Dine Brands Global, Inc. Q3 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to Dine Brands' Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President of Finance and Investor Relations. Sir, you may begin.

Good morning, and welcome to Dine Brands Global's third quarter conference call. This morning's call will include prepared remarks from John Peyton, CEO and President of Applebee's; and Vance Chang, CFO. Following those prepared remarks, Lawrence Kim, President of IHOP, will also be available, along with John and Vance to address questions from the investment community during the Q&A portion of the call. Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-Q filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brands' Investor Relations website. With that, it is my pleasure to turn the call over to Dine Brands' CEO, John Peyton.

Good morning, everyone. Thank you for being here today. I will begin with an overview of Dine's Q3 performance and key brand updates before handing it over to Vance for a more detailed discussion of our financial results. After that, I'll take some extra time before the Q&A to explain our dual brand program, how it is facilitating growth, and why we are investing in it. Vance will then discuss our capital allocation priorities and how our asset-light model supports long-term shareholder value. To summarize the third quarter and the trends we've observed in consumer behavior, we maintained the sales and traffic momentum from Q2, thanks to new menu innovations and focused marketing efforts. Despite facing a competitive landscape, Applebee's and IHOP remained strong, reflecting the relevance of our brands as customers look for value, variety, and an exceptional dining experience. These expectations have been shaping consumer behavior throughout the year. Spending patterns have stayed relatively steady, but we are noticing a bit more macroeconomic anxiety, leading customers to make more intentional spending decisions. Guests are opting for lower-priced, value items from our menus, with IHOP's value mix at around 19% and Applebee's slightly up to about 30% in Q3. Even with industry challenges, our emphasis on everyday value offerings, operational efficiency, and impactful guest-focused marketing is yielding positive results. Additionally, we recently wrapped up our annual franchisee conferences, which included leaders from all of our franchisee councils. Across all three brands, we found that franchisees are in alignment with our strategy and committed to growth. This sentiment is supported by the resilience of franchisee health and observed improvements at Applebee's, attributed to the sales growth we are experiencing and encouraging signs at IHOP. While we still have work to do, I am grateful to our team and franchisees for their ongoing commitment and belief in the potential of our iconic brands. Now, let me discuss our financial results for the quarter. Applebee's reported a 3.1% increase in comparable sales while IHOP experienced a decline of 1.5%. It’s worth noting that positive comparable traffic played a significant role for both brands. Our adjusted EBITDA stood at $49 million compared to $61.9 million in the same period last year, and year-to-date adjusted free cash flow was $68.2 million, down from $77.8 million the previous year. Next, I will share updates from our portfolio, starting with leadership changes at Applebee's. In September, we welcomed Michelle Chin as our new Chief Marketing Officer and Jay Wong as our Chief Operating Officer. Both leaders are enthusiastic supporters of the Applebee's brand and bring valuable insights that will enhance the guest experience and strengthen relationships with franchisees and team members. Michelle brings two decades of experience in consumer marketing and brand strategy from global companies, and Jay has held key roles in top-tier brands focusing on outstanding guest experiences. I look forward to collaborating with them to foster innovation, operational excellence, and long-term brand relevance. Regarding Applebee's results, we achieved our second consecutive quarter of positive comparable sales and traffic in Q3, building on growth that began in March. New menu items have been instrumental in this traffic increase, engaging both loyal Applebee's customers and attracting new guests. We expect continuous menu innovation, with new additions each quarter as part of our everyday value strategy. For example, we launched Chicken Parmesan Fettuccine, which became our best-selling pasta dish, driving about 13% of transactions and significantly contributing to our growth. We also introduced the Ultimate Trio appetizer sampler, which has over 80,000 flavor combinations, resonating particularly well with younger guests and showcasing our ability to offer variety without complicating kitchen operations. So far, the Ultimate Trio has become one of our best-selling appetizers, averaging 13.5% of transactions and positively impacting check growth. It is also available for delivery and takeout, helping us achieve a 9% increase in off-premise sales for Q3. Our off-premise strategy continues to show promise, enhanced by limited-time offers paired with digital promotions. We’ve also boosted our marketing reach and engagement on social media, significantly increasing our postings and engagements in the past year, which reflects our commitment to modernizing the brand and improving guest experiences. The guest satisfaction scores are on the rise as a result of our efficiency improvements in both front and back-of-house operations. Our remodel program is progressing well, with strong sales lifts reported at remodeled restaurants; 80 locations have been refreshed, with expectations to exceed 100 by year-end. We are dedicated to enhancing brand relevance, sharpening our competitive edges, and driving long-term growth. Moving to IHOP, positive traffic trends are a highlight. IHOP exceeded industry traffic benchmarks each month in the third quarter, marking its first quarter of positive traffic in many years. This achievement is significant, as traffic is a crucial indicator of customer engagement. Our industry outperformance is now accompanied by positive absolute gains, showcasing our success in reaching guests who seek value and a great dining experience. The momentum in traffic intensified with the launch of our IHOP Value menu and a rebranded House Faves menu now available all week. This introduction marks a critical expansion of our everyday value offering, and we've seen strong early results in terms of sales and traffic since its mid-September debut. While our value offerings are crucial for attracting guests, we are also focused on boosting check amounts. Adjustments to our pricing strategy have helped improve average check sizes and reduced lower-value incident rates. Looking ahead, we aim to continue optimizing checks by promoting sides and introducing premium options in Q4. Operationally, we are committed to reinforcing our foundational practices, resulting in significantly improved table turn times and room for further enhancements. In terms of Fuzzy's, we've observed modest improvements in sales and traffic as we collaborate with franchisees to enhance technology and streamline the menu. In Q3, new delivery campaigns exceeded our expectations, showcasing the benefits of our multi-brand platform by applying successful strategies across different brands. On the international front, we continue to engage positively with new and existing franchisees regarding development, with plans to double our total number of international dual brand restaurants by year-end. This growth helps mitigate macroeconomic challenges affecting sales, and we are optimistic about opportunities in key international markets. Finally, regarding our company-owned portfolio, we currently operate 70 restaurants, representing about 2% of our total count. Our strategy involves investing in these locations to strengthen our brands before refranchising back to franchisees. We're seeing positive results, with improvements in comparable sales. Applebee's locations now perform in line with system averages, while IHOP locations outperform them. Although profitability remains impacted by temporary closures and costs related to renovations, we are hopeful about the potential growth from these initiatives. We have now remodeled 12 restaurants and are seeing growth in traffic-driven sales, confirming the strength of the brand in a refreshed environment. Additionally, about 60% of our locations now have alcohol licenses, which is helping check growth. We recently completed our first company-owned dual brand conversion and are excited to see sales increase significantly post-conversion. Now, I will turn the call over to Vance.

