DIN - NYSE

Good day and thank you for standing by. Welcome to the Dine Brands Global’s Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session [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, Finance and Investor Relations. Please go ahead.

Good morning, and welcome to Dine Brands fourth quarter and fiscal 2023 conference call. This morning’s call will include prepared remarks from John Peyton, CEO; and Vance Chang, CFO. Following those prepared remarks, Tony Moralejo, 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 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-K filing. 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 open on May, 08, 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 Brands CEO, John Peyton.

Good morning, everyone and thank you for joining us. On today’s call, I will share Dine’s fourth quarter in full-year 2023 results. I will 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’s2023 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 Dine 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 improved 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 guest. That is why it is no surprise that our 2023 top performing campaigns included Applebee’s, DOLLARITA, and all you can eat Wings and IHOPs kids eat free and all you can eat pancakes. We expect that the consumer will remain cautious in 2024, and we are planning for it with a compelling calendar of LTOs and value driven promotions across our brands. We know our guest 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 will 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 is a dine 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 will 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 will 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 refranchising 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 sale 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 their 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 black box and traffic in Q4. DOLLARITA 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 DOLLARITA purchases had an additional menu item attached. DOLLARITA also expanded our demographic reach, attracting a younger age group, many of whom visited Applebee’s for the first time. We will continue to execute on this successful formula via our Q1 partnership with Brian Cranston and Aaron Paul’s Dos Ombres brand and the launch of three new Mezcal Margaritas, along with our $5 Tipsy Cupid Mocho 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 we are 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 a 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 guest 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 CAR site to go, in restaurant pickup or have it delivered straight to their door. Since the launch of the new website and mobile app, we have 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 are 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. IHOP is truly a growth brand and it success reflects our steady and consistent investments in menu and marketing innovation, technology enhancements, and the build out of the loyalty program. To expend 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 three and a half 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 royalty 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 is 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 are just beginning to scratch the surface in terms of the loyalty program’s ability to drive incremental traffic and sales, and we are 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 IHOPs 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 fresh, the French toast and crepes categories. These additions all sustain 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 Q4s 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 goods program. According to Kraft Heinz, our IHOP coffee became one of the fastest growing new launches in dry coffee over indexing with Gen

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 821 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 refranchising revenues increased 5% due to the positive comp sales at IHOP and Applebee’s and full-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 full-year. Rental segment revenues for the fourth quarter of 2023 remained 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 refranchising 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 a $1.40 per share and $6.65 per share respectively. Our pacing lasts fourth quarters, $1.34 per share and 2022’s $6.20 per share. Despite higher interest expense from our refinancing, we increase EPS primarily due to an increase in segment profit and the benefit of our share repurchases. Turning to our cashflow statement balance sheet and strategic usage of capital, we generate adjusted free cash flow of $103.3 million in 2023. This compares favorably to $64.6 million for 2022. Our full-year2023 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. CapExfor2023 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 Dine’s business model in challenging environments. Regarding capital allocation would continue to remain disciplined. We return $58 million of capital to shareholders in 2023 through dividends and stock buybacks. In addition to that, we return capital to bond holders 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 reach 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 continue 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 an IHOPs commodity cost 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 IHOP. We are 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 are pleased with the results of this initiative and continue to actively identify new savings ideas for the future. Based on data we have collected from the franchisees, while labor wages have gone up over the last couple of years, restaurant staffing has improved and we are 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 bips. 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 cost 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 full-year guidance for 2024. As John mentioned, we are reintroducing comp sales into our guidance. In 2024 we are expecting Applebee’s domestic system-wide comp sales to range between zero to 2%. We are expecting IHOPs domestic system-wide comp sales to range between one and 3%. We are 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 are 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 are expecting 25 to 35 net fewer domestic Applebee 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 will 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 will wrap up by speaking a bit more about our development efforts. We are 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 their plans and goals 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 its target and analytical way to create profitable growth for Dine and our franchisees. Lastly, it is important to note that we are funding the investment and development by reallocating costs within dines existing cost structure and not by increasing overall spend. 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 like model, our iconic brands, our scale and our expertise, our 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 are 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.

[Operator Instructions] Our first question comes from the line of Jeff Bernstein from Barclays.

The first, just thinking about the comp trends, wondering if you could talk about whether there was any change in trajectory through the quarter for queue I should say, or the first quarter, quarter to date, whether you are seeing any change in consumer behavior. I know you mentioned that it is definitely a more challenging environment. And I think you mentioned you expect positive comps at Applebee’s throughout the year. I wasn’t sure that 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.

