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Text: I'm joined by John Peyton, CEO; Allison Hall, Interim CFO and Controller; Jay Johns, President of IHOP; and John Cywinski, President of Applebee's.
When we spoke last quarter, I shared my belief that the industry and our brands, in particular, were on the cusp of a restaurant renaissance.
And our headline today is that the renaissance is here.
I love this notion of renaissance because it's all about resurgence and creativity and pushing beyond established boundaries, and that's exactly what we're doing at Dine Brands.
We're changing the way people think and we are turbocharging creativity and experimentation.
A willingness to learn and adapt is flourishing throughout our organization.
I see it every day from our franchisees, to our company staff, to the restaurant teams, our general managers and our servers.
And that's why I'm so proud of our company and our franchisees.
I'm proud of our management team, and I'm especially proud of the thousands of hard-working restaurant team members around the world.
Now as I look back on the first quarter, it's remarkable how we continue to persevere and grow.
Our brands posted meaningful improvements during the first quarter.
So let me share those results through the lens of store sales, total revenue and cash generation because, obviously, each one leads to the next.
Average weekly sales at both IHOP and Applebee's exceeded pre-pandemic levels several different times during the first quarter.
According to Black Box, and this is impressive, Applebee's increase in same-store sales for Q1 outperformed the casual dining segment.
Off-premise, in March, both IHOP and Applebee's off-premise sales reached absolute dollar levels, higher than when the restaurants were 100% off-premise in 2020, indicating the staying power of this largely incremental business.
We achieved revenue of $204.2 million and EBITDA of $58.1 million, reflecting strong underlying performance across our business.
Cash, we generated free cash flow of $30.7 million which, in part, enabled us to repay our $220 million revolver in early March.
And also importantly, our franchisees opened 10 new restaurants during the quarter, indicating that they're beginning to pivot toward growth.
We're very encouraged by our Q1 performance, and we're certainly optimistic that economic tailwinds will sustain us throughout 2021.
Contributing to that view is historically high consumer savings, the Federal spending that we've been enjoying as well as a new potential infrastructure bill.
The unemployment rate is the lowest since the pandemic began.
And with vaccinations rising, the economic growth outlook firming and the strength and resilience of our brands, I'm confident that we'll build on the strong Q1 performance to drive market share gains and deliver profitable growth throughout the year.
Now our fundamental strengths are something many CEOs would love to have.
Number one, we are an asset-light 98% franchise model that is a significant generator of cash.
Second, we've got two iconic world-class brands that are number one in both the casual and family dining categories.
And third, we've got the most talented, most resilient team members in the industry today, along with the next generation of workers still to be hired.
And as tough as the past year has been, the pandemic actually gave us new competitive competencies.
Here's what we have today that no one could have even imagined pre COVID.
We've got significant incremental off-premise business in both brands.
Our teams moved quickly and aggressively to add the tech and operations capability needed to nurture and sustain this new business.
Second, we leaned heavily into ghost kitchens and virtual brands like Cosmic Wings and others on the horizon that offer new sources of revenue per dine in our franchisees, all of that due to the creativity and talent of our people.
And we advanced our digital platform and loyalty programs that will increase our share of wallet.
So with COVID-19 vaccine appointments now more widely available and capacity restrictions being eased across the country, we are seeing increased traffic in our restaurants.
A couple of questions that might be on your mind.
First is about hiring, and that is certainly a challenge in the industry today and all around the country.
So I want you to know that we are aggressively working to help our franchisees recruit adequate staffing to accommodate the increase in demand.
And this is a great example of where dine scale makes a big difference.
We're launching national campaigns for two recruiting days next week.
Applebee's and IHOP are collaborating with their franchisees on the 17th and 19th with the goal of hiring more than 20,000 new team members, and we're making it easy to apply via text, email and in-person, and both brands are leveraging very creative social campaigns to generate interest.
Your second question today might be around procurement, and I want you to know that we're working to secure the continuity of our supply chain.
During the past few months, the surge in guests going out to eat created demand that has outpaced supply.
This is actually not a terrible problem to have, as we see it as just a moment in time.
Nonetheless, our purchasing co-op remains heavily engaged with both brands, and we've adjusted our full year food forecast slightly upward due to generally higher commodity and input costs.
However, we expect prices to fall back to equilibrium as our suppliers adjust to the new demand forecasts over the remainder of the year.
We want the world to know right now that Applebee's and IHOP are open for business.
So our marketing plans encompass national TV, digital media, social media platforms and one-to-one marketing.
