Dine Brands Global, Inc. (DIN) September 2026 Conference Transcript

Good afternoon, everyone. Thank you very much for joining us as we move through day two of our conference. I very much appreciate all of your attendance. My name is Jeff Bernstein. I'm the restaurant and food service distribution analyst here at Barclays. We are thrilled to have our next presenting company with me on stage. It is Dine Brands. With me on stage from Glendale, California, we have John Payton, the CEO, sitting in the middle. We have Vance Chang, the CFO, sitting closest to me, and we have Lawrence Kim at the end, the president of IHOP and the chief commercial officer. Background, for those not familiar, portfolio that I think everybody knows, 1,550 Applebee's units, 1,800 IHOP units, and I do not want to underestimate the future opportunity with the 100 fuzzy taco units. and that includes the licensing of a combined 240 units outside the United States so clearly two powerhouse brands Applebee's and IHOP clearly they have a good look at the consumer and we're thrilled to have them with us at our consumer conference I've got a number of questions for management so I will kick it off right now but again we want to thank Dine Brands for joining us today thanks for having us absolutely Being that you do have two very large brands that do touch the consumer across the U.S., I was hoping maybe you could just provide some high-level thought on the consumer. Obviously, there's been a lot of talk of pressure on the consumer, different lower income versus higher income or age cohorts or whatnot. How would you define the consumer and whether or not that's changed in terms of your view over the past 12 months?

Sure. So just to give you a sense from a demographic perspective, The demographic of the IHOP and the Applebee's guest is pretty similar. Each of them has a household income between $50,000 and $100,000 a year. We span all age ranges fairly consistently. The IHOP guests and the IHOP restaurants tend to be a little bit more urban. They skew urban versus Applebee's. Applebee's is a little bit more rural and suburban. But between the 3,000-plus restaurants, I think we're in almost every ease of code in the country. So in terms of consumer behavior, it's been remarkably consistent, not just for 24 months, but for 48 months and into next year. We see our guests as very value-driven, the value message that both of our brands have. At IHOP, it's $6, everyday value. At Applebee's, it's $2 for $25, so two entrees and an appetizer for $25. Those messages are super compelling. It's important to attach an innovative or new item to that message in order to keep it fresh. And then when we see them in the restaurant, we do see them, I would say, moderately managing their check. And I say moderately because our average check is pretty consistent in both brands for the last several quarters, yet our franchisees have raised prices 2% to 3%, so there's a little bit of check management. We're seeing more frequent visits from higher-income guests, and we're seeing a little bit of a wash in terms of losing lower-income guests and then also gaining lower-income guests as I think QSR guests are trading up to full service.

And there's lots of talk about food at home versus food away from home, and this is a Staples conference, so there are a lot of people saying that food at home is winning. We tend to believe food away from home has been taking share. I believe the statistics support that. But do you believe the most recent value push that you're doing puts your brand and the broader restaurant industry in a position to continue taking share from food at home? Or do you feel like that's an ongoing battle that might kind of go back and forth?

We think it bounces back and forth depending on sort of from a price perspective, you know, who's in the lead. You know, right now, when you look at the overall increase in prices from, call it coming out of COVID in the five years to today, Applebee's is a little bit lower than food from home in terms of the compounded growth. IHOP's a bit higher in terms of price. So we straddle home from home. The most important thing about competing with home is that you come to the restaurant for something you can't get at home. So if we didn't have OM Cheeseburger at Applebee's, which is a hamburger cut in half in a sizzling skillet of cheese, and when you pull it, you get a big cheese pull, you can't do that at home. You can't get a Dubai pancake at home, and you've got to give them a reason to want to come as well. It's not just the price benefit.

And I will add one other thing, which is when you have a strong value pipeline like the $6 everyday value menu, Some of the comments we receive is, wow, I can't make that breakfast at home for $6. It's not just the cost of the ingredients, but it's also the time, the cleaning, the prep, and it's IHOP quality. So all these parts of the value equation are critically important as these families are making decisions.

Being that you've sat through meetings today and meetings perpetually, I'm just wondering, what questions do you hear most that surprise you? And maybe on the flip side, what question do you wonder why people aren't asking that maybe they don't fully appreciate?

