Earnings Call: Q1 2018

May 2, 2018

Welcome to the First Quarter 2018 Dine Brands Global Inc. Earnings and I will now turn the call over to Ken Dibte, Executive Director of Investor Relations. You may begin, sir. Good morning, and welcome to Dine Brands' Q1 2018 conference call. I'm joined by Steve Joyce, CEO Greg Calvin, Interim CFO and Corporate Controller Dan Rebellas, President of IHOP and John Cywinski, President of Applebee's. Before I turn the call over to Steve, please remember our safe harbor regarding forward looking information. During the call, management may 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 assumes no obligation to update or supplement these statements. We may also refer to certain non GAAP financial measures, which are described in our press release and also available on Dine Brands' Investor Relations website. With that, I'll turn the call over to Steve. Thank you, Ken. Good morning, everyone. By now, you've had time to read our press release issued today. I am very pleased to say that our strategy to transition Dine Brands a growth company is gaining traction. I'd like to put to rest the false news about the depth of casual and family dining and the abandonment by millennials of the categories. Our businesses are growing and approximately half of our guests are under the age of 34. And the last time I looked, those are millennials. For the Q2, comp sales for both IHOP and Applebee's showed solid sequential improvement. Additionally, each brand achieved positive comp sales and outperformed their respective categories based on industry sales and traffic data. IHOP returned to positive comp sales and was aided by continued improvement in traffic trends, which we are working aggressively to sustain and robust growth in highly incremental to go business. Importantly, the brand remains very healthy and accounted for approximately 70% of 1st quarter EBITDA before corporate overhead. Applebee's achieved the highest quarterly comp sales increase since the Q1 of 2011. With positive sales and traffic for the 2nd consecutive quarter, I would like to highlight that Applebee's off premise business also experienced very healthy growth in comp sales and traffic. This is the direct result of the brand's commitment to continually improve the guest experience, which includes the recent enhancements to our mobile app and online ordering platform. The overall improvement in both IHOP's and Applebee's comp sales and traffic for the last two quarters can be partially attributed to the continued focus by our franchisees as well as our operations and culinary teams on service excellence, providing abundant value and exceptional menu variety and meeting the ever changing convenience needs of our guests. Many of the initiatives being rolled out at both brands are also part of our approach to be bolder. We are very encouraged by the results for each brand, particularly at Applebee's. The brand has made great strides over the last 12 months and we believe the recent momentum at Applebee's is sustainable for several reasons. These include, but aren't limited to strong support from our franchisees on our go forward strategy, being more nimble and able to quickly react to changes in the competitive landscape, innovative and memorable breakthrough advertising to drive traffic, decision making supported by quantitative driven consumer insights, good progress in overall franchisee health, expectations for fewer non collectability issues compared to 2017 as the brand continues to stabilize, expectations for normalized contributions to the National Advertising Fund from franchisees beyond 2018 and enhancements to key growth platforms such as our off premise business. Remember, Applebee's was one of the first change in casual dining to offer Carside to Go. And now with new to go packaging to ensure our food remains warm and delicious, our guests can conveniently enjoy from their favorite neighborhood restaurant while off premise. We know that meeting the convenience needs of consumers can influence their dining decisions. Our off premise strategy includes effective communication of our complete value proposition to entice guests. We define value as much more than just a price point. It's everything that the guest experiences across the dining spectrum, including convenience. This part of our business is highly incremental. We anticipated that Applebee's growth plans would gain traction early in early 2018, the branch stabilization will occur gradually over time. We believe that we will continue to make progress over the next year and return to unit growth towards the end of 2019. As a holding company, our attention and committed team members are focused on supporting the success of the brand as well as our franchisees. Make no mistake, we are actively supporting the growth of our 2 strong brands. To that end, we've added key leadership to our consumer insights teams for both brands over the last year to ensure that we remain guest focused across all initiatives. Steve Levine recently joined us as Vice President of Insights and Analytics at Applebee's after nearly 25 years at McDonald's. Additionally, Carrie Stojak joined us as Vice President of Consumer Insights at IHOP. Kerry is a restaurant industry veteran with 20 years experience building and leading consumer insight functions, which includes her post at Taco Bell as Director of Consumer Insights. Our dedicated brand specific consumer insights teams have made meaningful progress on developing our best in class analytics capabilities. This is critical to providing essential customer information to support our decision making. In addition, investing in talent, Dine Brands through the establishment of the Dine Research Institute