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Presentation

Dine Brands Global, Inc. beats earnings expectations. Reported EPS is $1.07, expectations were $1.

Operator: Good day, and thank you for standing by. Welcome to the Dine Brands Global, Inc. First Quarter 2026 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. To ask a question during the session, you will need to press star 11 on your telephone. You will hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead, sir.

Matt Lee: Good morning, and welcome to Dine Brands Global, Inc.’s First Quarter Fiscal 2026 Conference Call. This morning’s call will include prepared remarks from John W. Peyton and Vance Yuwen Chang. Following those prepared remarks, Lawrence Y. Kim will also be available along with John and Vance to address questions 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 actual results to differ from 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 Global, Inc.’s investor relations website. With that, it is my pleasure to turn the call over to Dine Brands Global, Inc.’s CEO, John W. Peyton.

John W. Peyton: Good morning, everyone, and thanks for joining us. Today, I will walk through Dine’s Q1 results and share insights on consumer behavior as well as our brands’ performance in the current environment, and then I will hand it over to Vance for a deeper dive into our financials. We started the year building upon the momentum from last quarter, achieving flat to positive sales growth across all three brands for the first time in several years. This performance reflects progress against our key priorities, which include enhancing the guest experience through operational improvements, strengthening and simplifying our marketing to better connect with guests, particularly through more targeted, culturally relevant engagement, and advancing menu innovation and everyday value platforms to meet evolving consumer needs.

As the quarter progressed, the operating environment became more dynamic and, in many ways, more challenging as inflation for food away from home and higher gas prices put a strain on households. With consumer sentiment declining to historically low levels, discretionary spending has become harder to justify, prompting some guests to more carefully evaluate lower-cost alternatives across restaurants, grocery, and other food channels. We are seeing the most pressure on lower-income consumers. As a result, this is driving greater focus on offerings that combine compelling price points with quality, abundance, and differentiated experiences like Applebee’s 2 for $25 platform and IHOP’s everyday value menu. Against this backdrop, the importance of our strategy and the relevance of our brands becomes even more central to our performance.

We operate scaled, well-recognized brands built around value and everyday occasions and offering experiences that cannot be easily replicated at home, delivered at an accessible price point. This remains a strength of our business even within a more challenging landscape. While we recognize there is more work to do to strengthen our financial performance this year, we are pleased with our first quarter sales performance and believe our focus on value, cultural relevance, and disciplined execution positions us well to compete and deliver sustainable results. I will now turn to our key financial highlights for the quarter. All of our brands outperformed Black Box on comp sales. Applebee’s reported a 1.9% increase in comp sales, and IHOP posted flat comps, despite weather impacting Applebee’s by 94 basis points and IHOP by 80 basis points in the quarter.

Our EBITDA was $50.8 million compared to $54.7 million in the same quarter last year. Our decreased profitability reflects our investments in our dual brands and company-owned portfolio initiatives, and we expect these investments to create value over the long term. We returned $24 million of capital back to shareholders. Overall, our results reflect the balance between continued investment in the business and solid top-line performance across the portfolio. Now some updates across our portfolio starting with Applebee’s. Building on our sales momentum from 2025, Applebee’s posted positive comp sales in the first quarter, outperforming Black Box. The continued focus on our 2 for $25 value platform and new menu innovation serves as our primary sales drivers as these initiatives continue to resonate with our guests.

Our strategy this quarter remained consistent: communicating new menu innovation through high-impact targeted marketing and maintaining strong execution in the restaurants. Rather than relying on broad-based campaigns, we are leaning into our 2 for $25 value platform and demand-led activations tied to cultural moments, allowing us to connect more efficiently and compete more effectively for share of wallet. The OM Cheeseburger launch is an example of our value strategy in action. Since its introduction in January, the burger has driven high interest and engagement, supported by its compelling $11.99 price point and inclusion on our 2 for $25 value platform. In just a few months, it became the highest-ordered burger on that platform, reinforcing Applebee’s everyday value positioning.

Because OM Cheeseburger launched in time for Valentine’s Day, we further pushed our 2 for value platform to deliver an affordable yet experiential date night occasion. The OM Cheeseburger news generated more than 9 billion impressions, reached 96 million people on social media, and sparked nearly 80 times more organic reviews than typical campaigns. By providing guests with incredible value during this seasonal moment, it drove the highest single-day sales volume in Applebee’s history, with the full week ranking among the top five sales weeks ever. Across digital channels, off-premise comp sales increased approximately 3.5% in the quarter, supported by third-party delivery and targeted promotions tied to key occasions like the Super Bowl and the NCAA Basketball Tournament.

