So what’s going to change? It starts at the top. Applebee’s president John Cywinski joined the brand in March, leaving his post as executive vice president of Brinker International, the parent company of Chili’s and Maggiano’s Little Italy. Dine Brands CEO Stephen Joyce, the former chief executive officer of Choice Hotels, stepped into his role in September. He was a member of the company’s board of directors for the past five years and arrived with almost 40 years of experience in the hospitality and food and beverage industries.
In fact there are 10 major executive changes, including: Greg Bever as SVP and chief people officer; Steve Levigne as VP consumer insights; Joel Yashinsky as SVP, chief marketing officer; Kevin Carroll as SVP, operations; Stephen Bulgarelli as chief culinary officer; Brad Haley as CMO of IHOP; Carrie Stojack as VP consumer insights; and Nevielle Panthaky as chief culinary officer.
A turnaround story
Here were some highlights Dine Brands stressed as key points to begin:
- Significant Scale in the U.S.
- Expanding International Presence
- Favorable Guest Dynamics
- 100 Percent Franchised Model with Strong and Improving Franchisee Base (Applebee’s has 60 franchisees globally and franchisees operate an average of 32 units. At IHOP, there are 321 franchisees globally, with franchisees operating an average of five units).
- Leader in U.S. Family and Casual Dining
- Robust EBITDA Margins
- Substantial Cash Flow Generation
- History of Significant Capital Return
- New Strategy, Culture, and Philosophy
Courting the (right customer)
Much has been said about Applebee’s inability to chase down millennial and younger diners. But how accurate is that sentiment? Dine Brands’ breakdown of its actual audience tells a slightly more complex tale.
Currently, this is how business is breaking down:
- Late-night: 14 percent
- Afternoon: 15 percent
- Lunch: 23 percent
- Dinner: 48 percent
It’s also interesting to look at Applebee’s traffic by guest age demographic, which might surprise some people.
- 27 percent of guests are 55-plus
- 28 percent are 34–35
- 30 percent are 18–34
- 15 percent at under 18
That equates to 45 percent of guests being ages 34 and below.
By generation traffic looks like this:
- Gen Z: 15 percent
- Millennial: 29 percent
- Gen X: 28.3 percent
- Baby Boomers: 26.4 percent
Applebee’s said it is targeting guests who prefer casual-dining chains, those willing to pay more, are more loyal, typically loyal, and value seekers. These guests typically jump from casual chain to casual chain looking for the best deal, not a specific menu item. Think the Dollarita, Dollar Long Island Iced Tea, Dollar Bahama Mama, and other promotions Applebee’s has unveiled in recent months. Alcohol accounts for 15 percent of sales presently, and is helping attract those younger customers.
This leads into the technology changes Applebee’s plans to make, including server tablets, tableside payments, and WiFi. Online ordering is now available nationwide and Applebee’s said it is currently testing delivery in select markets. Just last week, Applebee’s announced an enhanced to-go platform highlighted by a redesigned mobile app and online ordering setup.
“Applebee's To Go has undergone a makeover aimed at better serving guests, with updates to the mobile app and website, the introduction of new To Go packaging and an elevated focus on operational execution, all done to improve the guest experience," said Scott Gladstone, vice president, strategy and off-premise at Applebee's, in a statement.
This includes carside arrival notification and carside hand-held transacting.
Off-premise business accounts for 9 percent of total sales at Applebee’s. The company expects to double that by 2022.
Back to the balance
A lot of this comes down to the numbers.
In fiscal 2017, Applebee’s had domestic systemwide sales of $4.1 billion and franchise revenue of $169 million.
By 2022, Applebee’s is predicting CAGR revenue to grow 3 percent and for profitability to go from 82 percent to 98 percent, taking a dip in 2018 before rising to that number.
The chain also wants to increase its average-unit volumes by $300,000 by 2022. Applebee’s has seen this number declined to $2.3 million in 2017 versus $2.5 million in 2015.
Here’s what Dine Brands says needs to change to achieve its 2020 vision:
- Significant Investment in Existing Brands
- Continued Partnership with Franchisees
- Greater Emphasis on Data and Analytics
- New Technology to Enable Future Growth
- G&A Expense Discipline
- Shifting Capital Allocation Priorities
- Scalable Platform for New Opportunities
- Strong Projected Financial Performance
From an investment standpoint:
- Remodels and culinary innovation
- Enhanced traditional & digital marketing
- Dedicated training and operations
- Technology to enable greater guest access
- New growth platforms (e.g., To-Go, new formats)
- Data insights and advanced analytics
- Reassigning key functions to create greater efficiency for both brands
Can Applebee’s get there? There are some significant dollar changes that need to take place.
Follow the cash flow
Applebee’s had $63 million of adjusted free cash flow in 2017. In 2018, the brand expects $94–$114 million, including $30 million in corporate ad fund contribution. By 2022: $175 million-plus.
From now until 2022, Applebee’s hopes for low-single digit growth of 3 percent in revenue (2 percent of IHOP and 15 percent international). Dine Brands predicts EBITDA to go from $224 to $315-plus at mid-single digit growth and 46 percent margin to expand to 56 percent. Adjusted earnings per share to increase in the high teens to $10-plus from $4.15.
The equation for shareholders: adjusted EPS growth of high teens plus 4.7 percent divided yield equals expected total shareholder return of 20 percent.
Diving deeper, Dine Brands explained its shifting capital allocation priorities. The company reported quarterly cash dividend of 63 cents per share in Q1 2018 (so far) or $2.52 per share annualized with a payout ratio of about 44 percent (based on an approximate mid-point of 2018 guidance for adjusted free cash flow of $104 million). Dine Brands said this represents an opportunity for meaningful share repurchases.
“We believe the change in our quarterly dividend to a more appropriate dividend yield will result in a favorable capital allocation framework and provide us the opportunity for meaningful share repurchases, investments in our brands as well as opportunities to scale our business,” Joyce said in a statement.
The company’s dividend yield, assuming a common stock price of $54, remains top of class at 4.7 percent when measured against a peer category of 2 percent that includes Darden, Cracker Barrel, Brinker, Texas Roadhouse, Bloomin’ Brands, Cheesecake Factory, Buffalo Wild Wings, BJ’s Restaurants, and Red Robin.