In terms of questions from investors and analysts? Investor commission, yeah. Our CFO gets most of those questions.

You know, I get a lot of the questions around our balance sheet, and I get a lot of questions around the company-owned portfolio. The question on the balance sheet is they do a quick Bloomberg view, and they say, wow, you're a five-times lever. It seems really high. Are you worried? Now, because we're so highly franchised, our capital structure is we're using securitization. It's a very, very shareholder-friendly capital structure in terms of cost of capital, in terms of cut light. And so the leverage level we have is comparable to other highly franchised companies in the sector. So we definitely, you know, I don't lose sleep over our leverage level. Now, over time, as our company restaurant portfolio improves, as our dual brand takes hold of development pipeline, I think our EBITDA will grow. We're the lever. We've been in this leverage level before. So that's one question. On the company restaurant portfolio, right, We have, you know, called 130 restaurants that we took back from franchisees. And they're some of the lower-performing restaurants, but we took them back for offensive and defensive purposes. So offensively, we're trying to use this portfolio as a tool, as a way to advance our dual-brand and remodeling initiatives. So we want to showcase to our franchisees that, you know, if you spend this much money, this is what you do to the restaurants, and this is sort of the lift that you were expecting to see and therefore you should all do it, right? And so that's one thing. And defensively, we want to protect the system. We want to improve the reputation of these restaurants within the communities and make sure that we protect our NAF, our marketing fund, and make sure that the rest of the system stays healthy. So there are different reasons we're doing this for. and we're making progress, and we're happy with where we are. So those two questions I get a lot.

And I think, John, we always want to talk about dual brands. The third question is dual brands, particularly in the context of how is it fueling unit growth or growth in general. For those of you that don't know about what a dual brand is, about three or four years ago, our international division in the Middle East did an experiment. They put Applebee's and IHOP together in the same restaurant with a common menu, a shared footprint, and it did really well. And they got to about 20 of them, and we went and visited and said, this is a big idea, and we took it back to the U.S. We opened our first one 18 months ago in Seguin, Texas, outside San Antonio. Today we have 45 open, and we'll have 80 open by the end of the year with a strong pipeline for next year. And so the concept is not to create a new brand. The concept is to take the best of Applebee's, the best of IHOP, in one box. Imagine a red side and a blue side in terms of the decor. It's an all-day dining menu. So if you're familiar with diners here in the Northeast, it goes from breakfast through evening. The menu subtly cues IHOP and Applebee's going from blue to red coloring as the day progresses. The back of house is cross-trained. The front of house is cross-trained. Guests can sit wherever they want and order anything off the combined menu at any time of day. And we're seeing some really compelling numbers come out of it. The first is it costs about a million dollars to add a second brand to an existing restaurant. A little bit more if you're an IHOP adding an Applebee's because you have to build out the bar. A little bit less if you're an Applebee's adding an IHOP because you've already got the bar. You're growing your revenue about 1.5 to 2.5 times the base revenue of the restaurant, and we're seeing that consistently now with the 45 restaurants. That incremental revenue, called an incremental million dollars, is flowing through at two or three times the rate of the margin that you'd normally see in that restaurant, right, because the fixed costs are fixed. and the really good thing from a dine brand's perspective is you know strategically it checks a lot of boxes so so one is we're first movers you know two is it's a really high walled garden in that we just happen to own the premier am and pm brands that we can put together if anybody else wants to do it they've got to go buy one or the other day parts and the key to this for franchisees is day parts. When others have done it in the past, like KFC, et cetera, it was two day parts competing with themselves. This is an AM brand and a PM brand, and it activates the box all day long. So it's taking dead space for both brands and activating it, the same way you don't want an airline seat to be empty or a hotel bed to be empty. And our favorite part is one of the interesting insights about innovation is giving consumer, or in our case, the guest, something they didn't know they wanted. No one asked us to put IHOP and Applebee's together, right? No one knows the same company owns both brands. But 65% of the tickets in the dual-branded restaurants include items from both sides of the menu. So in the morning, we're selling omelets and ribs. In the evening, we're selling skillets and pancakes. And so when guests have the choice to order from both brands, they do it two out of three times per ticket. So that's our big growth engine in terms of accelerating our revenues as well as franchisee revenues. And interestingly, unlike in the past where you would look at us through the traditional lens of unit growth, here it's about adding incremental revenue to an existing restaurant. But besides that, there's 900 opportunities in the US for dual-branded restaurants that won't ever encroach on an existing restaurant, meaning we have no territorial issues. Of those 900, 450 are new builds, 450 are an existing restaurant adding a second brand. So that's a long runway here in terms of growth for the company.

