Welcome to the first quarter 2017 DineEquity, Inc. Earnings Conference Call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star and then one on your touch-tone phone. Please also note that this conference is being recorded. I would now like to turn the call over to Mr. Ken Diptee, Executive Director of Investor Relations. Sir, you may begin.
Good morning, and welcome to DineEquity's first quarter 2017 conference call. I'm joined by Richard Dahl, Chairman and Interim CEO, Gregg Kalvin, Interim CFO and Corp Controller, Darren Rebelez, President of IHOP, and John Cywinski, President of Applebee's. Before I turn the call over to Richard, 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 substantially different than those expressed or implied. We caution you to evaluate such 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 assume 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 DineEquity IR website. I will now turn the call over to Richard. Richard?
Thank you, Ken, and good morning, everyone. Certainly important to today, our brand presidents are with us to discuss trends in their respective dining sectors, initiatives and progress at our brands in particular, and why our guidance for the year remains unchanged. No effort is being spared to maximize the growth potential of our two brands. While the casual dining and family dining sectors face challenges, which have carried over from year-end 2016, we believe a good deal can be done at each brand to significantly improve performance. As I indicated on my first call with you about 60 days ago, my role as interim CEO is not one of a caretaker. I've been deeply involved in the development of the go-forward strategy for Applebee's.
Following a review by Bain Consulting, we have completed a comprehensive analysis of both the underlying and brand specific events that have led to a decline in sales. Over these last two months, the stabilization work for the Applebee's business has begun and has progressed. While we are now executing on several strategic initiatives with close franchisee collaboration to stabilize and improve the performance of Applebee's. Bain participation will conclude by the end of June, and we believe we will begin to see the fruits of this effort by the end of 2016. As discussed in our last call, we are proactively addressing franchisee financial health through various initiatives. This continues to be a collaborative effort by DineEquity, our advisor, Trinity Capital, and the Applebee's Franchise Business Council.
To date, most of this effort has been focused on restaurant closures, with 19 Applebee's restaurants closed as of March 31st. Overall, we currently believe we will be within our guidance range, but most likely near the higher end of that range. We will, of course, update you as the year progresses. Additionally, franchisee financial assistance will be determined on a case-by-case basis. As we said in our last call, assistance can take several forms depending on the situation and could include loans and other support programs. I would like to highlight, as I did last quarter, that not all franchisees are in the same position, and we are again evaluating each case individually. Of course, an important part of stabilizing Applebee's is a new president. As we announced in March, John Cywinski has been selected to lead this iconic brand and has jumped right in.
John has a great background for the position and a solid history with Applebee's as its CMO from 2001 to 2006. In addition to John's extensive background in advertising and marketing, and with Applebee's, he was also former president of KFC's U.S. business, has been a franchisee with a few other brands, and most recently served as the Executive Vice President of Strategic Innovation and Marketing at Brinker. John is a great addition to our team, and you will hear from him shortly. To facilitate both brands' upfront menu innovation, we have recently opened a state-of-the-art culinary center located at the restaurant support center here in Glendale, where we can more rapidly create and preliminarily test our food offerings and build a more robust pipeline of innovation menu items. John will discuss these, and many other matters in a few minutes.
While a lot of work is being done at Applebee's, IHOP also has numerous initiatives underway, particularly in the areas of value messaging, technology innovation, and growing its to-go sale. Darren will fill you in on this again shortly. We have also undertaken initiatives at DineEquity to further empower both brands by more directly aligning specific resources in both manpower and capital with the brands. This is a strategic and thoughtful move to optimize our shared services model and to address the unique needs of each brand. The goal here is to promote more responsibility and accountability at the brand level. As such, functions like strategic operations, restaurant development, training, and certain other consumer-facing activities have been and will continue to be reassigned to the brands. This is purely about power and efficiency of both brands.
Our primary focus is on the core health of these two large brands, which combined serve an average of approximately 1.5 million guests each day. Lastly, with the Applebee's president position filled, the board will place a greater focus on the selection of a permanent CEO and CFO. Before the call is turned over to both Darren and John, let me first ask Gregg to address the pertinent financial highlights for the quarter. Gregg?