From an operations standpoint, our strategy is centered around driving excellence through simplicity, focus, and accountability. We are implementing initiatives that simplify kitchen operations, increase manager presence in the dining room, and improve off-premise order accuracy. During the quarter, manager visibility contributed to higher guest satisfaction scores as reflected in improved guest surveys and Google review scores. As part of these efforts, we are preparing for a systemwide launch of a new Toast point-of-sale platform. We expect this to meaningfully increase beverage order incidences, reduce voids, and increase tips while providing better data and tools for our teams. Collectively, these efforts position us to operate more efficiently and support long-term growth.

While April sales have softened against tougher prior-year comps, our focus on value, targeted marketing, and operational discipline will support our performance in a dynamic environment. Turning to IHOP. For the second consecutive quarter, IHOP outperformed Black Box in both sales and traffic in a category where traffic remains under pressure. This reflects the brand’s focus on great value, product innovation, culture-driven marketing, and an improved guest experience, all of which are helping to build momentum. Comp sales were primarily supported by check improvement as we balanced IHOP’s everyday value menu with increased awareness of premium offerings. Breakfast combos tied to our Bottomless Pancakes campaign performed well, alongside limited-time offerings, including this quarter’s featured Spotlight Stack, New York Cheesecake Pancakes.

This approach continues in Q2 with the promotion of IHOP’s signature Stuffed and Stacked Omelets, including the new bold Barbecue Pulled Pork Omelet, and the launch of a new proprietary coffee blend, the first new coffee introduced at IHOP in almost 20 years. IHOP continued to see momentum in off-premise, with comp sales increasing 2.6% year over year, largely driven by incremental third-party delivery volume. Beyond driving comp sales, third-party channels enhance brand visibility and enable engagement with guests across multiple channels. Off-premise represents 22% of sales, with continued opportunity across delivery, digital ordering, and emerging areas like catering. While early, we are already seeing an approximately 16% improvement in comp sales in catering, and we have made targeted investments over the past year in digital ordering, packaging, and local store marketing to further support the catering channel.

IHOP’s differentiated breakfast offering translates well to group occasions, and we are seeing meaningful upside in this channel as it continues to scale. Beyond expanding how guests access the brand, we are also focused on how to connect with them. We are showing up in culturally relevant moments that have resulted in incredible buzz for IHOP, allowing us to engage with new fans and consumers. Initiatives like National Pancake Day and the Bottomless Pancake campaign with NFL star Malik Nabers have been successful in driving engagement and keeping the brand top of mind. During National Pancake Day, we saw a 316% year-over-year increase in engagement across social channels, demonstrating the effectiveness of our investments to reach a broader audience.

Underpinning all of this is a relentless focus on operational excellence and the guest experience. Speed is progressively improving, with table turns approximately 6% faster than they were in Q4. Guest complaints are down year over year, reflecting strong execution and consistency across the system, while investments in our new POS and hand-helds continue to enhance order accuracy and efficiency in our restaurants. Overall, IHOP continues to deliver steady performance in a challenging environment, with April sales holding steady behind our value menu and barbell strategy with premium offerings. Turning to Fuzzy’s. The momentum from our Q4 promotions carried into Q1, contributing to Fuzzy’s posting positive comp sales for the first time in three years, enabling the brand to outperform its competitors in sales every month in Q1.

This progress is a result of the hard work we have done to strengthen the business with a focus on improving technology, streamlining the menu, and enhancing the in-restaurant experience. We are encouraged by Fuzzy’s performance this quarter and remain focused on sustaining and building on this progress. Now for dual brands. It has been one year since we opened our first domestic dual brand in Seguin, Texas, and our confidence in the platform continues to grow. Across the system, most of these restaurants are generating about 1.5 to 2.5 times the sales of the original stand-alone restaurant while maintaining a healthy check balance across both brands. The Seguin restaurant is still delivering roughly two times its pre-conversion sales levels.