has invested in data science to connect brand sentiment and guest conversations to actual results. To date, we have been able to analyze multiple years of guest feedback and sales data related to our brands. This has helped draw the connection between what drives consumers' decisions and key items such as guest feedback on our menus, limited time offer performance, opportunities to differentiate ourselves from the competition and much, much more. As a result, we know our guests better than ever before in addition to what they want and expect from our brands. We have also piloted a dashboard to better understand sales trends by analyzing how limited time offers, competitive influence and other factors can have an impact. These are just a few of the many ways that we are investing in our brands and creating significant value for our franchisees. Such investments are supported by our asset light business model, which generates significant cash. This enables us to make ongoing investments in our brands to drive long term growth and provide a very attractive return of capital to our shareholders. Dary and John will provide an overview of our brand specific strategies in greater detail a little later. Switching gears briefly to the return of capital to shareholders. As a reminder, this is and always be our top priority. We paid our quarterly dividend in the Q1, totaling approximately $18,000,000 Additionally, we repurchased approximately 139,000 shares during the Q1 for a total of $10,000,000 We view our stock as a compelling upside investment for Dyne. You can continue to expect the balanced approach inclusive of meaningful share repurchases as part of the recently announced shift in our capital allocation strategy. Looking at the big picture for Dine, we are further strengthening positioning the company for long term success. We've made great strides over the last year, stabilizing the performance of both brands and we're encouraged by our progress. We are currently working to strengthen our balance sheet by refinancing our debt late this year and reducing our exposure to higher interest rate risk. We'll provide additional updates in due course. Turning to our international business, expanding our global footprint remains an important growth vehicle for us and we are encouraged by the interest in our 2 iconic brands outside of the U. S. In fact, we signed a development agreement for 5 IHOP restaurants in Mexico. Additionally, we marked Applebee's 15th year in the Kingdom of Saudi Arabia with the recent opening of our newest location in Riyadh. The restaurant is the 23rd Applebee's open in KSA since 2003. We continue to view international expansion as an important growth engine for us. With that, I'm going to turn the call over to Greg to discuss the financial results. Greg? Thank you, Steve. Good morning, everyone. I'll begin with a recap of our financial performance for the Q1 of 2018. Our adjusted EPS was $1.11 compared to $1.28 for the Q1 of 2017. The decline was primarily driven by a decrease in gross profit from franchise operations due to an increase in franchisor contributions of approximately $13,500,000 to the Applebee's National Advertising Fund, offset by our lower federal income tax rate in 2018 and our increases in both brand same restaurant sales. As we discussed in our full year 2018 financial guidance, we plan to make a one time $30,000,000 contribution to the Applebee's National Advertising Fund during the first half of twenty eighteen. Given our $13,500,000 contribution in Q1, we expect to contribute the remaining $16,500,000 in the Q2 of this year. The decline in franchise operations gross profit versus Q1 fiscal 2017 was mainly due to the increase in franchisor contributions to the ad fund just discussed. The overall decline was partially offset by the increases in both brand same restaurant sales in Q1 2018. Consolidated revenues were approximately $188,000,000 for the Q1 of 2018 compared to approximately $191,000,000 for the same period of last year. The decline was primarily due to the refranchising of IHOP company operated restaurants in June of 2017, partially offset by same restaurant sales increases for both brands. Excluding the IHOP company owned sales revenues in Q1 2017, franchise revenues increased by $800,000 in Q1, 2018 versus the same period of 2017. Turning briefly to G and A. Our G and A in the Q1 declined to approximately $42,000,000 compared to approximately $50,000,000 in the Q1 of 2017. The decline was primarily due to approximately $9,000,000 of non recurring cash severance and equity compensation charges related to executive separation that occurred in the Q1 of 2017. I'd like to point out that our G and A in the Q1 of 2018 was slightly higher on a run rate basis than what we expect for the remainder of the year. We reiterate our full year guidance for G and A, which is expected to range between $147,000,000,000 $156,000,000,000 Turning to our tax rate, our GAAP effective tax rate for the Q1 of 2018 was approximately 25% compared to 40% for the same quarter last year. The decline in the tax rate was due to the enactment of the Tax Cuts and Jobs Act in December of 2017. Regarding the cash flow statement, cash flows from operating activities for the first quarter were approximately $16,500,000 compared to approximately $19,500,000 for the Q1 of 2017. The overall decline was mainly attributed to slightly lower net income and changes in working capital. Adjusted free cash flow for the Q1 of 2018 was approximately $15,000,000 compared to $19,000,000 for the same period of last year. The variance was primarily due to the decline in cash from operations as previously discussed. Regarding capital allocation, we paid quarterly cash dividends