Thank you, Richard. Good morning, everyone. I'll take a few minutes to discuss our financial performance for the first quarter, starting with our income statement. For the first quarter of 2017, adjusted earnings per share was $1.22, compared to $1.58 for the same period of 2016. The variance was mainly due to lower gross profit, as well as an increase in G&A expenses. The decline in gross profit was primarily driven by a 7.9% decline in Applebee's comp sales and additional reserves for bad debt related to the sales decline. The G&A increase reflects approximately $3 million incurred in the quarter for the Applebee's stabilization initiatives we discussed on our March 1st earnings call. The impact of these declines on adjusted EPS was partially offset by lower income tax expense and fewer diluted shares outstanding.
Regarding G&A expenses, the increase in G&A for the first quarter of 2017 compared to a year ago, was primarily due to higher personnel-related costs and investments related to the Applebee's stabilization initiatives. The increase in personnel-related costs was due to approximately $9 million of non-recurring cash severance and equity compensation charges related to the separation of our previous chief executive officer. The costs related to the Applebee's stabilization initiatives were approximately $3 million in the first quarter. As a reminder, the non-recurring cash severance and equity compensation costs were added back in the calculation of adjusted earnings per share for the first quarter of 2017. The costs related to Applebee's stabilization initiatives are not added back in the calculation of adjusted earnings per share for the quarter or the whole year.
Regarding the Applebee's stabilization initiatives, we now expect these to total approximately $7 million over the first two quarters of 2017, with the remaining $3 million to be incurred in the second half of the year. Lastly, we anticipate that a substantial amount of similar costs will not recur in 2018. Turning to our tax rate. Our effective tax rate for the first quarter of 2017 was approximately 41%, compared to 38% in the prior year's first quarter. The increase was due to the adoption of new accounting guidance that addresses the treatment of certain aspects of share-based payments. This change from prior years now require that all tax effects related to share-based payments be recorded at settlement or expiration through the tax provision on the income statement, compared to previously being recorded in the equity section on the balance sheet.
The higher Q1 2017 impact on our rate was considered in our full year 2017 tax rate guidance, which is approximately 38%. Now let's turn briefly to the cash flow statement. Cash flows from operating activities for the first quarter were approximately $20 million, compared to $38 million for the same quarter in the prior year. The overall decrease in cash from operations was primarily due to lower net income resulting from higher G&A expenses and the decline in gross profit from franchise operations. The higher G&A was related to the non-recurring cash severance payments and Applebee's stabilization initiatives discussed earlier. The decline in gross profit was related to the same-restaurant sales decline at both brands. Additionally, net changes in working capital used cash of approximately $5 million in the first quarter of 2017 compared to providing cash of approximately $1 million in the same quarter last year.
Adjusted free cash flow for the quarter was approximately $19 million compared to approximately $39 million in the first quarter of 2016. The decline was due to lower cash from operations, as previously discussed, and higher capital expenditures compared to the first quarter of 2016. The increase in capital expenditures was mainly due to final culinary-related construction costs at our corporate headquarters. To conclude, we are executing against our strategies at both brands, and while we are committed to investing in growth initiatives to drive sustained positive sales and traffic, we will continue to closely manage our G&A expenses. With that, I'll turn the call over to Darren to discuss the IHOP brand.
Thank you, Gregg, and good morning to all of you. IHOP essentially performed in line with the family dining category in the first quarter, according to Black Box data. While we're clearly not satisfied with the 1.7% decline in first quarter comp sales, we attribute much of it to holiday shifts and remain confident about our go-forward performance. To recap the quarter, January delivered a strong increase in comp sales, driven by a promotional shift to our compelling value offering, All You Can Eat Pancakes. The offering of a core equity like our pancakes, combined with a value proposition, was supported by a recently optimized frequency-driven media plan to attract core IHOP guests as well as occasional guests. And it worked well. For the balance of the quarter, IHOP's performance reflected a series of holiday mismatches, which adversely impacted sales results
The delay in tax refunds, which resulted in slowed consumer spending. We're confident in our strategy, and significant work is underway to drive sales and consumer reach through culinary innovation, as well as creating new ways for our guests to access the brands, however, whenever, and wherever they want it. First, we're focused on giving our guests even more reasons to visit IHOP any time of the day and any day of the week. To that end, and as a part of our core strategic positioning, we've accelerated our pipeline testing of new and original breakfast items and specialty dishes that can be enjoyed during any day part and found only at IHOP. We're executing on a strategy to drive traffic during the lunch and dinner day parts with new and relevant menu items.
