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Operator: Good day, and thank you for standing by. Welcome to the Dine Brands First Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead.

Matt Lee: Good morning. And welcome to Dine Brands Global’s first quarter fiscal 2024 conference call. This morning’s call will include prepared remarks from John Peyton, CEO; and Vance Chang, CFO. Following those prepared remarks, Tony Moralejo, President of Applebee’s and Jay Johns, President of IHOP, will also be available to address questions from the investment community during the Q&A portion of the call. Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties and other factors, which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today’s press release and 10-Q filing.

The forward-looking statements are as of today and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brands’ Investor Relations Web site. For calendar planning purposes, we are tentatively scheduled to release our Q2 2024 earnings before the market opens on August 7, 2024, and to host a conference call that morning to discuss the results. With that, it is my pleasure to turn the call over to Dine Brands’ CEO, John Peyton.

John Peyton: Good morning, everyone. And thank you for joining us for our first quarter earnings call. Today, I’ll share Dine’s Q1 results and discuss trends in consumer behavior, and discuss operational highlights across our portfolio. I’ll also provide an update on our development strategy. And then Vance will discuss our financial results and capital allocation plans in more detail. During the first quarter, like others in our industry, we saw large areas of the country experience poor weather impacting sales and traffic. And consumer caution with respect to economic conditions persisted in the post holiday period. As a result, the consumer has become more price sensitive as indicated by the response to our limited time promotions.

For example, at Applebee’s 28% of our transactions were tied to a limited time offer or promotion, which was up from 19% in the previous quarter as well as the prior year. We also continue to see guests trade down from higher priced items at both IHOP and Applebee’s, another indicator that guests are managing their wallet. Despite the volatile macro environment causing a slower start to 2024 than we anticipated, we are encouraged to see that our value driven strategy helped to mitigate some of the challenges in Q1 and importantly, drive sequential improvements throughout the quarter. Our approach was validated by guest response to our LTOs and enthusiastic reactions to our continued menu innovation and reinforced by strong marketing calendars and brand relevancy.

So with that, I’ll walk through our key financial highlights, recognizing that we’re comping over a strong Q1 2023. In Q1, our EBITDA was $60.8 million compared to $66.4 million in the same quarter last year. Revenues were down 3.5% for Q1. Applebee’s reported a 4.6% reduction in comp sales, lapping last year’s positive 6.1% Q1 comp sales growth. IHOP posted negative 1.7% comp sales, lapping a positive 8.7% increase in comp sales the same time last year. And adjusted free cash flow was $29.7 million, which was an increase of $27.5 million. Overall, despite the slow start to the year, we remain committed to our guidance for the full year. I’ll turn now to highlights of Applebee’s performance. In Q1, Applebee’s results were impacted by challenges I referenced related to weather and consumer pullback after the holiday season.

However, the brand’s performance steadily improved throughout the quarter, supported by effective marketing and promotional campaigns, which contributed to Applebee’s outperforming Black Box traffic in Q1. Applebee’s innovation pipeline was particularly strong in Q1 with three limited time offerings strategically spaced throughout the quarter that delivered on our focus of offering compelling value aligned with our brand promise, meeting the guest where they are and pairing the relevancy of our brands with important cultural moments. In January, we kicked off the New Year with our All You Can Eat promotion, which exceeded our expectations and outperformed All You Can Eat from the prior two years. In February, the Applebee’s Date Night Pass launched just in time for Valentine’s Day, offered guests over $1,500 in dining value for the unbeatable price of just $200.

It sold out within minutes, demonstrating the strong connection the brand holds with its guests. The Date Night Pass and the media coverage was outstanding, generating more than 2.4 billion impressions, and the social conversation on Applebee’s and Date Night increased by more than 115%. Turning now to March. Following a national double blind taste test of our classic buffalo sauced boneless wings, Applebee’s was crowned with the title of America’s favorite boneless wings, and we leveraged this to spotlight the brand and draw guests to our restaurants. This was the basis of our national campaign that ran during March Madness where we offered guests $0.50 boneless wings. It was the first time we extended a disruptive value promotion also to be available via To Go, which resulted in improved off premise volumes while also maintaining a steady dine in business.

