Dine Brands Global, Inc. Q1 FY2021 Earnings Call

Hello, and welcome to the First Quarter 2021 Dine Brands Global Earnings Conference Call. My name is Christian, and I’ll be your conference operator today. After the speaker's presentation, there will be a question-and-answer session. But we ask that you please limit your question to one and one follow-up. Please also note that today's conference is being recorded. I will now turn the call over to Mr. Ken Diptee, Executive Director of Investor Relations. Sir, you may begin.

Good morning, and welcome to Dine Brands First Quarter 2021 Conference Call. I'm joined by John Peyton, CEO; Allison Hall, Interim CFO and Controller; 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 filings. The forward-looking statements are as of today and assume 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 are also available on Dine Brands' website. With that, I'll turn the call over to John.

Thanks, Ken. Good morning, everyone, and thanks for joining us today. When we spoke last quarter, I shared my belief that the industry and our brands in particular were on the cusp of a restaurant renaissance. Our headline today is that the renaissance is here. I love this notion of renaissance because it's all about resurgence and creativity, pushing beyond established boundaries. That's exactly what we're doing at Dine Brands. We're changing the way people think and turbo-charging creativity and experimentation. A willingness to learn and adapt is flourishing throughout our organization. I see it every day from our franchisees to our company staff to the restaurant teams, our general managers, and our servers. That's why I'm proud of our company and our franchisees. I'm especially proud of the thousands of hardworking restaurant team members around the world. Looking back on the first quarter, it's remarkable how we continue to persevere and grow. Our brands posted meaningful improvements during the first quarter. On this call, Allison, John, Jay, and I will compare comp sales to the same period in 2019 due to the pandemic’s profound distortion of 2020 sales. Let me share those results through the lens of store sales, total revenue, and cash generation because obviously, each one leads to the next. First, sales. Average weekly sales at both IHOP and Applebee's exceeded pre-pandemic levels several times during the first quarter. According to Black Box, Applebee's increase in same-store sales for Q1 outperformed the casual dining segment. In March, both IHOP and Applebee's off-premise sales reached dollar levels higher than when the restaurants were 100% off-premise in 2020, indicating the staying power of this largely incremental business. Revenue; we achieved $204.2 million in revenue and $58.1 million in EBITDA, reflecting strong underlying performance across our business. Cash; we generated free cash flow of $30.7 million, enabling us to repay our $220 million revolver in early March. Our franchisees opened 10 new restaurants during the quarter, indicating that they're beginning to pivot towards growth. We're very encouraged by our Q1 performance, and we're optimistic that economic tailwinds will sustain us throughout 2021. Contributing to that view is historically high consumer savings, federal spending, and a potential new infrastructure bill. The unemployment rate is the lowest since the pandemic began, and with vaccinations rising, economic growth looks firm. I'm confident that we'll build on our strong Q1 performance to drive market share gains and deliver profitable growth throughout the year. Our fundamental strengths are things many CEOs would love to have. First, we are an asset-light 98% franchise model that significantly generates cash. Second, we've got two iconic, world-class brands that are number one in both casual and family dining categories. And third, we have the most talented, resilient team members in the industry today, along with the next generation of workers still to be hired. As tough as the past year has been, the pandemic actually gave us new competitive competencies. We've got significant off-premise business in both brands and have added tech and operations capability to nurture this new business. We leaned heavily into ghost kitchens and virtual brands like Cosmic Wings that offer new sources of revenue for our franchisees, all thanks to the creativity and talent of our people. With COVID-19 vaccine appointments now more widely available and capacity restrictions being eased across the country, we are seeing increased traffic in our restaurants. Hiring is certainly a challenge in the industry today, and we are aggressively working to help our franchisees recruit adequate staffing to meet the increase in demand. We are launching national campaigns for recruiting days next week. Applebee's and IHOP are collaborating with their franchisees on the 17th and 19th with the goal of hiring more than 20,000 new team members. We're also making it easy to apply via text, email, and in-person while leveraging creative social campaigns to generate interest. I also want to note that we're working to secure the continuity of our supply chain. The surge in guests dining out has created demand that has outpaced supply. Our purchasing co-op remains engaged with both brands, and we've adjusted our food forecast slightly upward due to generally higher commodity and input costs. We want the world to know that Applebee’s and IHOP are open for business. Our marketing plans encompass national TV, digital media, social media platforms, and one-to-one marketing. We remain focused on welcoming guests back and providing them with a safe environment. Both IHOP and Applebee's have procedures in place, and our employees have done an excellent job adhering to best practices. With safety in place, we're also focusing on innovation to fuel the renaissance. We have five growth platforms that build on our competitive advantage. First, we're developing and investing in new smaller restaurant prototypes for both brands. Flip'd is a good example of this new thinking. Second is off-premise technology like Flybuy. Third, we have virtual brands like Cosmic Wings. Fourth, ghost kitchens, with IHOP up and running in Dubai, Kuwait, and Saudi Arabia, and for Applebee's and Cosmic Wings, we’re up and running in L.A., Philadelphia, and coming soon in Miami. And finally, we're focused on new culinary creations like IHOP’s Burritos & Bowls. We're also conducting a top-to-bottom strategic review of the business, embracing a more holistic vision for our future. Meanwhile, I'm confident in our plans and very confident in our management team. We've identified the building blocks for the restaurant renaissance and will use those for you to continue to follow our progress. An important part of our story is a strong balance sheet, and Allison will give you an update on that as well as our financial results.

