Good afternoon, everyone, and welcome to eHealth Inc (sic) [Dine Brands Global] Conference Call to discuss the Company's First Quarter 2022 Financial Results. [Operator Instructions] It is now my pleasure to turn the floor over to Eli Newbrun-Mintz, Investor Relations Manager. Please go ahead..

Good morning, and welcome to Dine Brands' first quarter conference call. I'm joined by John Peyton, CEO; Vance Chang, CFO; Jay Johns, President of IHOP; and John Cywinski, President of Applebee's. Before I turn the call over to John, please remember our safe harbor regarding forward-looking information.

During the call, management may 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 assumes no obligation to update or supplement these statements.

We may also refer to certain non-GAAP financial measures, which are described in our press release and also available on Dine Brands' Investor Relations website. I would like to highlight that all references to the same restaurant comparable sales will be relative to the prior year. We will no longer disclose comp sales relative to 2019 or 2020.

With that, I'll turn the call over to John..

Thanks, Ken, and good morning, everyone. On behalf of John, Jay and Vance, thanks for joining us for our first quarter earnings call. Q1 was a strong quarter with great results, and that's because our bold choices and smart investments are paying off. We're accomplishing so much, especially in this challenging environment.

That's thanks to our focus on execution and innovation. I'm so glad many of you could attend our Investor Day in March. And based on the feedback we've heard that you see strength in our growth plan and the way our leadership team is aligned. And now turning to Q1.

This morning, I'll cover our perspective on the macroeconomic environment, our results for the quarter and our key initiatives for the rest of the year. We continue to operate in an environment of headwinds and tailwinds, as I described last quarter.

During the quarter, IHOP and Applebee's both posted positive comp sales and on-premise sales volume continues to recover. And so it appears for now that customer behavior remains a tailwind. We didn't see a significant decline in traffic or off-premise business due to inflation or gas prices last quarter.

We continue to closely monitor the effect of the macroeconomic environment on customer behavior. We benefit from the fact that year-to-date average CPI inflation for food away from home continues to trail CPI inflation for food at home.

And so in a world with many dining options, this is favorable for Applebee's and IHOP because both brands are strongly positioned in the value segment. Finally, understaffed hours due to challenges in recruiting labor remain an upside when all restaurants are able to return to 2019 hours of operations.

At the same time, headwinds still persists, supply chain disruptions, food and fuel inflation, labor supply, all accelerated by the war in Ukraine. Nationwide, staffing remains about 90% of full capacity. This prevents restaurants from achieving full hours of operations and can slow table turns.

And so we're working with franchisees to test front and back of house technologies that address labor productivity while also enhancing the guest experience. Regarding the cost of food ingredients at the restaurant level, we expect inflation of about 13% to 16% in 2022.

And that's why in this environment, our purchasing co-op's first priority is to secure supply and lock in pricing contracts whenever possible.

We've assembled a cross-functional team, including the co-op, our suppliers and distributors, our culinary beverage and operations teams and our franchisees to aggressively pursue ideas to mitigate the impact on costs. This cross-functional team has already identified about 140 cost mitigation opportunities.

Examples include to-go packaging, in-restaurant beer distribution systems, server tablets, high-efficiency ovens, and ultimate supply sources and new product specs. At the same time, we're also closely monitoring the impact of U.S. energy prices. Energy costs make up about 2.5% to 4% of our restaurant's cost depending on the region.

And I can tell you that approximately 40% to 50% of our restaurants energy cost is gas. Many of our franchisees lock in 1- to 3-year utility contracts in deregulated states, so they're protected from price increases in the short to medium term. I'll transition now to our Q1 results.

Our performance during the quarter reflects the continued improvement in our business and the stability of our asset-light model. Average weekly sales for Applebee's and IHOP surpassed the comparable quarter for 2021 by 15% and 19%, respectively. We delivered top line growth of approximately 13%, recognizing revenue of $230 million.

Gross profit increased by 9% to approximately $93 million and adjusted EBITDA improved by 12% to $65 million. And finally, we opened 11 new restaurants globally, demonstrating that our franchisees are healthy and have an appetite for development. John and Jay will provide more details on comp sales, unit growth and new sources of revenue.

And now I'll wrap up by highlighting 3 of our key focus areas for the rest of the year. First is our investments in technology to enhance the guest experience before, during and after the meal, whether on-premise or off-premise.

This includes paying at your table in our restaurants using our apps to customize and order your meal for curbside pickup or having our delicious food delivered through an aggregator partner. A tangible outcome of our tech investments is IHOP's new one-of-a-kind and fast-growing loyalty program, the International Bank of Pancakes.

The program is enabled by Dine's investment in technology that supports both brands and is a great example of the benefits of our scale.

Second, we're continuing to introduce new restaurant formats, flipped a fast casual version of IHOP, order ahead pickup windows for Applebee's and the new Applebee's prototype are all examples of how our teams are working with our franchisees to evolve our restaurants to meet changes in consumer behavior while continuing to optimize unit economics.