As we continue to look for new ways to reach our guests where they are, we’re working to enhance our off premise offerings, and we’re pleased to see initial success with our boneless wings. This dine in and off premise combination drove a strong finish to the quarter, outpacing Black Box 5 times in Q1, four of which were the last four weeks of the quarter, setting us up well for Q2. Our innovation pipeline is designed to drive steady cadence of exciting developments to showcase the brand and give guests more reasons to come back to Applebee’s. Some highlights currently rolling out include the Whole Lotta Bacon Burger, which launched in April, our recently announced NFL sponsorship as the official grill and bar of the NFL, followed by the return of DOLLARITA just last week that features a new appetizer, our loaded chicken fries.

Also of note, since the launch of Applebee’s new Web site and mobile app in December, we’ve seen the highest conversion rates of the last two years. In fact, we’re seeing a higher percentage of guests choosing to place their orders digitally as well as higher check averages compared to our prior site and app. Applebee’s performance improved throughout the quarter and we’re encouraged by the continued positive momentum so far in Q2, supporting our guidance for the year. Now moving on to IHOP. While the top-line experienced a slight pullback for the first time in three years, we maintained a steady flow of timely relevant campaigns that helps offset the modest weather related headwinds, a tough comp rollover due to the closure of our virtual brand partner, Nextbite and the impact of the economic pressures our guests are facing.

Our strategy to focus on the guest experience, menu innovation and targeted marketing executed in a very nimble and creative way will allow us to deliver positive comps for the full year. We had a great run of sequential growth with 11 quarters of positive comps leading up to this quarter and we’re confident we will return to that pattern. And now for a review of activity in the quarter. We started the year with the return of our guest favorite, Rooty Tooty Fresh ‘N Fruity, featuring a new combo that allowed guests to customize their orders at a value price point of $7. As a result, IHOP’s comp sales outperformed the Black Box Family Dining segment in four out of six weeks during the promotion. In February, we launched our new pancake of the month, where each month we’re introducing a new pancake flavor and the opportunity for members to earn bonus loyalty points to keep guests engaged and coming back.

In April, we launched national TV advertising to support the campaign, and sales have trended in line with our most popular flavored pancakes after only two months. This is also a good example of how we pair new menu launches with exclusive loyalty benefits to continue to grow that platform. Our loyalty program sign ups steadily increased during the quarter, and as of today, we are at 9 million members. In February, we also celebrated IHOP’s National Pancake Day. This year was particularly special as we served over 1 million pancakes to our guests. And we launched a new nationwide community platform, Stacking Up Joy, designed to bring people together in the communities we serve. The Stacking Up Joy platform garnered 2.3 billion impressions and raised enough money to donate over a million meals to people facing hunger.

As I mentioned earlier, the closure of our virtual brand partner, Nextbite, impacted our year-over-year comp sales. However, we still see opportunity with virtual brands that target IHOP’s off peak hours and utilize kitchen capacity outside of our traditional daypart to support incremental sales growth. In partnership with Virtual Dining Concepts, we recently introduced two new virtual brands: Refuel Tenders and Burgers, developed in collaboration with NASCAR and MLB Ballpark Bites, created in partnership with Major League Baseball. Over 1,000 restaurants now offer at least one of these brands and 50% offer two or more as of May. Outside of our IHOP restaurants, our CPG coffee line is on more than 30,000 retail shelves across the US and continues to grow, with two new varieties launching soon.

This past quarter, we announced our limited time partnership with Lay’s to launch the IHOP Rooty Tooty Fresh ‘N Fruity flavored Lay’s potato chip, which reinforced brand awareness and was a sellout in retail channels. Operationally, our point of sale rollout is nearly complete and we are now starting to shift our focus to tablets and payment devices. More than 50% of the IHOP system has implemented tablets and payment devices to date. And we are encouraged to see the transactions taken on tablets with payment devices have a higher beverage attachment rate, improved table turn times, decreased voids and higher tips for servers. As you can tell, there’s a lot going on at IHOP. While the performance was obscured by tough conditions and the virtual brand rollover in Q1, these initiatives give us confidence for improved performance through the remainder of the year.