Thank you, John. That's a great overview of the exciting things we’re going to do at Dine Brands and what we’re currently doing. Good morning, everyone. I'll begin with an update on the business. Our performance in the first quarter reflects pent-up consumer demand for our brands; vaccines being administered across the country; the distribution of government stimulus checks; and the gradual easing of dining room restrictions. At the end of the first quarter, 99% of our domestic restaurants are open for dining operations, with some restrictions in certain states. I'm pleased to reiterate that we repaid the $220 million drawdown from our revolving credit facility in early March 2021 as planned. We now expect to achieve annual interest savings of approximately $5 million. Our cash position remains strong. We ended the first quarter with total unrestricted cash of $179.6 million. This compares to unrestricted cash of $163.4 million for the fourth quarter of last year, and $220 million that was drawn against our revolving credit facility, a 10% increase. Switching gears to our operating results, I'll start with the income statement. For Q1, adjusted EPS was $1.75 compared to $1.45 for the same quarter of 2020. The year-over-year improvement was primarily due to lower tax expense and higher gross profit driven by the increase in revenue from Applebee's company-operated restaurants due to a higher average check and increased traffic. We believe the distribution of the latest round of government stimulus checks in March favorably impacted both traffic and average check. The increase in average check was partially attributed to favorable product mix and daypart shifts. Profits for Applebee's company restaurants increased 5.9 percentage points to 9% for Q1 compared to the same quarter in 2020. Rental segment revenue for Q1 of 2021 was $26.1 million compared to $29 million for the same period last year. The variance is primarily due to a decrease in base rent from restaurant closures and lease buy-outs, along with a decline in percentage rental income based on franchisees' retail sales. Rental segment gross profit was 19.8% for Q1 of 2021, representing sequential improvement of 12 percentage points compared to Q4 of 2020, which was heavily impacted by charges related to the planned closures of underperforming IHOP restaurants. Our GAAP effective tax rate for Q1 was negative 6.6% compared to 23.2% for the same quarter of 2020. The change in effective tax rate was due to one-time recognition of excess tax benefits on stock-based compensation related to the departure of our previous CEO. Switching gears to G&A, G&A for Q1 of 2021 was $39.9 million compared to $37.6 million for the same quarter last year. The increase was primarily due to higher personnel costs associated with equity-based and other incentive compensation, partially offset by lower travel costs. We continue to view G&A as a significant lever for the organization. Turning to the cash flow statement, cash from operations for Q1 of 2021 was $30.6 million compared to $29.6 million for the same quarter last year. The increase was primarily due to the recognition of excess tax benefits on stock-based compensation. Our highly franchised model continues to generate strong, adjusted free cash flow of $30.7 million for Q1 of 2021 compared to $27.5 million for the same quarter in the prior year, primarily due to the increase in cash from operations and lower CapEx compared to Q1 of 2020. We believe our strong cash position, cash from operations, disciplined G&A management, and the ongoing improvement in our business will allow us to invest and grow as the recovery from the pandemic continues. Regarding capital allocation and financial flexibility, our business decisions are driven by improvements in our restaurant operations and industry conditions. As a result of our progressive recovery, we chose to repay the $220 million drawn against the revolver in early March. We'll continue to evaluate our business performance, which will influence decisions on capital allocation. As of March 31, 78% of the $61.9 million in royalty, advertising fees, and rent payment deferrals that Dine Brands provided to 223 franchisees across both brands has been repaid. Dine Brands started the year strong, with both Applebee's and IHOP posting a sequential improvement in comp sales. Average weekly sales returned to pre-pandemic levels in certain weeks during Q1. We ended Q1 with a strong cash position, allowing us to invest more in our business. We're very pleased with our start to 2021 and remain optimistic about the second half of the year. Now you will hear more from our brand President, John Cywinski, about the significant progress we're making at Applebee's.