So you think that's 900 incremental units, half of which would be new builds, and half is you already have one and you're putting the other in it? We've seen others over the past few decades where they have tried this approach. Some have worked, some have not. But to your point, having one that's primarily breakfast-led, breakfast-lunch, and one's more dinner, and layering them together is more efficient in terms of leveraging your fixed goals.

And we have the endorsement of our franchisees in the sense that we've done a couple ourselves, but the vast majority have been converted by our existing franchisees who have been in the business for decades. And so when they flew to Seguin to see the first one, they all left saying this is a big idea. So when you can convince the Dardies of the world that have 100 restaurants here in New York and New Jersey and the Flynn Group, et cetera, et cetera, when these guys see a product like this and they want to build it, that's an endorsement not just that we're saying it's a good idea. It's, Jeffrey, it's about people who really know the business well are converting.

Right. And just as one last topic from a broad industry perspective, there's always lots of questions over the past couple of years in terms of GLP-1 and the implication that has on the restaurant industry. It seems like it's only more prevalent and available and affordable to the consumer, which the concern is that there's less, either you're going out for less occasions or you're going out for the same number of occasions, but you're just not ordering as much. Have you seen any sign of that in your business? I don't even know how you detect it necessarily, but do you have concerns about that over the next few years or maybe changes to your business to try and address that?

We've been monitoring it closely, as I'm sure most of the industry have. The great part is there are two main aspects that we look at. Number one is menu variety, and number two is kind of what you mentioned, which is the occasion. And so Applebee's, IHOP, we are an everyday occasion, But you really look at also the occasions that each brand, you know, really targets. So date nights for Applebee's, you know, a huge platform also. But even for IHOP, you think about the weekends, which is, you know, a big percentage of our business. And, you know, post-church, Little League events and, you know, soccer games, et cetera. And so those moments, those occasions are still true. And we have not seen any impact to date yet, but we've been monitoring closely. But to prepare, we also look at the variety of our menu. So at Applebee's, I was just there a few days ago, so many healthier options from salmon and broccoli. And even at IHOP, when you think about we were a pancake and breakfast, definitely equity. But we have obviously things like protein pancakes, and we've been emphasizing them. There's 37 grams in our protein pancakes, and there's other variety of options. So we look at the extensive nature of our menus and also our innovation pipeline, and we are planning accordingly as we go into the future, but while staying true to the roots and the equities of our brands.

The key insight here is we've spent a lot of work talking with GLP One users as well as collecting all of the research, is that while they are changing or limiting the way they eat, they are not reducing the occasions that they go out to eat. So they might eat differently when they're with us, but they're not changing their lifestyle because they're eating less or eating differently.

And as we close out on 2026, hard to believe, but we think about 2027, what are you most excited about that you think we'll be saying about 2027 when we think about Dine Brands?

For Dine Brands, I'll take two of them. One is that dual brands are approaching, at the end of 27, 200 restaurants, and that not only are our existing franchisees participating, but we are attracting new franchisees to the system as a result of the success. And at Applebee's, at the end of 27, we will be talking about that we've introduced more food innovation, new food and new platforms than we have in a decade.

And at iHub, I would mirror that. We have been focused the past year and a half on value and really driving that value equity. Now we have a $6 everyday value menu continues into next year as well. And we've been owning that platform, which is fantastic, not just for traffic, but also just driving that value equity and being accessible to guests and consumers out there. But we have now an extremely strong innovation pipeline. The first one actually starts this coming Monday, so if any of you are near an IHOP starting Monday, definitely check it out. You'll see a lot of media. But in 27, we also have a great innovation pipeline ahead as well.