Thanks, John. On the top line, consolidated total revenues increased 10.8% to $216.2 million in Q3 versus $195 million in the prior year, primarily driven by an increase in company restaurant sales, offset by a decrease in franchise revenues. Our total franchise revenues decreased 3% to $161.3 million compared to $166.4 million for the same quarter of 2024. Excluding advertising revenues, franchise revenues decreased 3.6%. Rental segment revenues for the third quarter of 2025 decreased $1 million compared to the same quarter of 2024, primarily due to lease terminations. G&A expenses were $50.2 million in Q3 of 2025, up from $45.4 million in the same period of last year, primarily due to compensation-related expenses and an increase in travel and conference expenses. Adjusted EBITDA for Q3 of 2025 decreased to $49 million from $61.9 million in Q3 of 2024. Adjusted diluted EPS for the third quarter of 2025 was $0.73 compared to adjusted diluted EPS of $1.44 for the third quarter of 2024. Now turning to the statement of cash flows. We had adjusted free cash flow of $68.2 million for the first 9 months of 2025 compared to $77.8 million for the same period of last year, driven by an increase in additions to property and equipment, primarily related to CapEx investments in our company-owned restaurants. Cash provided by operations at the end of the third quarter of 2025 was $83.3 million compared to cash provided from operations of $77.7 million for the same period of 2024. The increase was primarily due to a favorable change in working capital due to the timing of federal tax payments postponed due to wildfire relief and of interest payments postponed in connection with our June 2025 debt refinancing, offset by the decrease in segment profit and higher G&A expenses. CapEx through Q3 of 2025 was $21.3 million compared to $10.3 million for the same period of 2024 due to investments into our company-owned restaurants. We finished the third quarter with total unrestricted cash of $168 million compared with unrestricted cash of $194.2 million at the end of the second quarter. Regarding capital allocation, I'll provide an update and a more detailed overview of our framework later in the call, but I want to mention that we continue to make progress on our key initiatives, including remodeling the Applebee's system, which includes providing an early adopter incentive for franchisees and remodeling and/or converting company-owned restaurants to dual brand restaurants. On buybacks and dividends, we repurchased $22.5 million in stock and paid $7.8 million in dividends in Q3 of 2025. As a reminder, as a franchisor, we obtained debt financing through the whole business securitization market, which allows us to have investment-grade cost of debt capital. This is evidenced by the successful refinancing a few months ago of our $600 million senior secured notes with a fixed rate coupon of 6.72%. We continue to monitor the WBS market, and we'll look to refinance our 2023 senior secured notes when the economics are more favorable given the current make-whole premium of approximately $20 million, and the par call window does not open until December of 2026. Next, let me discuss Applebee's performance. Q3 same-restaurant sales were positive 3.1%. Average weekly franchise sales in 2025 were $52,600, including approximately $12,000 from off-premise or 22.9% of total sales, of which 11.7% is from to-go and 11.1% is from delivery. Off-premise saw a positive 9% lift in comp sales in Q3 compared to the same period last year. IHOP's Q3 same-restaurant sales were negative 1.5%. Average weekly franchise sales were $36,700, including $7,500 from off-premise or 20.4% of total sales, of which 7.8% is from to-go and 12.5% is from delivery. Turning to commodities, Applebee's commodity costs in Q3 increased by 0.3% and IHOP commodity costs increased by 5.7% versus the prior year. Our supply chain co-op CSCS now expects commodity costs in 2025 at Applebee's to be roughly flat versus prior outlook of flat to slightly down due to higher beef and seafood costs. At IHOP, we continue to expect commodity costs to increase by mid-single digits for the full year, driven by elevated egg pricing, pork, and coffee. As we mentioned on our prior call, the tariff situation remains fluid. As a result, our forecast for commodity costs incorporates the effects from existing tariffs to date but does not reflect the potential impact of future tariff changes or trade policy. CSCS continues to work across both systems to identify additional cost savings opportunities and support restaurant profitability initiatives through both operational improvements and input costs. To date, in 2025, we have implemented projects resulting in over $42 million of annualized savings across both systems, and we continue to partner with CSCS to leverage our scale and make progress on our cross-functional restaurant profitability initiatives. Before turning the call back over to John, for a strategic update on our dual brand opportunity and our capital allocation framework, I'd like to add that we are maintaining our full-year financial guidance at this time. Specifically, with our EBITDA guidance, we are anticipating to be on the low end of the range due to investments to improve our company restaurants, which includes remodeling and dual brand conversion process. In Q3, approximately 10% of our restaurants were temporarily closed due to remodeling and dual brand conversion for a portion of the quarter, impacting our performance, and we expect an even greater number to be temporarily closed in Q4. With that, I'll hand it back over to John.