Great job, Allison, thank you, and hello, everyone. After a year of navigating the pandemic, March and April represented an extraordinarily positive inflection point for the Applebee's brand. In fact, in more than four years as President of Applebee's, I honestly can't recall the brand being better positioned than it is at this very moment. We just delivered the two highest monthly sales volumes Applebee's has achieved since the inception of dine-in in 2008. In fact, it's quite likely March and April represent two of our all-time highest volume months in the 40-year history of the brand, but I really can't confirm this as our database only goes back 13 years. What I can confirm is that March comp sales were positive 6.1% versus 2019, reflecting the confluence of consumer stimulus, compelling marketing, and, most importantly, operational excellence. Momentum continued to accelerate in April as Applebee's delivered an 11.4% comp sales result versus the same 2019 baseline. While it's impossible to determine how much of this momentum can be attributed to government stimulus versus demand, it's clear America is dining out again in full force. According to Black Box, Applebee’s has now significantly outperformed the casual dining category for 12 consecutive weeks. This average is 560 basis points. This is reminiscent of Q1 of last year, when we posted 10 consecutive weeks of positive comps before the emergence of COVID. Clearly, Applebee's momentum has returned and it's returned in a very powerful way. This momentum started to emerge in the last week of February, well before stimulus checks, when we introduced our successful burgers and wings event. This message resonated with Applebee's guests behind the enormously popular Chicken Fried lyrics from our friends at Zac Brown Band. April’s return of our signature Irresist-A-Bowls is the latest example of Applebee's providing big flavor and abundant value. This advertising was choreographed to the classic AC/DC rock anthem 'Back in Black,' and it delivered breakthrough results. This is just more evidence of Applebee's talented marketing team continuing to innovate around what I firmly believe to be the most enduring, memorable, and likable ad campaign in the industry, and frankly outside of it. Of course, I'm talking about 'Eating good in the neighborhood,' something that is a real point of pride for our franchise partners, the restaurant teams, and our entire organization. We hear about our advertising all the time from our guests, and it always brings a smile to my face. Equally important to our guests is the innovation our team continues to deliver behind Applebee's $5 Mucho Cocktails. As we begin to see the alcohol business steadily return to pre-COVID normalcy, the easing of capacity constraints, the opening of bar seating, and the re-emergence of our late-night daypart represent clear incremental growth opportunities as we progress through the year. After scaling back media spending in January and February, our national media plan is now substantial and balanced throughout the year, with favorable Q2, Q3, and Q4 comparisons with each of the same quarters in 2019, which bodes very well for the brand. Additionally, there are indicators that our performance isn't short-term in nature; Applebee's unaided brand awareness and advertising awareness continue to significantly outpace all casual dining competitors. Key metrics such as affordability, menu variety, guest satisfaction, brand affinity, and likelihood to visit consistently outperform the category average. Now I'd like to share a few insights regarding our on-premise and off-premise business. For both March and April, Applebee's restaurant sales averaged $54,000 per week. Our on-premise business has steadily increased as dining restrictions have eased. It's worth noting that our off-premise volume has held steady between $17,000 and $18,000 per week per restaurant, reflecting the staying power of the off-premise business. For the month of April, Applebee's sales mix consisted of 67% dine-in, 20% car-side To-Go, and 13% delivery. Included in this delivery segment is our new virtual brand Cosmic Wings, and after about 10 weeks in the market, Cosmic Wings sales have averaged about $330 per restaurant per week, with significant geographic variability reflecting Uber Eats coverage. After this expansion, I should be able to quantify the size of the Cosmic Wings opportunity. With respect to restaurant operations, I’m very encouraged with the integration of handheld tablets in about 500 Applebee's restaurants. As staffing challenges persist across the country, these tablets provide a meaningful hedge against labor inflation while enabling our service to be more efficient. Bottom line, the servers love these tablets because they make their job easier and allow them to earn more. One of the positive outcomes of the past year was the reduction in our core menu by approximately 33%, simplifying our operation. The resulting food and labor benefits have favorably impacted restaurant margins and execution. Over the past year, our teams have focused on building an innovation pipeline for culinary, beverage, marketing, and technology initiatives for future deployment. In wrapping up, it's evident to me that America trusts Applebee's as we're beginning to see the benefits of the goodwill our franchise partners worked so hard to create over the past year. Virtually all our restaurants are now open, royalty collections remain rock solid, and our advertising fund is comparable to what it was in 2019, which is a significant lever for us moving forward. We have an exceptionally talented team eager for this day, and franchisees are aligned behind our business plan and confident in our ability to not only perform but thrive in this environment. For the first time in a long time, I believe we control our own destiny, and we are poised to unlock the full potential of this great brand. While I'm sure there will be other challenges along the way, Applebee's has genuine momentum right now, and I couldn't be more optimistic about our future than I am today. Thank you. I will now turn it over to my partner, Jay.