And third, we're investing in disruptive new growth channels such as virtual brands and ghost kitchens. The key idea here is that we can drive substantial incremental revenue with low commitments of capital. Those kitchens, for example, allow us to serve new markets or trade areas where the cost to build is prohibited.

For example, Applebee's and IHOP opened a total of 10 new international ghost kitchens in Q1 including our 29th overall ghost kitchen, which opened in the Philippines. We also recently announced our new partnership with JustKitchen in the Taiwan market. And virtual brands enable us to lean into specific dayparts.

So in addition to Cosmic Wings, IHOP is testing 2 virtual brands, Thrilled Cheese and Super Mega Dilla, which are now available in 280 restaurants up from approximately [80] in February, and both are available in 13 markets. So today, I'm bullish that our long-term strategy of bold choices and smart investments is working.

Because while we protected our financial health as well as the health of our franchisees, we remain focused, nimble and steadfast in the execution of our plans. The successful execution of our strategy is delivering tangible results as we enter 2022 stronger than ever and poised to own the upswing.

With that, I'll turn it over to Vance to discuss the details of our financial performance..

Thank you, John. Well, the execution of our long-term strategy and guest-focused actions continue to deliver solid results for the first quarter. On the top line, consolidated revenues rose 13% in Q1 versus the prior year, driven by strong franchise revenues, which grew 14% to $161.2 million compared to $141 million for the same quarter of 2021.

The improvement was due to a strong comp sales growth at both brands. Excluding advertising revenues, franchise revenues increased 13%. Rental segment revenues for the first quarter of 2022 improved by 10% to $28.8 million compared to $26.1 million for the same quarter of 2021.

The favorable variance was mostly the result of franchisees higher retail sales, which drove higher percent rental income for the quarter. For our company restaurant operations, sales increased approximately 10% to $39.4 million for the first quarter compared to $35.9 million for the same period of last year.

This was mainly due to an increase in customer traffic from changes in operating capacity of the restaurants during the quarter. G&A for the first quarter of 2022 was $41.5 million compared to $39.9 million for the same quarter of last year.

The variance was primarily due to increases in travel expenses, personnel-related costs and professional services as we return to normal franchisee supporting activities. We anticipate our investment in G&A to further increase in Q2 through Q4 of this year as we continue to execute our strategy to unlock and support long-term sustainable growth.

And as an update, we are tracking in line with our full year G&A guidance range of between $188 million and $198 million, including noncash stock-based comp and depreciation of approximately $30 million. For the first quarter of 2022, consolidated adjusted EBITDA was $65.2 million compared to $58.1 million for the same quarter of 2021.

The increase was primarily due to the gross profit improvement in our business, as I just discussed. Finally, adjusted EPS for the first quarter was $1.54 compared to adjusted EPS of $1.75 for the same period of 2021.

The variance was primarily due to a $10 million delta in income tax expense between the 2 quarters as we return to a normal effective tax rate in Q1 of '22 versus the significant tax benefit that we received during the same quarter of last year, partially offset by a $7.5 million increase in gross profit. Turning to the statement of cash flows.

We had adjusted free cash outflow of $10.1 million for the first quarter of 2022 compared to inflow of $30.7 million for the same quarter of last year, driven primarily by cash from operations.

Cash used from operations for the first quarter of 2022 was $7.8 million compared to cash provided from operations of $30.6 million for the same period of 2021. The variance in cash flow was primarily due to a change in working capital.

In Q1 of '21, our cash flow benefited from the onetime collection of franchisee deferral fees which we had granted during the initial phase of the pandemic.

In Q1 of 2022, our cash flow reflected payments for a larger performance incentive compensation earned in 2021 versus the year prior, as well as larger marketing expenses incurred in Q4 but paid in Q1. CapEx for the first quarter of 2022 was $5.3 million compared to $2.4 million for the same quarter of 2021.

We also repurchased common stock of $41.6 million and paid dividends of $14.6 million for the quarter, which I will touch on in more details later. We finished the first quarter with total unrestricted cash of $294.7 million. This compares to unrestricted cash of $361.4 million at the end of the fourth quarter.

With our current levels of cash on the balance sheet and the borrowing capacity available under our credit facility, we're confident in our ability to maintain our financial flexibility and ample liquidity. Even with returning $56 million back to shareholders during the quarter, our leverage ratio continues to stay healthy.

As of Q1, it was 4.05x compared to 3.86x in Q4. Now I'll provide a summary of our capital allocation for the first quarter. We remain committed to returning cash to shareholders, as evidenced by a 15% increase in our first quarter cash dividend of $0.46 per share, which was paid on April 1.

Additionally, we purchased 588,108 shares for approximately $41 million in the first quarter of 2022 at a weighted average price of $70.45 per share. We will continue to use share repurchases as a key part of our overall strategy to deploy excess cash and increase total shareholder return over time.