Thank you, Vance. Now I know we've talked about our dual brand strategy before, but today, I'd like to provide more insight into the opportunity we see, what it is, why it's unique and why we and our franchisees are excited about it. We've done extensive research into how exactly dual brands fit into our long-term growth without cannibalizing the independent growth trajectories of the individual brands. The results, as I'll walk through today, are compelling. To start, we are the only franchisor with 2 iconic full-service brands that serve guests across all dayparts, IHOP in the earlier hours of the day and Applebee's in the later hours. Our thesis is that combining these 2 complementary daypart brands into 1 dual-branded restaurant will drive higher sales and create efficiency, resulting in increased profits for our franchisees and growth for Dine through higher system sales and unit growth. After an early prototype in Detroit, we began testing this idea in earnest internationally 2 years ago. And since then, we've opened 20 international dual-branded restaurants that have proved our thesis. These restaurants are delivering 1.5x in sales versus single branded restaurants and are generating significant incremental margin. This year, we're on our way to doubling our international dual-branded restaurant count to 40. With these compelling results, we brought this concept to the U.S. in February. For those who haven't yet had a chance to see it from the exterior, both brands are prominently displayed around the building, and there is one shared entrance. Inside, the aesthetics and seating for each brand are represented in different sections, one being Applebee's iconic red and the other is IHOP's iconic blue. The guest can choose to sit on either side and is presented with one menu organized by daypart that has been simplified to include the best of both brands. The menu also includes some dual brand exclusive items like our popular Buffalo Chicken Omelet. To experience our dual brand concept, you can find a video explaining and touring the first 2 domestic locations on the Dine Brands investor website. There are several key highlights that support our belief in this opportunity. First, from the restaurant operator's perspective, there is one kitchen, POS, a cross-trained staff, and the same number of menu items as a single branded restaurant. The simplification of operations allows our team members to focus on our guests and ensure they have a great experience that is representative of both brands' core values. From a guest perspective, feedback is strong. In particular, they're enjoying the expanded choice provided by the combined menu from both brands. In fact, for each daypart, the off brand represents at least 15% of sales. For example, Applebee's items represent at least 15% of sales in the morning and IHOP items represent at least 15% of sales in the evening. And so far in terms of financial performance, we have seen sales performance approximately 1.5x to 2.5x higher post conversion. Sales are relatively consistent throughout the day with no daypart exceeding 1/3 of total sales, further showcasing the complementary nature of the 2 brands. We're seeing a meaningful increase in franchisee profitability with 4-wall margins nearly doubling, and we've seen a reduction in construction costs and timelines for dual brand conversions as the process becomes more efficient and standardized, which we expect will result in a payback period of less than 3 years. Our initial target was to have 12 to 14 domestic dual-branded restaurants open in 2025. And as of today, we can share that we expect to have approximately 30 opened or under construction by year-end and that we expect to achieve at least 50 dual brand openings in 2026. From a long-term perspective, our internal analysis of the U.S. white space opportunity shows potential for approximately 900 dual-branded restaurants over the next decade. While near-term openings will primarily be conversions, we also see potential for approximately 50% of these opportunities to be new builds. It's important to note that dual-branded restaurants are only one strategic development lever for us. It's not a solution for all markets, and we continue to greenlight single-brand restaurant concepts. To summarize, the dual-branded opportunity is a big one. Guest and franchisee feedback is strong. It significantly enhances the unit economics for a franchisee by potentially doubling 4-wall revenue and margin. It represents an approximately 900-unit white space opportunity. We expect to have approximately 30 open or under construction by year-end and we expect to achieve at least 50 dual-branded openings in 2026.