And specific to the brands, first and foremost on comp growth, I think you said most recently that IHOP has now outperformed Black Box for the third straight quarter, which is encouraging. Sustain that momentum. What do you think is the primary driver of what's allowed IHOP to see this most recent acceleration?

Yeah, it's definitely what I just referred to, which is the balance of value and new news. And new news can come in many different ways, from products to marketing and culture, buzz driving, innovation. But the real focus and the reason why we've outperformed black box in sales the past three quarters, but traffic the past six is because of our focus and dedication to the everyday value platform and the consistency in messaging. So now the consumers really understand IHOP has a $6 value menu, and it's a consistent word of mouth and mass media play. But the other thing is we've improved on our operations. because you have not just the traffic drivers of value and our core iconic menu items, but it's the operations that we wanted to make sure that we really optimize and improve. So our speed has improved. Even just since December, even to the current day, we've increased or improved table turn time by over four minutes. And also our to-go order product accuracy has also improved just because we've sustained operational excellence. We use tablet technology, KDS, And more importantly, we've simplified some of the back-of-house operations to make it easier for our team members, and it's a constant effort that we take extreme focus on.

You often make the point that you're pushing $6 value all the time. However, it's only 20% of your sales by design.

That's correct, yes. So value, we like to say you're shouting value from the mountaintops. So mass media, digital channels talk about $6. But when you get into the restaurants, a key important part is getting the check and the profit drivers, I would say, amplified. So POP features, for example, our pumpkin pancakes right now and combos. We have our stuffed-in-stack omelets, so we rebranded that. And we really want, you know, it's available. You know, it's obviously the value is a key part of the message, but it is not magnified in the restaurants. The check drivers and the premium items are, and it's been a great balance, and we sustain that 20% check or 20% of our checks are value items and sustain since we've launched it.

I was going to say value seems like the core of the business and I know that was a perfect segue. I mean, Applebee's with the two for 25. I think you told us most recently that value mix there sits in the mid 20% range and you're saying the IHOP is more in the low 20% range. um do you share um the profitability of those i mean it sounds like you know if that got to 30 or 40 percent you'd be making some changes to try and yeah shift people to other items but how do you think about balancing that mix what the right level is whether or not you want to have it move from where they are today so uh applebee's applebee's key value message is two for 25 which is two appetizers and an entree for $25.

That's been our value platform for 20 years, but we didn't often talk about it constantly, as Lawrence just described. The last two years, we've made the decision that our primary message on television as well as on digital is two for 25. What's important about that in terms of profitability is that 65% or so of two for 25s are upgraded. So you can add $3 for chicken. You can add $6 for steak, whatever those are. And the franchisees choose which items they want in their tiers. They also choose how many incremental dollars to charge per tier. So you're actually only selling one-third of that 25% at $25. The others, depending on the market, are $28, $33, $36.

That's what I think investors and the consumer doesn't fully appreciate because we see lots of commercials from lots of brands. It's like, I don't know how IHOP can succeed with a $6 platter, but in reality, it's not the majority of people who are spending $6. It brings them in the door, and then ultimately it's the job of the franchisee to upsell.

And the other reality, excuse me, is the $6 items are still profitable. So we focus on profitable transaction growth. So even if it is an item sold, which is a $6 value, they are still making money. There is still profit to be made on the product. Of course, as John just mentioned, there's beverage upsell. There's different menu item upsell. And it's that fine balance. And that's the beauty of the variety of the menu that both brands have, where you just have a plethora of options. And so ultimately, as you're perusing through the menu and you see the beautiful POP in front of you, you are definitely upsold.

Got it. Ryan, we talked about, you know, these are a lot of comp drivers, but from a unit growth perspective, I think you said, you know, if you're dual brands, I'm sure you're at 80 or so by the end of the year, maybe it could be 200 by the end of next year. For example. As an example. Not guidance. That's not guidance. That's not guidance, but just demonstrates the excitement you have and the opportunity to more than double the footprint that you potentially have at the end of this year going through next year. I'm just wondering how we should think about the ultimate opportunity, kind of the rate of acceleration, the demand from franchisees to continue that, because this historically hadn't been much of a unit growth story, and it seems like there's that opportunity today. So how do we think about that opportunity?