Lastly, I will confirm that we are still tracking to our previously announced financial performance guidance in G&A, CapEx, development and EBITDA for 2022. To close, Q1 was a great start to 2022, building from our very strong finish to 2021. We're confident that our bold choices and disciplined investments will support long-term growth.

With that, I'll turn it over to John Cywinski, who will share more on the Applebee's business.

John?.

Thank you, Vance, and good morning, everyone. Applebee's business momentum continued in Q1 with a 14.3% increase versus Q1 of last year and a 26.2% 2-year increase versus Q1 of 2020, representing our fifth consecutive quarter of year-over-year comp sales growth.

In the face of Omicron, January comp sales were up 17.6% versus 2021, February sales were up 25.1%, and to close out the quarter, March comp sales were up 5.5% versus Applebee's very strong March of 2021.

From a Q1 Black Box perspective, we slightly trailed the CDR category on comp sales versus last year, but this requires additional context given Applebee's substantial overperformance in 2021 and very favorable 2-year and 3-year comp sales results.

Given the inter-quarter COVID mismatches from both this year and last year, it may be helpful to focus on absolute dollar volumes for a true indication of brand performance. So let's start with last year's record-setting volumes of $50,500 per week as a baseline.

Given Omicron's impact to start the year, weekly sales dropped to $46,800 in January, volumes then accelerated to $54,800 in February and $57,600 in March, driven by organic demand as well as peak seasonality. It's worth noting that March represents Applebee's highest weekly sales volumes on record under Dine ownership.

Additionally, this momentum continues to be reflected among key brand attributes where Applebee's leads the category on affordability, menu variety, convenience, to go awareness, delivery awareness and overall brand awareness according to our proprietary third-party tracker.

In reviewing Applebee's Q1 sales mix, 72% of our business was dine-in, 14% Carside To-Go and 14% delivery, with total off-premise sales averaging between $14,000 and $15,000 per week.

Applebee's off-premise business is not only a core competency, but in 2021, it became a $1.2 billion convenience-driven business in a genuine consideration within QSR and fast casual occasions.

I should also note that approximately 70% of our Carside To-Go business is now digital, a combination of online orders and call center orders which come to our restaurants digitally through our point-of-sale system. Our goal is to approach 100% digital orders by year-end, which means no more over the phone order taking by restaurant team members.

On the delivery front, we completed Cosmic Wings virtual brand expansion to DoorDash, and we're now in process and activating Grubhub. And Applebee's on-premise business continued its strong and steady recovery with Q1 attaining 90% of our pre-pandemic dine-in sales volumes.

I also expect an eventual dine-in tailwind from both our late night business as well as our older guests as they gradually return to dining out this year.

It's not surprising that we've become a bit younger over the past 2 years and certainly younger than our CDR peers with Gen Z, millennial and Gen X now accounting for 80% of Applebee's guests, with millennials representing our largest segment at 34%.

We really love this demographic profile, which is much more similar to QSR than it is CDR and we view Applebee's age, family and ethnic diversity as core strengths relative to other casual dining brands. Now from an absolute pricing perspective, Applebee's franchisees increased menu prices between 5% and 6% in Q1.

As you might expect, we continue to monitor these actions closely and believe the brand is very well positioned to navigate this inflationary environment given our supply chain scale, our average check at the very low end of the CDR continuum and ongoing guest perceptions of Applebee's as the clear affordability leader.

We talk often about this subject and our relative position in the marketplace with our franchise partners.

And keep in mind, these are 31 smart and strategic leaders who fundamentally understand the delicate balance of margin protection, guest affordability and business momentum, and they continue to view this year as a meaningful market share opportunity for the Applebee's brand.

On the development front, we expect to open approximately 6 traditional restaurants this year as well as 6 ghost kitchen restaurants.

In addition, we plan to close less than 15 restaurants this year, marking a meaningful inflection point for Applebee's with the fewest number of closures in 10 years and putting us on track to deliver net new unit growth in 2023.

I'm also pleased to report that we recently opened our fourth drive-through pickup window in Virginia, with approximately 15 drive-through planned conversions by year-end. In closing, we improved Applebee's average unit volume from $2.2 million in 2017 to $2.6 million in 2021.

Looking forward, Applebee's remains exceedingly well positioned to accelerate this growth. In coming off our recent spring franchise conference, where we shared our balance of year innovation plan, our confidence and optimism in partnership with our franchisees could not be higher. With that, I'll turn it to Jay for an overview of the IHOP brand..

first, positioning our brand in a relevant way by focusing on the quality of our made-to-order food and the joyful atmosphere that IHOP provides; second, we're taking an omnichannel approach to meet our guests in the channels they frequent and trust.

Our plan is designed to engage our guests, both new and old through online, mobile, social media, traditional TV and more; and lastly, enhancing our one-to-one relationships with our guests with the recent launch of our unique loyalty program.