during the first quarter, totaling $17,500,000 and repurchased approximately 139,000 shares for $10,000,000 Regarding Applebee's financial health franchisee financial health, excuse me, we continue to make progress in assisting franchisees who have experienced higher levels of financial difficulties due to the lower sales results between 2015 2017. Currently non timely royalty and advertising payments are concentrated to 3 franchisees. We continue to provide various forms of assistance to franchisees, which to date has primarily included closures of non viable restaurants and a waiver of related termination fees and certain loan arrangements. We are encouraged by the progress we've made as well as the gradual decline in Applebee's bad debt expense and the improvement in the brand's comp sales over the past 2 quarters. Regarding new accounting guidance, I'd like to highlight that effective January 1 this year we adopted the guidance of accounting standards. Codification 606, which is titled revenues from contracts with customers. This guidance affects us in 2 primary areas. 1, how revenues are recognized from franchise and development agreements and 2, how we account for the national advertising revenues and expenses. Specifically, we've adjusted revenue franchisee revenue and expense and the related income tax effects on both a GAAP and adjusted basis. This increased our income statement for the Q1 of 2017 by approximately $1,000,000 after tax. To conclude, we are pleased with our early 2018 results for both the Applebee's and IHOP brands and expect their respective growth plans will continue during the year. We continue to invest in our 2 strong brands to drive sustainable positive sales and traffic, while returning substantial capital to shareholders via our dividend and share buybacks. Looking ahead, as we discussed at our Investor Day in February of this year, we're currently pursuing refinancing our securitized debt in 2018 and we'll update you as the year progresses. With that, I'll turn the call over to John. Thanks, Greg, and good morning, everyone. We're certainly pleased with our progress at Applebee's and very optimistic about our future. Q4 momentum has continued into Q1 with a healthy 3.3 percent increase in comp sales. Our mission has been to generate organic growth and we've achieved this over the past 6 months by driving incremental traffic at the expense of our competitors. Throughout this timeframe, Applebee's has consistently outperformed the CDR category on both traffic and sales. Now for context, this represents the best sustained traffic performance that Applebee's has achieved in more than a decade. Now we recently met with our franchisees and not surprisingly, they're proud of their progress to date. Most importantly, they're confident about our strategic plan moving forward. While our results can be attributed to multiple variables, from my perspective, it all starts with a genuine culture of franchisee collaboration. The centerpiece of this partnership is a disciplined process around guest operations and financial validation. We have very sophisticated and engaged franchise partners. And we actively seek data driven assessment, discussion, debate and alignment as part of any initiative that we pursue. In addition, our talented Applebee's leadership team is now firmly in place and frankly making a big difference. Our brand leaders are savvy industry veterans with 8 of 10 being new enroll over this past year. This team expects to succeed and they thrive in the results oriented culture of accountability that we've established here at Applebee's. The chemistry and credibility they've quickly developed with one another and franchisees is really quite remarkable. The most recent addition to the team, as Steve Joyce referenced, is Steve LaVine, our Vice President of Consumer Insights and Business Analytics. Steve is a highly regarded executive who held a comparable leadership position for McDonald's USA over much of the past decade before joining us in January. Steve will partner with me and the extended leadership team to ensure we remain true to our core brand essence and guest driven in all that we do. Importantly, our restaurant level execution continues to steadily improve under the leadership of Kevin Carroll, our Chief Operations Officer. Of particular note are improvements in server attentiveness, cleanliness, order accuracy, speed of service and of course overall guest satisfaction. Equally important, system wide variability on these key operating metrics has narrowed considerably over time. We also continue to simplify our back of house kitchen operation, leading to greater efficiency and productivity. From a restaurant P and L perspective, we plan to capture 65 basis points of cost reduction in 2018 in partnership with PricewaterhouseCoopers. Now this represents more than 100 basis points of opportunity on a full year annualized basis. And as we continue our profit optimization journey, we fully expect this pursuit to yield meaningful results in 2019 2020 as well, if not beyond. Now, these initiatives enable reinvestment into both quality and portion, while increasing capacity for culinary innovation from Chef Steven Bulgarelli and his team. This ultimately supports our strategic focus on abundant value and variety. Again, we are committed to reestablishing Applebee's culinary culture around broadly appealing and mainstream American flavor profiles. Perhaps the most relevant, distinctive and relatable brand position in the industry. The combination of leveraging strong brand equities and innovating around new brand platforms is proving successful. And along the way, we're extraordinarily thoughtful to only introduce food and beverage innovation our