Thanks, John. Given that we are one of the largest franchisors in the full-service restaurant segment, our asset-light model generates best-in-class return on invested capital and margins. We take a disciplined approach to capital allocation to drive shareholder value, focusing on 3 key priorities: organic investments, balance sheet management, and returning capital to shareholders. This financial strength gives us the flexibility to invest in our brands, our company-owned restaurant portfolio, and development pipeline while also returning meaningful capital to our shareholders, something we have consistently done over the past several decades, and that will not change. Current time, however, we believe our stock price is currently undervalued, which represents a unique opportunity to be more aggressive with share repurchases to create long-term shareholder value. As a result, the Board has declared the reduction of our dividend from $0.51 per share per quarter to $0.19 per share per quarter, which would imply an annual dividend yield of approximately 3% based on today's stock price. This will continue to generate one of the highest yields amongst our peers. We allocate our capital towards a larger share repurchase program. We will commit to buy back at least $50 million of shares over the next 2 quarters, which will represent a share reduction of approximately 11% to 13% at the current price. This is on top of the approximately 8.5% shares that we have repurchased year-to-date, which would total a nearly 20% reduction in shares versus the beginning of 2025. We're maintaining our current investments into the franchise system either as an ongoing or as needed basis, such as our Applebee's good remodel incentives or IHOP franchisee egg subsidy earlier this year. I want to reiterate that the dividend reduction, increased share repurchases and investments into our business are proactive changes we're making to our shareholder return strategy to drive increased shareholder value. It demonstrates confidence in our plan and our principal view that the stock is undervalued, affirming the Board's alignment with investors. With the momentum that we continue to see in the business and the alignment and shared excitement from our franchisees, now is the right time to be aggressive in investing in our own stock. I will now pass it back to John to close.

