Applebee’s has hit a setback in its comeback effort, with same-store sales dipping 0.5% for the second quarter because of what management said was a drop-off at dinner.
Management characterized the comps decline as a blip rather than the start of a trend. “This was a tough quarter for Applebee's sales,” said Steve Joyce, CEO of parent company Dine Brands Global. But “make no mistake: We certainly do not believe that our second quarter comp sales are indicative of a shift in Applebee's fundamentals or brand relevance.”
But management noted that the chain is continuing to close restaurants. Thirteen were shuttered during Q2 following the closure of four stores in Q1. Applebee’s President John Cywinski said the chain would shrink by a net of 20 to 30 restaurants by year’s end.
Cywinski attributed the Q2 sales downturn to an erosion of dinner visits by price-sensitive customers, and suggested the chain made a mistake in not aiming more intently on those bargain hunters in its marketing. Value-sensitive customers constitute about 20% of Applebee’s customer base, he explained.
“I believe our May-June performance could have been stronger had we introduced our new loaded fajitas with a compelling nationally advertised price point,” Cywinski said. “While we achieved significant trial, we failed to attract very important value-seeking guests, resulting in a little less incrementality than anticipated. Bottom line, when we're aggressive on price, value seekers tend to be with us, and when we're not, they tend to seek a deal elsewhere.”
He assured investors that the focus on value would intensify going forward.
Applebee’s sister concept, the IHOP family restaurant chain, posted a comp sales gain for Q2 of 2%.
Both concepts saw steep growth in their off-premise business, management indicated. Joyce cited “meaningful progress” in renegotiating more favorable terms from the chains’ third-party delivery partners.
Cywinski revealed that Applebee’s Q2 off-premise sales topped the figure for the year-ago period by 27%. But, he added, “I expect off-premise growth rate to moderate a bit as we lap 30% to 40% growth from a year ago.”
IHOP’s off-premise business jumped 39% year over year during the quarter, said the president of that concept, Jay Johns.
He noted that IHOP intends to add catering during the fourth quarter. Cywinski said a rollout of the service to all Applebee’s units is expected to be completed by the end of next month.
Overall, Dine Brands posted a net income of $21.4 million, an increase of 68% from the year-ago period, on revenues of $228.1 million, up 23.6%.
The company franchises or operates 3,633 restaurants across its two brands.