Dine Brands Global, Inc. Q3 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to the Dine Brands' Third Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President of Finance and Investor Relations. Please go ahead.

Good morning, and welcome to Dine Brands Global's Third Quarter Fiscal 2024 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-Q filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brand's Investor Relations website. For calendar planning purposes, we are tentatively scheduled to release our Q4 2024 earnings before the market opens on February 25, 2025, 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 thanks for joining us for our third quarter earnings call. I'll begin by discussing our plans for IHOP's leadership transition. As we announced in September, after 16 years at Dine and the last six as IHOP's President, Jay Johns has announced his retirement. Jay will step down from his role in January and will remain involved with IHOP in an advisory capacity until March of 2025. Jay's tenure is marked by IHOP's strengthened market position, now operating over 1,800 restaurants globally. And while we'll miss his daily presence, we're tremendously grateful for his continued support during the transition period. And two weeks ago, we officially welcomed Lawrence Kim, who will assume the title of IHOP President on January 6th. Lawrence joins us from Yum! Brands, where he was most recently Chief Innovation Officer. Lawrence has over 20 years of senior leadership experience at leading consumer brands, and he has a proven track record in driving global brand strategy, marketing, and digital innovation. Lawrence brings valuable experiences and fresh perspectives to support IHOP's long-term growth. As IHOP President, he'll oversee the continued expansion of the brand, focusing on driving development and sales growth, pioneering innovation, and improving the guest experience. We're excited to have Lawrence on board, and we wish Jay all the best for his retirement. Now, moving on to our results. Today, I'll discuss Dine's Q3 results, including performance and operational updates from our three brands. I will also dig into some important consumer insights we've learned this year and how it's informing our strategy for Q4 and into 2025. The third quarter was challenging for our brands, with results falling short of our expectations. Industry headwinds have persisted, and our operating environment continues to be highly competitive and promotional. Our consumer demographic remains under financial pressure and is still pulling back on discretionary spending, with the biggest impact coming from the lower-income consumer, who is choosing to eat at home more often. There's no doubt that macro challenges continue to impact performance, but the bigger question for us is how we can be more forceful in pushing back against these headwinds and more effective at drawing guests to our brands. We know we're capable of more, and while the underlying strength of our business provides assurance of resilience through market cycles, we are diligently working to identify and address the missing ingredients in our strategy to refine our offerings and move forward. For the purpose of today's call, I'll provide an overview of what we know today, what is working, and where we see opportunities to refine, reorient, and accelerate our strategy. We know that today's environment demands promotions that deliver value, menu variety, great food and drinks, and an outstanding experience. However, there are areas that require further refinement and reorientation to better address evolving consumer needs. At a high level, we know the following about our guests in today's changing market. First, guests are placing a higher value on consistency, knowing what to expect and a seamless interface with the brand in every interaction. Guests are increasingly seeking out simplicity in a market with overwhelming choices, and guests continue to trade down as some are seeking all-encompassing value that extends to the entire dining experience. Despite current challenges, market data tells us that our guests continue to have a strong affinity with our brands. Our brands have delivered value at scale for generations, supported by a robust network of some of the most loyal and dedicated franchisees in the industry. Our opportunity now is to better capitalize on our brand equity to enhance the impact for all of our stakeholders. Now, for an overview of the numbers from the quarter, adjusted EBITDA increased $1.3 million to $61.9 million in Q3 compared to Q3 of 2023. Total consolidated revenues decreased $7.6 million to $195 million in Q3 2024 compared to the same period last year. Applebee's reported negative 5.9% comp sales, and IHOP reported negative 2.1% comp sales. Vance will provide more details on financial performance in a moment. With that, I'll turn to the brand updates, beginning with Applebee's. Applebee's continued to face tough conditions in Q3, paired with a tough rollover of our successful all-you-can-eat wings promotion from a year ago; this resulted in comp sales and traffic falling short of our internal expectations. In Q3, we kicked off our partnership as the official grill and bar of the NFL with a new ad campaign that featured current players and coaches and highlighted our $0.50 Boneless Wings campaign. At this early stage of our partnership, we're encouraged by the strong engagement around our advertising campaign, showing the power of the brand alliance between the NFL and Applebee's. Further work is needed to leverage the potential of the partnership and drive traffic. The Applebee's NFL partnership provides a platform for us to demonstrate all-encompassing value to our guests, and we're making the necessary menu refinements to better package our offering to capitalize on the potential we continue to see here, and we'll provide further updates next quarter. As we do this, we'll build on the quarter's bright spots, including the positive impact on our off-premise sales during the NFL promotion. As we said before, we believe there is significant opportunity to improve our off-premise business. Extending our promotions and limited-time offers to off-prem channels is an important pillar in advancing this strategy. In fact, we've seen guest satisfaction metrics improve versus previous quarters, driven by enhanced off-premise offerings and improved order accuracy. Working with a prominent brand like the NFL helps us provide exciting opportunities to connect and drive engagement with our guests, both in-person and online. I believe significant upside exists when paired with the consistency, simplicity, and