Turning now to Fuzzy’s. As a refresher, we acquired Fuzzy’s in December 2022 to diversify our portfolio with a fast casual concept, to offer franchisees in the Dine system a third brand in which to invest, and because of its potential to accelerate our long term growth. To contextualize its current scale, as of Q1 2024, Fuzzy’s is a 128 unit brand and a highly concentrated geographic footprint with more than half of its locations in Texas. We’ve completed our integration and are starting to see the benefit of leveraging the capabilities and expertise of the Dine platform, particularly as it relates to Fuzzy’s introduction of value driven promotions and marketing. While the quarter was impacted by weather and high pricing from franchisees, we are executing near term initiatives to support our long term growth strategy for Fuzzy’s.

For example, during the quarter, we tested a new advertising campaign, a first of its kind for Fuzzy’s, highlighting the launch of its Primo Baha menu. We’re pleased with the initial results and we’ll continue to explore additional opportunities to grow the brand. While we’re not yet giving development guidance for Fuzzy’s, we’d like to provide an update given its strategic relevancy to Dine’s overall growth. Over the past year, Fuzzy’s has been focused on cleaning up its system, which included some strategic closures. We’re excited to share that we recently signed two multi-unit deals, an existing Fuzzy’s franchisee has committed to developing 15 restaurants and an IHOP franchisee has committed to develop 25 Fuzzy’s restaurants over the course of the next several years.

While we won’t see impact in 2024, these deals speak to the potential of Fuzzy’s as our growth brand in 2025 and beyond. We’re pleased with the opportunities we’re seeing post integration and we’ll continue to focus on driving brand awareness and supporting new functions. On the international side of the business, we’re impacted by geopolitical conflict in some regions, and we remain focused on our long term growth plans for the quarter. Our international dual branded Applebee’s IHOP concepts are doing well and serve as a testing ground for future domestic application. Overall, development remains steady with four new openings and six planned closures in Q1 for a net closure of two restaurants. We remain optimistic about our international growth and strategically scaling our global footprint.

And finally, to touch on our development strategy. We’re continuing to establish a strong foundation to efficiently scale our development program and we’ve made great progress this quarter building our internal capabilities to support development across the entire Dine platform, investing in nontraditional development, marketing and making several key hires. The team is actively in market reviewing opportunities for new sites, both traditional and nontraditional and working closely with franchisees to support their growth plans that are aligned with our previously disclosed pipeline and guidance. We’re creating a support team and developing incentives for our franchisees to make restaurant development more approachable with new programs to provide access to capital.

We continue to see and are very pleased by the cross pollination of franchisees looking for new opportunities across the Dine system, an important pillar to the Dine development thesis. We’re also looking to accelerate new builds by responding to the demand for dual branded restaurants domestically. The interest we’re receiving from franchisees about the dual branded concepts are all very positive. Of course, there’s still plenty of work and research to be done around this concept and we’re glad to see positive engagement from guests and franchisees alike. This quarter, we also launched the Dine Forward franchise program known as Dine Forward. Dine Forward is aimed at incentivizing potential franchisees from underrepresented communities to establish restaurants within our system and provide enhanced operational and financial support.

We’re thrilled to announce that our first participant, a general manager who’s been in the IHOP system for over 20 years, will open his first restaurant in DC later this month. It’s important to reiterate that enhancements to our development function and the Dine Forward program are funded by reallocating costs within Dine’s existing cost structure and not by increasing overall spend. Now to provide brand development updates from the quarter. As a reminder, we do not give quarterly guidance but the following commentary is to offer context to how we remain in line with our annual domestic development guidance goals. First, at Applebee’s, we’re making progress on the freestanding prototype, which is currently in Phase 1 of a nine month effort to significantly take out construction costs.

In Q1, Applebee’s had net domestic closures of five and we are on track with our domestic guidance of 25 to 35 net closures. These were planned closures and built into our guidance. For Q1 at IHOP, domestically, we opened five restaurants and closed nine for a net closure of four restaurants. As is standard in IHOP’s development cycle, we see more closures earlier in the year with new openings concentrated toward the latter half of the year. We remain on target for our full year guidance with net 15 to 25 new domestic restaurants. And with that, I’ll turn the call over to Vance.