To help us tie this all together, we announced a selection of our new ad agency of record, Pereira O'Dell, which we partnered with on our new campaign and tagline, "let's put a smile on your plate." The inspiration for the campaign was based on the happiness guests feel when enjoying our great IHOP food.

We believe this campaign will be a differentiator because it encapsulates the strategic new phase for the brand, which includes launching not only a new campaign, but also our new ihop.com website and mobile app and, of course, our new loyalty program, the International Bank of Pancakes.

As I discussed with you at our Investor Day, this is a true earn-and-burn program, designed to enhance our direct relationship with our guests and ultimately drive additional visits to IHOP. The program is a one-of-a-kind and first in our category.

To briefly recap, it allows our guests to collect what we're calling pan coins, which is our pancake currency. 3 PanCoins will get you 1 short stack at IHOP, for example. PanCoins can be redeemed from menu items and other nonfood items in the future.

We began marketing the program in mid-April through social media, in-restaurant signage, national TV and digital. Switching gears to an update on operations. Labor supply continues to be impacted by factors primarily outside of our control.

At the end of the first quarter, IHOP was approximately 90% staffed nationally based on input received from our franchisees. I'd like to highlight that there is a degree of variability, though with some areas doing better than others.

Regarding SOP hours, the percentage of our domestic restaurants that are open for standard operating hours or greater improved approximately 91% from approximately 86% last quarter. We continue to expect potential upside to sales as additional progress is made. On our to-go business, we made operational improvements to our off-premise platform.

We recently completed the implementation of Flybuy which enhances our curbside pickup and delivery platforms and reduces guest friction. Flybuy provides our guests with the ability to alert us through the IHOP app that they've arrived in the parking lot for their to-go orders. Turning to development.

Our franchisees opened 10 new restaurants globally in the first quarter, of which 8 were domestic openings. I'm optimistic about our development outlook due to the multiple formats we can offer franchisees and the overall health of the brand. In addition to our brick-and-mortar footprint, we also expanded our presence through virtual brands.

We recently announced the test of our first virtual brands through our partnership with NextBite, Super Mega Dilla and Thrilled Cheese. As of today, our virtual brands are available through 280 restaurants, up from 80 at the end of Q1. We're still on track for about 1,000 restaurants activated virtual brands over the next several months.

To wrap up, we've accomplished a great deal in early 2022. As we continue to transition to the next phase of the brand, I'm very enthusiastic about our road ahead. I'll now turn the call back over to John Peyton for his closing comments.

John?.

Thanks, Vance, and John and Jay, your comments made it super clear that we're laser-focused on the 3 levers of growth for Dine, we're focused on comp sales, we're focused on unit growth, and we're focused on developing new sources of revenue, the work that you and your teams did led to a terrific quarter, and thank you for that.

Operator, we're now ready to open the call for questions..

Thank you. Ladies and gentlemen, just to clarify -- I would like to clarify that this is the Dine Brands Global First Quarter Earnings Conference Call. [Operator Instructions] Our first question or comment comes from the line of Eric Gonzalez from KeyBanc Capital Markets..

I just have a macro question here.

Based on what you know about the consumer and potential macro pressures in the future, what does your gut tell you about your ability to sustain the really strong sales momentum later this year and into '23? And how important will value be as you balance that against the low to mid-teens inflation outlook?.

Eric, this is John from Applebee's. Confidence is high on ability to sustain. None of our metrics here -- I may have been muted.

Eric, can you hear me?.

Yes, we can hear..

None of our metrics at Applebee's suggest anything other than robust growth. Average unit volumes accelerated throughout the quarter. As I referenced, attributes are at all-time highs. Our consumer, we believe, given our average check is well and our franchisees are really bullish. On your second question, value is essential. We're a value brand.

affordability we lead, and you'll see a balance of what I'll call emotional connection opportunities for the brand as well as value propositions that are maybe a bit more overt, all with healthy profit margins for our franchisees. So in a nutshell, very bullish on what the balance of this year represents for the Applebee's brand..

Eric, it's John Peyton. I'm going to jump in for a moment and give you some statistics that I think are worth sharing here that apply to both brands.

And we've talked about headwinds and tailwinds, right? And I think implied in your question is the challenge right now of predicting the future when we see things like inflation, cost of fuel going up, uncertainty in supply chain, all exacerbated by Ukraine. At the same time, there is some encouraging data.

For one thing, the cost of eating at home via grocery is rising faster than the cost of dining out, right? So that's a tailwind for us. And I think in part, drives our success in Q1 that John alluded to. The other thing is that QSR menu pricing is increasing faster than CDR that also is favorable for us.

And when we look at wage weight growth, the bottom quartile of earners in the U.S. actually grew wages faster than the other 3 quartiles, which tends to be our customer. They grew at a 5% to 6% last quarter, which gives them some confidence in a time when prices are rising.