Thank you, Vance. I'll end the call by summarizing our key initiatives that will create long-term value for our shareholders. At the brand level, our focus is on menu innovation, high-impact marketing, and social media, simplified operations, and enhanced guest experience. In terms of development, we will drive unit growth by capitalizing on our dual-branded opportunity, continuing to open single branded restaurants, especially at IHOP, which has for over a decade, consistently opened double-digit restaurants every year and introducing a new lower-cost Applebee's prototype. And last, we will remain prudent with our capital allocation and accelerate share buybacks to take advantage of a significant discount in our valuation, which we believe will be highly accretive to our shareholders. Now with that, we'll turn the call back to the operator and open up the line for Q&A.

Our first question comes from Eric Gonzalez with KeyBanc.

Congratulations on the positive traffic in both brands. I want to ask about the company-owned stores. You reported a significant loss, possibly around $4 million to $5 million for the quarter. I understand there were some catch-up expenses related to repairs, maintenance, training, and remodels. However, do you have an estimate of how much impact we should anticipate from these stores moving forward and when this issue might be resolved?

Thanks, Eric. Vance can address that question.

Good morning, Eric. To provide a bit more context on the disruptions we've faced, we currently have nearly 50 restaurants that have been without a liquor license for over 30 weeks. Additionally, this year, there have been around 500 days of construction-related closures across more than 30 restaurants, averaging about 15 days of closure for each restaurant. I mention this to underscore that while these have been challenges this year, they should not impact us next year. This is a one-time investment aimed at enhancing our restaurants. For this year, we anticipate about $9 million to $10 million in segment profit loss from our company restaurants. This projection includes roughly $2 million in depreciation and amortization. I hope that clarifies things.

Then maybe just a question on the IHOP side. Again, congrats on the positive traffic. But the overall comps they were down a little bit. So just wondering, you're leaning pretty heavily on value. What are you doing to address the check side? And do you think you can get that mix up in the quarters ahead?

Thanks, Eric. Lawrence will take that.

Eric, so as I shared probably in earlier calls or earnings calls, we have a 3-pronged approach when it came to driving transactions and traffic. The first was, of course, launching the value platform, which we did last October. And actually, we've now evolved, as John shared earlier, where we launched an everyday value menu this past September. So we're continuing to drive that transaction. And as John shared, we've continued to do so since the beginning of this year. But to your question, in regards to check and overall sales, the third phase of it is actually balancing the value and the transaction growth from that with our barbell strategy to drive check. And so we're doing that in multiple ways, from upsell strategies with our tablets and our servers, but of course, also featuring some premium-priced items such as our premium-priced pancakes, like our pumpkin spice and our coffee cakes pancakes in addition to combo features, which are primarily displayed in our restaurants with POP, like our recent breakfast, which performed really well last year. So we brought them back this past September a few weeks ago as well. So this is helping to already drive our check balance, improve check flow and overall profitability for our restaurants, and we're going to continue to drive this as we drive value in the next quarter.

Eric, it's John. I would just add one more point to what Lawrence said, which is since they moved into Phase 3, which is driving the barbell strategy and featuring the higher-priced items in the restaurants, the incidence of the value was 25% of checks weekdays. And since they started this new program, it's fallen to 15%. So we're seeing a good response to the program to upsell once they're in the restaurant.

Great. Maybe just the last one for me. I think you said 3Q momentum sustained. Did you talk about the fourth quarter at all yet? I think you said momentum sustained, but I couldn't tell if that was either an Applebee's and IHOP comment or both.

Vance?

Eric, so what we're seeing is that the sales volume for Applebee's really sustained from Q3 into Q4, and then it's accelerated for IHOP from Q3 into Q4.