In fact, we started testing a new dinner menu in select regions to create awareness and more credibility around our lunch and dinner offerings, while leveraging value and customization. We're also testing several initiatives to expand consumer channels, which we believe will provide an entirely new stream of incremental revenue for our franchisees' restaurants. Our focused effort in this area includes our IHOP 'N GO initiative, which targets growing off-premise sales. Consumers are increasingly seeking time savings and flexibility while still being able to enjoy the food they love on the go. Today, more than 50% of Americans order food to go at least once a week, and 90% of Americans order food to go at least once a month. IHOP's To Go sales currently account for roughly 5% of total sales, well below the family dining average of 10%.
Expanding our To Go business represents an opportunity to capitalize on this growing industry trend and a great way to increase our revenue base. We've worked closely with franchisees and operators to test various aspects of our To Go program. This includes the performance of our proprietary and innovative new packaging, which ensures that the same great IHOP food that's enjoyed in our restaurants will be just as delicious when taken off-premise. We've also tested using targeted Pancake Revolution emails to entice local restaurant guests to order online and pick up their food to go. To further build on our IHOP 'N GO platform, we're also beta testing online ordering, which allows guests the added convenience of placing orders from their computers or mobile devices. Based on early results, the restaurant's beta testing online ordering, even without robust marketing and advertising support, has seen a significant increase in average check.
We've received good input and support from our franchisees on the To Go program and online ordering beta tests, and we're on track to roll this platform out system-wide during the second quarter. The brand and our franchisees are not just behind improving the guest experience outside the restaurant, but just as importantly, inside the restaurant. To that end, our Rise 'N Shine remodel program continued to move forward in the first quarter with 53 remodels completed. We are again targeting a total of 300 completions by the end of the year, all in reflecting investments of $38 million in 2017 and a total of $75 million since we kicked off the program last year. In addition to these investments in existing restaurants, our franchisees opened 11 new restaurants in the quarter. Another part of improving the guest experience is meeting our guests' needs for convenience.
We believe that this can be accomplished through technology, both back of the house and consumer facing. To achieve this, we're testing technology which will simplify the server order entry process, improving the speed and accuracy with which guests' orders are communicated to the kitchen and processed. Additionally, we're fast-tracking development of an IHOP mobile app, as well as limited tests for delivery. Lastly, I would like to say a huge thank you to our team members and our franchisees for pulling off another very successful National Pancake Day, which required a tremendous effort from everyone involved. I'm thrilled to announce that thanks to all of you and the amazing gratitude of our IHOP guests globally, we raised an incredible $3.9 million for the Children's Miracle Network Hospitals, Shriners Hospitals for Children, and The Leukemia & Lymphoma Society. This greatly exceeded our fundraising goal of $3.5 million.
This year's National Pancake Day was also successful from a messaging perspective, resulting in our best year in terms of traditional media coverage and social media engagement. To provide a few highlights, we had over 750 million social media impressions and over 115,000 total mentions of IHOP or National Pancake Day on our social media channels, a 20% increase over last year. To wrap up, I'm confident that our strategy will propel IHOP's momentum. We're taking the right steps to drive sustainable positive sales and traffic, expand IHOP's appeal across day parts, and create additional channels to access the brand. With that, I'll turn the call over to John for a discussion on Applebee's. John?
Thanks, Darren. Good morning, everyone. I've had the pleasure of working with many of you over the years, and I look forward to reestablishing those relationships, as well as developing new ones with those I've yet to meet. I've been on board now just shy of two months, and I'm confident we have the strategy and resources in place to turn around Applebee's. I use those words thoughtfully and intentionally because this is clearly a brand turnaround from my perspective. Simply stated, my job is to challenge the status quo and provide leadership required to unlock the growth embedded in this great Applebee's brand. I've done this before, and I'm not naive. I know this brand and category intimately. While the category has certainly been challenged, I believe that much of Applebee's recent underperformance has been somewhat self-inflicted.