all-encompassing value we know our guests want and our brands are capable of delivering. Looking ahead, you can expect to see a combination of immediate refinements to our offerings. For example, we launched two value initiatives in October to drive traffic. On Mondays, we now have our Pick 6 promotion, which will run through the Super Bowl, and we recently introduced our new Burger Tuesday LTO that offers a handcrafted burger with fries and a drink for just $9.99. Our Real Big Meal deal also launched in this quarter, which includes the choice of a new big entree or a fan favorite and a beverage at an attractive price point. We're applying our learnings to this with a shift to more full meal value offers, and we'll continue to evolve our value propositions to keep our guests engaged. Now, moving to IHOP. IHOP's performance was challenged, as we were also lapping last year's successful double value offerings of Kids Eat Free and All You Can Eat Pancakes. In the middle of June, we leveraged our barbell promotion strategy to meet our guests' needs, and we saw some positive results from those efforts this quarter. An example of this was our All You Can Eat Pancakes promotion, which featured a menu handout with our value-priced All You Can Eat Pancakes on the front and higher-margin abundant combos on the back. This year, we once again decided to run the campaign around back-to-school season to help families when schedules are tight, and wallets are pinched. Last year was the first time we offered All You Can Eat Pancakes in the third quarter, which was based on guest feedback and proved to be successful. In an increasingly crowded space for value, our messaging is taking a bit longer to capture the attention of guests. Despite this, our All You Can Eat offering had a positive impact on sales in August and September with comp sales performing at or above family dining for three weeks during the promotion. On the menu innovation front, IHOP unveiled its fall menu in September and launched its new Anytime Tacos as well as updated a variety of favorites, including IHOP's Breakfast Burrito, which is performing well above expectations. We're promoting these new menu items as well as our combo tiers to support a balanced barbell strategy and continue to drive profitability for franchisees. In October, we launched our brand new House Faves menu with four high-demand breakfast dishes available Monday through Friday for $6 or $7 depending on the market, giving families an expanded way to save when dining out during the week. This value platform has been in the works for over a year, and it offers craveable menu items at attractive price points. We're pleased to see our efforts around enhancing the guest experience are having a positive impact across our system. Over the past year, we've seen improving guest satisfaction scores, and guest complaints have gone down as a result. We attribute this to our improving operations and focus on efficiency in the front and back of house. Recently, more IHOP restaurants are offering 24-hour locations. We're working with franchisees to take a disciplined approach to reintroducing 24/7 or 24/2 and making sure the economics make sense and there is demand for it. Year-to-date, we added 42 additional 24-hour locations, bringing the total to 860 restaurants. As we said earlier in the call, we're excited about the opportunities that lie ahead for IHOP. Value will remain our focus for the rest of the year, and we have a strong pipeline of promotions, marketing campaigns, and menu innovation that will keep our guests engaged during the busy holiday season. Shifting now to Fuzzy's. In October, we announced that Patrick Kirk was promoted to President and Chief Marketing Officer. Patrick has made an immediate impact, and we're excited about the fresh perspectives and creative thinking he brings, as he leads the brand's future growth. In Q3, Fuzzy's comp sales and traffic were pressured, but introductions of new value promotions helped improve performance towards the back half of the quarter. We continue to get positive feedback from guests on new menu items and Fuzzy's expanded promotions that are leveraging the benefits of the Dine platform. During the quarter, Fuzzy's launched its Hot Honey Chicken Tacos and Spicy Watermelon Margarita combo developed in collaboration with Country Music star Thomas Rhett's tequila company, Dos Primos. Traffic and sales improved during the run of this limited-time offer, and guests' feedback to this combo offering was very positive. As a result, we're going to leverage Fuzzy's bar and beverage capabilities to lean more into taco and margarita combo platforms moving forward. Late in the Q3, Fuzzy's announced a first-of-its-kind partnership among its Dallas-Fort Worth franchisees to launch a regional happy-hour deal. This was a significant moment for the Fuzzy's brand because first, the Dallas-Fort Worth area is Fuzzy's biggest market with over 50 restaurants. Second, having a happy-hour deal expands our daypart between lunchtime and peak dinner hours, which also contributes to higher traffic. Looking toward the rest of the year, we have new promotions and new menu items in the pipeline as we continue to reinforce our value-driven positioning at Fuzzy's. Now on the international side of the business, we're driving growth in both our core markets as well as strategically looking at opportunities in new markets with eight net openings year-to-date. In Q3, we opened three dual-brand locations, two in existing markets, Peru and Mexico, and one in a new market, Honduras, bringing us to 13 total dual-brand restaurants. The restaurants have performed well, and we continue to see this portfolio achieve on average approximately 1.5 to 2 times the revenue of a single branded restaurant. We're pleased with the growth of the dual brands concept internationally, and we're excited about the potential of this opportunity domestically. We've already received strong interest from existing U.S. franchisees on adding a second brand into their restaurant. As we mentioned last quarter, we have 15 sites targeted and continue to remain on track to open our first U.S. domestic location in Seguin, Texas in Q1 of 2025. Having two iconic brands in our portfolio that complement each other is a competitive advantage, and we plan to leverage this to improve the economics and drive growth across our system. I'll wrap up by reiterating our commitment to driving growth, innovation, and exceptional guest experiences. I'm confident in our team's ability to navigate the evolving market landscape and capitalize on new opportunities. With that, we will turn the call over to Vance.

