A 7.7% jump in Applebee’s same-store sales and a 1.2% rise in IHOP’s comps for the third quarter, both fueled by traffic gains, have the brands and parent Dine Brands Global looking beyond immediate brush fires to the longer-range components of their turnaround plans, including the acquisition of a third business.
For IHOP, that means accelerating expansion, with projections calling for a net gain of 28 stores. That 6% increase addresses “pent-up desire to expand,” which comes at a time when many chains are still in a retrenchment mode, said brand President Darren Rebelez. The family-dining chain is also considering follow-ups to its highly publicized launch of a new burger line, which delivered the lunch and dinner boosts that have been a longstanding quest of the pancake specialist.
Applebee’s is resuming expansion, with management forecasting five to 10 openings this year, though mostly overseas. The largest player in casual dining is also continuing to develop new customer draws that resonate with its base—“mainstream and broadly appealing menu items,” said brand President John Cywinski.
The 1,875-restaurant chain is also looking to double the portion of sales generated by takeout and delivery, coming off a 37% increase in off-premise business for Q3. “We fully expect our off-premise business to double from 10% to 20% of sales over the next few years,” Cywinski told financial analysts.
IHOP saw a 35% increase in to-go sales on a 26% rise in transactions, with off-premise now accounting for 7% of total sales compared with 5% last year, according to Rebelez.
The concepts’ franchisor, meanwhile, is moving forward on its quest for a third brand. “We’re rapidly working our way through several hundred brands,” said Dine Brands CEO Steve Joyce, noting that a team is in place to scout for a deal. “We’re narrowing those down to some conversations.”
The ideal candidates are emerging fast-casual or quick-service brands in the “100, 100-plus-units range,” said Joyce.
The addition would put Dine Brands back in the business of operating restaurants, but only until the added brand is ready to be franchised. Joyce said his experience suggests 65% of new development could come from IHOP and Applebee’s current franchisees.
Joyce also told investors that “we are increasing our investment in research and consumer insights to ensure our initiatives fulfill what our guests want and expect from us.”
All three executives cited Q3 results as vivid proof the company is moving in the right direction—and ahead of schedule, in the instance of Applebee’s, says Cywinski.
“Our turnaround has happened a bit faster than some anticipated, and we’re now on a path of consistency and predictability,” he told Wall Street.
He noted that Q3 was Applebee’s best quarter in more than 14 years in terms of both traffic and sales. “Our confidence and optimism could not be higher,” Cywinski said.
Dine Brands is still squabbling with a franchisee over who has control over about 160 restaurants, but conditions among the brand’s 33 operators have improved markedly, said Dine Brands CFO Tom Song. “For the full year, we expect bad debt to be approximately $7 million,” he said.
Stepping up IHOP’s expansion is an important point in that brand’s rebound, stressed Rebelez. “Every 16 new restaurants tends to add another point in comps,” he said.
Faster growth is possible because “we’ve been consistent in pruning the system—we’ve been proactive in closing weak stores,” he continued, noting that the 30 to 40 stores expected to close this year is a normal-sized batch for a system of IHOP’s size. The chain should cross the 1,700-unit domestic threshold in the near future, from its current domestic base of about 1,640 restaurants.
Rebelez said the chain continues to reap benefits at lunch, dinner and late at night from its highly visible burger launch, when IHOP pretended to change its name to IHOb, the “b” standing for “burgers.” “When we first launched the program, we quadrupled our burger sales from prelaunch levels,” said Rebelez. “We’ve leveled off at double what we used to sell.” The promotion kept IHOP’s comps in positive territory for every week of Q3, he noted.
Similar dinner, lunch and overnight lures will follow, according to Rebelez.“We got a good start with burgers, but we are far from done on that front,” he told Restaurant Business.
Overall, Dine Brands posted a $21.8 million net income for Q3, compared with a year-ago loss of $441.9 million. Revenues rose 11%, to $194.1 million.