Dine Brands’ Appetite for Growth Still Strong

By MARK R. MADLER Staff Reporter Dine Brands Global Inc. executives are upbeat about the restaurant chain’s business prospects going forward as the coronavirus outbreak continues. Chief Executive Steve Joyce said in a July 29 conference call with analysts that at the end of the second quarter, 95 percent of the company’s Applebee’s Neighborhood Grill & Bar and International House of Pancakes restaurants in the U.S. were open for either dine-in or off-premise service. That compares to 82 percent of domestic restaurants open at the end of the first quarter for takeout and delivery service. As the company welcomes guests back, it wants to ensure them that they can feel safe and comfortable at Applebee’s or IHOP whether dining indoors or getting takeout, Joyce said. “Our research has shown that consumers have a strong desire to return to restaurants,” Joyce continued. “In fact, out of the top five categories that consumer said brought them the most joy, dining out was ranked the highest. “As we enter a new normal for dine-in, we know that guests will view health and safety as equal to value and cravability and we’ll continue to serve our guests’ needs,” he said during the call. For the quarter, the restaurant operator reported a net loss of nearly $135 million (-$8.04 a share) for the period ended June 30, compared with net income of $21.4 million ($1.18) in the same period a year earlier. Revenue dropped by 52 percent to $110 million. The company’s stock price has lost about 34 percent of its value since the start of the year. It closed at $53.56 on Aug. 12. Still, analysts who follow the company are also upbeat about the company’s future even with COVID-19. In a research note from Brian Vaccaro and Dan Docherty, analysts with Raymond James & Associates, they wrote they were encouraged by sales improvements at Applebee’s that brought the chain to the level where most franchisees were profitable. To counter that, they mentioned that IHOP quarter-to-date same store sales were down in the mid to high 30 percent range, pressuring franchisee profitability and likely resulting in additional location closures over upcoming quarters. “With royalty and rent payments resuming from most franchisees in recent months, the company should have sufficient liquidity ($220 million unrestricted cash, excluding $55 million of gift card and IHOP advertising funds) to weather the storm,” Vaccaro and Docherty put in the note. Jake Bartlett, an analyst with SunTrust Robinson Humphrey, wrote in his research note that strong same-store sales in the second quarter and continued improvements in July gives confidence that Dine Brands will come out of the COVID-19 health crisis intact and in a position for future growth. In July, Applebee’s same store sales were -18.4 percent while IHOP’s were -37.6 percent, Bartlett said. “We believe that Applebee’s stores are generating (positive) cash flow and IHOP’s are approaching it, giving us greater comfort in the health of the franchise systems,” he continued in the note. During the conference call, John Cywinski, president of Applebee’s, said that 1,600 restaurants were open in the U.S. and that 1,450 of them were open for indoor dining with average weekly sales of about $39,000. Responding to a question from Bartlett about the comparison between the $39,000 average sales figure at Applebee’s versus last year, Joyce said it was a 15 percent drop. But he added to keep in mind that for the brand, an average week would typically bring in about $46,000 in sales. “So, we’re getting close, and we’re seeing sequential improvement each month,” Joyce said. Also seeing improvement in the third quarter was the company’s international business. Tom Song, chief financial officer, said during the conference call there were four new restaurants that recently opened – two IHOPs in Canada, an Applebee’s in Mexico City and another Applebee’s in Puerto Rico. Dine Brands as well entered into a development agreement for 13 IHOPs in India with an experienced multi-unit quick service restaurant developer. “This is a key market for us and complements our prior development agreement for Applebee’s in India, which we executed in late 2019,” Song said. While the restaurant industry remains challenged due to the coronavirus outbreak, Dine Brands has taken steps to ensure it maintains strong liquidity and responsiveness to franchisees, Song continued. He added that both brands have significant scale and are well positioned to benefit from potential contraction of competitors. “We’ve experienced meaningful improvement in our off-premise business at both brands, which will greatly complement our dine-in sales when restrictions on restaurant operations are further lifted,” Song said.