John, you must be really proud of those results and what your team and franchisees are accomplishing right now. I know I'm very proud of it, so nice job. Good morning, everyone. Like Applebee's, we've made great progress this quarter compared to where we were during the pandemic as well. Our first-quarter comp sales improved sequentially by 8.9 percentage points compared to the fourth quarter. As our business improved, our average weekly sales in dollars have grown significantly and surpassed pre-pandemic levels at times during the quarter as stimulus checks provided our guests with additional buying power. Average weekly sales were approximately $26,000 for January and sequentially increased to just under $36,000 for March, reaching a high for the quarter of approximately $40,000. Regarding our domestic restaurant open for business, 97% of restaurants were open for dine-in service with restrictions in most states as of March 31, which compares to only 70% at the end of December. With guests eager to return to in-restaurant dining, we're pleased California recently increased indoor restaurant capacity to 50%. IHOP’s presence in California makes up approximately 13% of our domestic business. So we're optimistic about the potential lift overall there. To drive sustainable growth, we're continuing to execute against four strategies. As I discussed last quarter, these are focusing on our p.m. dayparts, providing compelling value, maintaining our gains in off-premise sales, and lastly, our development growth. Our plans have yielded tangible results. Regarding the first two strategies, we launched IHOPPY Hour in September last year to offer our guests a broad selection of value options during non-peak hours. IHOPPY Hour continues to drive incremental sales, even as business improves across all dayparts. Traffic during IHOPPY Hour is two to three times higher than at other times compared to September 2020, when we launched it. This equates to a low-to-mid single-digit lift in sales for the entire day. To further increase the appeal of the IHOPPY Hour menu, which has been well received by our guests, we plan to update the menu items over time. We're continually innovating to maintain IHOP’s category-leading position in family dining. Our latest innovation is IHOP's new Steakhouse Premium Bacon, available on our new Bacon Obsession menu. This makes IHOP the first national family dining restaurant chain to offer thick cut premium bacon. The Bacon Obsession menu is enhancing our position as leaders in breakfast and highlights our commitment to innovation and value across all dayparts. During 2020, we played both defense and offense to remain resilient and prepare to thrive after the pandemic. We played defense by making operational changes and moving heavily into off-premise occasions. We also invested heavily in our menu to be ready with fresh and appealing dishes for guests when they return to our restaurants while accommodating guests who choose to dine on-premise. This culminated in the launches of IHOPPY Hour and our Burritos & Bowls, both of which have been very well received. Our overarching menu strategy underscores innovation and supports both breakfast and non-breakfast occasions while also being portable for guests on the go. Now let's switch gears to maintaining gains in off-premise sales. Despite capacity restrictions being eased nationwide in Q1, our off-premise sales held steady at 33.3% of total sales, which is flat compared to Q4. However, we've seen a steady increase in net off-premise sales in dollars. For Q1, our sales mix consists of 66.7% dine-in, 16.8% To-Go, and 16.4% delivery. We believe sustaining this off-premise sales mix at a much higher rate is feasible in a post-pandemic environment and will complement the anticipated return of dine-in business. In fact, our off-premise sales in March reached dollar levels higher than when we were 100% off-premise last year. The pandemic has certainly influenced consumer behavior and changed how guests use IHOP. We adapted to these changes through innovation and developing highly portable items, such as Burritos & Bowls. We believe the convenience of takeout and delivery will remain appealing. Regarding our development strategy, we now offer franchisees four development platforms: traditional formats, non-traditional, Flip'd by IHOP locations planned for 2021, and a new small prototype we're testing this year. In Q1, our franchisees opened eight new restaurants globally, and we expect to resume development that was paused due to the pandemic for the remainder of the year. We believe the brand can exceed the historical average of approximately 60 new restaurants opened annually over the last decade. As we plan for the next three years, we'll have a blended mix among these four types of development. We made progress over the last 12 months, and we’re executing against our strategy with tangible results. IHOP remains in a position of strength and is poised for long-term growth. Now, I'll turn it back to John Peyton for closing thoughts on how IHOP and Applebee's are positioned to thrive post-pandemic.