Jeff, it is John. Thanks for the question. I will address the first question about the comp trends in general, and then Tony will talk to you about the Applebee’s trends specifically. You all have known many of the people; our competitors are the same thing. The trends in January were tough; weather took its toll on all of us in January. But since then, as the weather eases at the end of January and through February, we have seen traffic improving, each week throughout February, think heading in the right direction. And Tony, do you want to address Applebee’s specifically?

Jeff, we are confident in our plan for the year, that confident is rooted in the performance of our brand over the last three years. As we said from the outset, we delivered positive comp sales in 2021, 2022 and 2023. And so I think that bodes well for 2024. As John mentioned, there were some headwinds in January. But we are looking to repeat the success of 2023 and 2024. Our plan centers around what we believe are three really important drivers of our business. We have got a really strong promotional strategy with new disruptive campaigns and aggressive value. We are rolling out much needed menu innovation starting in Q2 of this year, and there is 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 talked 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 is 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 white space 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, 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 are very focused right now, and Tony can offer more detail on assembling a prototype for Applebee’s that has an ROI that our franchisees are looking for. We are doing that with them together. And, you know, that work is underway. You know, Applebee’s is focusing on conversions and that is an important pivot for the brand. And most importantly, you know, we mentioned in the scripted remarks that we have 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 franchisees commitment to the brand, and commitment to and belief in its future. So we have got work to do to build the pipeline for Applebee’s over the next couple of years to return the brands at net unit growth. When it comes to international, that is where the white space is for both brands. And what we are really pioneering internationally is this dual branded concept. We just opened the eighth dual brand restaurant in Leone, 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 are seeing on average is that the revenues for the same size box as one brand or the other is two times or more what it was before, what you would expect, because with the two brands, we can address all four day parts and that is a big innovation that we are 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 the, you know, talking about the optimal mix from a cash usage perspective with the share pullback. I mean the dividend yield is now in the four and a half percent range that is well above your casual dining peers. I’m just wondering whether you are getting credit for such a yield or whether money might be better spent buying back more shares at the valuation. It sounds like you are contemplating that as well, but just curious your thoughts on whether you think about leverage in 2024 now that you are in the low four turns range, where you would expect that to go from here. Thank you.

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

Our next question comes from the line of Dennis Geiger from UBS.

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 dot as being, new customers and somewhat stick. Just anything more there on that stickiness on kind of potentially keeping some of those customers coming in for the value occasions.

Yes, Dennis, thanks. It is John. I will start as well. Then Tony, we will ask you to give a little bit more detail, at the highest level 2024, from our perspective for both brands remains a promotion driven environment and our guests are attracted to that. So 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 are also seeing from consumer behavior perspective is that they are making choices about where and when to dine out. They are dining out a little bit less often, and when they are in our restaurants, they are finding our value portion of our menus, whether it is 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. Tony, can you add some more color about Applebee’s approach for the year?

Yes. A couple of points. One of the points you asked about was the value menu. I think John answered that, but our value menu continues to perform well that 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, we think there is a level of stickiness that is 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 reads in the month of October. That is about135 per restaurant per day. The ticket order incidents was higher than we originally launched it back in 2017. 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.

Yes. And Tony, speaking of franchisee margin dollars, it is a great number to share, which is that 94% of those dollar tickets included another menu item, which is exactly what our franchisees are looking for in a promotion like that.

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 2024, I forgot that the timeframe, you framed that up, but what 2024 looks like maybe versus prior years, you know, from a marketing and number of weeks on air perspective, if anything, there to share, to highlight the things you are doing this year? Thank you.

A good question for Tony. Yes, absolutely. I’m not going to go into too much detail on our promotional strategy. But you know, we revisit our marketing spend annually and it is relatively flat this year versus 2023. We are not necessarily spending more, we are just spreading the total 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 will see an uptick in more digital spend on certain promotions this year as well.

Great. Thank you, guys.

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. Mine was on, just a follow-up really on the Applebee’s themes for sales trends and you know, it sounds like October was very strong with the DOLLARITA and then it would have gotten, you know, more negative after that. But you sound pretty confident in, you know, the current trajectory. I mean, my read is that you are implying a positive same store 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 are seeing now?

Yes, Jake, it is John. The one thing we wanted to also mention about October is that, you know, we beat black box through that entire period, you know, driven by the DOLLARITA 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 is helpful if you speak to Applebee’s, you know, plans for the year around, you know, menu innovation, et cetera, that give you the confidence for the year.