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

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

Yes, Dennis. I'm glad to discuss that. In terms of franchisee demand, I would describe the initial wave of dual brand restaurants as primarily conversions rather than new builds, which is understandable. There are more IHOPs than Applebee's involved in this trend. We believe this is due to the fact that IHOP is currently open for dinner, which has traditionally been a challenge for that brand. Adding an Applebee's helps address that challenge. Conversely, Applebee's is not open for breakfast, so they aren't trying to resolve an existing issue. This makes the decision to add IHOP and increase revenue different for Applebee's. Currently, in what I consider Phase 2, as we aim for a solid pipeline of at least 50 for next year, we're observing our Applebee's franchisees exploring 1 or 2 opportunities among the larger franchisees. Regarding the hurdles, it's less about the franchisees and more about what we are learning throughout this process. For instance, we are finding that IHOP franchisees who typically lack bar experience require additional training and support to effectively manage a bar, which is an important aspect of Applebee's. We are identifying these insights as we progress, and we can address them through our training and coaching.

Then one more, if I could. Just more broadly, I guess, you touched on it some, but in thinking about franchisee sentiment more broadly in this environment that we're in, you touched on the commodities piece. Just if you could touch on that, both across Applebee's as well as IHOP right now. And maybe just tying broader new open demand in and how you're kind of thinking about net growth maybe longer term, if there's anything to share there across either closures as well as gross opens, would appreciate anything there.

We're not putting a firm date or timeline on net unit growth, Dennis, but we're getting close. That's for sure. What we like about our program now is we have multiple products and almost a product to fit every situation. So to develop a single unit IHOP, which we've been doing 30 to 40 a year for the last several years, 80% of those are conversions. So IHOP is a great conversion brand and a good solution for opportunities to repurpose buildings. As I mentioned, Applebee's, we've got a new prototype that takes about $1 million in cost out of it for a much better return, and we're going to build one of those next year to prove that out. On the international side, same thing. We've been opening about 40 restaurants a year consistently, increasingly dual-branded restaurants there. And now we have the dual brand concept here in the U.S. And each market is unique and each solution has to make sense for that market. But the dual brand is giving us a catalyst to get back to net unit growth sooner rather than later.

Dennis, this is Vance. One more point I would add is that even without net development growth, just the context is that the closures that we've had are obviously lower AUV boxes, right? So they're averaging sort of 1.2, low 1s. And then the new restaurants we're opening are $1.8 million, $2 million. So it's not a 1:1 ratio, even though the net development number, as you pointed out, has not been positive. So I just want to make sure that point is clear.

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

First question is just on the broader consumer backdrop, hearing from lots of restaurants as they look at their data. More and more companies, I guess, have data on the age of their consumer, the income level, the ethnicity, and there's been seemingly a big change in trend in recent quarters. I'm wondering, one, whether you have any degree of data on any of those cohorts and whether you've noticed any change in trend among any of those for better or for worse? And then I had a follow-up.

Yes, I can address that. Our observations regarding both IHOP and Applebee's indicate a slight shift in our guest demographics this quarter. We are welcoming more higher-income guests while seeing fewer lower-income guests, which is positively impacting our traffic growth. The two groups currently exhibiting the most price sensitivity are lower-income guests and Gen Z, who are dining out less than before. Nonetheless, all our guests remain highly focused on value, a trend that has persisted throughout the previous year. Looking ahead, we believe that this emphasis on value will continue to influence consumer behavior for the remainder of this year and into the next. Our everyday value program at IHOP and the enhanced Super 25 program at Applebee's are effectively catering to what consumers are seeking, contributing to our current traffic.

Then just following up on that value mix. I think you kicked off your commentary by saying Applebee's was at 30% mix depending on the way you define it. But you said that was up modestly. So just curious what that was up from. And IHOP at 19%, I think you said was unchanged, which was surprising considering the negative check, which seems significant. So just wondering how to kind of balance the significant negative check with no increase in their value sales mix.

So Applebee's is at 30%, which is pretty close to where it's been. It's been 28%, 29% last quarter. So consider that about flat. We define value. We calculate that as the 2 for 25 menu plus LTOs. So any incidence of those as a ticket is about 1/3, 30% of what we see. At IHOP, just to clarify, the value mix grew to 19%. It wasn't down. It grew to 19% during the quarter because of the rollout of House Faves and then turning that into everyday value. So it grew to 19%, and we expect that 19% to be a little bit higher next quarter because we're going to 7 days a week, and that only happened the last 2 weeks of the quarter.