Today, we have 43 dual brand restaurants open, with 13 additional locations under construction, and we remain on track to have approximately 80 open domestically by year-end. Interest in our dual brands remains strong among existing and new franchisees. We now have 10 different operators that have opened a dual brand restaurant, and of these, two are new franchisees to the Dine system. The dual brand model provides a flexible path to unlock additional value across our existing footprint. It allows franchisees to reposition lower-performing restaurants, including those that may have otherwise reached the natural end of their life cycle, while also enhancing performance at higher-sales restaurants. A long-standing Applebee’s franchisee opened its first dual brand in Hawthorne, New York, just a month ago.

The successful conversion of a high-sales single-brand restaurant validates that the dual brand model is adaptable and scalable across a range of sales profiles. The unit was already a strong-performing restaurant, and since converting and reopening in March, it has delivered an approximately 1.8 times sales lift. During the last few months, we have learned more about these restaurants from a guest perspective. A few highlights include: guests are excited to have the option to choose between two complementary iconic brands; 62% of our dine-in tickets contain at least one item from each brand; guests who purchase from both brands are spending on average 24% more than those who purchase from just one brand, leading to an overall higher check average at the dual brand restaurants; and sales remain balanced across all dayparts, proving our thesis about the complementary nature of these brands.

We also made operational improvements, including updating our online ordering flow to make the experience more seamless for guests, which has driven an increase in average off-premise check, and improving efficiencies in back-of-house operations such as kitchen design. We continue to improve our pre-opening training at restaurants and are seeing newer restaurants achieve faster table turn times. Taken together, these results reinforce our confidence in dual brands as a big idea and a compelling growth vehicle, driving strong unit economics and continued franchisee demand. Turning to our broader development initiatives. We maintained momentum this quarter in new restaurant openings, opening 24, up from 10 at this time last year. We remain on track to meet our full-year domestic development guidance.

Development remains a key priority for long-term growth driven by our dual brand formats, the Applebee’s Looking Good remodel program, and targeted investments in our company-owned portfolio. In addition to new unit growth, we are also seeing meaningful opportunity within our existing footprint through relocations and real estate optimization. Two recent new restaurant openings are relocations within their existing markets, and while early, in both cases sales increased over 50% compared to the prior location, highlighting both the continued relevance of the brand and the importance of site selection in unlocking incremental growth. We made progress on the Applebee’s Looking Good remodel program, completing 11 remodels this quarter. This program has consistent engagement among franchisees, and early results remain encouraging with, on average, a mid-single-digit percent sales lift.

We expect about a third of the system to be remodeled by year-end. At IHOP, we are beginning a three-year renovation cycle with a fresh, modern design called California Heritage. It is a light, bright, and joy-filled design that brings a warm, welcoming feel to the restaurant while staying unmistakably IHOP. Before turning the call over to Vance, I note that while we expect to see some near-term headwinds, we remain focused on executing against our priorities and positioning the business to drive sustainable long-term growth in this challenging environment. I will now turn the call over to Vance.

Vance Yuwen Chang: Thanks, John. On the top line, consolidated total revenues increased 4.8% to $225.2 million in Q1 versus $214.8 million in the prior year, primarily driven by the acquisition of company-owned restaurants since 2025. Excluding advertising revenues, franchise revenues in Q1 decreased 2.1% primarily due to a decrease in proprietary product sales and performance of our international franchisees. Increases in comp sales for the quarter were offset by closures. Rental segment revenues for 2026 were consistent with the prior-year period. G&A expenses were $53.1 million in 2026, up from $51.3 million in the same period last year, due to annualization of last year’s investments in training, development, and operations to support our remodeling, dual brand initiatives, and our larger company restaurant portfolio.

Adjusted EBITDA for 2026 decreased to $50.8 million from $54.7 million in 2025, primarily driven by the following factors: first, IHOP’s proprietary product sales decreased due to sales timing to our distribution partners; and second, we have more company restaurants and dual brand restaurant openings than last year that resulted in higher G&A and pre-opening support cost. In addition, EBITDA was impacted by restaurants taken back since the prior-year quarter, which are still in turnaround stage and not yet at steady state. I will touch further on the progress we have seen in our company restaurants, particularly around the dual brand conversions, in a moment. Adjusted diluted EPS for 2026 was $1.07 compared to adjusted EPS of $1.03 for 2025.