Yes. So I did mention it earlier, let me start by going back to Q4 and what we saw there. And during the quarter we outperformed black box in traffic for the quarter. So we were obviously pleased with that, but we did underperform in sales. DOLLARITA 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 will take that learning, which is part of our confidence into 2024. I would also say that, that the November and December were impacted by, you know, 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 are seeing that tightening of discretionary spending following the holidays. It had an impact, in January and although February has improved. And we will give you more color on Q1, obviously when we report results in May.

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 are comping over, that will give you a sense of how the trend should be. But we are not guiding on Q1 specifically.

No, that is a good clarification because you said throughout 2024 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 kind of reiterate that is not what you are trying to imply.

That is not what was [Indiscernible]

And then the other question was on development, I understand the unit economics being impacted by the build costs, but it seems like what we are also seeing is an acceleration of closures or maybe just a continuation of closures at Applebee’s. I’m not sure, maybe you can kind of clarify the moving pieces for the lower development, net development at IHOP. But we are seeing, a fair amount of closures yet it seems like the margin pressures are easing. Given what you kind of the metrics on labor and commodities that you provided. What is driving that elevated lever 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 a hundred store openings. At this point now we are talking about significantly less so. So what is the biggest things that have changed? It feels like you are talking fairly confidently about development, yet the development is actually much less than, we would have expected even just a year or two ago.

Yes. Jake, it is John, I will just, I will 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 will go to Tony for comments on Applebee’s closures.

Yes, thanks Jake. 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, et cetera. But overall, we have been a steady developer, we might not have hit the a hundred number we had talked about a few years ago, but 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. If you recall, we were having all kinds of issues. I think the industry was too, with kind of timelines and permitting and delays. I think we are looking at this now when we look at our guidance this year that is the new normal. We probably shouldn’t think so much about how many roll into next year. There is always some that push in into next year was accelerated, and there are more of them the last couple years. But that is probably the new normal on what the timeline looks like. And we are trying to be realistic in our guidance this year with let’s just build all that into our thoughts and we really think that is what we are going to be able to accomplish this year now with that guidance we have given.

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 is 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 underweight, 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 will add that these closures, these closures aren’t a sign of struggling franchisees. They are offering a sign of struggling trade areas, and I can assure you that our leadership team, we are pulling every lever we have to offset the downside of closings. Closing a restaurant is an incredibly difficult decision. It is really a decision of last resort for a franchisor and a franchisee. So we will 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.

Our next question comes from the line of Eric Gonzalez with KeyBanc Capital Markets. 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 three to 4%, you know, G&A you are expecting to be flat, maybe up four to 5%. So, you know, I think that means you are 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. Hey, Eric. The EBITDA upside that we are seeing is from, you know, the margin expansion that we are seeing in Q4 and continue to believe, you know, for the next year. You know, remember the, with our asset light model, right? Like, this is what we are exactly trying to accomplish is to leverage the investments we have made, and we are starting to see the growth outpacing the, you know, the investment that spend, you know, that our growth isn’t just in comps, it is unit development. We have other revenue channels collectively that we are working on, and altogether, right? Those are the things that we invested in altogether we are driving top line faster than the G&A growth. And that is where the margin expansion is happening.

And by the way Eric, you are seeing the improvement in cash flow. You are seeing, you know, we are guiding on lower CapEx going forward. That is all just the result of us, you know, more or less wrapping up with the implementation of the technology initiatives we have done and we are sort of just realizing the fruits of the investments, the work that we have 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?

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

Okay. Thank you very much.

Our next question comes from the line of Nick Setyan 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. I know you guys talked about sort of the 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, what do you mean by greater value? Also, with ad spend not growing as much or at least add dollars, not growing as much. Where is the sort of incremental spend on TV coming from?

Hey, good morning, Nick. It is John. Just a blanket sentence on behalf of Jay and Tony is we are not going to get into specific surround where we are spending certain dollars or what our message will be or how many promotions, because that is 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 will go to Tony.

Sure. John. Hey, thanks for the question, Nick. What you just referenced most of your question pertained. I think as follow-ups to the Applebee’s comments earlier, we are pretty stable as far as what we are doing, as far as, amount of money we are spending and the number of LTOs, et cetera. So we are running the same strategy we have been running. We really believe we need to have a great menu, great marketing, and great execution to drive repeat business. That is the recipe to get traffic improving and sales going up and EBITDA going up, et cetera. Clearly, we have 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 being able to activate direct channel one-to-one marketing with them. We strongly believe that in the barbell strategy where we have full priced, great new innovative items that we promote. We have new menus a couple times a year that we promote. Clearly, we have value things that we promote, and we put those in throughout the year at the appropriate times when we feel it is right to either go heavily on value or more on innovation. We are doing the same strategy we have been doing with new innovations and different values and maybe a different time set as when they roll. We are continuing down that same path we have been on that is got us to 11 straight quarters of being up in sales.

