EBITDA outlook. You know, the range appears to be a bit higher than what we expected, and, you know, it implies about flattish, maybe up 3 to 4%. You know, G&A, you're expecting to be flat, maybe up 4 to 5%. So, you know, I think that means you're not going to see much leverage on the low single-digit comp. So I'm just wondering if you could point to us where the upside might be coming from to that EBITDA range.

Thanks, Eric. Vance, can you address that?

Of course. Eric, the EBITDA upside that we're seeing is from the margin expansion that we're seeing in Q4 and continue to believe for the next year. Remember, with our asset-like model, this is exactly what we're trying to accomplish is to leverage the investments we've made. And we're starting to see the growth outpacing outpacing the investments to spend. Our growth isn't just in comps. It's unit development. We have other revenue channels collectively that we're working on. And altogether, those are the things that we invested in. Altogether, we're driving top line faster than the G&A growth, and that's where the margin extension is happening. By the way, Eric, you're seeing the improvement in cash flow. You're seeing, you know, we're guiding on lower CapEx going forward. That's all just the result of us, you know, more or less wrapping up with the implementation of the technology initiatives we've done. And we're sort of just realizing the fruits of the investments, the work that we've done in the past few years at this point.

Well, you answered my follow-up before I could ask it, but it was going to be about that CapEx outlook, you know, 15 to 20 versus I think you spent 37 million last year. Is that the new run rate? Should we expect that to be in that range going forward?

Yeah, that is the new run rate. And look, I think CapEx is, you know, we use that as a growth vehicle, right? We have projects and new ideas, new initiatives that we want to invest in to drive return. We'll update you know, investors accordingly. But for this year, I think this is the right run rate. And we're sort of just realizing that the cash flow benefits of investment we've made so far. And so we're really excited about the outlook. Okay. Thank you very much.

Thank you for your question. One moment, please.

Our next question comes from the line of Nick. Tatian from Wedbush.

Please go ahead. Thank you. You guys talked about, you know, an evolving strategy around, you know, both advertising and LTOs. I think you mentioned the higher number of LTOs, if I'm not mistaken, with a greater emphasis on value. And I know you guys, you know, you guys talked about sort of the... higher weeks, a higher number of weeks on TV. Maybe just holistically talk about both of the strategies. Is there any way to quantify the number of LTOs? You know, what do you mean by greater value? And also, you know, with ad spend not growing as much, or at least ad dollars not growing as much, you know, where is the sort of incremental spend on TV coming from?

Good morning, Nick. It's John. A blanket sentence on behalf of Jay and Tony is we're not going to get into specifics around where we're spending certain dollars or what our message will be or how many promotions, because that's clearly strategically proprietary, and we don't want our competitors to know that. But Jay and then Tony can certainly talk about their promotional strategy, as you said, at a higher holistic level. without giving away the secret. So, Jay, why don't you talk about your promotion strategy first, and then we'll go to Tony.

Sure, John. Hey, thanks for the question, Nick. You know, what you just referenced, most of your question pertained, I think, as follow-ups to the Applebee's comments earlier. We're pretty stable as far as what we're doing as far as... amount of money we're spending and the number of LTOs, et cetera. So, you know, we're running the same strategy we've been running. We really believe we need to have a great menu, great marketing, and great execution to drive repeat business. That's the recipe to get traffic improving and sales going up and EBITDA going up, et cetera. Clearly, we've got our loyalty levers we can pull as far as additional marketing, and that keeps growing for us. And gives us new opportunities all the time as we learn who our guests are and, you know, being able to activate direct channel one-to-one marketing with them. But we strongly believe that in the barbell strategy where, you know, we have full price, great new innovative items that we promote. We have new menus a couple of times a year that we promote. And clearly we have value things that we promote and we put those in throughout the year. at the appropriate times when we feel it's right to uh either go heavily on value or more on innovation and we're doing the same strategy we have been doing with new innovations and different values and maybe a different time set is when they roll but um we're continuing down that same path we've been on that's gotten us to 11 straight quarters of being up in sales yeah and look along the same lines you know our our promotional strategy

