Dine Brands Global Exits Pandemic on a Roll

John Peyton, chief executive of restaurant chain operator Dine Brands Global Inc., outlined the three ways that that company has gained strength in the two years since the pandemic started. 

First, the Glendale company innovated the in-restaurant guest experience for diners at its Applebee’s Neighborhood Grill & Bar and International House of Pancakes (IHOP) restaurants. 

“For example, our hygiene and safety protocols are enhanced and will become the new standard. Guests can now put their names on our waitlist and pay their bills with their phones,” Peyton said during a conference call with analysts to discuss fourth quarter earnings. 

Second, the company has innovated the off-premises experience. 

At both Applebee’s and IHOP, takeout and delivery grew more than two times versus 2019, Peyton said. 

“This is largely incremental business that we intend to nurture and grow,” he added. “To go packaging is also next gen; it keeps food hot longer and it’s designed to showcase our menu with supercharged technology investment and adoption.” 

And lastly, there has abeen streamlined operations and new sources of revenue that have been identified.

“Today, for example, our menus are streamlined by more than a third compared to pre-Covid,” Peyton said. “And as a result, our kitchens are more efficient, there’s less food waste, faster prep times (and) improved quality and consistency of those items that remain.” 

Franchisees embraced outdoor dining during the pandemic, and expanded their seating capacity with minimal capital investment, Peyton added. 

Applebee’s launched its Cosmic Wings and IHOP is testing two virtual brands – a grilled cheese concept called Thrilled Cheese and a quesadilla concept called Super Mega Dilla – in seven test markets in three states (Kentucky, Texas and Arizona) with even more markets coming online, Peyton continued. 

“And we work with our franchisees to expand our sales channels via ghost kitchens in the U.S. and abroad,” he said. “Most importantly, our asset-light model allows us to invest in what we do best – menu innovation, marketing and technology – all for the benefit of our franchisees.”

Dine Brands operates 3,600 domestic locations and nearly 200 locations internationally. It makes its revenue primarily through franchise and rental fees.

Fourth quarter upswing

On March 2, Dine Brands reported an adjusted net income of $22.5 million ($1.32 a share) for the quarter ending Dec. 31, as compared to adjusted net income of $6.4 million (39 cents) in the same period a year earlier. Revenue increased by 17 percent to $230 million. 

Analysts who follow Dine Brands were pleased with the direction of the company. Three contacted by the Business Journal rate the stock as “buy” or “outperform.” 

Jake Bartlett, an analyst with Truist Securities Inc., was of the opinion that a strong sales recovery will take place this year and the start of sustained long-term trends.

In a research report put out after the company’s investor day on March 9, Bartlett said that Dine Brands had presented to investors a strong long-term plan which he viewed as “credible” and could drive significant upside to the shares, “driven by accelerating development, multiple (same-store sales) drivers and strong return of cash,” he wrote.

“(Dine Brands’ same-store sales) drivers include improved staffing, increasing traffic as Covid fades, a boost from virtual brands and IHOP’s new loyalty program, with macro risk limited by strong value at both brands,” Bartlett added in the report. 

Brian Vaccaro, an analyst with Raymond James & Associates Inc., said in his research report after the investor day, that it was a good sign the company and its franchisees were investing in technology and equipment capabilities to improve the guest experience off-premise, drive operational efficiencies and enhance marketing. 

“These investments will lead to a step-up in (general and administrative expenses) and (capital expenditures) in 2022, followed by more moderate growth in 2023 and beyond,” Vaccaro said in the report. 

And, finally, Nick Setyan, an equity analyst with Wedbush Securities Inc., said that Dine Brands “current valuation discounts an overly pessimistic view of its medium- to long-term fundamentals,” and that the company remained on the Wedbush Best Ideas List, a ranking of the best stocks as chosen by Wedbush analysts. 

He also called “reasonable” management’s expectations of 3 percent annual growth at Applebee’s and that a similar same-store sales growth rate at IHOP was “realistic,” in a research report from March 10.

“A post-Omicron normalization, menu price increases, various technology initiatives, including a loyalty rollout in April, the rollout of two new virtual brands (Thrilled Cheese and Super MegaDillas), menu innovation, and relative value are drivers we point to,” Setyan said about IHOP.