Thanks, Jay and John, and Allison, your leadership in 2020 is what led to a great quarter in Q1. Thank you for sharing our story today. I can't emphasize enough that the restaurant renaissance is here, and our Q1 performance is certainly evidence of that. I'm extremely confident in our future because restaurants are essential to society and people want places to gather and celebrate. After 13 months of being cooped up, we're ready to do that. Our people, our teams, our franchisees, and thousands of restaurant team members across the country are resilient. They demonstrated this time and again and are ready to welcome guests back. The favorite part of my job is visiting team members, and I've finally gotten to do that in the past few weeks. Each team member I met expressed enthusiasm and optimism about the future. As we transition to a post-pandemic environment, Dine will continue to invest in innovation and strategic platforms that will drive long-term sustainable growth. We look forward to taking your questions. I will turn it back to the operator.

Again, we ask that you please limit your question to one and one follow-up. Your first question is from Brian Mullan from Deutsche Bank.

Hey, thank you. Just a question about the development outlook at IHOP. In the prepared remarks, Jay, you outlined four different avenues for growth: traditional, non-traditional, Flip’d, and small prototype. But, John Peyton, it would be great to get your take on how to consider the potential domestic net unit growth pace for this business over a multi-year period? Is this a 1% to 2% net unit growth business in a normalized year? Could it actually get to 3% to 4% if your initiatives take hold? Any thoughts would be great. If you want to layer in anything on maybe more near-term conversion opportunities, that would be helpful too.

Yes, Brian. Obviously, we’re looking at the potential to ramp up development post-pandemic. Regarding your last question first, we're seeing our franchisees bring many sites that are conversions, and we're good at conversions. About a third of our system used to be something else. While we develop new prototypes, we also do a lot of conversions. That should ramp up as we emerge from the pandemic. Initially, we’ll probably see heavier loads of traditional and non-traditional development, and as Flip’d gets stood up, that will speed up. Franchisees are also bringing us smaller buildings as conversions, which will integrate with our small prototype theories.

Yes, Brian. I want to be careful and not provide specific guidance, but I believe we have the potential for growth. Over the last decade, IHOP has grown about 40 to 50 new restaurants a year. My challenge to Jay is to double that pace. I think it's possible, but give us another quarter before we give you forecasts. Applebee's has spent the last few years focusing on cleaning up and tightening the portfolio. We're now pivoting towards growth with plans for 10 to 15 new restaurants annually. I'm not providing a forecast, but this is the challenge for our brand leaders as we develop plans in the coming months.

Okay, thank you. And my follow-up, pivoting over to Applebee's. John, thank you for some color about Cosmic Wings in your prepared remarks. After adding Postmates and DoorDash as partners, is there a sales threshold you're looking for to determine whether this is an initiative you want to stand behind long-term? Also, do you think being a franchise system complicates launching a virtual brand?

Hey, Brian. Good questions. We love Cosmic Wings. It's incremental, not complicating our operation, and our franchisees love it too. We're currently waiting for Postmates and DoorDash to come online, which is our Phase 2. On the question of whether it's harder launching a virtual brand in a franchise system, we have 30 exceptional partners, and we strategically align with them. I don't see a difference there.

Great. Thanks for taking the question. My first one is for Jay. Regarding the performance of Applebee's in April, specifically versus IHOP, could you explain the reasons behind the performance differential?

That's a great question, Jake. I think it’s a few different factors, and it’s my mission to close that gap. The capacity restrictions hit us hard on weekends. We've been doing really well on weekdays but see sales decline on weekends. It's obvious that we don't need the extra capacity. Our sales also dipped as franchisees struggled with staffing issues, which is well-documented in the industry. This is impacting sales on certain dayparts too. The new working behaviors of consumers working from home is another challenge. However, we believe our IHOPPY Hour and broader menu innovations will help us close that gap with Applebee's.

Yes, Jake. The average weekly sales of $54,000 were consistent in both months. The swing from 6% to 11% in comps has to do with the base rollover from 2019.