restaurant teams can execute with a high degree of proficiency and excellence. Under the leadership of Joel Yashinsky, our Chief Marketing Officer, Applebee's is once again defining who we are and what we stand for in the eyes of our guests. With the benefit of an approximate $14,000,000 Dine investment in Q1, we were able to support the ad fund, while successfully investing in testing, production and incremental media. Additionally, our to go packaging, technology and service investments are beginning to pay dividends under the leadership of Scott Gladstone. Scott is our Vice President responsible for Applebee's off premise strategy. While we continue to innovate and market our to go benefits, you'll hear more in the future about our delivery strategy to fully optimize this important convenience driven occasion. One of the cool benefits of our turnaround is the diversification of our very unique and balanced guest profile. Now Steve alluded to this. Millennials account, believe it or not, for the largest segment at approximately 30%, followed closely by Gen Xers at 28% and Boomers at 27%. The very youthful Gen Z group would account for the balance of our guests at 15%. Bottom line, we're driving incremental growth and we appear to be doing so by extending our reach among light and even lapsed users, while also improving visit frequency among our important core heavy users. Now switching gears to portfolio optimization, we continue to evolve and selectively refine our franchisee portfolio by shifting assets to some existing franchisees as well as some franchisees who are also new to the system. The most recent example of this was the acquisition of a small number of restaurants in South Dakota, Nebraska and Iowa by Legacy Apple, one of our existing franchisees. This follows last year's successful acquisition of Utah Restaurants by our newest franchisee, Apple Mountain. We anticipate a handful of additional transactions this year designed to strengthen the brand for the long haul. And I'll be sure to provide some more on this subject as warranted on upcoming calls. In closing, I'm really proud of our team, our franchise partners and our early results. While this remains an intense market share battle, I believe we're extraordinarily well positioned moving forward. It's very clear to me that America has rediscovered its love for Applebee's and we are committed to nurturing this relationship for sustained growth and relevance well into the future. With that, I'll turn it to Darren. All right. Thanks, John, and good morning, everyone. IHOP's 1st quarter comp sales increased 1% driven by a strong performance in our new big and bold omelets offering, the popular $3.99 All You Can Eat Pancakes promotion and solid growth in our off premise business. Notably, our comp sales improved sequentially for the 2nd consecutive quarter despite several nor'easters in March. Additionally, we outperformed the category in the Q1 based on industry data for comp sales, traffic and guest experience. Over the last two quarters IHOS comp sales has improved by over 400 basis points. Now let me provide some color on the recent momentum drivers. We experienced very impressive growth in our off premise business with 1st quarter to go comp sales up a strong 31%. To go accounted for 6.5% of total sales at the end of the first quarter, up 150 basis points compared to the same quarter last year. Solid performance by very compelling value propositions, including $3.99 All You Can Eat Pancakes mentioned earlier, which marked the first time we attached a national price point to this campaign. We sharpened our focus on all aspects of the guest experience and operational improvements, which included rolling out a new measurement system and hospitality training platform to be more guest centric. Over the past year, we significantly enhanced our marketing strategy with the addition of industry veteran Brad Haley as IHOP's CMO. Brad joined us from CKE Restaurants, where he served as CMO and was responsible for all facets of marketing and public relations for the Carl's Jr. And Hardee's brands. Additionally, we partnered with top tier ad agency Droga5 to launch new and edgy creative. We've implemented more effective and efficient media buying using state of the art analytics tools. And lastly, as part of our National Pancake Day fundraising campaign, we invited current and former Children's Miracle Network Hospitals patients to create a new pancake recipe and crowned our first ever kid chef, 9 year old leukemia survivor Starla Chapman. Starla along with IHOP's Head of Culinary Neville Pantacchi appeared on more than 20 market leading TV and radio programs in cities like New York, Atlanta, Phoenix and her hometown of Mobile, Alabama. Starla showed off her winning oatmeal raisin cookie pancake and talked about how the funds collected on IHOP National Pancake Day helped kids like her. I'm pleased to say that this year's campaign was a success raising over $3,000,000 We're confident in our ability to sustain IHOP's momentum as most of the catalysts are within our control. These include providing abundant value, leveraging our deep culinary pipeline of new items that are unique to IHOP and innovating marketing that resonates with consumers just to name a few. What we're experiencing today is a result of flawlessly executing the strategy that IHOP in conjunction with our franchisees developed and launched last year. That strategy is grounded in 4 key pillars significantly enhancing the guest experience, running great restaurants, driving traffic and being where the guest is. I'll begin my comments with significantly enhancing the guest experience. IHOP's Rise and Shine remodel program plays a significant part in shaping our guest