Both IHOP and Applebee's have standard operating procedures in place, and our employees have done a terrific job of adhering to best practices like QR code menus upon request, tables that aren't set until the guest is seated, the proper use of masks and enhanced cleaning protocols.
And so with safety in place, we're doubling down on innovation to fuel the renaissance.
And specifically, we've got five growth platforms that build on Dine's competitive advantage.
Number one, we're developing and investing in new smaller restaurant prototypes for both brands.
Flip'd is a good example of our new thinking; number two is off-premise enhancing technology like FlyBuy; number three, virtual brands, think Cosmic Wings; number four is ghost kitchens.
For IHOP, they're up and running in Dubai, Kuwait and Saudi Arabia.
And for Applebee's and Cosmic Wings, we're up and running in L.A., Philadelphia and coming soon in Miami.
And as always, we're focused on new culinary creations like IHOP's Burritos & Bowls.
So I know that you're waiting for our comprehensive long-term growth plan.
And I can tell you that we're currently conducting a top to bottom strategic review of the business.
And as part of that process, we're embracing a bigger and more holistic vision for our future.
But in the near term, I can tell you that we've already decided to lean into three incremental investments that I know will make a difference, and since we spoke last quarter.
First is technology that enhances the guest experience.
We -- we're accelerating the redesign of ihop.com and the IHOP app.
We're accelerating the Flip'd website and its app as well as the platform needed to support our loyalty programs for IHOP and Applebee's.
Second, we're leaning into Flip'd by IHOP.
We'll increase investment to accelerate the launch of this IHOP sister brand.
And on that topic, I can just say, stay tuned for some news coming soon.
And third, we're making investments to improve the guest experience in our portfolio of 69 company-owned Applebee's restaurants in the Carolinas, which by the way, consistently ranked among the top performers in the domestic Applebee's system based on sales.
So these three investments that I just mentioned are largely an investment in capex, and they represent an additional $5 million in capex since we last spoke.
We don't expect them to alter our previously issued G&A guidance.
So I'm confident in our plans and very confident in our management team.
We've identified the building blocks for the restaurant renaissance, and we'll use those as a way for all of you to continue to follow the progress of our story.
An important part of our story is a strong balance sheet because it enables us to create that future, and Allison will now give you an update on that as well as on our financial results.
I'll begin with an update on the business.
Our performance in the first quarter reflects pent-up consumer demand for our brands.
Vaccine is being administered across the country, the distribution of government stimulus checks and the gradual easing of dining room restrictions.
At the end of the first quarter, 99% of our domestic restaurants were open for dining operations, with restrictions in some states.
I'm pleased to reiterate that we repaid the $220 million drawdown from our revolving credit facility in early March 2021 as planned.
We now expect to achieve an annual interest savings of approximately $5 million.
Our cash position remained strong.
We ended the first quarter with total unrestricted cash of $179.6 million.
This compares to unrestricted cash of $163.4 million for the fourth quarter of last year, excluding the $220 million that was drawn against our revolving credit facility, a 10% increase.
Switching gears to our operating results.
I'll start with the income statement.
For the first quarter, adjusted earnings per share was $1.75 compared to $1.45 for the same quarter of 2020.
The year-over-year improvement was primarily due to lower tax expense as well as a higher gross profit, driven by an increase in revenue from Applebee's company-operated restaurants, due to a higher average check and increased traffic.
We believe the distribution of the latest round of government stimulus checks in March favorably impacted both traffic and average checks.
The increase in average check was also partially attributable to favorable product mix and daypart ships.
Gross profit for our Applebee's company-owned restaurants increased 5.9 percentage points to 9% for the first quarter compared to the same quarter in 2020.
Rental segment revenue for the first quarter of 2021 was $26.1 million compared to $29 million for the same period last year.
The variance was primarily due to the decrease in base rent, resulting from restaurant closures and lease buyouts, and a decline in percentage of rental income based on franchisees' retail sales.
Rental segment gross profit was 19.8% for the first quarter of 2021.
This represents sequential improvement of 12 percentage points compared to the fourth quarter of 2020, which was more heavily impacted by charges related to the planned closures of underperforming IHOP restaurants.
Turning to our GAAP effective tax rate for the first quarter.
Our effective tax rate for the first quarter of 2021 was negative 6.6% compared to 23.2% for the same quarter of 2020.
The change in effective tax rate was primarily due to onetime recognition of excess tax benefits on stock-based compensation related to the departure of our previous CEO.
Switching gears to G&A.
