Dine Brands Q3 2025 Earnings Call: Contradictions Emerge on Company-Owned Store Profitability, Value Platforms, Dual-Brand Plans, and Franchisee Demand

Business Commentary:

• Sales and Traffic Trends:
• Dine Brands Global reported a 3.1% increase in comp sales for Applebee's and a negative 1.5% comp sales for IHOP in Q3.
• Positive traffic trends were observed for both brands, with Applebee's achieving two consecutive quarters of positive comp sales and traffic, and IHOP experiencing its first quarter of positive traffic in many years.

• The growth was driven by new menu innovation, targeted marketing campaigns, and consumer demand for value, variety, and exceptional dining experiences.
  

• Value Mix and Menu Strategy:

• Applebee's value mix increased to about 30%, while IHOP's value mix remained at about 19%.
• The focus on everyday value platforms, operational simplification, and high-impact guest-centric marketing helped drive these trends.

• Guests managed their check by trading down to lower-priced items, reflecting macroeconomic anxiety leading to more intentional spending decisions.
  

• Dual-Brand Restaurants and Expansion:

• Dine Brands Global plans to open approximately 30 dual-brand restaurants by year-end, expecting at least 50 openings in 2026.
• Combining the complementary day-part brands of IHOP and Applebee's is expected to drive higher sales and efficiency, enhancing unit economics for franchisees.

• The dual-brand strategy is seen as a significant lever to grow, with potential for approximately 900 dual-branded restaurants in the next decade.

• Capital Allocation and Shareholder Returns:

• Dine Brands Global reduced its dividend from $0.51 per share per quarter to $0.19 to focus on a larger share repurchase program, committing to buy back at least $50 million in shares over the next two quarters.
• This decision was driven by the belief that the company's stock price is undervalued and that aggressive buybacks would create long-term shareholder value.
• The move is supported by the company's strong financial position, which allows for meaningful capital returns while investing in brand development and asset-light model growth.

Contradiction Point 1

Company-Owned Store Profitability and Challenges

It involves differing explanations about the challenges and expected duration for company-owned stores to return to profitability, which impacts financial expectations and operational strategies.

How much of a drag are company-owned stores expected to have on performance, and when might that impact subside? - Eric Gonzalez (KeyBanc)

2025Q3: The biggest piece, some $9 million to $10 million hit in this year’s segment profit, is coming from the originally planned or expected company restaurant openings. - Vance Chang(CFO)

What steps and timeframe are needed to return corporate-owned stores to profitability? - Todd Morrison Brooks (The Benchmark Company)

2025Q2: This transition period includes remodeling, staffing, training improvements, and we expect this to be resolved quarter by quarter over the next 6 to 9 months. - Vance Chang(CFO)

Contradiction Point 2

Impact of Value Platforms on Franchisee Profitability

It involves differing perspectives on the impact of value platforms on franchisee profitability, which is crucial for assessing the effectiveness of the company's strategies.

IHOP has positive traffic but negative comps. How are you increasing average check, and can you adjust pricing or product mix in upcoming quarters? - Eric Gonzalez (KeyBanc)

2025Q3: We're going to continue to drive value because it is -- we're getting the value incidence down from 25% to 15% of check incidence on weekdays. - Lawrence Kim(President of IHOP)

Does the House Faves platform enhance franchisee profitability at the store level, and why is expanding it to weekends the right move for IHOP? - Brian Hugh Mullan (Piper Sandler)

2025Q2: The House Faves platform has been a huge hit from a traffic standpoint and a sales standpoint, which is then driving franchisee profitability. - Lawrence Kim(President of IHOP)

Contradiction Point 3

Dual-Brand Restaurant Opening Plans

It involves differing expectations and timelines for the opening of dual-brand restaurants, which impacts the pace of strategic growth and revenue projections.

How should we view dual-brand openings by year-end and beyond? Are the 30 locations expected to open by year-end? - Jeffrey Bernstein (Barclays)

2025Q3: We expect most of these to open by the end of this year and the rest early next year. - John Peyton(CEO)

Is the House Faves platform effective in improving franchisee profitability, and why is expanding it to weekends the right move for IHOP? - Pratik Mahendra Patel (Barclays)

2025Q2: We expect to have 10 dual-branded restaurants either open or under construction by the end of this year. - John Peyton(CEO)

Contradiction Point 4

Value Mix and Menu Pricing Strategy

It involves changes in the value mix strategy and menu pricing, which are crucial for revenue and customer perception.

How are you addressing the decline in average check, and can you improve it in the coming quarters? - Eric Gonzalez (KeyBanc)

2025Q3: At Applebee's, we've been able to deliver positive traffic growth for Q3 ... And we've got some initiatives that we're doing on like the digital tablets and some of the other things that are helping to increase check mix. - Lawrence Kim

Could you share average check growth and pricing expectations for the brands? - Brian Vaccaro (Raymond James)

2025Q1: Applebee's average check increased slightly due to new menu launches. IHOP's average check dropped slightly due to House Faves value mix. - Vance Chang

Contradiction Point 5

Dual-Branded Concepts and Franchisee Demand

It involves changes in the dual-branded concept strategy and franchisee demand, which are critical for future growth and expansion.

What is driving franchisee demand for dual-branded concepts? What are the primary challenges? - Dennis Geiger (UBS)

2025Q3: Initial conversions are more IHOP-centric as it solves a dinner challenge, and Applebee’s is exploring opportunities among major franchisees. Hurdles are not about franchisees but about IHOP franchisees lacking bar experience and needing extra training, which is being addressed. - John Peyton

How have dual-branded concepts and franchisee sentiment affected your long-term outlook? - Dennis Geiger (UBS)

2025Q1: We'll continue to open single brands and dual brands. IHOP is opening 40 restaurants a year, and Applebee's is seeing new brand openings. Our new Applebee’s prototype reduces costs, demonstrating a catalyst for future growth. Internationally, dual brands will be a primary vehicle. - John Peyton