So in this moment of headwinds and tailwinds, there is some compelling data from a consumer standpoint that explains, I think, our success in the first quarter and may give us momentum for the rest of the year.

And the last thing I'll say is we continue to look at all the third-party research as well as our own about consumers intent to return to restaurants and that remains endemic high as well..

That all makes sense. And maybe if you could just touch on franchisee profitability. Given that inflation outlook, and you mentioned the 5 to 6 points of price at Applebee's, which probably offsets the commodity side and maybe have a little bit of labor.

So can you just talk about where we stand or how the franchisee profitability looked and how you expect that to trend through the year, given that inflation outlook?.

Yes.

Vance, why don't you take that?.

Sure. Eric. So as you know, we don't report franchisee financials, but here's what we do now. We are seeing strong same-store sales and AUV. There's no bad debt, no AR issues. We have interest from franchisees in development and franchisees have taken appropriate menu pricing adjustments.

And also, I think one last thing that's worth mentioning is that our co-op supply chain has formed a cross-functional team with our operations, our franchisees and beverage and food teams to come up with 140-plus cost item -- cost-saving ideas to lower production costs and reduce food waste or usage and improve restaurant labor while not negatively impacting the guest experience.

So overall, I think those are the facts that we could share and things are looking -- we're cautiously optimistic about the outlook..

Our next question or comment comes from the line of Jeffrey Bernstein from Barclays..

Couple of questions. One, just on the healthy comps you talked about. I think you acknowledged that March appeared to have been a slowdown on a 1-year basis. So just trying to get your perspective on that 2-year obviously, removing seasonality and whatnot.

But just any concern about that March slowdown? I was actually based on AWS as much the best of the quarters, best of the months. And any color you could provide on April, just to get us more current would be great. And then I have a follow-up..

Jeffrey, this is Jay Johns at IHOP. I can say from the standpoint of my brand, this was fairly well expected. If you just look at the rollovers from previous year. Both of the March's.

If you think about 2 years ago, pandemic just started, which impacted that March, which meant that last year, we were already up quite a bit and starting, that's when the recovery really started rolling over the original pandemic. So March's results last year were ticking up tremendously compared to January and February. So it's pretty natural.

You're going to get a slowdown this year as the recovery continued. But I think from our standpoint, the recovery is continuing nicely. And it was pretty much in line with what we had expected as we went into the month of March.

We knew that it was going to drop down compared to January and February, a lot of the country was still shut down last year, January, February.

In fact, if anything, January was probably negatively impacted because of Omicron which should have been up even more if it wasn't for that, even though we did have a really nice January, we expected more then..

And Jeff, with respect to Applebee's, no indication of a slowdown whatsoever, 2-year comps are very strong, including March -- as our 3-year comps..

Any color to provide on the month of April or referring from any intra-quarter comment?.

No color here..

Jeff. It's John. We're going to refrain..

Got you. Okay. And then just on the virtual brands that you mentioned, obviously, Cosmic has been around for a little while. I'm just wondering whether you can share any greater financial metrics in recent months. Obviously, dine-in is returning. So maybe there's some easing of virtual.

And then in the early test results on both IHOP brands, which seem really exciting that you have that second make line and a whole lot of afternoon, evening available capacity. So any early learnings on the IHOP virtual brands would be great..

Jeff, John C. here with respect to Cosmic Wings, I'll resist on providing any detail sales-wise since we're still in process on expanding this to our third delivery partner. We'll have a pretty good handle on this business when we get around to Q2, but I'll resist at this point..

This is Jay at IHOP, again. And on our virtual brands, we're really excited about the way this has begun. It's a little soon to be able to predict what's going to happen as we expand in more and more restaurants. But we're still very bullish on the way this looks.

I think at the Investor Day, I shared that at the first set of test restaurants that these 2 brands were each doing around $1,000 a week in sales per restaurant, and now we've expanded to 280 restaurants. So it's expanding very rapidly.

And as I said, I think within the next several months, we have the potential to get up to about 1,000 restaurants on the program. And I think as we expand out further, this may drop slightly, but it's maintaining pretty well..

Got it. And just lastly, specific to Applebee's. I know you guys have talked about the big pivot to net unit growth next year. I'm wondering if you can share to what magnitude and maybe where international falls within this.

It would seem like international is a huge opportunity for your brand? But it doesn't seem like it's as much of a growth vehicle or at least not talked about as much..

Jeff, John C. here. I'll speak domestically. International by the way, is a meaningful growth opportunity. Domestically, our confidence level is high on returning to net new unit growth in '23. We'll come pretty close this year, but I referenced the detail for 2022. We're reestablishing a pipeline.

We know where those trade area opportunities are, in particular, the very high-volume trade area opportunities. We have a new prototype. We have franchisee demand. And our expectations are not only to return to net new unit growth in '23, but then to accelerate that level of development on an annual basis moving forward in the U.S..