Vance Chang: Thank you, John. While the quarter was not as strong as we had anticipated due to external headwinds, we remain committed to our guidance for the full year. On the top line, consolidated total revenues decreased to $206.2 million in Q1 versus $213.8 million in the prior year, primarily driven by the negative comp sales growth across our brands. Our total franchise revenues decreased 2.3% to $175.9 million compared to $180 million for the same quarter of 2023. Excluding advertising revenues, franchise revenues decreased 2.2%. Rental segment revenues for the first quarter of 2024 decreased compared to the same quarter of 2023, primarily due to prior year lease buyouts. G&A expenses increased 2.2% to $52.2 million in Q1 of 2024, up from $51.1 million in the same period of last year, mostly due to an increase in stock based compensation and an increase in consumer research costs, offset by a decrease in professional services.

Adjusted EBITDA for Q1 of 2024 decreased to $60.8 million from $66.4 million in Q1 of 2023. Adjusted diluted EPS for the first quarter of 2024 was $1.33 compared to adjusted diluted EPS of $1.97 for the same period of last year. Now let’s turn to the statement of cash flows. We had adjusted free cash flow of $29.7 million for the first three months of 2024 compared to $2.3 million for the same period of last year, driven by an increase in cash from operations and a decrease in CapEx as we concluded our technology initiatives from last year. Cash provided by operations at the end of first quarter of 2024 was $30.6 million compared to cash provided from operations of roughly $16.1 million for the same period of 2023. The increase was primarily due to a favorable increase in working capital.

CapEx through Q1 of 2024 was $3.3 million compared to $16 million for the same period of 2023. We finished the first quarter of total unrestricted cash of $145 million compared with unrestricted cash of $146 million at the end of the fourth quarter. Additionally, we continue to return capital to investors. We repurchased $6 million in shares and paid $7.8 million in dividends in Q1 of 2024. Next, let me discuss Applebee’s performance. Q1 same store sales were negative 4.6% as we lapped strong comps from the prior year and will continue to face a price sensitive consumer environment. Average weekly sales were over $54,700, including over $12,000 from off premise or over 22% of total sales, of which 10.7% is from To Go and 11.4% is from delivery.

IHOP’s Q1 same store sales were negative 1.7% as we lapsed strong comps from the year prior. Average weekly sales were $37,600, including $7,900 from off premise or 21% of total sales, of which 8% is from To Go and 13% is from delivery. On the labor front, franchisees are reporting that staffing continues to improve and labor costs, while elevated, have stabilized. Turning to commodities. We are seeing improvement in both brands for year-over-year market basket forecast with IHOP improving 20 basis points and Applebee’s improving 30 basis points since January. Applebee’s commodity cost this quarter improved 2.4% versus Q1 of 2023, and we anticipate flat to low single digit deflation for the remainder of the year. At IHOP, commodity costs improved 3.3% compared to the same period of 2023.

However, we’re still expecting low single digit inflation for the full year due to pressure primarily coming from bacon, beef and orange juice. Our supply chain co op CSCS is working across the Applebee’s and IHOP systems to identify additional cost saving opportunities and support restaurant profitability initiatives through both operational improvements and input costs. To date, in 2024, we have implemented projects resulting in over $12 million of annualized savings across the system. As a result of our restaurant profitability initiatives and the commodity deflation that we saw in Q4, on average, we have seen our franchisees’ Q4 gross margins improve and overall, their four wall dollars improve year-over-year. Before turning the call back over to John for Q&A, I’d like to quickly provide an update on our financial guidance for the year.

As I mentioned, we remain committed to the guidance we provided at the end of the fourth quarter; G&A in the range of $200 million to $210 million, including non-cash stock based compensation and depreciation of approximately $35 million; EBITDA between $255 million to $265 million; CapEx in the range of approximately $15 million to $20 million; Applebee’s domestic system wide comp sales to range between 0% and 2%; IHOP domestic system wide comp sales to range between 1% and 3%. And on 2024 development, we’re expecting 25 to 35 net fewer domestic Applebee’s restaurants and 15 to 25 net new domestic IHOP restaurants. With that, I’ll hand the call back over to John.

John Peyton: Thanks Vance. To wrap up, thank you to our franchisees and team members for their ongoing work and commitment to growing our brands and serving our guests. In an environment in which our guests remain price sensitive, our brands are known for delivering abundant value. We’re confident in our recipe for growth, and our focused development strategy will generate sustainable value over the long term for our shareholders and franchisees. And so now, we’ll open up the call for questions and turn it back to the operator.