Turning to the statement of cash flows. We had adjusted free cash flow of negative $3 million for 2026 compared to $14.6 million for the same period last year, primarily driven by higher CapEx for company restaurants and the year-over-year impact of performance plan compensation payments. CapEx through 2026 was $12.1 million compared to $3.3 million for the same period in 2025. Nearly two-thirds of the CapEx year to date is tied to remodels and dual brand conversions of company-owned restaurants. Our lower adjusted free cash flow and increased CapEx this quarter is timing, as we expect to end the year with CapEx in the range that we previously provided. We finished our first quarter with total unrestricted cash of $104.2 million compared to unrestricted cash of $108.2 million at the end of the fourth quarter last year.

On buybacks and dividends, we returned $20 million of capital to shareholders in Q1, including $22 million of share repurchases, which was approximately 5% of our shares outstanding at the beginning of the year. Our total shares repurchased in Q4 and Q1 were $52 million, which is above what we had committed to on our Q3 2025 call. We continue to believe our shares are undervalued and remain committed to share repurchases. Next, Applebee’s performance. Q1 same-restaurant sales increased 1.9% year over year. Domestic average weekly franchise sales per restaurant were $56,300, including approximately $13,500 from off-premise, or 23.9% of total sales, of which 11.9% is from to-go and 12.1% is from delivery. Off-premise saw a positive 3.5% lift in comp sales in 2026 compared to the same period last year.

IHOP’s Q1 same-restaurant sales were flat. Domestic average weekly franchise sales per restaurant were $38,300, including $8,300 from off-premise, or 21.5% of total sales, of which 7.5% is from to-go and 14% is from delivery. Turning to commodities. Applebee’s commodity cost in Q1 increased by 6.3% and IHOP’s commodity cost increased by 3% versus the prior year. Our supply chain co-op, CSCS, continues to expect commodity costs in 2026 at mid-single digits for Applebee’s and low-single digits for IHOP. The primary driver for both brands’ commodity costs is higher beef prices, including the lapping of favorable beef contracts at Applebee’s. In 2026, we implemented projects resulting in over $4 million of annualized savings across both systems, and we continue to partner with CSCS to leverage our scale.

Lastly, our company-owned portfolio remains instrumental in strengthening brand performance and supporting the overall health of our system, and our goal is to ultimately refranchise the locations at the right time. At the end of Q1, we operated 86 company-owned restaurants totaling about 2% of our system, which is in line with our asset-light model. This includes 12 Applebee’s restaurants that we opportunistically took back in February in the Virginia area, with the potential to complete approximately five dual brand conversions out of this portfolio. As has been reported, one of our franchisees, Neighborhood Restaurant Partners, filed for bankruptcy protection. As part of its proposed plan, they are selling approximately 53 restaurants. Dine is stepping in as a stalking horse bidder because we believe that securing these restaurants gives us direct operational insight and allows us to invest in the units through our development initiatives.

Although closures for construction impacted profit in our company-owned portfolio, we are making progress. Q1 comp sales outperformed the system with close to a mid-single-digit comp sales improvement year over year. During the quarter, we completed six remodels and two dual brand conversions, bringing our total to 20 remodels and four dual brand conversions since taking back these restaurants. By the end of 2026, we expect to have completed or be under construction on over 30 remodels and eight-plus dual brands. While early, at our four company dual brand restaurants we are seeing sales lifts of approximately 2.5 times, which further supports our confidence in our dual brand strategy. We are maintaining our full-year financial guidance at this time.

With that, I will hand it back over to John. Thank you.

John W. Peyton: To wrap up, we are pleased with the start to the year and are confident that our strategy will enable us to navigate near-term headwinds. We remain focused on disciplined execution, supporting our franchisees, and investing in initiatives that position us for sustainable long-term growth. Thank you for your time today. We look forward to your questions. Operator, I will turn it back to you for instructions on how to access our queue.

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Operator: Certainly. We will now open the call for questions. In the interest of time, we ask that you please limit yourself to one question and one follow-up. You may get back in the queue as time allows. Our first question for today comes from the line of Jeffrey Bernstein from Barclays. Your question, please.

Jeffrey Bernstein: Great. Thank you very much. My first question is on the comp trends more recently. John, I think you mentioned that the Applebee’s comp slowed and you referenced tougher compares. How do you think about that on more of a relevant two-year basis, and what is the underlying trend? You talked about lower income being a focus for your brands and perhaps more vulnerable. Could you discuss that, and whether the spike in gas prices had an outsized hit versus what you have seen in the past? And then I have a follow-up.