Yes, yes, about low to mid-teens last year is where we're averaging.

Just lastly, just to clarify, you said the dual brands that there would be 30 open or under construction by year-end this year. So I'm just curious how many actually you think would be open by the end of this year? And then you said something about 50 for next year. I wasn't sure if that's just the cumulative total number or whether that's incremental openings. So just trying to get a sense for how many actually will be open at the end of this year and how many in total will be open at the end of next year. So it's 30 plus 50 for a total of 80. And in terms of this year, the vast majority of that 30 will be open. But as you know, sometimes opening dates slip from December to January. So not giving a precise number, but the openings will be much closer to 30 than not.

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

I just had a quick question on the guidance, Vance. I just wanted to confirm, has there been any change to your previously communicated comp guide at either Applebee's or IHOP or any change to your unit growth expectations that you gave us in the second quarter?

No, those are staying the same. No change to guidance, yes.

I heard your comments about how IHOP is doing well and Applebee's is stable. If my notes are accurate, the previous guidance for Applebee's was a decline of 2% to a growth of 1%. I would like to clarify what a reasonable expectation is for fourth quarter comparable sales, as we didn't have guidance in the release.

Yes. The Applebee's guidance, we actually bumped it up from positive 1% to positive 3%. So that didn't change. We changed that last quarter. And then for IHOP it's negative 1% to positive 1%, and we didn't change that either. So that implies a sort of a decent Q4 for Applebee's and a strong Q4 for IHOP.

Great. You also obviously highlighted the traffic being positive at both brands. Could you firm up just the comp components within that sort of where average check was versus traffic for each brand in Q3?

For Q3, traffic was positive for both brands. We experienced a negative price mix for IHOP and a negative price mix for Applebee's as well. There was approximately a 2% menu price increase, which provides a rough breakdown.

Great. Then last one for me. You talked about the Applebee's remodel program with over 100 planned for this year, I think you said. I'm just curious how you see that potentially accelerating into '26 and beyond? What sort of a reasonable rate on remodels might be?

Yes, Brian, it's John for that question. Yes, we said over 100 this year, and we expect to do at least that number next year, if not more. And our goal is to have 2/3 of the portfolio renovated by the end of '27.

Our next question comes from the line of Nick Setyan with Mizuho.

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

Nick, it's John. Welcome back. We're glad you're here. Vance will take that question.

It’s still early in the process, and many of the remodeled restaurants are quite new. Franchisees are pleased with what they are experiencing. For our company-operated locations, we are observing double-digit increases in performance. However, I want to note that these results are preliminary, and our starting point for these restaurants might be lower than the average across the system. Therefore, I'm not predicting that kind of increase for the entire portfolio. Nonetheless, we are optimistic about the results we are seeing, and franchisees share this sentiment.

It's fair to say that the franchisees who have recently renovated following our renovation package are experiencing increases that more than offset the costs. The return is positive.

Thank you for the kind words, John. It's good to be back.

Yeah, good to have you back, Nick.

You've had a couple quarters to think about it.

Well, I mean 4x on the deal conversion, that's a great number. In terms of just the number of like actual conversions, where it gives you confidence that that kind of lift is possible, is that something that we can commit to? Or is that also kind of too early and the numbers of conversions are too small to really be able to project that out?

Well, we can't speculate on forward-looking data, right? And we can't make a firm commitment. All we can do is report on what we've seen so far. What we've seen so far in the close to 40 international dual brands is a 1.5x improvement in revenue or more. And what we're seeing here in the 15 or so that are open in the U.S., we're seeing a range of 1.5 to 2.5 in sales lifts. But again, it's a sample set of 15 in the U.S.

Then just in terms of pricing and how we're thinking about just menu price versus mix going into 2026. Is there any kind of early indication you can give us in terms of what we can think of as the right price number in 2026 for both brands?

Vance can provide an update there.