Of course, it's relatively easy to assess these things with the benefit of hindsight. Stopping the sales erosion that we've experienced over the past several quarters and reestablishing growth will require intense guest focus, discipline, accountability, and very heavy lifting over the next 12-24 months. Most importantly, this will require a deep and genuine partnership with our franchisees, the folks who truly built this brand. We have 33 smart, talented, and very passionate franchisees in the U.S. who own more than 1,800 restaurants. I know, trust, and respect these partners, and I believe they trust and respect me as well. Once we're aligned and focused, I'm confident we'll achieve our goals of enhanced relevance and sustained growth. Again, not easy and not overnight, but certainly realistic and achievable. As Richard outlined up front, we've invested quite heavily, and we've done our homework.
We now have the benefit of an extensive Bain assessment of every component of our business. The work is insightful, brutally honest, and actionable. It's provided a clear view as to our strengths as well as our opportunities. Importantly, our franchisees were involved in every single aspect of the assessment, as well as the development of the action plan. Bain will remain with us through June as we begin to implement our turnaround plan in conjunction with our franchise partners and brand teams. Bottom line, there are no sacred cows here, and we're prepared to do what's necessary to ensure Applebee's success. Frankly, I wouldn't have come on board otherwise. As with any sound plan, this one begins with a clear understanding of the core Applebee's guest. This understanding is comprehensive around occasions, need states, drivers of behavior, demographics, and of course, brand perceptions.
From this, we've developed a strategy where Applebee's can differentiate with credibility and win in this highly competitive grill and bar space. We're a wonderfully approachable, accessible, affordable, and downright neighborly brand. Always have been. While not sexy, our plan involves Applebee's getting back to its roots, our so-called DNA, who we are and what we stand for in the eyes of our guests. This also entails meaningful structural changes already underway, as well as an elevated focus, importantly, on restaurant execution and guest satisfaction. Tactically speaking, we know where to focus. Our testing discipline, culinary pipeline, value orientation, bar business to-go platform, our marketing, media, and advertising plans all require significant evolution. I'm personally involved with each of these priorities, along with our internal teams, agency partners, and of course, in close partnership with our franchisees.
Without question, this is a multidimensional business challenge, so prioritization here is essential. While this work is underway, and we're operating with a very keen sense of urgency, I don't expect to see the benefit of this focus until the latter part of 2017 at the very earliest. Regarding franchisee financial health, we are assessing our franchisee portfolio in conjunction with Trinity Capital and may consider providing financial assistance where warranted. As we outlined last quarter, this process will likely result in the closure of approximately 40-60 underperforming restaurants this year, all in the interest of brand health. We'll certainly keep you posted as these fluid discussions unfold. That's as much detail as I prefer to share today, for obvious reasons, although I'm happy to provide more color as we progress in upcoming quarters.
Our vision is clear, our alignment is strong, and my belief in our franchisees is unwavering. The Applebee's brand turnaround is a long-term proposition, and I realistically look at 2017 as very much a foundational and transitional year. I'm confident we'll reestablish credibility through our actions and results one step, one quarter at a time. With that, I'll turn it back to Richard for his closing comments.
Thanks, John, and welcome aboard. While these are challenging times, we remain steadfast and optimistic, not only about the relevance of our brands, but the sectors in which we operate. As we focus on the health of our two brands, continuing to grow the international presence remains a core part of our growth strategy. Clearly, this is a time to invest in our brands, people, and franchisees. The largest asset we have is not on our balance sheet. It's our team members and our franchisees. I wish to thank them both for their energy and collaborative efforts to strengthen and grow our business. Now, we would be pleased to answer your questions. Operator?
Thank you. We will now begin the question and answer session. If you have a question, please press star and then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star and then one on your touchtone phone. We have a question from Michael Gallo from C.L. King.
Hi, good morning.
Morning.
Morning.
One question and one follow-up. I guess this question is probably more for John, but also for Richard. Now that you've had the benefit of the brand diagnostic, John, you've been there 60 days, and obviously you knew what was working well when you were at the brand the last time. You mentioned the problems were mostly self-inflicted at Applebee's. I was wondering if you could speak to the two or three things that you think went the most wrong, and how you envision getting this brand back to where it was historically. I have a follow-up. Thanks.