And Jeff, it's John Peyton. Just a comment on International. The mix for international growth, you may recall from Investor Day, is about 2/3 or more for IHOP and then the mix internationally is a greater proportion of ghost kitchens as well.

Our goal there, our aspiration is to go from about 200 restaurants internationally to 500 over the next 4 years..

Our next question comment comes from the line of Jake Bartlett from Truist Securities..

Mine was really on the consumer, and thanks for the macro perspectives. And I did hear in the comments, I think maybe focus on a little more value at Applebee's. So I'm just wondering if you could expand on that, what your approach is for the rest of the year? And whether if it is a bit of a more weight towards the value side.

Is that because you are seeing some trade down in the menu or any sort of impact from that maybe lower income consumer?.

Jake, John C. Regarding Applebee's, we love our guest profile, as I referenced. That's -- the average household income is about $75,000. We're at the lower end of the average check continuum, as I mentioned. And there are a number of ways to deliver value. Some of those are [overt].

In March, we offered 5 bonus wings per buck with any handcrafted burger, which performed very well for Applebee's. There are other opportunities to connect emotionally.

In January, February, we really wanted this -- our regulars, our most loyal guests, there were no actors or actresses in those ads, incredibly popular among our guests that those ads really resonated in January and February with America.

And so whether it's value-added, whether it's overt, whether there's some co-branding or perhaps even entertainment-based propositions moving forward. We have clear visibility to our innovation pipeline and the ability to be very nimble and change course as needed as we've done over the past 2 years. So we will deliver value.

We'll just do it in a number of creative and innovative ways at Applebee's, always with our finger on the pulse of that guest who has reasonably limited discretionary income at the moment..

Great. That's helpful. And my next question is for Jay on Applebee's. You mentioned the opportunity for hours and recovering the hours that have been -- you lost so far here. What is the opportunity in breakfast.

If you can maybe talk about where breakfast sales stands maybe on an average weekly sales basis versus '19 relationship to -- overall, obviously, we still see -- I think my math is down about 5% in the first quarter.

How much room is there to recover in breakfast still?.

Well, this is Jay. We've got opportunities, I think, across the board to continue to work on our comp sales as we move forward. Breakfast has actually recovered more than any other daypart for us right now, though. So breakfast is strong. And as you think about it, that's what we're most known for.

It's probably what our guests were missing the most about IHOP if they hadn't been in a long time. So I think the other thing to remember is at the beginning of the pandemic, the whole world shut down and no one was going to work. And I think that negatively impacted our breakfast business as well.

And I think as people are getting back out, even though there's a lot of flex work now and people may not be going to work as many days as they were in the past, they are back out now, which kind of tells you how high is up. We're just not sure.

And frankly, I don't know how much the headwinds are causing pressure to prevent our recovery from being even bigger and faster than it could be. So I think there's still a lot of opportunities, both in the weekend breakfast, which gets negatively impacted if a restaurant isn't stacked, you can't turn tables as fast.

You can't get as much throughput through those restaurants if you're not staffed on the weekend. So that's our weekend breakfast opportunity. Weekday breakfast, I think, obviously, if you go back to comps multiple years ago. I think we've got opportunity there just because even though people are getting back to work, not of the same quantity.

But I think the breakfast behavior, there's a paradigm shift in how people are behaving. And I don't know how much of this is permanent and how much of this will morph over time, but people are fine in a way.

And I think they have new flexibility from their jobs now to work a little more on their own time, which, in a weird way, also gives them the opportunity to go sneak out and have breakfast and start working 2 hours later.

So it's a strange dynamic going on right now, but I think there's still a considerable upside, both on the weekend and weekdays for breakfast, but it's recovering nicely..

Our next question or comment comes from the line of Brian Vaccaro from Raymond James..

Could you provide the monthly average weekly sales at IHOP like you did at IHOP -- sorry, like you did at Applebee's. And I guess, just talk about how the brand performed exiting Omicron. And I'm thinking about multiyear stacks back to '19, and it seems like March maybe didn't come back as strong as some other sectors have.

And just your broader thoughts on why that might be any changes in behavior for the IHOP core consumer that might be worth highlighting?.

Thanks, Brian, for the question. I don't have those at my fingertips. I did say that the average for the entire quarter, I'll try to grab those real quickly. I did say for the whole quarter, I think, it was 36,000 a week -- the average. And then we topped out at 41,000, March.

So it did keep improving after we got past the Omicron, where we struggled a little bit was in the first probably 5 or 6 weeks because of the Omicron variant compared to prior years, et cetera. So if you look on [Indiscernible] now, just to tell you here.

So in the first month, it looks like we averaged in January is about 32%, then it was 36% and then almost 39% in March. So you can see it kept building once we got past this Omicron variant. And most of the February softness was before Valentine's Day. So it's those first 5 or 6 weeks was weak, and then it started building from that.