Well, when we announced the program last year, we said we think there's an opportunity to do 900 over the next 10 years. So that gives you a rough cadence, and we have the ability to support that kind of a cadence. And when you think about how you might model the incremental AUV, half of that is a restaurant adding a second brand. So that's one and a half to two and a half times their current revenue, a million plus. And half of them are new restaurants, which should be north of three million, more like four million.

So that gives you a way to sort of think about the way to model our AUV growth due to duals versus traditionally looking at unit growth. and otherwise I know you had mentioned you got 130 or so company operated units in this portfolio seemingly this business has historically been built as a franchise model so I think that over time that's your intention is to return to more heavily franchised just wondering how we should think about the timeline that you think is necessary like you said to use those as examples to turn around that business to potentially spawn those off to franchisees if there's interest for that how we should think about that refranchising timeline we actually have interest from franchisees right now you know so so um it's

just a matter of making sure that that we place them in the right hands and they you know that they're going to invest in back into the system like we were planning on doing so so the timing is going to be anywhere between now and a couple years from now what i see this portfolio to be going forward is it's not going to be static, right? Likely we're going to re-franchise a group of restaurants over time and then we may take on some more. So there will be inflows and outflows of restaurants as the portfolio develops.

And we're comfortable owning up to 5% of the portfolio, which is about where we are now. It's not our goal to own 5%, But from a strategic and from an opportunistic perspective, we'll take restaurants back when it's the right thing to do. If it's got the ability to be profitable, if we can invest in it and sell it for a gain, if we can convert it to a dual, we'll do those things. It also helps us prove out the case for renovations, the case for dual brands. And so ideally, we'd own 50 to 75 at any given time, which gives us enough skin in the game that we understand the bottom line impact of the decisions we make. Franchisees, that's important to them. But the 5% limit, Jeffrey, is where we start to flip faster in order to maintain that 5%. Yep.

And when I think about these boxes being franchise-led, there are certain requirements of franchisees to remodel, So how do I think about each of your two big brands in terms of the portfolio, where we sit today, in terms of that remodel need, and maybe what cost or sales benefit you get when the franchisees do do those remodels?

Applebee's is this year in its second year of a remodel cycle. We missed the last one because the last one fell in 2020, and we forgave it. We didn't do it because of COVID, and the restaurants were empty. So it's definitely time because it's been 14 years since the end of the last one. We will have about a third of the portfolio renovated by the end of this year. Our target's about 50% by the end of next year. And the restaurants that have been completed so far, which is 400 or so restaurants, are seeing a lift as reported by the franchisees as well as by the ones that we've renovated of 5% to 15%. Is that for the broader system, or that's Applebee's specific?

It's Applebee's specific for that restaurant.

IHOP is in a different spot.

Yeah, for IHOP, 80% of the system is up to date with remodels. It's been a constant cycle approximately every five years, and the franchisees have been updating them according to the cycle.

Just the broader, as we talk about these franchisees, the broader sentiment, I mean, obviously, from a franchisee perspective, they're dealing with persistent kind of food away from home or food inflation, wage inflation. You're asking them to do some certain remodels and whatnot, and then there's some that are trying to do dual brands. How do you think about the overall franchisee sentiment? Presumably, you're talking to your franchisees on a very regular basis. How are they feeling, the pulse? What are they asking most from you?

I'll start with IHOP. We are in constant communication with the franchisees. We have not just committee meetings, but also like a leadership council that is just in constant, you know, we have quarterly in-persons, I'm on calls with them probably, you know, every day, if not at least once a week. And so we always are in a focus of clarity with the franchisees and constant communication because it's ultimately a partnership. And right now the franchisees are excited with the momentum we've seen this past year in particular and outperforming Black Box, but also in just their unit economics improving quarter by quarter. So there is not just excitement and momentum, but the direction we're going for the future of the brand. So I would say the sentiment is very positive right now.