Sure, Michael. Thank you. It's very apparent to me, and I think to all of us, that the brand has had a few missteps over the past 18 months. One of those is drifting from our core Applebee's guest, which is very much middle America, middle income. There was an attempt to kind of reposition the brand in a somewhat aspirational manner around a modern bar and grill. In the process, it's very clear from the data that we may have alienated some core guests in the process. That's number one. Number two, this is a brand that's always had a strong heritage around value. We are an affordable indulgence, plain and simple, and a pretty accessible and approachable one. Candidly, I think we've taken our eye off our core value proposition over time.
The third one, you asked for three, I'd say there's a lot of variability today across 1,800-plus restaurants in terms of how we satisfy our guests. We have some exceptional partners and some outstanding restaurant results. At the other end of that spectrum, we also have too much variability. While we improve our value proposition, while we get back to our core guest, we need to tighten up our variability around operations and guest satisfaction. We see a very strong correlation between restaurant volume and comp sales performance and our internal operations metrics. That is an enormous priority for us internally, perhaps our number one priority at the moment.
I think, Richard here, John nailed that very well. The work that we've done with Bain in this diagnostic has been shared not only widely within the organization, but with the franchisee group as a whole also. The facts of what was done is not in dispute. Where we go from here, I think we can put the past behind us and say, learning experience, get away, get back to the core and work more collaboratively together.
Okay. That's very helpful insight. The follow-up question was just regarding for Greg, I guess. How much was the increase in reserves? Is that included in the $10 million? Do you expect any more of that, or you think you're pretty much covered for the year?
Excluded from the $10 million, that's separate. About $2 million for the quarter, was what we had in the reserve area.
Thank you. Our next question comes from Brian Vaccaro from Raymond James.
Thank you and good morning. Just a few questions, if I could, on the state of the Applebee's franchise system. As you've had more time to drill down on their financials and work with them to improve profitability, can you share where store-level cash flow margin is for the average or median store in the system after royalties, and then maybe talk about where some of the more significant opportunities are to improve profitability specifically, that have been identified at this point?
This is Gregg. I'll start it off and then ask John to comment further on operational areas. We don't share franchisee-by-franchisee information like that or a roll-up of the system, Brian. We are looking closely at all franchisees on a case-by-case basis, and we are assessing where our assistance could be valuable, and that's the way we're approaching it right now. This process is ongoing, as we mentioned with Trinity Capital, and we will continue to update as we progress along here. John?
Yeah, Brian, I think this is obviously a revenue game. In terms of store-level margins, we're looking for sustained growth here. Even moving the business back to kind of a flattish performance will dramatically enhance store-level unit economics. We have tremendous supply chain leverage, which is a core point of difference for this system, this business. I would say there are portions of this menu where we believe we can win with credibility, and we'll invest there. There are other portions of the menu where we think we can compete effectively, but we're not seeking to be best in class. Having a tighter menu strategy and adopting that and investing strategically, but not everywhere, is part of that margin enhancement program.
I feel good about where we are with the one caveat being, we're revenue-challenged, and that creates cash flow issues for our franchisees.
Richard here. The diagnostic, not delving into each franchisee's individual financial condition or financial statement. The franchisees now have a very solid document in which they can compare themselves to their peers in total and match up things like margin, food costs, labor costs, rental costs for the site, and so on. I think this will prove invaluable going forward as they manage themselves. Clearly, different parts of the country have totally different cost structures and so on, but this has also been structured geographically. A great tool for them and frankly for us to move forward to identify these things in a more rapid manner.
Yeah, Brian, this is John. To piggyback on that point, I think the franchisees have been flying a bit blind in terms of relative context as to their P&Ls. At this point, that benchmarking has been a significant benefit to them. It was shared recently. It allows them to understand where they stand relative to their peers within their geography, and it's cut a number of different ways in terms of variables. It's a big enabler within our system. It shines a spotlight on opportunity. Of course, it only benefits us for our franchisees to take advantage of it, and they are.
Thank you. The next question comes from John Ivankoe from JPMorgan.
Hi. A couple of questions, if I may. First, just on overall bar and grill category. It's said in the industry that bar and grill's gotten relatively expensive for their core customers. I just wanted to get your thought on that, whether lowering the average ticket is kind of a necessary path to drive traffic over the next couple of years. Finally, John, as you've been involved in the marketplace a long time, have independents and fast casual really changed in terms of their competitive impact in bar and grill over the past couple of years? If so, what can you do to kind of change what looks to be, from the outside, a fairly powerful tide?