I think that March did improve greatly and was pretty strong. I think when you look at the -- like I answered on the first question, when you look at the comp sales, it looked like we dropped off, but that's really in relation to the comp you're rolling over from last year. The recovery was already on last year.

So it looks like it's held off, but the weekly sales kept growing..

Right, right. Yes. No, definitely focused more on average weekly sales than the comps given the lapse and the recovery that we start moving to in the spring of last year. On commodity inflation, I wanted to just circle back on that as well. Can you share what the year-on-year inflation was for each brand in the first quarter.

And then just sort of how each brand, how each one you expect to play out in terms of inflation, considering the differences in their baskets for 2022?.

Yes. Yes, Brian. So we are seeing for the first half, Applebee's probably expecting 22% inflation, and IHOP about 20% inflation for the first half. So that -- and then it moderates somewhat in the second half. So year-over-year inflation probably gets down to low teens in the second half of the year.

So averages out to about 13% to 16% for the year is what we're expecting for the whole brand..

Okay. Great. Okay. That's helpful. And then -- last one for me. I wanted to just ask about menu pricing. And John, I heard you say that -- I think you said that Applebee's recently took 5% to 6%. What does that bring the year-on-year pricing to? Could you just clarify that? And then also speak to the level of menu pricing on the IHOP side..

Sure, Brian. The probably the best way -- this is John C -- to think about Applebee's pricing -- in Q1, our [fees] on average took 5% to 6%. And they're very measured and thoughtful moving forward. And last year, probably 3% to 4%.

So if you think about that on a 2-year basis, they're clearly attempting to balance margin protection with continuing to deliver great value for the guests. I think they've been very successful, I anticipate that success..

Yes, this is Jay. On the IHOP side, if you look at the year-over-year pricing look at Q1 this year versus Q1 last year at 7.9% is what IHOP took overall..

Our next question or comment comes from the line of Nick Setyan from Wedbush Securities..

Can you just remind us just the historical seasonality relative to March in terms of average weekly sales in April, May and June for both [Indiscernible]..

Sure, Nick. For Applebee's -- this is John C. March is a high-volume month. As you look at the flow of sales volume across the year, March would likely be our highest volume month, September, perhaps our lowest volume month. That's a good way to think about it. And think about indices that range from kind of a 90 to a 110 depending upon the month.

Makes sense?.

Yes.

What about IHOP?.

IHOP side. We don't have any -- if you look quarter-to-quarter, we don't have any true seasonality overall. As John said, you have individual months that tend to go up and down a little bit and probably very similar at March. Any time you got as many spring break weeks, kids are out of school, that tends to help in March.

So it's one of our busier months. And then back to school in the end of August, September period, it's also a little bit of a slower time, but it's probably not material for us..

And then what about marketing rates throughout the year.

Any quarter stand out in terms of maybe a higher marketing weight within that quarter versus some others for each brand?.

Nick, this is John C. So we deploy $130 million to $140 million in working media on an annual basis, pretty evenly dispersed by quarter up a bit versus last year on a full year basis. And we did lean into a heavier mix of 30-second ads in January, February in Q1, and in bringing to life those ads I referenced called the regulars that really resonated.

So probably a little bit of a heavier dollar spend in January, February versus year ago because of that 30-second ad investment, but very balanced year-over-year quarter-over-quarter as we look at the balance of the year..

Yes. And this is Jay. On the IHOP side, very similar. We try to spread this out fairly evenly throughout the year. In fact, even more so now than we used to. We've changed our strategy, as I mentioned, to more of an omnichannel strategy.

And what that enables us to do is to not just be on national TV, but different messages to different audiences at different times to try to move all of our day parts for different events or reasons. And in doing that, the philosophy we have is really kind of always on marketing stream.

So because of that, you're spending money pretty evenly throughout the year..

Our next question comment comes from the line of Brett Levy from MKM Partners..

Just two questions largely against about sales and capacity. First, if you could just give a little bit more color since such great scale what you're seeing across the country from a demand as well as operational challenge side? And then specifically on operations, you talk about the 90% of SOP.

How important is it to get that last 10%? And what kind of sensitivity do you see in terms of incremental sales and incremental profitability if you're able to get there?.

Thanks. This is Jay. Brett, I think that if you look across the country, the shutdown and the recovery was not even across the country, right? So that causes some waves as far as the recovery coming back, et cetera.

So for example, [Indiscernible] is doing really well right now, but a simple fact that they were the last ones pretty much to open back up. And you're rolling over numbers there where they were still closed down pretty much last year. But if you look at other parts of the country in the Southeast, et cetera, the impact wasn't as severe on closures.

They opened up sooner. So their rollovers now are already harder this year. So it's not an even playing field as far as how the recovery goes and hasn't been the whole time. It wasn't even when it shut down either. So that's one dynamic that goes on.

And then your question about staffing, there are pockets of the country where the recovery has been faster, the economy is hotter, staffing gets harder to maintain.