Nick, as we're currently observing with menu pricing, both groups of franchisees are in the low single-digit range. We anticipate this trend will continue, especially since commodity costs have stabilized. While egg prices remain high, they are improving. However, we want to clarify that we do not control pricing; this information comes from the franchisees. Nevertheless, we do not expect any significant menu price increases for next year.

Our next question comes from Todd Brooks with The Benchmark Company.

Vance, I wanted to start off with the capital allocation update and just walk me through why we needed to cut the dividend to fund the $50 million in share repurchase. Is there a third component around additional franchise keeping firepower dry for additional franchisee location acquisitions? I think you guys said you'd be willing to take that portfolio up to maybe a couple of hundred at a premium? Or just kind of walk me through why one lever had to be pulled to accomplish the share repurchase.

Sure, Todd. First of all, our dividend yield is approximately 3%, which is among the highest in our industry. Additionally, our asset-light model generates healthy free cash flow, allowing us to consistently return significant capital to shareholders, and that won't change. This situation has nothing to do with concerns regarding cash flow or ability. Regarding your point, our goal is always to provide strong returns to shareholders. Given how undervalued the stock is, especially in light of the momentum we are experiencing in our business, the most effective way to enhance total shareholder return over time is through buybacks. We are also investing in company restaurants and remodeling and developing franchisee locations. We believe that, at this moment, this approach is the most efficient way to increase shareholder returns over time.

So it depends on the price, but you committed for two quarters, and it seems that share repurchase will play a larger role in returning capital to shareholders moving forward?

Price dependent, but that's a fair statement, price dependent, yes.

Great. Then I wanted to ask Lawrence about with House Faves expanding to 7 days a week, how has the brand been able to handle that operationally? I know that typically, those weekend periods are peak periods for IHOP to begin with. Now you're bringing potentially a value-seeking customer to try to get to the box during those peak periods as well. How are the units handling it? And is there an efficiency gain to happen as we get more than 6 weeks into having the menu available 7 days a week?

Yes. So thanks for the question, Todd. One thing that we're very methodical about is ensuring our franchisees and our restaurants are equipped to handle any new type of promotion and especially when it comes to something like an everyday value menu. So we tested this across several months and across different markets to ensure not just is it a transaction and traffic driving, but also profitable program for the franchisees. And also, that ties to your question, which is the operational capabilities. So the main focus of our value platform, in particular, is leveraging core items. So I cook a lot in the restaurants and it's back with the cooks and the chefs back there. And we want to make sure they focus on our core items, pancakes, eggs, bacon, omelets, items that from a speed standpoint, could be managed thoroughly and have no impact whatsoever in terms of speed. And so that's why, as John alluded earlier, our speed has actually improved continuously even with the everyday value menu because we've optimized it based on our core. And so from a cooking standpoint, they're just masters at the trade there.

Just a follow-up there, Lawrence. If customers were coming anyway on the weekend and the House Faves is focused around core items, that kind of transference into the value bucket, is that greater on the weekends at peak periods? Is it less? Is it pretty consistent with what you've seen during the week?

It's still early as we've only been in the everyday value menu launch since mid-September. And so we're continuously tracking. But even throughout the test data as we did it for several months, it stayed fairly consistent. Actually, with the barbell strategy, we are seeing potentially value increasing on the weekends, but the check counter, which is our barbell strategy, introducing new premium items and featuring them on the table with POP and even with the menu inserts, we're seeing a good balance in terms of check growth, even including on weekends.

Ladies and gentlemen, I'm showing no further questions at this time. I would now like to turn the call back to John Peyton, Dine Brands' CEO, for closing remarks.

Thanks, Towanda, for taking such good care of us, as you always do. And thanks, guys, for your questions. I'll just sum up with a few key points. We know we've got more work to do, but we are pleased with the effects of the retooling and the refocus that both brands have put in place. We're pleased with the performance from the last 2 quarters. We're pleased with the potential that dual brands is posing to accelerate our return to net unit growth. As Vance mentioned, our stock is undervalued in our opinion, and we are directing our shareholder return strategy through this buyback program because we believe in our strategy, we believe in the future of the company, and we think that's a very good investment right now. So I appreciate your questions and look forward to talking to you later today.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now disconnect.