John W. Peyton: Good morning, Jeff. That is exactly the answer. Our value-conscious, price-sensitive guests are very sensitive to increases in gas prices, the basics, and the cost of living. There is a lot of statistical data broadly and within our company that demonstrates that, and that is what we think we saw happening in April. We are encouraged by recent news where it seems to be lessening a little bit. More broadly, that reinforces our strategy around making sure that we have the right value message at Applebee’s for those guests that are price sensitive. We continue to lean into the 2 for $25 message, strengthened by new and exciting news. Last quarter it was OM Cheeseburger, and we will have something new this quarter as well.

Jeffrey Bernstein: Got it. And my follow-up is on the asset base. On the dual brands, I think you confirmed 80 in the U.S. by year-end. Where do you think that could go over time? You are picking some markets where you think it will work best, but clearly there is a very strong sales lift you are seeing. Where could the dual brand mix go over time, and more broadly, how has franchisee engagement been of late? Are they more open to the idea, relative to just opening more Applebee’s on their own, or opening more of the dual brands in future years?

John W. Peyton: We have modeled the opportunities across the country, looking at market size, demographics, competition, and daypart traffic. We have identified 900 opportunities in the U.S. to open a dual brand restaurant or convert an existing restaurant to a dual that would have minimal to no impact on an existing restaurant. Of those 900, 450 would be new builds, and 450 would be adding a second brand to an existing restaurant. We think that is achievable over the next eight to ten years. Franchisee enthusiasm is growing. Our pipeline is strengthening. We are very confident in the approximately 80 we have discussed for this year, and we are building a pipeline into 2027 and beyond. That pipeline includes franchisees that will be new to the dual brand system, and it is becoming equally balanced between existing Applebee’s and existing IHOP franchisees.

Operator: Thank you very much. Our next question comes from the line of Nerses Setyan from Mizuho. Your question, please.

Nerses Setyan: Thank you. On guidance, specifically the EBITDA guidance, can you update us on approximately how much investment in company-owned stores is embedded in that guidance?

Vance Yuwen Chang: Hey, Nick. Good morning. We are keeping guidance, and Q1 EBITDA was a little softer, but we are maintaining guidance for two reasons. We have the franchise business and the company restaurants. Overall, the franchise business is steady. Though it is a complicated operating environment, we believe our formula of value, targeted marketing, and operational execution will improve sales trends in the coming quarter. Company restaurants will continue to improve. It is not going to be a straight line, but we have more work to do in terms of construction and store execution. This short-term EBITDA pressure should moderate over time as we start to leverage the investments we have made. In Q1, we had more than 75 closure days due to remodels and program conversions. This is not going to happen for the rest of the year, so we will have fewer closure days. That is what is baked into our guidance.

Nerses Setyan: In terms of alcohol licenses, is that behind us, or is that still an ongoing headwind?

Vance Yuwen Chang: That is mostly behind us at this point, so it is a tailwind for us.

Nerses Setyan: On the company-owned mix going up, you talked about the potential acquisition post the bankruptcy. Are you comfortable with the mix now, or could it continue to go up through the rest of the year and potentially into 2027?

John W. Peyton: We are more amenable today than we were in years past to taking back restaurants or a portfolio of restaurants to strengthen them, strengthen the system, prevent closures, and then refranchise them, typically about three years after we acquire them. We will continue to do that when it is the right portfolio, right for the brand, and we can use those restaurants to advance our initiatives like proving out the remodel, converting to duals, and testing programs and technology. While our goal is not to get to 5% of the portfolio company-owned, I am comfortable getting to 5% and still being asset light. That is the threshold you should think about for where I am comfortable going, but it is not the goal to get there.

Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press 11 again. Once again, we ask that you limit yourself to one question and one follow-up. Our next question comes from the line of Dennis Geiger from UBS. Your question, please.

Dennis Geiger: Great. Thanks. I wanted to come back to the focus on quality and price points, value in particular. You spoke to having the right value message at Applebee’s, the 2 for $25, and something new coming this quarter as well. Where was the value mix for both brands in the quarter, and on the go-forward, is it 2 for $25 plus something new as the playbook for the balance of the year, or do you think you have to do more given current consumer pressures?