G&A for the first quarter of 2021 was $39.9 million compared to $37.6 million for the same quarter of last year.
The increase was primarily due to higher personnel costs associated with equity-based and other incentive compensation, partially offset by lower travel costs.
We continue to view G&A as a significant lever for the organization.
Turning to the cash flow statement.
Cash from operations for the first quarter of 2021 was $30.6 million compared to $29.6 million for the same quarter last year.
The increase was primarily due to the recognition of excess tax benefits on stock-based compensation.
Our highly franchised model continues to generate strong adjusted free cash flow of $30.7 million for the first quarter of 2021 compared to $27.5 million for the same quarter in the prior year.
The variance was primarily due to the increase in cash from operations just discussed and lower capex compared to the first quarter of 2020.
We believe that our strong cash position, cash from operations, disciplined G&A management, and the ongoing improvement in our business will allow us to invest and grow as the recovery from the pandemic continues.
Regarding capital allocation and financial flexibility, our business decisions are driven by the improvements in our restaurant operations and industry conditions.
As a result of our progressive recovery, we chose to repay the $220 million drawn against the revolver in early March.
We'll continue to evaluate our business performance, which will influence our decisions on capital allocation.
Turning to our franchisees assistance programs.
As of March 31, 78% of the $61.9 million in royalty, advertising fees and rent payment deferrals that Dine Brands provided to 223 franchisees across both brands has been repaid.
Dine Brands started the year strong, both Applebee's and IHOP posted meaningful sequential improvement in comp sales.
Average weekly sales in dollars for both brands increased to pre-pandemic levels in certain weeks during the first quarter.
We ended the first quarter with a strong cash position, allowing us to make additional investments in our business.
We're very pleased with our start to 2021, and we remain optimistic about the second half of the year.
Now you will hear more from brand President, John Cywinski, who will tell you about the significant progress we're making at Applebee's, John?
After a year of navigating the pandemic, March and April represented an extraordinarily positive inflection point for the Applebee's brand.
In fact, in more than four years as President of Applebee's, I honestly can't recall the brand being better positioned than it is at this very moment.
We just delivered the two highest monthly sales volumes Applebee's has achieved since the inception of Dine in 2008.
In fact, it's quite likely March and April represent two of our all-time highest volume months in the 40-year history of the brand, but I really can't confirm this as our database only goes back 13 years.
What I can confirm is that March comp sales were positive 6.1% versus 2019, reflecting the confluence of consumer stimulus, compelling marketing and most importantly, operational excellence.
Momentum continued to accelerate in April as Applebee's delivered a plus 11.4% comp sales result versus that same 2019 baseline.
While it's impossible to determine how much of this momentum can be attributed to government stimulus versus organic demand, it's very clear to me that America is dining out again in full force.
So here's the real story.
According to Black Box, 2021 comp sales versus 2019, as John referenced, Applebee's has now significantly outperformed the casual dining category for 12 consecutive weeks.
And get this, an average of 560 basis points.
In many respects, this is reminiscent of Q1 of last year when we posted 10 consecutive weeks of positive comps before the emergence of COVID.
Clearly, Applebee's momentum has returned, and it's returned in a very powerful way.
It's important to remember that this momentum started to emerge in the last week of February, well before stimulus checks, when we introduced our successful Burgers and Wings event.
This message really resonated with Applebee's guests behind the enormously popular Chicken Fried lyrics from our friends at the Zac Brown band.
In the April return of our signature Irresist-A-Bowls currently on air, is the latest example of Applebee's providing big flavor and abundant value.
This advertising was choreographed to the classic AC/DC Rock Anthem Back in Black and it delivered breakthrough results.
This is just more evidence of Applebee's talented marketing team continuing to innovate around what I firmly believe to be the most enduring, memorable and likable ad campaign in the entire industry, and frankly, outside of the industry.
Of course, I'm talking about eating good in the neighborhood, something that's a real point of pride for our franchise partners, the restaurant teams and our entire organization.
We hear about our advertising all the time from our guests, and it always brings a smile to my face.
Equally important to our guests is the innovation our team continues to deliver behind Applebee's $5 Mucho Cocktails, as we begin to see the alcohol business steadily return to pre-COVID normalcy.
The easing of capacity constraints, the opening of bar seating and the reemergence of our late night daypart represent clear incremental growth opportunities as we progress through the year.
And after scaling back media spending in January and February, our national media plan is now substantial, and equally balanced throughout the remainder of the year with favorable Q2, Q3 and Q4 comparisons with each of the same quarters in 2019, which bodes very well for the brand.