perceptions of the brand. Based on guest feedback gleaned from guest intercepts and focus groups, they told us that our pre remodel restaurants were feeling outdated and a bit drab. The remodel program has helped to successfully reshape the consumer experience with a layout that feels more inviting by being open and cheerful. The modern decor also helps the brand feel useful and our restaurants more welcoming. Our franchisees completed 46 remodels in the Q1. We expect to have approximately 275 completed this year. Since the inception of the Rise and Shine remodel program over 6 60 restaurants or approximately 40% of the domestic system have been remodeled. We expect the pace of remodels to continue at a run rate in the range of $250,000,000 to $300,000,000 per year until completion driven by healthy franchisees that are enthusiastic about the program. As I mentioned earlier, we've sharpened our focus on the guest experience. This resulted in noticeable improvement in our guest satisfaction scores across all key categories, such as overall experience, intent to revisit, price value, food and beverage and service experience according to data from NPD Crest. Not only have we seen improvement on an absolute basis, but also relative to our peers. In today's world, dining and technology go virtually hand in hand. Technology influences how and where we decide to dine. With that in mind, we're focused on engaging our guests both inside and outside our restaurants through an omnichannel experience. We're seeing continued solid traction from the rollout of our enhanced website and the launch of our mobile app. In fact, the average check for online to go orders was approximately 36% higher than all other off premise orders in the Q1. With the launch of our new international pancakes lineup on the spring menu, we introduced a fun way to engage with our guests through the international passport feature in IHOP's mobile app. The feature entices guests to download the app, visit our restaurants and order all 3 of our new internationally inspired pancakes. Once guests have taken pictures of all 3 pancakes and upload them to the app, they're entered into our grand prize sweepstakes. Since the Passport feature was rolled out, we have seen downloads of the app more than double. This is part of our strategy to leverage technology to engage with guests and drive frequency. Our guests wanted us to leverage technology to make their experience more enjoyable and we listened. We've recently entered into a strategic relationship with Comcast and are currently upgrading the WiFi in all of our restaurants and expect completion by the end of the year. Our focus is to leverage technology where appropriate to eliminate friction points from the guest experience. We have several tests in place to achieve this and we'll provide updates on those initiatives over the course of the year. Now let's turn to running great restaurants. Our franchisees take great pride in restaurant operations. We've implemented several initiatives to enhance operations and foster better training and franchisee support. For instance, we recently rolled out an enhanced scoring system for franchisees making it more guest centric to focus on food and service. We rolled out our I Hospitality program which encompasses rewarding team members at the restaurant level for outstanding performance in several areas such as delivering great food for our guests and outstanding teamwork. IHOP franchisees continue to do great work by focusing on quality food and service and we're seeing the results in our guest satisfaction metrics. The upgrades to the in restaurant Wi Fi discussed earlier will facilitate better guest engagement, support the enhanced rollout of our Dine Play online training platform that contains several new topics, as well as support other technology platforms. Lastly, we changed our field organization structure to create 6 regional teams adding more resources to provide holistic support to address franchisee operations, training and marketing needs at a local level. Switching gears to the 3rd prong on our strategy driving traffic. IHOP's culinary team continues to innovate at the highest levels to entice guests. Our guests want abundant value and variety and we deliver it. In the Q1, we introduced big and bold omelettes with our world famous buttermilk pancakes, which not only provides guests with plenty of food and variety for the price, but also provides a perfect balance of sweet and savory. We're taking action to create a more sustainable value on our menu, which we believe will drive positive traffic. Perhaps one of the largest opportunities we have to drive traffic is around delivering a compelling value proposition for our guests. On the innovation front, we recently launched the new IHOP creation section of the menu, which highlights the best in creativity from our culinary team. More than half of the section is portable and includes unique items such as IHOP signature pancake sliders and the ultimate waffle stack sandwich. Innovative advertising that breaks through the clutter is also crucial to driving traffic. During the Q1, we unveiled Drugify's new creative coupled with the shift in our media buy to launch our pancakes, pancakes, pancakes campaign as part of IHOP's 60th anniversary celebration. We'll have plenty of exciting news to share over the next few months in conjunction with the 60th anniversary to keep IHOP top of mind and to track current and new guests to our restaurants. Turning to the final prom being where the guest is. With our online ordering platform fully deployed and supported by our mobile app, we saw continued significant growth in our off premise business. 