Operator: [Operator Instructions] Our first question comes from the line of Eric Gonzalez of KeyBanc.

Eric Gonzalez: I just want to go back to the guidance. I mean you’re reiterating the 0% to 2% comp guidance for — if I were to look at the midpoint of that range that really implies that you need to comp in the 3%s for the remainder of the year. That 3% level, that’s clearly above where the industry seems to be running the last few months. So I just want to talk about maybe some of the drivers of why you think you can get to that level or sustain at that level if you’re already there. What you’ve seen — what you saw in March and as we got into April and early May, that tells you that you can kind of hit that that range? And then I think you mentioned in your prepared remarks, this is sort of a related question, but you said 28% of orders were on LTO. If you could put that into context, I think you said 19% last quarter last year, but I’m not sure where you were before COVID. And are you comfortable with that range and what’s the ideal range for the value mix there?

John Peyton: I’ll talk about the guidance at a high level and ask Tony to fill in the plans for the year that also add to our confidence. I mean, as I mentioned in the prepared remarks, we saw Applebee’s performance improving month over month as well as improving versus Black Box month-over-month and that continued from March into April. So we’re encouraged by the trend. And we’re also encouraged by the plan for the year, which includes additional menu innovation that Tony will describe. The 28% LTO context, it was 18% the quarter before and tends to run in the mid-teens. One of the reasons it was accelerated in Q1 is because Applebee’s ran three promotions during the quarter that Tony can give you some more detail on. And so that does drive up the number somewhat.

We’re comfortable with that number because it’s what we think is necessary now in an environment where the guest is so promotion driven across the segment. And then, Tony, I think it would be helpful if you fill in a little bit more color and what you’ve got planned for the year.

Tony Moralejo: So from a big picture perspective, I’m not going to get into the details of our entire strategy, but it’s important to have the right value proposition to work for your guests. That means, we’re going to make sure our promotional strategy continues to resonate with our guests. We’ll have new compelling value based promotions and mixed in with some of our fan favorites. We’ll ramp up, as you’ve already seen in Q1 and Q2, our culinary and beverage innovation, really across the entire barbell of menu platform. We’re going to continue to focus on our off premise business, which improved in Q1. We’ll continue to focus on our operational efficiency and we’ll make sure that we elevate our operations and refresh our restaurants.

Now that’s a big picture sort of recap of our strategy. The confidence that we have for the balance of the year is, because we’re moving the right direction. At the end of Q1 and certainly at the beginning of Q2, the America’s Favorite Boneless Wing campaign, which we offered wings at $0.50, it helped us significantly in March and that trend extended into early April. And so it was a very disruptive campaign that really changed the trend line that we saw from January and February. And then we obviously followed that campaign with the Whole Lotta Bacon Burger that John referenced in his opening comments, and that was at $9.99, which again is tremendous value when you consider the quality of that product. And then a week ago, we launched DOLLARITA, and DOLLARITA is another abundant value campaign that has a really strong history of sales and traffic performance, and that promotion will run for the entire month of May.

So look, it’s a difficult road, as you pointed in your question, and there’s going to be some bumps down the road, but we’ve got the right promotional strategy, and that’s why we’ve reaffirmed our guidance today.

John Peyton: The last comment I would make is that the guest satisfaction, OSAT for Applebee’s and for IHOP as well, improved each month during the quarter and into April as well, reflecting that during tough times like this, our guests — our restaurants really focused on the guest experience, which is a big part of distinguishing ourselves from alternatives and drawing them into the restaurants.

Operator: Our next question comes from the line of Nick Setyan of Wedbush.

Nick Setyan: That was really helpful color on the promotional cadence around Applebee’s. Can we just have that same discussion around IHOP as well, coming out of the quarter and maybe quarter-to-date. Are you seeing the trends and what’s driving it?

John Peyton: The short answer on that Nick is that IHOP also was improving sequentially throughout the quarter, which is encouraging and we’ll go right to Jay for his response, his counter response, to Tony’s comments.