Thanks. I wanted to revisit average weekly sales on the IHOP side. Could you clarify the average weekly sales dollars for recent months?

In January, we were at $26,000, and by March, we were at $36,000, peaking at $40,000 for a few weeks. We haven’t disclosed April's sales yet.

The situation with capacity is fluid and changing regularly. We’ve made progress in places like California, where some counties have updated their color codes. New York and New Jersey announced they’ll completely open on the 19th, which will be beneficial as we open more locations. The process will continue to improve over the coming months, but it won't change overnight.

Hey, thanks for the question. With comp growth in April at Applebee's up 11.4% and down at IHOP, can you help us understand the dine-in versus off-premise dynamics? How does that affect your thoughts on long-term growth drivers?

As dine-in is recovering, our total sales are rising, but the off-premise business remains steady. The mix holds at 33% indicating we are growing concurrently with dine-in sales. We're seeing increases in total sales, so we're focused on those higher sales values and optimistic for the future.

We believe there has been too much focus on off-premise sales. The dine-in segment will become a core strength as guests are craving the social experience of dining out. The convenience-driven occasions will always have significance, but dine-in is about connection and indulgence. We want both experiences to thrive.

On the off-premise side, both brands were at under 10% before the pandemic; now we’re at about a third, which is a massive win for us. We're seeing that off-premise section as incremental to our overall revenues. Yes, I'd like to address labor challenges. Applebee's and IHOP are desirable workplaces. We've been hiring consistently for the last couple of months, even while needing to hire 20,000 staff members. We think this is a moment in time where the market is sorting itself out. We anticipate settling into a new labor market within the next three to six months.

You mentioned pressures from inflation on the food costs as well as labor, could you share more insights on that? How do you feel about taking additional pricing in light of this while still emphasizing value?

Yes, there has been disconnect between the volume of guests dining and what our suppliers were prepared for; however, we see this balancing out as supply catches up. IHOP expects food costs inflation between 1.2% and 1.6%, with similar trends for Applebee's. We are passing through some of those costs to guests while remaining firm on the value propositions.

We have labor and food cost challenges, but our menu simplification has led to food and labor savings. Our restaurant profit initiative will also provide benefits into 2022 as we start that work again.

Our franchisees typically take between 1% and 3% in price annually. Balancing taking price to offset costs without losing traffic is critical. As sales pick up, how we manage value drives traffic, especially with initiatives like IHOPPY Hour where sales are going up while still offering good value. It creates a strong mix overall, so we'll target that balance as we proceed.

We rank number one in affordability, and that status is very important to us. We can convey value beyond just pricing. We want our guests to be excited about the experiences we offer while keeping affordability front and center.

Given the higher off-premise mix and less complicated menu, how should we think about the medium-to-longer term margin implications as the dining room business comes back?

When considering off-premise business, we have observed guests will pay for convenience, and we adjust our menu pricing accordingly while ensuring delivery remains a priority.

Sales are king for profitability, and as sales improve, productivity goes up. I believe our off-premise business has provided a stronger advantage than we anticipated, and will lead to positive contributions to profitability as well.

Our off-premise average checks are higher than expected, and that incremental revenue helps. We balance both channels to ensure profitability, and we see off-premise as a business model that supports growth.

I wanted to ask about corporate cost normalization and your G&A position in relation to being a franchise system. Any views on percentages in sales, targets you might leverage moving forward?

Our G&A range remains between $160 million to $170 million, as we’ll maintain that line and see how travel costs ramp up and other expenses normalize post-COVID. We'll keep evaluating as conditions improve.

As we review the company, we're looking at cost structures again as part of our overall strategic plan for growth, including capital allocation considerations in the coming months.

I wanted to check in on the renaissance you're experiencing in the restaurant industry and whether you've seen survivor bias play out in the trends you're seeing? Any updates on competitive closures affecting business?

I believe strong brands win in both difficult and better times. Because Applebee's and IHOP are iconic brands with strong franchisee networks, they are faring well as we move forward.

In terms of the alcohol segment, our previous mix was 14%-15% of sales, which dropped during the period when dine-in was unavailable and has started to recover. We believe there's clear opportunity for that segment as we progress, especially as late-night dining returns.

Thanks Christian, and thanks everyone for your questions. I appreciate your engagement. I want to clarify one comment: IHOP has ghost kitchens in Dubai, and Applebee's has one in Kuwait. Thank you for your time today, and I'll talk to you next quarter.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.