1st quarter to go comp sales increased sharply, driven by a very solid traffic growth and improvement in check. We believe that the new IHOP creation section of the menu will have a positive impact on our off premise business given the high affordability of more than half of the items. We remain focused on meeting the convenience needs of our guests and we're continuing to test delivery and work on the integration of technology to simplify restaurant operations. Regarding unit development, new openings by franchisees continued at a healthy pace in the Q1. We opened 16 restaurants globally in the Q1, in line with our expectations and with the strongest pace of openings in the Q1 in over a decade. This speaks to the confidence our franchisees have in the IHOP brand, their ability to identify and develop quality sites and the return they generate on their investment. To close, we are encouraged by where we are currently due to successful execution of our 4 pronged strategy. Looking ahead, we're confident in our ability to build on current momentum and drive sustainable positive sales and traffic. With that, I'll now turn the call back over to Steve for closing comments. Steve? Thanks, Derek. To close, I believe the shift in our company's philosophy will have a significant positive impact on further developing a performance based culture. We are a company that believes that community happens when people eat together and Dine Brands nurtures and grows the world's most loved restaurant brands, while uniting communities over great food and memorable dining experiences. Our culture will be driven by accountability, transparency, collaboration and innovation, while recognizing and celebrating our franchisees and team members. Our growth strategies for both brands are gaining traction and we are very encouraged by the early results this year. We are laser focused on driving long term sustainable positive sales and traffic. We know the path to success is a marathon and not always a sprint. I applaud the great work being done by our franchisees and team members who execute our strategy every day. We will continue to leverage the benefit of our highly desirable 100% franchise business model to invest in the long term success of our brands. We are taking the necessary steps to further strengthen IHOP and Applebee's and position them to build insurmountable leads in their respective categories. At the corporate level, we are prudently working to improve our balance sheet and we'll explore strategically expanding our brand portfolio. To sum up, the outlook for Dine Brands is bright. We've set high goals for ourselves, which I am very confident we can and will achieve. Now we'd be pleased to open the call for any questions you might have. Operator? And first, we have Stephen Anderson from Maxim Group. Yes. Good morning. I want to ask about your off premise and more specifically about your delivery strategy. We got some note from one of your peers talking about how the delivery is actually influencing the same restaurant sales growth and they went into the franchise rather the company owned versus franchise numbers showing that there's a discrepancy. I think it might be the fact that there's more concentration of these company owned units in urban markets. I wanted to ask in the areas where you've launched delivery so far, so first of all, I want to see what your penetration is to date and what your strategy is with partnering with 3rd parties? Okay. So I'm going to let the brand folks answer the question. Obviously, delivery is a very important component for us. We are actually focused primarily on takeout. However, we are going to deliver wherever the guests want. And if that's through delivery, we can. Obviously, based on the size of our system, we're continually trying to expand our coverage, which is in the 40 plus percentage basis at this point. And we've got relationships with several of the key delivery folks. But let me let the brand folks talk specifically to their businesses. Stephen, this is John Cywinski. Steve referenced that 40% to 50% of the system can access delivery at the moment. So that would be your approximate coverage. We have very specific partnerships with DoorDash, Grubhub, Amazon Restaurants and Deliver Logic and certainly in dialogue with Uber Eats, 200 to 300 of our restaurants are actively leveraging delivery and it's highly incremental. So that would be the context from an applicant's perspective. Yes, Stephen, this is Darren Rovellas. I would really echo just what John said. It's essentially the same scenario. We're testing delivery right now in about 100 restaurants with Amazon, DoorDash, Grubhub and we do have some franchisees engaging with Uber Eats as well. What we're really focused on is trying to drive that experience and make it a little more seamless right now and integrating their technology into ours so that it's easier to execute at the restaurant level. But again from a coverage standpoint, it's about 50% right now. But again that's a that's very much a moving target as all of these companies are really trying to accelerate their coverage areas as well. So it's a little bit difficult to predict where that's going to land. But all of them, the 3rd party delivery partners are aggressively expanding in the new territories as we speak. So that coverage number kind of changes on a daily and weekly basis. Okay. Thank you. Thank you. And next we have Brian Vaccaro from Raymond James. Thanks and good morning. I just wanted to circle back on the Applebee's comp comments that you made. Steve, early on the call, I think you said that you've seen a sequential improvement in the Q2. Just wanted to make sure that's what you said. And we have seen a broader industry sales trend just accelerate in April versus