Jay Johns: Just to put that in context. I think Tony said that really well, value is critically important when you get these kind of economic times. As the question was posed before is what gives you confidence you’re going to be able to finish the year well? And in our position, we had two big impacts that John spoke about in his opening comments. And you had a weather impact, which we don’t think is going to repeat, obviously, as we get into the next quarter. And then you’ve got, for us, we had this rollover of our of our Nextbite virtual brand concepts that closed down at the end of Q2 last year. And we do have replacements for those coming with new virtual brands that we have been launching, starting in about February and they’ve been kind of cascading into our restaurants continuously until now also.

So kind of a February through May launch for those. Those should help replace those lost sales. From that, you eliminate the weather impact, you still have the economic challenges. But we were not quite as aggressive on the price pointed value as Applebee’s was. And I think you’ll see us do a little more of that plans through the year. This is not a reaction to what’s going on. We intentionally went for a little more of an abundant value play in March with promoting our very popular omelettes. But I think what we found was, the guests are in a position where price point and value may be more important to them than even abundant value at this point. So I think you’ll see a little bit of a correction on that as we move through the rest of the year, but that was preplanned already.

Just timing wise of when we try to do certain things during the year, we have a strategy that we always want to kind of pulse in, not only price pointed value, but abundant value, innovations with new menu items. We just launched a new promotion this past — this week, actually, with the movie IF, with a kids eat free promotion with that. And family movies, in particular, when we have a kids eat free promotion tied with them and unique food offerings tend to do very well for us, and that’s what we’re moving into right now. So we’re also very confident that we’re going to see improvement as we get through the year. And we were rolling over 8.7 from last year in the first quarter, we knew that was going to be a tough lap, probably the toughest for the year.

Nick Setyan: And then just for both concepts, what’s expected — kind of what was the pricing in Q1 and what’s the expected pricing in Q2 and for the full year?

John Peyton: I’ll take that for both brands. We’ve talked for a long time about how the historical price increases that our franchisees take before this inflationary period was about 2% to 3%. And then we saw over the last six or eight quarters that could that spiked anywhere from sort of 5% to 8% or 9% on an annual basis. Because, as Vance mentioned in his remarks, we’re seeing the cost of goods into the restaurants stabilize at around that the flat rate and because we’re also seeing labor stabilize a bit, with the exception of California, franchisee margins are improving, beginning to improve. And so we expect that they’ll begin to move back toward that historical 2% to 3% over time. Can’t tell you exactly when. But the pressure for them to raise prices above the historical run rate is beginning to ease.

Operator: Our next question comes from the line of Dennis Geiger of UBS.

Dennis Geiger: I wanted to see if you could talk a little bit more about franchisee sentiment perhaps at both Applebee’s and IHOP right now, it sounds pretty encouraging as we — as you kind of make some of those comments around margins. Curious though just with respect to how they’re managing in the current environment, particularly as we think about value incidents at least that Applebee is picking up. Just as any commentary on their thoughts on everything going on in the environment and again, maybe what that means from a development demand perspective, please?

John Peyton: So why don’t we begin Vance with you talking about margins and then we can ask Tony and Jay to talk about specifically how their franchisees are reacting in this environment?

Vance Chang: So as we mentioned in the prepared remarks, both systems are in good shape based on the financials that are shared with us from our franchisees. Of course, not all of them are back to 2019 levels yet but their financial health is — a lot of it is driven by the strong AUV growth that we’ve seen. And then we talked about commodity inflation easing, so their cost of goods sold as percent of sales is really trending towards pre-COVID levels at this point. And then labor availability is better and labor percent of sales is also roughly par to pre-COVID levels. So all that equates to their formal dollars trending towards pre-COVID level and seeing growth year-over-year. And so those are good sort of setup for our franchisees in both systems.

Dennis Geiger: Maybe just one more. I appreciate the color on some of the customer behaviors and spending patterns that you observed in the quarter. Is there anything else, and maybe I missed it, but anything else by customer cohorts thinking about income demographics, et cetera, where that shifted? Is it still sort of lower income where the most pressure is being observed? Is that risen at all to middle? Any kind of other observations on the customer in the quarter would be curious?

John Peyton: That’s exactly right. We see the biggest movement and by movement we see — I mean, less business from — less visits from the lower cohort, which we define as $50,000 and below. And the higher you go in the income streams, income ranges, the more consistent the performance has been quarter-to-quarter. And we’ve also observed that when our guests are in the restaurant, again, particularly our lower income consumers, they’re more aggressively managing their check, finding our value oriented items, et cetera. And that’s been consistent the last couple of quarters but more pronounced in Q1.