Yes. Look along the same lines, our promotional strategy, the key to it is to remain balanced. We have always been known for affordability. But when you got a promotional strategy that is 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, the differentiator and so part of that experience is menu innovation. So you will see in our calendar for 2024, it includes multiple new products that will be introduced throughout the year. Starting in April, you will see the first of the many products. And then we will introduce some new promotional partners that will excite and engage our guests. And then we will 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 is not just dependent solely on discounting. Okay. I just want to kind of understand the building blocks of the comp because, you know, as Vance 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 it to drive positive transactions for the year to get to sort of, you know, a plus one comp? That is the midpoint of your guidance.

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

Yes, 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? I think that probably clarifies Nick’s question.

Yes, 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 Fuzzy’s do you actually, you know, expect some openings in 2024 and maybe just give us some numbers around the pipeline if you could?

Sure. The, the pipeline for Fuzzy’s is 144 restaurants in the pipeline, which we have grown since the acquisition, and we are not guiding on Fuzzy’s pipeline yet. We will 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. Why don’t 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% and IHOP menu pricing was 7.8%. Both brands saw negative traffic for the fourth quarter, but as Tony mentioned earlier, fourth quarter for Applebee’s, we beat Black Box and I think price as far as P Mix, both brand, IHOP is flattish to slightly up and then Applebee’s is slightly negative P mix. That is the makeup.

Okay. That is, very helpful. Thank you for that. And on IHOP specifically, I guess I wanted to ask Jay, maybe get your perspective just, it seems like the family dining sector is holding pricing higher for longer and I’m curious just to ask how sustainable you think that might be and given the pressures that you are seeing out there the value conscious consumer. And maybe you could even, you know, elaborate a little bit on what you are seeing from a day part perspective, because 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.

Thanks for the question, Brian. Clearly, you just listened to the numbers of answers, told you, we are 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 is not sustainable. 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 have already seen our own franchisees drop 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 have already taken at other menu prints earlier in the year that is still kind of in the number. I think that those will start to roll off as we get a little further down the path. 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 on the last menu increase that they did. I think that will start to stabilize itself.

I appreciate that. I know pricing decisions are up to your franchisees, but what is 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 will go to Tony?

Yes, that is fine. I think that as we look forward, we have got another menu coming up here in the spring, and then there will be one in the fall is the way it is scheduled at the moment. They haven’t made all their final determinations on what those prices are going to be, and those menus are not out yet. I can’t give you any kind of forward looking as far as what they are going to do. I just see their behaviors of what they did this past fall. One of the things we have done on the IHOP side of the business, we actually engage with RMS, a Revenue Management Solutions company. That is probably the biggest in the industry that helps a lot of companies do this. They are helping our franchisees, giving them some guidance is to where is the optimal prices and what is price sensitive, what isn’t, where should be careful. And they are getting some good guidance on this now. 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 how to protect traffic and how to also make sure that they are optimizing their EBITDA at the same time too. They are getting some really good advice now, I think. We look forward to that as we go into this year too.

Yes, and look, I will 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, our franchisees are very strategic and measured when it comes to pricing decisions that they make. And they have consistently recently have priced below their peers. So, 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 have been pretty consistent in staying at or below what the peers have taken in pricing in the category.

Alright, that is very helpful. And then just last one from 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 to store level EBITDA, either dollars or margins. Give us a sense where each brand is compared to 2019 on that.

Yes, so you know, I probably won’t get into the specifics of those are not our financials, but based on what I have 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 stabilizing. And then, and, but the labor cost is a percent of sales is trending back towards pre-COVID level through food cost is commodity cost easing. So that is a good thing. We talked about the restaurant initiatives, the profitability initiatives with $50 million of annualized savings. So that is 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.

Alright, thank you. I will pass it along.

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

Thanks Gerald, our favorite operator. We love when you are with us, you took good care of us. Thanks. Thanks guys for joining us on the call this morning, we are excited for 2024. We are confident in our plans. We are 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 are excited about our brands. And we are excited about our brands that have compelling and exciting promotions. So thanks everyone and we will talk to you next quarter.