8-K: Dine Brands Global Reports Mixed Q4 Results, Exceeds EBITDA Guidance

Dine Brands Global announced its fourth quarter and fiscal year 2023 results, showing positive comp sales growth at IHOP, but a slight decline at Applebees, while exceeding EBITDA guidance.

Summary

• Dine Brands Global reported its fourth quarter and fiscal year 2023 financial results on February 28, 2024.
• The company saw a 0.5% decline in comparable same-restaurant sales at Applebees, with off-premise sales accounting for 20.8% of the sales mix, averaging $10,900 per restaurant weekly.
• IHOP experienced a 1.6% increase in comparable same-restaurant sales, with off-premise sales at 20.4% of the mix, averaging $8,000 per restaurant weekly.
• Total revenues for Q4 2023 were $206.3 million, down from $208.0 million in Q4 2022, primarily due to the refranchising of 69 Applebees locations in October 2022.
• Excluding the refranchised Applebees locations, total revenues were $204.3 million in Q4 2023, compared to $196.5 million in Q4 2022.
• General and administrative expenses decreased to $50.5 million in Q4 2023 from $58.8 million in Q4 2022.
• GAAP net income available to common stockholders was $32.3 million, or $2.14 per diluted share, for Q4 2023, up from $11.0 million, or $0.72 per diluted share, in Q4 2022.
• Adjusted net income available to common stockholders was $21.1 million, or $1.40 per diluted share, for Q4 2023, compared to $20.6 million, or $1.34 per diluted share, in Q4 2022.
• Consolidated adjusted EBITDA for Q4 2023 was $62.2 million, up from $57.0 million in Q4 2022.
• For the full year 2023, total revenues were $831.1 million, down from $909.4 million in 2022, again primarily due to the refranchising of Applebees locations.
• Excluding the refranchised Applebees locations, total revenues for 2023 were $822.7 million, compared to $780.7 million in 2022.
• GAAP net income available to common stockholders for 2023 was $94.9 million, or $6.22 per diluted share, up from $78.9 million, or $4.96 per diluted share, in 2022.
• Adjusted net income available to common stockholders for 2023 was $101.4 million, or $6.65 per diluted share, compared to $98.5 million, or $6.20 per diluted share, in 2022.
• Consolidated adjusted EBITDA for 2023 was $256.4 million, compared to $251.9 million in 2022.
• The company had adjusted free cash flow of $103.3 million for 2023, compared to $64.6 million for 2022.
• Dine Brands repurchased approximately $6 million of its common stock in Q4 2023 and $26 million for the full year.
• A quarterly cash dividend of $0.51 per share was declared, payable on April 5, 2024, to shareholders of record on March 20, 2024.
• The company expects Applebees domestic system-wide comparable same-restaurant sales to range between 0% and 2% in 2024.
• IHOPs domestic system-wide comparable same-restaurant sales are expected to range between 1% and 3% in 2024.
• Consolidated adjusted EBITDA is expected to range between $255 million and $265 million for 2024.
• G&A expenses are expected to range between $200 million and $210 million for 2024, including $35 million in non-cash stock-based compensation and depreciation.
• Gross capital expenditures are expected to range between $15 million and $20 million for 2024.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to exceeding EBITDA guidance and positive performance at IHOP, offset by a slight decline at Applebees and a decrease in overall revenue. The company's strategic moves and financial management are viewed favorably.

Positives

• Dine Brands exceeded its EBITDA guidance for the fourth quarter and full year 2023.
• IHOP experienced positive comparable same-restaurant sales growth for both the fourth quarter and full year 2023.
• The company successfully integrated Fuzzys Taco Shop into its system during 2023.
• Dine Brands strengthened its balance sheet and returned capital to shareholders through share repurchases and dividends.
• The company's leverage ratio improved to approximately 4.2x as of December 31, 2023, compared to 4.6x as of September 30, 2023.
• Dine Brands has over $220 million in available borrowing capacity under its Variable Funding Senior Secured Notes.
• The company's GAAP effective tax rate for 2023 was 13.0%, primarily due to a state income tax audit settlement resulting in a $15.1 million benefit.
• Adjusted free cash flow increased significantly from $64.6 million in 2022 to $103.3 million in 2023.
• Cash flows provided by operating activities increased from $89.3 million in 2022 to $131.1 million in 2023.