Operator: [Operator Instructions] Our next question comes from the line of Todd Brooks of The Benchmark Company.

Todd Brooks: I know you don’t talk kind of current quarter same store sales trends. I’m just wondering with how unique Q1 was with the typical compares, a lot of that being kind of Omicron emergence earlier in the quarter, the weather compares. Would you be willing to talk kind of exit rates to same store sales in March for both brands, so that we can get a sense of where things normalize as we move farther away from some of those pressures earlier in the quarter?

John Peyton: Vance, I’ll defer to you in terms of what we can share there.

Vance Chang: So first of all, just a quick reminder, Todd, that on a two year basis, Q1 was actually positive comps for both of our brands. But of course, this is not the quarter we’d like to post. But generally speaking, as John and Jay, and Tony mentioned, the sequential improvement throughout the quarter has been encouraging and that trend has continued well into Q2. So we won’t quantify exactly, but — the month-to-month, but it’s encouraging to see this positive momentum in both comps and traffic for both of our brands.

Todd Brooks: And then my second question. Given the difficult environment, just the lens that you look at your G&A spend through? And we’ve been at kind of a $200 million plus type of level now for a few years. Would love to know kind of what initiatives are maybe within G&A that couldn’t be delayed some and especially thinking other potential uses of capital, including maybe some accelerated share repurchase at historically low valuations if we were a little bit more efficient with G&A? Would love to get the thoughts on that.

Vance Chang: So the G&A level we have right now is what we believe that the right level to run the company going forward with the growth plan that we have in mind. As we talked about before, the technology initiatives, we’ve concluded with that, so that’s impacting G&A and CapEx both, right? But with the G&A we’re redeploying those — the G&A resources towards development now. So we’re keeping G&A at a fairly constant level but we’re investing in the development capabilities, and that includes a lot of the functionalities that we — that John talked about before, which is to source deals in a different way, to support the franchisees in a different way that we — on a more centralized fashion. And so that’s what we plan on doing going forward.

One other reminder is just that for this quarter, if we do not count the non-cash items, which is stock based comp and depreciation and amortization within our G&A, the cash portion of the G&A is actually $2 million to $3 million lower versus the year before. So we have been and we will always be very disciplined with G&A bank management. And your second part of the question in regards to buybacks, we know — we believe that there is growth potential with the stock and with the company and their opportunities create shareholder value for us in the long term. So we have been and we will always be in the market when we see that there is a disconnect with the intrinsic value of the company and where the shares are trading at. So that will be — will always be an important part of how we return capital to shareholders.

Operator: Our next question comes from the line of Brian Vaccaro of Raymond James.

Brian Vaccaro: Just a few follow ups, if I could. I believe you said that Applebee’s traffic outperformed in the first quarter. Just to make sure we’re on the same page. Could you level set where average check was for each brand in the first quarter?

John Peyton: I don’t have that data in front of me, Vance. Can you address that question?

Vance Chang: So Brian — so average check for Applebee’s is slightly positive, offsetting the negative traffic, but the traffic we did with Black Box for the quarter. For IHOP, average check was probably in more of the high single digit range, given the menu pricing increase, the effect of menu pricing increase in Q1. So that’s the context.

Brian Vaccaro: So check slightly positive at Applebee’s and IHOP in the high single digits. I might have misheard it, but I think your comments on franchisee profitability, were those as of the fourth quarter? I guess, that’s the most recent quarter you have visibility on? Do you have financials on? So with sales mix on value promotions jumping now into the high 20s, can you speak to the impact that’s having on franchisee profitability? It sounds like you’ve got a good guy on the commodity side insulating. But to what degree has that jump in promotion impacted profitability, and is this level sustainable in your view?

John Peyton: I’ll start with that and Vance fill in if I miss anything you think is important. The most important thing about our approach, meaning all three brands approach to promotions, Brian, is that they are profitable promotions as they’re designed. And that is the case and it’s ensured by the fact that we construct promotions with input from our franchisees and they’re on board with doing them. A good example is even DOLLARITA, right? For a Margarita for a dollar is profitable in itself. And the last time we ran it in the fall, 90% plus of those DOLLARITA tickets included other items, which is exactly what it’s designed to do. So we believe that as long as the promotions are constructed to drive profit as a standalone, to be profitable standalone and then drive additional business, that is the strategy that we’re following in conjunction with our franchisees. Vance, is there any color you can add that would be helpful?