That does have a connection to our restaurants to the last point you asked about is the hours of operation, and we're getting closer and closer, making progress every quarter to get to full standard operating procedure hours where the big opportunity for us really is, though, to get back the overnight hours.

We're still missing about half of our restaurants that did overnight business. And but we're very bullish on eventually getting that back. We think the virtual brands will actually help us with that. A lot of that business comes in the evening and much of those sales, you have opportunity overnight with those sales.

And frankly, franchisees have to make a P&L decision on, is it worth being open overnight in a market where they used to pay, as an example, if you paid [Indiscernible] for cook in your market. To get one to work overnight, you may pay 25. So the economics are different on getting people to work.

So the hurdle you have to get over to make it worthwhile to expand those extra hours that they used to have Well, if I can get a virtual brands going, now it makes much more sense to also open up the IHOP business and do both of them at once. So the more we can get that out there, I think the more that will also help our overnight business..

Our next question comment comes from the line of Brian Mullan from Deutsche Bank..

Just coming back to the advertising environment, maybe broadly across casual dining over the course of this year. Just curious if you expect Applebee's peers to be out there spending on advertising in a more meaningful way.

And if so, is that something you can even plan for ahead of time or incorporate into your plans? Or maybe you just kind of run your own rates and it's something you can't control. Just curious if you would feel that and how quickly you'd have a sense if things do get more competitive..

Brian, John C here. We're very thoughtful on the landscape competitively. I do anticipate casual dining -- large casual dining players being more aggressive in 2022. We pay attention to that, and we have formidable competitors. With that said, we have a terrific marketing plan that we were fairly disciplined.

We validate with our guests before we execute. Our level of execution is superior. And with that said, while we pay attention to our competitors, we also did outperform by 740 basis points last year. So we genuinely believe on a post-pandemic basis that we've earned the trust of America.

And that's going to pay meaningful dividends for the Applebee's brand. And we have a very strong culture, in particular, among our 31 franchise groups. You combine loyalty and preference based upon that trust with superior execution and strong culture and in some respects, it may not matter what our competitors choose to do.

We have a clear strategy and we're going to execute against it..

Understood. That's very clear. And then just as a follow-up, you give your current thinking on the company-owned stores that I believe. With all the strength of the brand, do you think you might look to sell those in the coming quarters? You have the operations in a really good place.

Or conversely, maybe is there some benefit you see owning those over the longer term, even if that wasn't the original thought..

Brian, it's John Peyton, I'll take that. Our thinking hasn't changed. We're proud of what our operating team has done, right? It's taken that portfolio, which was in one of our lower quartiles and moved it to the top quartile in terms of performance. So we're very proud of that. But the philosophy of not being a long-term holder remains.

I can't give you any information about when we might have a transaction, but our intent is it remains to flip those restaurants at some point in the future. And as we've talked about, it was deferred because of COVID, but the strategy is the same..

Our final question is from the line of Todd Brooks from Benchmark..

Just one question. If we look at the 90% kind of staffing to plan that both brands communicated.

If you look at the 3 buckets, kind of applicant flow, training people up, onboarding, getting them experienced enough to be able to man maybe a late night shift and retention, where do we stand on each of those buckets? And where is the opportunity to really move this needle? It feels like kind of industry-wide, we're leveling out in these kind of low 90% of targeted staffing levels.

I'm wondering where you see the most opportunity within those 3 buckets..

Todd, John C. Regarding Applebee's, we held a national hiring day. Applicant flow was really great, significantly higher than when we executed that in the prior year. Our need quite candidly was lower, meaning we're in a pretty good position. Our restaurants can be fairly selective. Training is strong.

Again, that comes back to culture, which is equally strong. Retention always a challenge in this particular environment. So I don't want to paint an overly rosy picture. What I would say is we're very pleased with our staffing levels.

It allows us to execute everything that we're contemplating, including perhaps even late night propositions, which would have been a challenge last year..

Yes. I think -- this is Jay. On the IHOP side, I think that finding qualified staff that we want to hire is probably still our biggest challenge, right? You can get a lot of applicants, but not anybody gets to work for us, right? And so the pickings are thinner than they used to be. And I think that's our biggest challenge.

We've made great improvements and have really good training programs now. We can get people trained up pretty quickly. I think for us, it's still finding the staff. And again, I refer to those overnight hours. You also got to find people willing to work the overnight shift.

And that's a little harder for us to source, and that's one of the reasons we've not been able to get all these hours back as well. So again, as you get your business coming back, too, servers make more tips, the more tips that are out there, the more people want to work for you. It's all a little bit of a flywheel.

Once things really get cranked then it just helps the thing overall..

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks..

Thanks, Howard, and thanks to our team for a great quarter. And thanks to all of you for your good questions today. We appreciate it. And I know we'll be on the phone with some of you later on today as well to go a little bit deeper. So thanks for the time you spent with us this morning, and have a great day..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day..