the key to it is to remain balanced, right? We've always been known for affordability, but when you've got a promotional strategy that's based in value, it has to be more than just discounted pricing. In this competitive environment, right, where lots of brands are engaged in discounting, the experience becomes the differentiator. And so part of that experience is menu innovation. So you'll see in our calendar, for 2024. It includes multiple new products that will be introduced throughout the year starting in April. You'll see the first of the many products. And then we'll introduce some new promotional partners that will excite and engage our guests. And then we'll obviously sprinkle in some of our tried and true promotions that our guests have come to love at Applebee's. But the key to our plan is to be balanced. It's not just dependent solely on discounting.

Okay. You know, I just want to kind of understand the building blocks of the comp because, you know, as Van said, you guys expect more or less flattish pricing at Applebee's if I understood the commentary correctly. So, you know, with flattish pricing, I guess, you know, do you actually expect to drive positive transactions for the year to get to sort of, you know, a plus one comp? That's the midpoint of your guidance.

Nick, let me just clarify. This is Vance. When I mentioned pricing, that's commodity food cost pricing, not menu pricing. So let me just address that up front. And John and Tony, I'll get back to you.

Yeah, thanks, Vance. I was going to ask you to clarify that exact thing. It wasn't about menu pricing. Tony, do you have anything you want to add? Although I think that probably clarifies the next question.

Yeah, no, I mean, we can't speak on behalf of our franchisees, but... I can say that they, that in terms of menu pricing, they understand that, you know, affordability is the main driver for visit intent. And we, you know, we expect them to act accordingly to protect our category lead in affordability.

Okay. Understood. And just final question, you know, on fuzzies, do you actually, you know, expect some openings in 24 and maybe just give us some numbers on the pipeline if you could?

Sure. The pipeline for Fuzzy's is 144 restaurants in the pipeline, which we've grown since the acquisition. And we're not guiding on Fuzzy's pipeline yet. We'll do that next year if we have a full year of sharing its actuals with you.

Got it. Thank you.

Thank you for your question. One moment, please.

Our next question comes from the line of Brian Vaccaro from Raymond James. The floor is yours.

Hi, thanks, and good morning. I wanted to go back to the fourth quarter comps, and can you level set or quantify what each brand reflects in terms of traffic versus check or even pricing within the quarter?

Vance, I'm going to turn that to you.

sure hey brian how are you so fourth quarter applebee pricing menu pricing was 2.7 percent and ihop menu pricing was 7.8 percent both grants saw negative traffic for the fourth quarter but as tony mentioned earlier fourth quarter for applebee's we we beat uh we beat black box and i think price as far as pmix uh Both bread, IHOP is flattish to slightly up, and then Applebee's is slightly negative on P-Mix. That's the makeup.

Okay, that's very helpful. Thank you for that. And IHOP specifically, I guess I wanted to ask Jay, maybe get your perspective. It seems like the family dining sector is holding pricing higher for longer. And I'm curious to... to ask how sustainable you think that might be. And given the pressures that you're seeing out there, the value conscious consumer, and maybe you could even elaborate a little bit on what you're seeing from a day part perspective. I would think that maybe the composition of your guests might be a little bit different at core breakfast versus lunch and dinner and how that might play into it. But mainly focused on that first part around the pricing running higher in family dining and how that fits with the current environment.