Hey there, John. How are you? As I look at average check, we just need to be thoughtful there within the category. When you look at our guests very simplistically, a large percentage would be very value oriented. You could call them value seekers, where price is important. That segment of our guests tends to look for the best deal. They are very price and value oriented. That factors into our decision making every time out. There's another segment of our guest portfolio that's a little less value oriented or price oriented. They're very much what we would call traditionalists or creatures of habit. They don't stray too far. They're loyal. They don't category switch as much as the value seeker. They're both pretty comparable in terms of percentage of the population and percentage of our $ and $ revenue.
There are healthy ways, in my opinion, to drive check through add-ons and bar and desserts and apps and things of that nature. There are unhealthy ways to do it. I think there's probably been too much reliance upon driving the business through check. You see a pretty strong inverse correlation between check movement and traffic declines in the category over time. To your second question, looking at fast casual. Yeah, I think guests in general over the past decade have been more exposed to different types of food, higher quality food, a different service mode. I would also throw in C-stores and grocery home meal replacement, certainly weekday dinner, as places or categories that have represented some intrusion on this particular category's performance. I'm not sure if I'm answering your question regarding fast casual.
I wouldn't have a view to independence at the moment, other than they are still large in terms of market share. They have an impact. They have authenticity and neighborhood roots that guests value. I don't see that particular segment of casual dining disappearing anytime soon. They're viable, although they certainly in tough economic times, don't have the resource to sustain a market share battle, so you see a lot of turnover in that particular segment. John, did I answer you? Thank you.
Oh, sorry. The next question comes from Chris O'Cull from KeyBanc.
Thanks. Good morning, guys. I guess first, Greg, what is the allowance for doubtful accounts as a percentage of the receivables right now?
Well, we don't as far as percentage of receivables, we look at it as a revenue percentage item, is how we look at it quarterly, if you will. If you take that roughly $2 million, it works out to about 4% for the quarter, and that's how we're looking at it right now.
Okay. Then Richard, how did the company determine the number of closures you're projecting for 2017?
Actually, good question. There is some historical reference here that can be used, and last year we closed, Greg?
46, 47.
46, 47. Expectation that that would probably be the low end as we moved into this, as we saw some of the diagnostic work come back from Trinity as to franchisee health and store-by-store modeling and taking a look at which ones of those had negative EBITDA or borderline EBITDA and came up with that number originally for the guidance level. Quite a bit of fact and circumstance behind that.
Some of those, Chris, are restaurants that simply have very poor unit economics and don't perform financially. Some of those are restaurants that may have initially been built in a vibrant trade area, and that trade area has moved over time, and they are now stuck, if you will, in the wrong part of town. It's either a reload or a closure. We probably have a combination of both of those.
Right. Yeah. The restaurant closures are typically lease expirations.
Pardon again, you broke up a little bit.
I'm trying to understand. Is lease expiration, is that typically a catalyst for closures? Are a lot of those just situations where the lease has expired, and they're not renewed?
All of the above. Lease expiration is probably more common on the IHOP side.
Yeah.
Right now, I think on the Applebee's side, it's the economics of the unit more than the lease itself. Sometimes those economics on the Applebee's side are driven by high lease costs in areas where traffic no longer exists and so on. Certainly, a lease cost may drive economics. We're not seeing lease expirations on the Applebee's side as driving a closure, per se. On the IHOP side, Darren, tend to see-
Yeah, this is Darren. On the IHOP side, we historically have closed between 10 and 20 restaurants a year, that's virtually all driven by lease expirations. In some cases, we could have exercised options, but to John's point earlier, a trade area might have left us, and we've elected not to do that and to move on to a better trade area.
I know a lot of the Applebee's franchisees, when they were acquiring stores as part of the re-franchising program, financed a lot of those acquisitions through sale-leaseback transactions. I'm trying to understand how the company could possibly help franchisees that are really unable to close an Applebee's restaurant because of these lease arrangements. Have you guys kind of worked through that scenario?
Yeah. Go ahead, John.