March. Would you be willing to quantify as you did last quarter sort of what you're seeing quarter to date? Yeah. I think we're going to kind of stay on the adjective side versus the quantification side. But I think it's fair to say that the momentum continues to build and we are very satisfied with the results in April. Okay. But you did say at the beginning of the call sequential improvement in Q2 and that compares to a 3.3% in Q1, yes? That's correct. I did say that. Okay. Thank you for clarifying. A quick one on the Applebee's franchise segment disclosures, a lot of moving And the and the overall franchise expense line was below what I would have expected given that NAF contribution. Was part of that sort of reallocating lack of royalty collections out of bad debt into the revenue line as a royalty that will be collected down the road? So this is Greg, Ryan. So let me size where we're headed here. Yes, that's partially correct. The bad debt expense, we had recoveries of some previously reserved receivables in Q1 that made the number better, which is a good thing as in business terms and sales continually improve. But we believe for the full year and Q1 was about $2,000,000 between bad debt and royalties not recognized. For full year, I think $8,000,000 to $9,000,000 is our current forecast. But because Q1 was biased, we expect that $2,000,000 to go back up to say $4,000,000 ish in Q2 and then tail off after that to get to the $9,000,000 for the full year. That's our current forecast. So you did see bias positive bias lower number in Q1 in the bad debt expense and that's part of it. It. Okay. I will follow-up offline on that. And then just a quick one on the following up on the health of the Applebee's franchise system. You said in recent months that the promotions you're running, you're pleased with the profitability of them. Could you put some numbers around that perhaps sort of what the average store level profitability of the franchise system was this quarter maybe versus the prior year period? And any additional details you could provide on some of the disruptive value promotions that you've been running would be helpful. Thank you. Hey, Brian, this is John. I'm going to resist getting into the weeds on that particular subject. Suffice it to say, franchisees are improving, right? Their financial health is improving. Their fleets were certainly not where we'd like to be. We have a lot of work ahead of us. But our objective is sustained profitable growth and we're well on our way there one step at a time. So again, I'm going to resist getting into detail around franchisee P and Ls and profitability, but it's healthy. Okay, thank you. Thank you. Next, we have Michael Gallo from CL King. Hi. Good morning and congratulations on the improved momentum. Good morning. Thanks. I guess question for John. John, obviously you've had the benefit year over year of the additional contributions made to the advertising fund and certainly you'll have a continuation of that here in the second quarter. I was wondering your confidence level of how you plan to bridge as we get into the second half of the year and beyond as you won't have the benefit of having that increased level of contribution and what you're doing in terms of incremental franchisee advertising contribution in national that will help you maintain similar advertising weights? Thanks. Hey, Michael. This is John. So we remain very confident to your first point of the question. And then I wouldn't assume that our advertising contribution rate remains the same. We have extensive discussions with our franchisees. We have some advertising commitments contingent upon performance. And therefore, I'm not concerned about back half of the year, if that's your ultimate question. Okay, great. Thanks. Helpful color. And then I guess, John, when I think about some of the success you've had, you've been able to kind of go back to some of the historically successful items such as riblets. You mentioned you're doing a lot more analytics. Should we think about from your analysis that there are a lot of other opportunities to perhaps bring back some items that may have some meaningful brand equity and an item like obviously riblets which was enormously early in the year. Should we think about that coming back in different forms and different flavors later in the year? Thanks. Michael, I think that's accurate. For me, Applebee's is a bit of a reservoir of untapped equity and potential innovation around those equities. And I don't believe there are any constraints around what's possible so long as we stay focused on our core guest and don't lose sight of who we are and what we stand for in everything that we do. So yes, you can expect continued innovation, but smart validated innovation, validated from not only a guest perspective, but operations and financial. Thank you. You're welcome. Thank you. And our last question comes from John Ivankoe from JPMorgan. Hi, great. Thank you. According to our notes and I guess the transcript, I mean, it looks like the Q1 ended a lot softer or somewhat softer than where it began in the quarter. So hoping that we could talk about kind of inter quarter comp trends, especially relative to the industry that seemed to have done the opposite, which has strengthened as the quarter went on. And I'm asking this question really in the context of the variability that your LTOs are putting into the business? I mean, if that's something that you guys are comfortable with that the LTOs are doing what they're supposed to in the month of which you're running them or if we can kind of migrate to having more permanent platforms and permanent promotions to maybe take some of that volatility out of the business? Yes. So I would