Additionally, there are other indicators that our performance isn't short-term in nature.
Applebee's unaided brand awareness and advertising awareness continue to significantly outpace all casual dining competitors.
In key metrics such as affordability, menu variety, guest satisfaction, brand affinity and likelihood to visit consistently outperform the category average.
Now, I'd like to share a few insights regarding our on-premise and off-premise business.
For both March and April, Applebee's restaurant sales averaged an impressive $54,000 per week.
As anticipated, our on-premise business has steadily increased as dining restrictions have eased.
It's worth noting here that our off-premise volume has held steady between $17,000 and $18,000 per week per restaurant reflecting the staying power of this off-premise business.
Without question, Applebee's has significantly broadened its reach and relevance within this important convenience driven segment.
For the month of April, Applebee's sales mix consisted of a 67% dine in, 20% Carside To-Go and 13% delivery.
Included in this delivery segment is our new virtual brand, Cosmic Wings, and after about 10 weeks in market, Cosmic Wings sales have averaged about $330 per restaurant per week with significant geographic variability, reflecting Uber Eats coverage.
For context, individual restaurants range from a low of $100 per week to a high of $2,000 per week.
Now importantly, we add Postmates delivery this week and then expand to include DoorDash later this month, which will significantly enhance Cosmic Wings distribution, visibility and trial.
After this expansion, I should be able to quantify the size of the Cosmic Wings opportunity.
In the meantime, you can use your imagination as to what the addition of DoorDash may mean for the business.
Now, with respect to restaurant operations.
I'm very encouraged with the integration of handheld tablets in about 500 Applebee's restaurants.
With staffing challenges across the country, these tablets provide a meaningful hedge against labor inflation, while enabling our service to be far more efficient in taking care of the guests.
Bottom line of servers love these tablets because it makes their job easier and allows them to make more money.
Additionally, one of the positive outcomes of this past year was the approximate 33% reduction in our core menu and the simplification of our operation.
The resulting food and labor benefits have had a favorable impact on restaurant margins as well as restaurant execution.
I should also reinforce that over the past year, our teams have been quietly focused on building an awesome innovation pipeline of culinary, beverage, marketing and technology initiatives for future deployment.
So in wrapping up, it's quite evident to me that America trusts Applebee's, as we're beginning to see the benefits of the goodwill that our franchise partners worked so hard to create over this past year.
Virtually all of our restaurants are now open, royalty collections remain rock solid.
Our advertising fund is now comparable to what it was in 2019, and it's a big lever for us moving forward.
We have an exceptionally talented team who have been eagerly awaiting this day and franchisees are aligned behind our business plan and confident in our ability to not only perform but to thrive in this environment.
For the first time in a long time, I now believe we control our own destiny, and we're poised to unlock the full potential of this great brand.
While I'm sure there'll be other challenges along the way, there always are, Applebee's has genuine momentum right now, and I couldn't be more optimistic about our future than I am right now.
And with that, I'm going to turn it to my partner, Jay.
John, you must be really proud of those results and what your team and franchisees are accomplishing right now.
I know I'm very proud of it.
So a nice job.
Like Applebee's, we've made great progress this quarter compared to where we were during the pandemic as well.
Our first quarter comp sales improved sequentially by 8.9 percentage points compared to the fourth quarter.
As our business improved, our average weekly sales in dollars has grown significantly and surpassed pre-pandemic levels at times during the quarter as stimulus checks provided our guests with additional buying power.
Average weekly sales were approximately $26,000 for January and sequentially increased to just under $36,000 from March, reaching a high for the quarter of approximately $40,000.
Regarding our domestic restaurants opened for business, 97% of restaurants were opened for dine-in service with restrictions in most states as of March 31.
That compares to only 70% with dine in as of December 31.
With guests eager to return to in restaurant dining, we're pleased that California recently increased indoor restaurant capacity to 50%.
IHOP's presence in California makes up approximately 13% of our domestic business.
So we're optimistic about the potential lift overall there.
To drive sustainable growth, we're continuing to execute against four strategies.
As I discussed with you last quarter, these are focusing on our p.m. dayparts, providing compelling value, maintaining our gains in off-premise sales, and lastly, our development growth.
Our plans have yielded tangible results.
To provide some color on our first two strategies, focusing on that p.m. daypart in value.
We launched IHOPPY Hour in September of last year to offer our guests a broad selection of value options during those nonpeak daypart hours, mainly two to 10 p.m. IHOPPY Hour continues to drive incremental sales even as business improves across all of our dayparts.