Thanks, John. While our top-line results were challenging this quarter, we continue to generate strong free cash flow and EBITDA, reminding shareholders that our asset-light business model positions us well to navigate these volatile environments. On the top-line, consolidated total revenues decreased to $195 million in Q3 versus $202.6 million in the prior year, primarily driven by a $6.2 million decrease in franchise revenue and a $1.1 million decrease in rental revenues. Our total franchise revenues decreased 3.6% to $166.4 million compared to $172.5 million for the same quarter of 2023. Excluding advertising revenues, franchise revenues decreased 2.6% to $96.6 million compared to $99.1 million. Rental segment revenues for the third quarter of 2024 decreased compared to the same quarter of 2023, primarily due to operating lease terminations and a decrease in percentage rent. G&A expenses decreased 6.6% to $45.4 million in Q3 of 2024, down from $48.6 million in the same period of last year, mostly due to lower compensation-related expenses, offset by an increase in depreciation expense. Adjusted EBITDA for Q3 of 2024 increased to $61.9 million from $60.6 million in Q3 of 2023. Adjusted diluted EPS for the third quarter of 2024 was $1.44 compared to adjusted diluted EPS of $1.46 for the same period of last year. Now, turning to the statement of cash flows. We had adjusted free cash flow of $77.8 million for the first nine months of 2024 compared to $54 million for the same period of last year, driven by a $21.7 million decrease in capital expenditures. Cash provided by operations by the end of the third quarter of 2024 was $77.7 million compared to cash provided from operations of roughly $79.3 million for the same period of 2023. The decrease was primarily due to a decline in segment profit, offset by a decrease in G&A expenses and a favorable increase in working capital. CapEx through Q3 of 2024 was $10.3 million compared to $32 million for the same period of 2023. The company increased spending in information technology and other projects in fiscal year 2023. We finished the Q3 with total unrestricted cash of $169.6 million compared with unrestricted cash of $153.5 million at the end of the second quarter. Additionally, we paid $7.8 million in dividends in Q3 of 2024. We continue to remain committed to our current dividend, which has a dividend yield of nearly 7%. Next, let me discuss Applebee's performance. Q3 same-restaurant sales were negative 5.9%. Average weekly sales were over $49,500, including over $10,700 from off-premise, or over 21% of total sales, of which 11% is from to-go and 10% is from delivery. IHOP's Q3 same-restaurant sales were negative 2.1%. Average weekly sales were $37,000, including $7,100 from off-premise, or 19% of total sales, of which 7% is from to-go and 12% is from delivery. On the labor front, franchisees are reporting that staffing and labor costs have continued to remain steady. Turning to commodities, we're seeing costs continue to stabilize. Our expectations for the full year are consistent with what we said in Q2, which was low single-digit inflation at IHOP and low single-digit deflation at Applebee's due to varying market baskets at the brands. As a result of these differences, Applebee's commodity cost this quarter fell 2.4%, and IHOP commodity costs grew 3.7% versus the same period of 2023. Our supply-chain co-op continues to work across the Applebee's and IHOP systems to identify additional cost-savings opportunities and support restaurant profitability initiatives through both operational improvements and input costs. To date in 2024, we've implemented projects resulting in over $42 million of annualized savings across the system. Before turning the call back over to John for Q&A, I'd like to quickly provide an update on our financial guidance for 2024. We remain committed to the guidance we provided during last quarter's earnings call with the exception of G&A. Our revised G&A guidance is in the range of $195 million to $200 million, including non-cash stock-based compensation and depreciation of approximately $35 million. With that, I'll hand it back over to John.