Vance Chang: So as John mentioned, it’s all about driving incremental profitable traffic. So another detail I would add on the DOLLARITA is that — so it’s more than just the DOLLARITA itself. There are different shots, flavors, different additions we can — we’re offering that adds to the margin of that drink and then — in addition to the food attachment rate of that of that order. So the point of it is to drive the lifetime value of that guest and increase sort of the long term market share of the brand. So we’re not giving things away. These are prudent, methodical, creative campaigns that we’re running.

Brian Vaccaro: And then just the last one for me. In the first quarter, just looking at the financials, it looked like advertising accrual at Applebee’s was down 4% or so. And is that representative of the actual spend or TRPs in the market in the first quarter? I know sometimes there can be differences versus what’s in the financials versus actual spend. But if that was the case, did that have a negative impact on your comps? And just thinking more broadly in the more competitive value environment, what’s a reasonable expectation on advertising at Applebee’s for the rest of the year? Might that be down as well or just any color there would be great?

Vance Chang: So on a very high level basis, think of advertising spend as roughly a — it should trend similarly as comps. So if sales are up, advertising spend will be up. If sales are down, advertising spend will be slightly down. But what you’re referring to also is driven by timing. So the dollar spend isn’t exactly tying to — it just depends on payment timing, depends on the campaigns we’re running, depends on things we’ll work out with our agency. So there’s going to be some of that noise in there. But for the most part, it should be fairly consistent with sales trends.

John Peyton: And then Vance, I think it would be helpful if Tony addressed the advertising strategy overall for Brian.

Tony Moralejo: I can’t get into specific plans, obviously, due to competitive reasons, but we feel really confident where our calendar sits for the remainder of the year. We’re not going to be spending less money. We are spreading it out over more calendars and windows and we’re changing our mix a little bit between traditional media and digital. But the strategy remains the same and the volume, the breadth and depth of the marketing plan remains the same. So we’re going to provide our guests with value, especially during these inflationary times. And we’ll lean hard on our award winning advertising and our robust fund to support the entire portfolio of propositions that you’ll see for 2024.

Operator: Our next question comes from the line of Jeffrey Bernstein of Barclays.

Unidentified Analyst: This is [Pratik] on for Jeff. I just had a quick modeling question and then a real question. I apologize if it’s already out there. But are we going to get four quarters worth of historical results for Fuzzy’s, now that the brand is fully integrated or will we just kind of continue to get quarterly updates with the current quarter and the prior year quarter?

Vance Chang: I can answer that. So the reason why we didn’t provide comps the year before is because last year was the first year we’ve owned the company. And so going forward, we’ll provide quarterly comp performance versus last year. But we wouldn’t provide last year’s comp, because we didn’t own the company the year before that, if that makes sense.

Unidentified Analyst: And then my real question was really following up on Dennis’ question. Your brand has obviously always been positioned for value and there’s been a lot of talk from your peers the past few days about consumers feeling pressured. Can you just talk about if you’ve seen a meaningful change in the types of guests that you’re seeing in your brand, like maybe some at the low end have been trading out, but maybe some other guests have been trading into your brand? Just any color on what you’re seeing right now would be really helpful.

John Peyton: I don’t know that we have that much more to add to what we’ve already said. In that we are –what I can clarify though is that we are seeing more change in terms of our lower income guests having less visits with us than we are in seeing growth in the upper tiers of our income band. Meaning we’re not seeing as much trade down into the brands. We’re seeing some. But the most impactful change in consumer behavior is clearly at the $50,000 and below segment.

Operator: I am showing no further questions at this time. I would now like to turn it back to John Peyton, Dine Brands’ CEO, for closing remarks.

John Peyton: Julia, thank you for your expert moderation. We appreciate it. Thanks to Jay, Tony and Vance, and thank you guys for joining us this morning and asking us your questions. We’ll talk to you throughout the quarter, and look forward to next August call. Have a great day everybody.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.