Negatives

• Applebees experienced a decline of 0.5% in comparable same-restaurant sales for the fourth quarter of 2023.
• Total revenues decreased in both the fourth quarter and full year 2023, primarily due to the refranchising of 69 company-operated Applebees units in October 2022.
• General and administrative expenses increased for the full year 2023 compared to 2022, primarily due to the inclusion of Fuzzys operations and other costs.
• Applebees domestic development activity is expected to result in 25 to 35 net fewer restaurants in 2024.

Risks

• The company faces risks related to general economic conditions, including inflation, which may impact franchisees.
• Dine Brands is dependent on its franchisees and their financial health.
• The company is exposed to potential cyber incidents and risks associated with information technology.
• There are risks associated with the restaurant industry, including food-borne illnesses and brand reputation.
• The company's ability to achieve its financial guidance is subject to various factors.
• The company faces risks related to supply chain interruptions and changing consumer preferences.
• Dine Brands is exposed to risks associated with doing business in international markets.
• The company faces risks related to litigation and other legal proceedings.
• The company's success is dependent on its ability to attract and retain management and other key employees.
• The company is exposed to risks associated with natural disasters, pandemics, and other serious incidents.

Future Outlook

The company expects Applebees domestic system-wide comparable same-restaurant sales to range between 0% and 2%, and IHOPs domestic system-wide comparable same-restaurant sales to range between 1% and 3% in 2024. Consolidated adjusted EBITDA is expected to range between $255 million and $265 million, and G&A expenses are expected to range between $200 million and $210 million for 2024. Gross capital expenditures are expected to range between $15 million and $20 million for 2024.

Management Comments

• John Peyton, chief executive officer, stated that the company delivered another year of positive comp sales growth at IHOP and Applebees and generated year-over-year EBITDA growth while fully integrating Fuzzys into the system.
• Vance Chang, chief financial officer, added that the company's financial performance has allowed them to strengthen their balance sheet and invest in the business while returning capital to shareholders.

Industry Context

Dine Brands operates in the competitive full-service restaurant industry, facing challenges such as changing consumer preferences, inflation, and supply chain issues. The company's focus on franchise operations and brand development is consistent with industry trends. The mixed results at Applebees and positive results at IHOP highlight the varying performance across different brands within the same company, which is not uncommon in the restaurant sector.

Comparison to Industry Standards

• Dine Brands' performance can be compared to other large restaurant groups such as Darden Restaurants (DRI), which owns Olive Garden and LongHorn Steakhouse, and Brinker International (EAT), which owns Chili's and Maggiano's. These companies also report comparable sales and EBITDA metrics.
• Darden Restaurants reported a 2.8% increase in same-restaurant sales for their most recent quarter, while Brinker International reported a 0.9% increase. Dine Brands' IHOP performance of 1.6% is within this range, while Applebees' -0.5% is below.
• In terms of EBITDA margins, Dine Brands' adjusted EBITDA of $256.4 million on $831.1 million in revenue for 2023 translates to a margin of approximately 30.8%. This is comparable to other large restaurant groups, but can vary based on business model and brand mix.
• The refranchising strategy of Dine Brands is a common practice in the industry to reduce capital expenditure and focus on brand management. However, it can also lead to revenue declines if not managed effectively.
• The company's focus on off-premise sales, which account for around 20% of sales at both Applebees and IHOP, is in line with the industry's adaptation to changing consumer behavior and the rise of delivery services.

Stakeholder Impact

• Shareholders will benefit from the dividend payout and share repurchases.
• Franchisees will be supported by the company's strategic initiatives and brand development.
• Employees may be impacted by changes in G&A expenses and development activity.
• Customers will continue to have access to the company's restaurant brands.
• Suppliers and creditors will be impacted by the company's financial performance and operational decisions.

Next Steps

• The company will continue to focus on its methodical development strategy to generate sustainable value.
• Dine Brands will host a conference call to discuss its results on February 28, 2024.
• The company will pay a quarterly cash dividend of $0.51 per share on April 5, 2024.

Key Dates

Keywords

Dine Brands Global, Applebees, IHOP, Fuzzys Taco Shop, restaurant, financial results, EBITDA, same-restaurant sales, franchise, revenue, earnings, dividends, share repurchase