Thank you, Vance. Our solid financial footing, our loyal franchisee network, and dedicated team members all comprise our strong foundation. Together, we'll continue to build on our strengths, we will refine our strategies, and we will deliver value to stakeholders. I certainly appreciate our shareholder support and belief in our plan, and I want to thank you for joining us today. And so, with that, we'll turn it over to the operator, and we'll be open for questions. As a reminder, in addition to Vance, Jay and Tony are also with us today and are happy to answer any questions you have. So operator, please go to the queue and open the line for the first question.

Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from Eric Gonzalez of KeyBanc. The floor is yours.

Thanks. Good morning. As I reflect on what's been done to drive strong results at your largest peer, it's clear that its success was tied to a heavy focus on operational improvements, including a significant investment in labor and rethinking of the menu architecture. This was all contemplated before the brand decided to pour additional dollars into the ad fund. So my question is, do you think you need to make similar operational adjustments? And relatedly, the fact that your franchise business presents an impediment towards getting that done and what is the appetite among your franchisees to reinvest in labor, ingredient quality and perhaps stepping up on value?

Okay. So I'll try to unpack. So I'll start with our performance, right. So in 2021, 2022, and '23, Applebee's, which you're referring to in your question, it did outperform in same-store sales relative to black box and relative to its peers. And clearly, as you alluded to, traffic is an issue for us this quarter and so far in 2024. Our focus and what we're seeing is that we just need to be more consistent—more consistent in operations and service and quality of food as you mentioned, but in particular, we'd be more consistent with our promotions and our advertising, making sure that they perform well more often than not rather than having hit-or-miss results. Our learning is that we need to meet guests where they are, and the guest definition and expectation of value shifted over the last couple of quarters; they are focusing on the total cost of the meal. Previously, Applebee's and IHOP were primarily promoting specific menu items, but it became clear that guests want to know the total cost of dining in a restaurant, for instance, the cost of a sandwich plus fries and a drink. We are very aware of that insight and have made corrections going forward, as recently as rolling out IHOP's House Faves last quarter. Most importantly, our brands are highly regarded. We have a high affinity for both brands, and we're really focused on getting the value right and ensuring our offerings match what guests expect. In terms of franchisees' willingness to invest, our franchisees are among the best in the industry; many of them have been in this business for decades and have substantial portfolios. We work closely with them on all our plans—marketing, renovations, operations—and we are hand-in-hand together working to address the challenges. They are making the investments they need to make. Regarding our asset-light model, we've maintained that for quite some time and believe it's the right model going forward.