Yeah, thanks for the question, Brian. You know, clearly, you just listen to the numbers Vance just told you. Yeah, we're a little higher than even our sister brand as far as what our franchisees took in the way of pricing this past year. I do think that you implied that's not sustainable. And, you know, I would tend to agree with you in that at those kind of numbers, people aren't going to keep doing 7% or 10% pricing in perpetuity, right? And We've already seen our own franchisees have dropped that considerably. The last menu prints we did toward the end of last year, much lower increases than that. But remember, these are annualized numbers when you look at what they've already taken at other menu prints earlier. in the year that's still kind of in the number, I think that those will start to roll off as we get a little further down the path. So I'm less concerned about those kind of increases as we move forward, at least at this moment, just looking at the trends of what I saw in the last menu increase that they did. So I think that will start to stabilize itself.

Okay, I appreciate that. And I know pricing decisions are up to your franchisees, but what's a reasonable expectation, just ballpark, for how much pricing might be in or average check might be in the Applebee's and IHOP systems in 2024?

Jay, you want to continue and then we'll go to Tony?

Yeah, that's fine. I think that as we look for we've got another menu coming up here in the spring and then there'll be one in the fall is the way it is scheduled at the moment. So, you know, they haven't made all their final determinations on what those prices are going to be and those menus are not out yet. So I can't give you any kind of forward looking as far as what they're going to do. I just see their behaviors of what they did this past fall and, And, you know, one of the things we've done on the IOP side of the business, we actually engage with RMS, a revenue management solutions company that's probably the biggest in the industry that helps a lot of companies do this. They're helping our franchisees, giving them some guidance as to where's the optimal prices and what's price sensitive, what isn't, where should you be careful. And they're getting some good guidance on this now. And clearly they get to make their own decisions and they are the final decision maker on price. But they are getting some very good scientific, you know, how to protect traffic information. and how to also make sure that they're optimizing their EBIT at the same time, too. They're getting some really good advice now, I think. So we look forward to that as we go into this year, too.

Yeah, I'll just add along the same lines. Our franchisees took about 2.7% in pricing in Q4, which was down from, I believe, 4% in Q3. And I can't give you a number to guide in your model, but as a reference point, we've been offered to these are very strategic and measured when it comes to pricing decisions that they make. And they've consistently recently have, you know, priced below their peers. So, you know, if you look at the food away from home increased data, that would probably serve as a potential guide. Again, the decisions are up to the franchisees, but they've been pretty consistent in staying at or below what the peers have taken in pricing in the category.

All right. That's very helpful. And then just last one for me, if I could, moving on to the franchisee margins. Vance, appreciate the color you gave on the food and the labor margins kind of compared to 2019. Could you take that, maybe round that out to the bottom line, the store-level EBITDA, either dollars or margins? Give us a sense where each brand is compared to 19 on that.

Yeah, so, you know, I probably won't get into the specifics because those are not our financials. But based on what I've seen from what the franchisees have shared with us, both systems are in good shape, right? We talked about the headwinds and the tailwinds. The headwinds being labor costs remain elevated, but it's stabilizing. But the labor cost as a percent of sales is trending back towards pre-COVID level. Food costs is commodity cost easing, so that's a good thing. We talked about the restaurant initiatives, the profitability initiatives with $50 million of annualized savings. So that's a tailwind as well. So all of this is in the context of the sort of uncertain macroeconomic environment, but as a whole, systems are performing and, you know, and this is, of course, this is Q, we always have a quarter lag, right? So I'm looking at Q3 financials right now for the franchisees.

All right. Thank you.

I'll pass it along.

Thank you. That now concludes our Q&A portion. I would now like to turn the conference back to John Payton, Dine Brand CEO, for closing remarks.

Thanks, Gerald, our favorite operator. We love when you're with us. You took good care of us. Thanks, guys, for joining us on the call this morning. We are excited for 2024. We are confident in our plans. We're excited to share our guidance around our EBITDA build year over year. We are excited about the new plan that we just let you know about with the Flynn Group for 25 new restaurants. And we're excited about our brand.

You can do piano.

And we're excited about our brands that have compelling and exciting promotions. So thanks, everyone. And we'll talk to you next quarter.

Thank you. This now concludes today's conference call. Thank you for participating. You may now disconnect.