Chris, to be quite frank, we wouldn't allow a lease term to get in the way of a necessary closure, right? These things can be negotiated. We've done so successfully. Our franchisees have done so successfully. It's certainly easier to exit a restaurant at the termination or the closure of a term. However, we have many examples where we've successfully exited prior to lease termination. It's a variable, right? There are multiple variables in that, and the financial assistance is related to our willingness and ability to permit a closure and what that means in terms of future royalty stream, our ability to successfully assist in a lease exit negotiation termination. Some of these terms around assistance involve partnership with banks, and we have a terrific partnership with many of the lenders across the system.
Between us and the bank and the landlord and the franchisee, we find our way to a better financial circumstance. When Richard references financial health, those are kind of the three or four components that are all at play simultaneously.
As it relates to the leases themselves, as part of our financial support work that we're doing with the franchisees, we are retaining folks to renegotiate leases that have gotten so pricey or so large a part of a franchisee's Earnings statement that the landlord is earning more than anybody else. There is an ongoing effort there. Directly, we can assist through, especially if we're in that lease, we can help them with subsidizations to get out of those leases, if that makes economic sense. Again, that's why this is a case-by-case basis. Nobody and almost no store is exactly the same given the variety of geographic locations and so on. There aren't that many franchisees, and candidly, there aren't that many stores that you can't figure this out.
I think the final point, Chris, is we would view opportunistic and strategic evolution of this portfolio, closures, as kind of an annual part of doing business, right? Not to the extent that we're looking at it now, any wise management of a portfolio like this requires selective closures on occasion. We'll continue to look at that moving forward.
Thank you. The next question comes from Stephen Anderson from Maxim Group.
Hi, guys. Good morning. I do have a couple of questions. First, from the Applebee's review, has it revealed to you what exactly is working? Certainly, the value platforms have worked well over the years. We just want to see if those still work for you. I have a follow-up question on IHOP.
What is working is there's a tremendous affinity. Our guests have a tremendous affinity for this brand. They want the brand to succeed. They want it to win. There's a genuine emotional connection there. I'd say candidly, probably a little acknowledgment that, "Hey, Applebee's, you've slipped a little or drifted a bit." How we are perceived across America, certainly within our core demographic, is a strength. Our value proposition, or at least perceptions around value for the money, remains strong. Not as strong, frankly, as I'd like to see them, but still a core component of our business and a point of differentiation. I would tell you this isn't consumer work, but our business model in having 33 franchise partners, all of whom have sizable organizations with strategic and financial capability, is unique. It's a point of difference.
I've been with other brands where that franchise portfolio would be 500,000, well north of 1,000 franchise partners. We, in any given point in time, can gather those 33 folks in a room, align, and implement a decision. You'll see more of that moving forward. We'll be a little more nimble as we progress here in our plans. The other thing I'd say, having been part of franchisor-franchisee relationships for quite some time, there is complete alignment here. There's no defensiveness. There are no sacred cows in terms of our action plan. When you look in a mirror, it's tough, and our franchisees are a proud bunch. We are completely aligned with them and vice versa around where we have gaps and opportunities. We're partnering with them to put those plans in place. Some fundamental core strengths of the brand.
I guess the final point would be it's early. I'd be lying to you if I were to suggest that we have a lot working at the moment, right? Our revenue for the quarter is down substantially. I do expect a sequential improvement in that, but it's too early to identify results that we can point to as a part of this turnaround plan. I do anticipate more color there in subsequent quarters, especially as we get to the end of the year.
You mentioned some of the calendar shifts that occurred. Looking at second quarter, I don't want to speak to this quarter specifically, but historically, when Easter fall in a given quarter, has that helped you and by how much historically?
The Easter holiday has tended to help us by maybe 40 or 50 basis points from one quarter to the next. What we saw this year was that holiday shift into the second quarter also resulted in a scattering of spring break timing across the board. We expect that all that will normalize through the second quarter, but at this point, that's what has impacted the first quarter.
Once again, for any questions, please press star 1 on your touchtone phone. At this moment, we show no further questions. For closing remarks, I would like to turn the call back over to Mr. Richard Dahl, Chairman and CEO.
Okay, thank you again for joining us on the call today. We are scheduled to report the results of the 2nd quarter on August 2nd. We certainly look forward to speaking with you at that time. Again, anytime you have questions, please do give us a call. Thanks for your time today.
Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.