John W. Peyton: Good morning, Dennis. I will start with Applebee’s, then Lawrence will address IHOP. For the quarter, about 26% of our tickets had value items on them, which would be either 2 for $25 or an LTO. That number is down from about a third, which is what it has been for many quarters. The reason is we had the Ultimate Trio as a national promotion in Q1, and we moved it out of the national price point to being priced individually by franchisees, so technically we do not count it. In terms of the trend, including Ultimate Trio sales, we are still running at about a third of our tickets including some sort of value item. That has been consistent for five to seven quarters. 2 for $25 is our primary value communication—two entrées and an appetizer for $25, or $12.50 per person.

We keep it fresh with consistent messaging throughout the year and by introducing a new item to it. In addition, we will have value-driven LTOs designed to drive traffic. One other point: almost 62% of the items on 2 for $25 are the upsell tiers, not the entry level $25. Guests are paying increments that franchisees set based on their market. It is doing what it is supposed to do: driving traffic with the $25 message and upselling about two-thirds of the time. Lawrence, can you address IHOP?

Lawrence Y. Kim: At IHOP, value mix in Q1 was 22%, slightly higher than Q4 at around 20%, and fairly consistent overall. The uptick in Q1 was primarily due to our Bottomless Pancakes promotion. Our value mix consists of the $6 Everyday Value Menu in addition to promotions like Bottomless Pancakes, our free pancake promotion on National Pancake Day, and our Senior Menu. Going forward, we are staying consistent with the $6 value message; it resonates extremely well. Since launching the weekday $6 value message in October 2024 and evolving it into the $6 Everyday Value Menu in September 2025—and further in March by adding a new BLT to expand daypart propositions—we have outperformed Black Box in traffic every month in 2025 and continue to do so into 2026. We will continue that momentum and balance value with innovation as part of our barbell strategy, including Stuffed and Stacked Omelets and our new coffee introduction, with more to come.

Dennis Geiger: As a quick follow-up on check management, beyond value mix, what are you observing around appetizers, beverages, desserts, and other categories over the last couple of months?

Lawrence Y. Kim: In 2025, we were laser-focused on driving value to build equity in the value landscape, which supported consistent traffic outperformance. In 2026, we are complementing value with innovation under the barbell strategy. You will see a cadence of both value and innovation through summer, fall, and winter to create awareness and balance across platforms.

John W. Peyton: At Applebee’s, average check remained about $39, including a slight menu price increase franchisees put in place in Q1. We did see some migration toward lower-priced items at the expense of a drink or an appetizer, but we maintained the average check at $39.

Operator: Thank you. Our next question comes from the line of Brian Mullan from Piper Sandler.

Analyst: Hi. This is Allison Marsh on for Brian Mullan. Thanks for taking the question. At IHOP, on the California Heritage remodel, can you talk more about what we should expect to see with the remodel—the cadence, how many units are eligible, and how you expect it to roll out?

John W. Peyton: Thanks, Allison. Lawrence will take that.

Lawrence Y. Kim: The California Heritage redesign is a bright, modern design that is distinctively IHOP, based on a platform we have seen across international and our dual brands. We are very early in the process and are working with our franchisee partners on the incentive program, similar to Applebee’s. We will have more to share over the next several quarters. We are excited as some remodels are starting now, but again, we are early in the stage.

John W. Peyton: I would add two things. First, on our IR site we have a dual brand video; the IHOP interior featured there is the California Heritage design, which gives a sense of its fresh, modern look. Second, the Applebee’s Looking Good remodel program continues into year two. Franchisees are enthusiastically participating, and we expect about 40% of the portfolio to be considered current by the end of this year.

Operator: Thank you. Our next question comes from the line of Todd Brooks from Benchmark. Your question, please.

Todd Morrison Brooks: Thanks for taking my questions. John, to start, you talked about the stalking horse situation with the franchisee for the 50-plus units. Looking at the base, what is your assessment of franchisee health as we get into a tougher consumer environment? Would you expect more growth in the corporate-owned base—not necessarily up to the 5% cap you mentioned—but with the environment, to keep stores in operation? At this point, beyond willingness to invest and convert to dual, is there still a lot to learn from running stores?

John W. Peyton: A couple of thoughts, Todd. The NRP situation is specific to that owner and decisions within their fund about financing. The restaurants we are potentially taking back via the stalking horse bid are a healthy portfolio, so they will be accretive. I do not think it is appropriate to project the NRP situation onto the broader portfolio. As to learning, I disagree that there is little left to learn. It has been a while since we owned restaurants, and having about 100 gives us the ability to test new POS technology, roll menu innovation faster, run tests in-market, and implement guest service and training programs. That is valuable, in addition to renovating and converting to duals. We are seeing progress in restaurants we own—trending positively, particularly on EBITDA and profit—and believe they will be accretive when we refranchise them in three years. I am all in on that.