So one part of this topic is really about driving frequency. If you're driving a lot of customers in with, say, the NFL partnership or $0.50 boneless wings, are those customers coming in for the promotion returning? If there's an operational problem, they might not come back. And I think what we're seeing at your competitor is that they spent a lot of time fixing operations to drive that frequency. So I'm just wondering if you're seeing anything in the trend line that would tell you that there needs to be some sort of change made.

Our guest satisfaction scores, actually at both brands, not just Applebee's, are both up this year through the last quarter. Both brands have spent a significant amount of effort over the last year focusing on operations, service, and quality of food. So we don't see that as the issue. What we're seeing is that the marketing strategy, the messages we're sharing, and the value that we're communicating were not as compelling as they needed to be the last couple of quarters, and it's really about the consistency of guests coming in. It's a very promotion-driven environment right now, with a lot of noise for consumers to sift through, given the many brands and categories offering numerous promotions. We need to ensure we are sharp in the right promotion, communicated the right way to drive traffic and repeat business.

All right. Thanks. I'll pass it on.

Thank you for your question. As a reminder, please limit yourself to one question. Our next question comes from Jeffrey Bernstein of Barclays. The floor is yours.

Thanks. Hi, this is Pratik on for Jeff. Good morning, everyone. I just wanted to dig a little bit deeper into the value messaging. It seems like both brands have always had it yet are seemingly struggling to break through right now. John, what do you see as the biggest roadblock at the moment? What can you adjust in the near term beyond your recent promotions and LTOs? Also, how do you tackle that whole messaging around consistency and simplicity? Is there an opportunity to revamp the menu while others are in your competitive space?

Yes, Pratik, I just don’t have much to add past my last answer. So I'm going to ask Jay and Tony to speak more specifically about their brands' plans. But I will reiterate that our focus is on consistency, especially simplicity and all-encompassing value, which does include evaluating our menus, so let's hear from Jay first about IHOP's approach going forward.

Yes, sure, John. I think one of the key improvements we have made is in our execution over the last year. The value piece, as John said, hasn't been quite right. We've always had value, but often it's been limited-time offer value. It's here today and gone six weeks later. The thing we've really been missing is a more stable everyday value, which is exactly why we rolled out our new House Faves program in the fourth quarter. This program doesn't show up in third quarter results, but we're encouraged by the early signs. It leans into our breakfast strength and offers four full meals priced at $6 or $7 for some of the more expensive markets. This includes pancake combos, French toast combos, an omelet, and a house scramble with hash browns. Full meals that guests seem to want at a competitive price point. We believe this more stable menu option will make a noticeable difference as we move forward. Too early for results, but positive signs are emerging.

Yes, thanks, Jay. This is Tony. When I reflect on this year, we've learned that we can no longer rely on what worked in the past. We're building a new integrated value platform that will create more consistency, enhancing what's already been successful at Applebee's and unlocking new ideas. You will see a glimpse of our new approach starting next week with a new campaign.

Thanks for that. I appreciate it. I know it's early, and you're not giving guidance today, but in terms of net unit growth in 2025, is the closure activity largely behind you, and what opportunities do you see to incentivize franchisees to open new units? Are you considering alternative measures, perhaps opening some co-op units yourself to demonstrate the viability of these units before franchising?

Yes, Pratik, it's John. I'll take your question as it relates to both brands. You're correct, we're not providing guidance for 2025 at this time. However, I’d like to highlight that we have been devoting resources earlier this year to recruit new franchisees, bringing deals to existing franchisees, and speeding up the construction process for those who are building. We are starting to see the impact of those initiatives in our pipeline. It's worth noting that IHOP consistently opens around 40 restaurants a year, a commendable figure for a 66-year-old brand with such a large footprint, which we expect to maintain. Regarding Applebee's, the biggest barrier to growth has been the cost of building a new restaurant. We have made considerable progress with a new prototype that Tony can discuss momentarily. Currently, we're experiencing success with dual branding, which is not only consumer-driven but also resourceful for our owners and developers. As noted in my comments, these locations achieve revenues 1.5 to 2 times that of a singles branded restaurant. We've already opened 13 internationally and intend to expand domestically as we have drawn strong interest from existing U.S. franchisees wanting to incorporate a second brand within their establishments.