say that your assessment of the quarter is not all that accurate. I would say that we had variability within the quarter and I don't want to talk month by month, but we had variability within the quarter, but there was no deceleration during the quarter. And in fact, based on promotions, which we think are highly effective and are driving traffic and providing additional opportunities for our franchisees to drive profit. We were very satisfied with the way the quarter played out both at the beginning and the end and the momentum that has continued into the 2nd quarter. So I would say that you should look at our progress as being relatively steady and consistent and the momentum continues to build. But did you begin the quarter with a 5%. I mean, wasn't that something that you had talked about a couple of months ago? We did for Applebee's. Yes. I'm sorry, if that wasn't clear, that's what I was talking about. I apologize. I mean, it was specifically my question was 100% related to the Applebee's I would say, look, obviously the January results were driven by a very successful LTO in the riblets and Blue Moon. And so that was particularly well received. But I would also say to you that as we look at where we are, there is no deceleration that there is variability based on the promotions we're running and the acceptance of them, all of which are positive, some of which are more positive than others. And so I would I think I would view I would look at it as January was a really strong month and as we talked about, but that we're having other strong months as well and we expect to continue to do that based on the promotions. Okay. Go ahead. This is John. The only other point I'd kind of reference is for us every tactical event and promotion tends to have a slightly different objective and strategy. I would tell you from a traffic perspective, we're very pleased with our business and our momentum throughout the quarter. Okay. And then secondly, I mean, you guys obviously are big enough within casual dining and family dining that you must have a lot of thoughts about the way that kind of the consumer is going to play out over the next year. And certainly in the Q1, there was some very uneven weather and a lot of consumers really just started to see the benefit from taxes in their paycheck maybe in the middle of the Q1 and there could have been some relief rally or some reaction to that. But is it kind of possible for you to talk about your overall outlook for branded casual dining, same store traffic as we kind of move throughout the next year? I mean, what are your analytics telling you just in terms of the baseline of what your plan is built on? John, I don't want to represent the casual dining category, but we're all seeing the same thing, right, which is a consumer confidence level that's robust. We're seeing enhanced spending, very low unemployment, I think record unemployment. And household incomes are increasing, which may be driving some of that. So it may be a bit early to flag a tailwind in the category, but certainly from my perspective it has improved, which may bode well for the future, but it's a little early to call that. Yes, John, this is Darren. I'd echo those comments as well. And I would still say from a family dining perspective, we still view this as a market share situation where, yes, the consumer is a little bit in a little bit better shape and so they have some more money. But we're still having to take traffic and incremental digits from our nearing competitors to compete. So we still view this as a highly competitive environment and we're going to take share from our new competitors. Okay. And the final question, I know before we had talked about 300 basis points potentially coming from the PWC work. In another place, I have 200 to 300 basis points coming from the PWC work. And I think some of the comments on this call related to the run rate in fiscal 2018 perhaps equaling 100 basis points from the PWC work. So one, just wanted to get a sense of kind of what the end game is, all those margin savings that the PWC work will deliver franchisees? And then secondly, how much of that cost savings do you think will be reinvested in some way back in the system, whether through portions or less pricing or labor or what have you? Hey, John. This is John. I think insightful question. So franchisees, the 33 or so that we have in the Applebee system, very enthusiastic about this, right? So this is a profit optimization initiative. It's a multi year journey, having had experience with other brands, in particular with PWC. You're right that on an annualized basis, 100 basis points at Applebee's will on an annualized basis be captured in 2018. And then I would expect ultimately the big bold goal is and most of that by the way would be in food related initiatives, but some of this will bleed into labor and 200 plus basis points perhaps 300 would not be an unrealistic objective over time. John, this is Biren. We have the same initiative going on with IHOP as well with PwC. And similarly, we see opportunities in both food and labor. The run rate is really contingent on the ability to capture this stuff. And then at various times in the year, you actually start to realize the savings. So an annualized run rate kind of begins at different points throughout the year. And so that run rate will start to build over time as these opportunities are brought to fruition. Thank you. Thank you. And that concludes our question and answer session. Okay. Well, thank you again for your time today. We are scheduled to report results for the Q2 on August 1st and we look forward to speaking with you then about our progress. Have a good day. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.