Yeah, and the communication interaction with the Applebee's franchisees is the same. It's interesting, I think, to share how we interact with them. Both brands have similar structures. Each brand's got a senior council of franchisees that are elected by their peers for a several-year term that are interacting with senior management of the brands on all issues strategic. And below each of those councils is a franchisee technology council, menu council, ops council, marketing council, and people council. And so there are franchisees and members of our brands on each of those councils as well, so there's a lot of interaction. I think the Applebee's sentiment right now is that the top line needs to grow a bit more than it is because the cost of goods, particularly beef, is challenging the bottom line more aggressively than it has in the past year. So we know what we need to do.

As we think about it, the corporate level, Vance, you mentioned that from a capital allocation perspective that leverage levels, you've been at these levels before, it doesn't make you necessarily lose sleep. How should we think about that going forward? I think you have a $100 million share of purchase program. You were pretty aggressive with that through the first half of the year. The balance of the share of purchase versus the dividend and presumably a potential for debt pay down. How do we think about balancing those different initiatives?

It's all about return on capital. So if we feel like our stock is undervalued, I think it's a great place to deploy capital towards versus the cost of capital. And so when the board authorized the $100 million, it's with that goal in mind. And I think year to date, we've returned almost $30 million through buybacks just in this year alone, in addition to the organic investments we're doing with the company restaurants and the dual brand initiatives, et cetera. So that's going to continue to be a key focus area for us.

Is the debt pay down presumably essential in your mind, or is it more just EBITDA growth will help to ease that multiple pressure?

More EBITDA growth will help ease that because, again, this is investment-grade cost of capital that non-franchise companies don't have access to is Covenant Light, and so it's very flexible, very shareholder-friendly, so So I want to keep that intact and use our capital to grow EBITDA and deliver it that way.

And we haven't mentioned much about your third brand, which is Fuzzies, which is clearly relatively small compared to the two big brands. But it seems like there's a potential opportunity considering the Mexican category is as strong as it is in the fast casual segment. I think you talked about positive comps for the second consecutive quarter. this past quarter, outperforming the industry. What's the vision for that? Because clearly at this point it's relatively small. How do you think about Fuzzy's over the next number of years or the potential for a different brand or another brand? How do you think about your portfolio?

Fuzzy's is a relatively small brand compared to our others. It's 110 or so units, half of which are in Texas where it was founded in Dallas. We acquired it a couple of years ago, put our team in place. We put a president slash CMO who was a strong Applebee's marketer, and we put an operator COO in who was one of our best IHOP ops guys, and the plan they've been working on for the last four or five quarters came to fruition this year. And for the first time since we've owned it, as you said, Jeffrey, we've had two quarters of positive comps, and it didn't happen by accident. They have revamped not only the menu and the recipes but the quality of the proteins. They have re-engineered the way in which the consumer views the menu so that we're selling more high-margin items. They traded out the franchisee groups. That brand, particularly the original franchisees, were dentists and doctors and veterinarians who were looking to invest and were not restaurateurs, and their restaurants reflected that. and we've got more professionals in there now. So they've done a lot of great work there and are now poised to begin to add units.

And do you think, I mean, if you look at a few years, do you think that the portfolio will sit the same as it is today or do you periodically look at potential to add another brand to the portfolio? Because clearly, again, the dual brand sounds like one of the most exciting initiatives. The more brands you have in your portfolio, the potential to kind of cross-pollinate those types of things.

Yeah, I mean, in addition to dual brands, We've built a platform, right? So we've got one technology architecture for our apps, for our loyalty programs, for CRM, et cetera. And so plugging in a fourth brand is relatively straightforward because we've built it to scale. We're not currently in the market looking for a brand, but we certainly are opportunistic, and it is one way to grow. Our focus right now is on Applebee's and IHOP and improving their comps.

Understood. Well, we've run out of our allocated time, but we wanted to thank Dine Brands very much for joining us today, specifically John, Vance, and Lawrence. Hopefully, they had a chance to meet with investors and continue to do so throughout the day, and I hope everyone has found it to be productive. Thank you very much. Thank you so much.