Thanks. I appreciate it. I'll pass it on.

Thank you for your question. Our next question comes from Nick Setyan from Wedbush. The floor is yours.

Thank you. In April, you had that burger deal, which was the only month you posted positive results for the year in Applebee's. Do you believe that the pricing certainty offered by the big meal deal in Q4 can help turn things around? Can we expect to see positive comps in Q4, or is it merely enough just to stem the tide? On the IHOP side, are you satisfied with your Q4 offerings, or is there still work to be done to reverse the trend and achieve positive results?

Thanks, Nick. Tony, why don't you address the big meal deal and its expected impact this fall?

We have a new campaign launching next week. I won’t say too much, but it shares similarities with the whole lot of bacon burger promotion we had success with earlier this year, while encompassing much more value. It offers a much more comprehensive approach compared to our previous campaigns. We have high expectations across the system for this new initiative that kicks off in the middle of next week.

And Tony, just to directly address Nick's inquiry, this is aimed not to just stem the tide but to drive positive comps, as we did the last couple of years.

Correct.

Jay, can you also comment on IHOP's strategy for Q4?

Sure. Hey, Nick, how you doing? I believe, as I previously mentioned regarding House Faves, this offers an opportunity for us to boost traffic and improve our results in Q4, featuring a strong value proposition for weekdays. Our barbell strategy, which balances value with innovation, will also play a significant role. We have more innovations planned for the holiday season, although I can't disclose details at the moment. We are committed to offering various options for guests—whether they seek value or their favorite items, we want to provide those choices moving forward. We're optimistic about our positioning as we head into Q4.

Thank you.

Thank you for your question. Our next question comes from Dennis Geiger from UBS. The floor is yours.

Hey guys, thank you. One housekeeping item and a question if I could. About value, could you clarify what the value incidence was in the quarter relative to historical percentages? My question is about the off-prem opportunity—could you outline where that initiative stands now and what the timeline looks like for achieving your objectives?

Thanks, Dennis. I'll respond to the first part about value and then ask Jay and Tony to comment on their off-prem strategies. For Applebee's in the quarter, 31% of the tickets were from LTOs or our everyday value items, while this was 33% the prior quarter, so it’s approximately unchanged. For IHOP, that number was 16%, which has increased from around 12% at the same time last year. This indicates a promising trend associated with our new House Faves program, aimed at offering everyday value.

Yes, hi, Dennis. In terms of off-premise, we've maintained a steady 19%. We clearly want to improve this metric moving forward. Internally, we noted that phone order challenges are hampering our efforts. While we are pushing for users to tap into our direct channels for online orders, some consumers still prefer direct communication for placing orders. We've initiated a call-center solution, and after a recent conference, we saw 400 additional restaurants sign up immediately. This will enhance our service for guests choosing to place their orders this way, and we’ll also focus on improving food quality and operational execution.

From the Applebee's perspective, we attribute some off-premise improvements to historical dine-in promotions, which we recently made available to off-premise guests during three LTOs. We recognize that the off-premise crowd is usually younger and slightly more affluent than dine-in customers, prompting us to adjust our marketing strategies accordingly. Operationally, we've improved guest satisfaction scores, which correlates with greater order intent. We believe each of these actions will help us leverage this opportunity further.

Great. Thanks.

Thank you for your question. Our next question comes from Brian Vaccaro from Raymond James. The floor is yours.

Hi, thanks, and good morning. I was hoping to get just a couple of questions on pricing. Can you help level-set where pricing or average check stood for each brand in the third quarter? Could you also update us on how much each brand has taken recently? What could be a reasonable expectation for year-on-year pricing for each brand in the next few quarters?

Hey, Brian. For Applebee's, Q3 saw franchisees taking a 2.7% pricing increase, while for IHOP, this was 6%. Applebee's experienced roughly flat guest mix, whereas IHOP saw a slight decline. For future pricing expectations, Applebee's has held steady in the low-single digit range for some time, and we don't anticipate a major change there. Similarly, IHOP has also been forecasted for low-single digit price hikes going into Q4.