Additionally, IHOPPY Hour traffic is two to three times higher than the rest of the day compared to September 2020 when we launched it.
This actually equates to a low to mid-single-digit lift in sales for the entire day.
To further increase the appeal of our IHOPPY Hour's menu, which has been very well received by our guests, we plan to update the menu items over time.
We're continually innovating to maintain IHOP's category-leading position in family dining.
Our latest innovation is IHOP's new steakhouse premium bacon, which is available on our new bacon obsession menu.
This makes IHOP the first national family dining restaurant chain to offer this type of thick cut premium bacon.
The bacon obsession menu continues to solidify our position as the leader in breakfast and highlights our commitment to both innovation and value across all of our dayparts.
During 2020, we played both defense and offense to remain resilient during and also prepare to thrive after the pandemic.
We played defense by making operational changes and moving heavily or completely at times into alternative occasions.
But we also invested heavily in our menu and preparation for the recovery.
We wanted to be ready with a fresh and appealing menu for guests to enjoy when they return to our restaurants, but also accommodate guests, who choose to dine on-premise.
This culminated in the launches of IHOPPY Hour and our signature Burritos & Bowls.
Both have been very well received by our guests.
Burritos & Bowls perfectly filled the gap we had in our menu and continues to capture 8% to 10% of total ticket order incidents since we launched it with really minimal promotion.
Our overarching menu strategy underscores innovation and supports both breakfast and non-breakfast occasions while also being portable for guests on the go.
Now let's switch gears to our third strategy of maintaining our gains in on-premise sales.
Despite capacity restrictions generally being eased across the country in the first quarter, our off-premise sales held steady at 33.3% of total sales.
That's flat compared to the fourth quarter.
However, we've seen a steady increase in net off-premise sales in dollars.
For the first quarter, our sales mix consisted of 66.7% dine-in, 16.8% to go and 16.4% delivery.
We continue to believe that sustaining off-premise sales mix at a much higher rate is feasible in a post pandemic environment, and will strongly complement the anticipated return of our dine-in business.
In fact, our weekly off-premise sales in March reached dollar levels higher than we were 100% off-premise last year, even at the higher than shutdowns.
In the first quarter, as the overall business increased, so has the to-go business.
The pandemic has certainly influenced consumer behavior and change how guests use IHOP.
We adapted to the changes in this behavior through innovation and developing highly affordable items such as Burritos & Bowls.
We believe the convenience of takeout delivery will remain appealing to our guests.
Turning to our forward strategy development.
We have the benefit of being able to now provide our franchisees with four different development platforms.
These includes -- include our traditional formats, nontraditional, our first Flip'd by IHOP locations, which we plan to open in 2021 and a new small prototype that we intend to test this year.
In the first quarter, our franchisees opened eight new restaurants globally, and for the remainder of the year, we expect to resume development that was paused due to the pandemic.
Looking ahead, we have a plan in place for more robust development starting in 2022.
We believe the brand can potentially exceed its historical annual average of approximately 60 new restaurants opened over the last decade.
As we begin to plan our growth for the next three years, we intend to have a blended mix between these four types of development vehicles.
We made great progress over the last 12 months.
We're successfully executing against our four strategies and are seeing tangible results.
IHOP remains in a position of strength and is poised for long-term growth.
Look, I can't say it enough to all of you on the call, but the restaurant renaissance is here, and our Q1 performance is certainly evidence of that.
I've got so much confidence in our future because I really believe that restaurants are an essential part of society and people want a place to gather and celebrate.
And after 13 months of being locked in our houses, we, Americans, are ready to do that.
Our people, our teams, our franchisees and the thousands of restaurant team members across the country are amazingly resilient.
I mentioned last time that I worked in my parents restaurant when I was in high school.
And that's why I think the favorite part of my job is when I get to visit team members in the field.
I've finally gotten to do that in the last couple of weeks, and it's truly energizing and invigorating and what impressed me the most on my recent visits to our restaurants is that even after 13 months of extreme challenge, I was greeted with unbelievable enthusiasm and optimism about the future.
So as we transition to a post pandemic environment, Dine will continue to invest in innovation and the strategic platforms that we know will drive long-term sustainable growth.

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q1 adjusted earnings per share $1.75.
q1 gaap earnings per share $1.51.99% of domestic restaurants open.
currently cannot provide a complete business outlook for fiscal 2021.
qtrly total revenue $204.2 million versus $206.9 million.

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