Vance Yuwen Chang: Hey, Todd. On franchisee health, these are franchisee self-reported financials that we collect a quarter in arrears. Based on what we are seeing, on average margins are steady, supported by steady sales performance and cost management initiatives that CSCS and franchisees are doing together. Franchisees are aligned with our strategy and remain committed to growing with us. We are proactively making workout programs to accelerate incentives, remodels, relocations, and unlock dual brand territories. Ultimately, as we have said, dual brands can provide a step-function change to franchisee unit economics outside of normal comp growth. We are enthusiastic about pushing that agenda, and franchisees are as well.

Todd Morrison Brooks: As a follow-up on duals, you mentioned a 1.5 to 2.5 times sales lift versus individual branded locations, with strong lift in Hawthorne. What type of lift do you need for a conversion to pencil? Does 1.5 times get the return you or franchisees look for, or do you need closer to 2 times?

Vance Yuwen Chang: The flow-through on incremental sales from a dual conversion is much higher than the traditional four-wall margin because you are generally not paying more rent and labor does not increase proportionally. That flow-through should be north of 30%. Using simple math, if a $2 million restaurant adds another $1 million in sales, that is about $300,000 of flow-through to the franchisee’s bottom line. The cost of conversion is a little over $1 million, depending on deferred maintenance or structural work that is site-specific. On $1 million of cost with $300,000 of flow-through, that is a very attractive payback for franchisees and for company restaurants.

Operator: Thank you. Our next question comes from the line of Brian Vaccaro from Raymond James. Your question, please.

Brian Vaccaro: Hi. Thanks, good morning. Could you double-click on underlying consumer dynamics? You noted softness within lower income. Anything worth noting by daypart or weekday versus weekend for either brand? And could you comment on the average check and traffic trends within the comps in Q1 for each brand?

John W. Peyton: When it comes to income cohorts, the primary change we have seen this quarter and in recent quarters is that our price-sensitive, more value-oriented guests seem to be staying home a bit more or looking for lower-cost alternatives. Among other cohorts, we did not see significant changes in behavior worth noting. Looking at dayparts, weekdays, and geography, there is no clear pattern—largely consistent with recent quarters. The consumer behavior issue is concentrated among guests most impacted by gas prices and the economy in general. On average check and traffic, Vance can add detail.

Vance Yuwen Chang: Brian, average check for Applebee’s was about $39; for IHOP, about $35. Menu pricing for Q1 was approximately 4% for Applebee’s and 3% for IHOP. Applebee’s saw positive PMIX this quarter; IHOP was negative PMIX. Both brands saw negative traffic, but IHOP outperformed Black Box every month for the quarter.

Brian Vaccaro: Thank you. Lastly, on closures, it seemed to step up in Q1—I think 20 at IHOP and 32 at Applebee’s—but you maintained net development targets for the year. Could you help square that?

Vance Yuwen Chang: Typically, closures run about 1% to 2% of the system. In the last year and this year, it is slightly elevated because more franchise agreements are coming due than in normal years. Also, we are proactively making workout programs with franchisees to accelerate relocations and unlock dual brand territory, which is reflected in closure numbers. We are maintaining net development because we have a strong pipeline of dual brands and stand-alone IHOPs opening, and that is baked into guidance. Also, closures tend to be lower-sales restaurants, and openings are larger-sales restaurants, so it is not one-to-one in unit count—there is accretion as we relocate and build new restaurants while closing older, lower-volume units.

Operator: Thank you. This does conclude the question-and-answer session of today’s program. I would like to hand the program back to John W. Peyton, Dine Brands Global, Inc. CEO, for any further remarks.

John W. Peyton: Thank you for guiding us today. Your expertise is valued as always. Thanks, everybody, for your questions and the time you spent with us. As we said in our release and on this call, we are pleased with the brands’ performance during the quarter despite a tough environment. We have plans in place to continue to appeal to our guests, particularly those who are increasingly value oriented over the next quarter, and you will see some new news in the next couple of weeks that we think will drive a lot of traffic to both brands. Thanks, everybody, and have a great day.

Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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