Okay, that's very helpful. Thanks. If I could just follow up on franchisee health, can you provide any perspective on where average franchisee store margins are in Q3 or any details on percent of units generating negative store-level EBITDA, as I'm trying to gauge potential closures into 2025?

Yes, Brian. We collect quarterly financials from our franchisees, but the most recent we have is for Q2. On average, self-reported franchisee margins are relatively stable. While restaurant four-wall EBITDA dollars remain steady, the EBITDA percentage is facing some pressure. Like with any system, some franchisees outperform others. While inflation and labor costs have started to stabilize, we are feeling pressures on the top line. Nonetheless, franchisees remain engaged with our value campaigns as we’ve implemented restaurant profitability initiatives resulting in $42 million of annualized savings across the system.

And Vance, we reiterated our development guidance for the year, which includes closures, right? So Brian, if that helps you. There's no news there since we reiterated guidance.

Yes. Thanks very much.

Thank you for your question. Our next question comes from Jake Bartlett from Truist Securities. The floor is yours.

Great. Thanks for taking the question. My first is on the trajectory of Applebee's same-store sales. As I review reiterated guidance, it implies acceleration in Q4. What was the trend throughout Q3, and should that instill confidence for an improvement in Q4?

In Q3, we observed consistent pressure across our brands throughout the quarter, extending even into the early part of Q4. However, we are starting to see developments that imply some improvements in the middle of Q4. We've factored in the latest trends into our guidance, which is the basis for the reaffirmed range we provided last quarter.

Okay, that's helpful. My other question was on IHOP's barbell strategy, which has been effective. It seems that Applebee's is focusing on value more than innovation. Given that there’s been strong innovation in fast food, how do you view innovation as a catalyst for improving trends at Applebee's?

Yes, Jake, just one sentence before I turn it over to Tony to address that. If we seem to downplay innovation, that's not our intent; innovation, particularly in the menu, is a key part of our strategy, and Applebee's has an exciting pipeline of recently launched innovations. So, Tony, if you could elaborate on that.

Absolutely. Innovation remains a vital part of our strategy moving forward. However, we must consider building brand relevancy with customers. We aim to create a new integrated value platform that fosters consistency. This platform will set the stage for promotional spikes with innovative products. We've developed 14 new products through a rigorous testing process, ready for market use. You'll see one launch next week, and we believe these innovations will help drive incremental transactions.

Great. That's really helpful.

Thanks for that. Lastly, on G&A, it’s encouraging to see the savings and reduced guidance. How sustainable are these savings? Are they primarily related to incentive compensation that could snap back in 2025? How do the G&A savings contribute to your margins longer-term?

Jake, this is Vance. You’re correct; our G&A savings stem from a combination of reduced incentive compensation, which will eventually rebound as performance recovers. However, we have realized sustainable savings from initiatives launched in prior years and ongoing efforts in finding efficiencies within our cost infrastructure. What you’re seeing this quarter reflects several efforts combined. Moreover, we look at the full-year G&A figures as a run-rate, although some inflation will naturally integrate over time. The focus will be on reallocating G&A funds to support growth opportunities.

Great. I appreciate it. Thanks.

Thank you for your question. Our next question comes from Todd Brooks of The Benchmark Company.

Hey, thanks for squeezing me in. One question, two parts. With the new methods and tools for delivering value across brands, do you expect an incremental mix drag as we look to Q4? Additionally, as we roll out new platforms like the Big Meal deal, could you remind us what we're lapping from Q4 last year in terms of value offerings? Will those offers be repeated or will they be replaced with the new approach?

Todd, regarding mix, we generally do not offer specifics on guidance for mix, but this year, Applebee's mix has been quite stable. IHOP has experienced a slight decline. We see this trend continuing into Q4.

To address what we're lapping with respect to Applebee's, we’re replacing the holiday skillets promotion with our imminent new promotion which begins next week. They are distinct strategies targeting different areas of value.

Thank you all for your questions. We appreciate as always and wish you all a great day. Gerald, we are adjourned. Thank you for your help.

Thank you. This does now conclude our conference. You are free to leave.