Dine Brands Global, Inc. Q3 FY2025 earnings call

• John Peyton started with an overview of Dine's Q3 performance, key brand updates, and then Vance Chang discussed financial results. - Applebee's had second consecutive quarter of positive comp sales and traffic, driven by new menu items like Chicken Parmesan Fettuccine and Ultimate Trio appetizer sampler, with off-premise sales growing. - IHOP had positive traffic trends, launched IHOP Value menu and expanded House Faves menu, with barbell strategy improving check. - Fuzzy's saw modest improvements with new delivery campaigns. - International business has positive engagement with franchisees. - Company-owned portfolio is being refranchised with remodels and dual brand conversions showing promise. - Vance Chang discussed financial results, cash flows, and capital allocation, maintaining full year financial guidance. - John Peyton elaborated on dual brand program, with dual-branded restaurants showing 1.5x+ sales vs single branded, 4-wall margins nearly doubling, and expected growth in domestic openings.

In Q3, Applebee's achieved a 3.1% increase in same-restaurant sales. Average weekly franchise sales in 2025 were $52,600, with off-premise sales making up approximately 22.9% of total sales, and off-premise comp sales saw a 9% lift in Q3. IHOP had a negative 1.5% same-restaurant sales in Q3. Average weekly franchise sales were $36,700, with off-premise sales accounting for about 20.4% of total sales. Fuzzy's saw modest improvements in sales and traffic. International business is on track to double total international dual brand restaurants by year-end. The company-owned portfolio, representing approximately 2% of total restaurant count, is being improved through remodeling and dual brand conversions, with sequential comp sales improvement versus Q2.

Maintaining full year financial guidance. EBITDA guidance is on the low end of the range due to investments in company restaurants like remodeling and dual brand conversion. Applebee's guidance was bumped up from positive 1% to positive 3%, and IHOP's guidance is from negative 1% to positive 1%. Approximately 10% of restaurants were temporarily closed in Q3 due to remodeling and dual brand conversion, and more are expected to be closed in Q4.

• Macro-economic anxiety leading to more intentional decision-making by consumers. - Commodity cost fluctuations, with Applebee's commodity costs up 0.3% and IHOP's up 5.7% vs prior year. - Uncertainty regarding tariff situation. - Temporarily closed restaurants due to remodeling and dual brand conversion impacting performance in Q3 and expected in Q4.

Q: Good day, and thank you for standing by. Welcome to Dine Brands' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 of Finance and Investor Relations. Sir, you may begin.

A: Good morning, and welcome to Dine Brands Global's third quarter conference call. This morning's call will include prepared remarks from John Peyton, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, President of IHOP, will also be available, along with John and Vance 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 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 and available on Dine Brands' Investor Relations website. With that, it is my pleasure to turn the call over to Dine Brands' CEO, John Peyton.

Q: Congrats on the positive traffic in both brands. I want to ask about the company-owned stores. You had a decent sized loss, maybe $4 million or $5 million in the quarter. I recognize we had some catch-up expenses in repair and maintenance and training and remodels, et cetera. But do you have a sense of how much of a drag we should expect from these stores going forward and maybe when you kind of -- when that maybe goes away?

A: Thanks, Eric. Vance can address that question. Good morning, Eric. Just to give you a little bit more context on the sort of the disruption. So year-to-date, we had close to 50 restaurants without liquor license for 30-plus weeks per restaurant. And then on the construction side, year-to-date, we had approximately 500 days of construction closures across 30-plus restaurants or if you do the average math of roughly 15 days of closure per restaurant So that's what happened year-to-date. I point that out to let you know that although that's noise and the headwinds this year, we're comping -- by and large, those factors won't be there next year, right? So it's a onetime investment that we're making to improve the restaurants. For this year, we're expecting roughly $9 million to $10 million of segment profit hit from the company restaurants to answer your question specifically. And then that includes about $2 million of D&A. So hopefully, that helps.

Q: Encouraging to hear some of the insights there on the dual-branded concepts. I appreciate that. And what sounds like good franchisee demand. Could we unpack a little more the franchisee demand? Are there certain characteristics for those that have kind of signed up already for the dual-branded box? And then maybe what are the biggest hurdles that you're finding from those that you feel should but aren't yet? Do they just want to see the proof point? Anything on that, John, would be great.

A: Yes. Sure, Dennis. Happy to talk about that. So in terms of franchisee demand, I would characterize the initial wave of dual brand restaurants as, #1, conversions versus new build, which makes sense. #2, more IHOPs than Applebee's. And we attribute that to the fact that Applebee's -- I'm sorry, that IHOP is currently open for dinner, right? And dinner has always been a challenge for that brand. So to add an Applebee's solves an existing challenge for that brand. For Applebee's, they're not open for breakfast. So they're not trying to "fix an issue". And so it's a different decision for an Applebee's to add the IHOP and grow the revenue. What we're seeing now in what I would call sort of Phase 2 as we move toward a robust pipeline of at least 50 for next year is we're seeing our Applebee's franchisees begin to explore 1 or 2 opportunities among the more major franchisees. In terms of the hurdles, I think it's less about the franchisee and more about what we're learning as we go. So for example, we're learning that IHOP franchisees who don't typically have bar experience, we need to give them extra training and support to run a really great bar, which is a key element of an Applebee's. And so we're learning things like that along the way, which is the kind of things we expected to learn and that we can address with our training and our coaching.

Q: Just on the remodels, I'm not sure if I missed this, but did you say the kind of lift you're seeing?

A: Nick, it's John. Welcome back. We're glad you're here. Vance will take that question. Nick, so it's obviously early days, right? A lot of the restaurants that's been remodeled are pretty new, but we're -- franchisees are very happy with what they're seeing. And from company restaurants, the ones that we've done, we're seeing sort of double-digit lifts for our own portfolio. Now again, one caveat is early. Two is that I think the starting point for our restaurants are a little bit lower than system average. So I'm not underwriting that sort of lift for the entire portfolio. But so far, we're very encouraged by what we're seeing as well as the franchisees. John Peyton: Vance, it's fair to say that -- I'm sorry, Nick, it's fair to say that the franchisees that have renovated recently following the renovation package that we have are seeing lifts that more than cover the cost. The return is good.