Good afternoon, everyone. My name is Jeff Bernstein, and I'm the restaurant and food service distribution analyst here at Barclays. Hope everyone had a good lunch. Our next fireside chat is with Dine Brands. With us on stage from Glendale, California, we have John Peyton immediately to my left, to your right, the CEO. Vance Chang, the CFO. And in the audience, we have Matt Lee, who's the SVP of Finance and IR. By way of background, for those not familiar, Dine is a portfolio company. My guess is you've heard of a couple of these brands. Applebee's has 1,550 units. IHOP has 1,800 units. They also own Fuzzy's Tacos, where they have just over 100 units. And that portfolio within those numbers includes 200 and some odd units outside of the U.S.
But Dine Brands is effectively a franchise business, so Applebee's, IHOP, and Fuzzy's Tacos are run by franchisees. We do have the largest square footage Applebee's directly across the street if anybody wants to grab something after work today, right on 49th between 7th and Broadway, which I know is popular here at Barclays. I have some questions which I'm going to pose to management, but then I will definitely pause near the end, and if there are any questions from the audience, we will take them then. But with that said, we want to thank John and Vance for joining us and look forward to our conversation. Welcome.
Thank you. Thank you for having us.
Absolutely. Being that you do have two of the largest restaurant brands in the world within casual dining and family dining, I should say, I think you have a pretty good pulse on the consumer. So just wanted to start with a couple of bigger picture questions. We get a lot of restaurants that are talking about the consumer more broadly, which I'd love to hear your view. But also within that, over the past couple of quarters, there's been lots of talk of maybe individual cohorts, certain income levels, certain age groups, certain ethnicities that maybe are performing better or worse than others. So wondering, one, your view on the consumer, and two, whether you've seen any divergent change in trend among any of the different cohorts that you focus on.
Yeah, the consumer state of mind has been fairly consistent, I would say, over the last six or eight quarters. The first big change we saw was in 2024. Our guests and guests in general wanted to know what the full cost of the meal was. So, for example, Applebee's for years and years and years had historically been promoting some version of a discount on an appetizer, well, you can eat this, $0.50 wings, half off that. But by 2024, when inflation took that big jump, they wanted to know what's it going to cost for the burger, the fries, and the soda, and you saw everyone across all categories: quick serve, select serve, and us all putting together these everyday value menus where they knew the full cost.
This year, specifically at Applebee's and IHOP, the behavior of our guests is the same, so I can speak for both brands. Number one, in the last two quarters, we're seeing a greater movement of higher-income guests into our brands, and we define that as over $100,000 a year in household income, and we've also seen some guests leaving us at the lower end of the income band. Those guests tend to be Gen Zs and also earning under 50K. The good news for our two brands is that we've had more joining us from the top of the funnel than leaving us, which is why both brands have grown traffic this year, so it's a bit of a mixed data points, right? We've grown traffic, yet we do know that the guest is feeling more stressed than in the past.
When they're with us, Jeff, Applebee's has an everyday portion of its menu, value menu, that's called 2 for $25. So it's an appetizer and two entrées for $25. About a third of our tickets contain that item, which is as high as it's been, but steady now for several quarters. On the IHOP side, we've just recently introduced Everyday Value, which is four full entrées for $6 or $7 on the coast. It's brand new, so I don't think we have a stable number yet, but it's growing up toward 20% after just a quarter or two.
Yes, I've seen a fair amount of the commercials for the IHOP advertisements. It does look like a very compelling offer for $6 to have a full meal. So I would assume that's going to drive traffic. We also get a lot of questions just about food at home versus food away from home, especially in this environment where over the past couple of years, supermarkets have raised prices, restaurants have raised prices, the debate of who's raised more, maybe sending consumers more to at home or more to away from home. Just wondering, how do you think about your restaurants and the industry positioning from that value perspective as we battle food at home versus food away from home?
Yeah. So it's important to keep in mind, because we're 98% franchise, we don't establish the pricing, but we can report on, in the aggregate, what our franchisees have done. If you look at Applebee's since COVID, right, which seems to be the reference point for everyone, Applebee's has raised prices less over the last five years than the comp set has and less than dining at home. IHOP has raised prices a bit more than the comp set and a bit more than dining at home, yet we're seeing both brands grow their traffic. To your point, I think a big part of that for IHOP, especially where they took more price, is this Everyday Value, this Everyday Value menu.
IHOP's an almost 68-year-old brand and, interestingly, has never had an Everyday Value portion of its menu except for its over 55, age 55, which is supposed to be the senior menu. I'm 58. I find it highly insulting that 55 is considered the senior menu.
Raise that age.
Exactly. But now they have this Everyday Value that seems to be a compelling offer that our guests are looking for right now, and it's making up a bit for that issue.
When I think about IHOP, and we've had others here that focus more on breakfast and brunch, I know IHOP has a full-day menu. But do you find that IHOP is more vulnerable? Breakfast seems to be a day part that some consumers say, "I can pull back on eating at breakfast. It's easy to replicate at home." Do you see any change in behavior IHOP versus Applebee's from that perspective?
So again, coming out of COVID, the last day part to recover was weekday breakfast, to your point. And weekday breakfast is still not at the pre-COVID levels. It's in the mid-90s. The brand overall for in-restaurant dining is getting close to 100, but not quite there.
100% of what it had before.
Where they make up for it and why the traffic is growing is both brands have grown their off-premise business. So pre-COVID, Applebee's and IHOP off-prem was 6-8% of sales. Now it's 20% for IHOP and 22-23% for Applebee's. And that's largely a new incremental customer because most of that off-prem business does not dine in with us. So we became part of the off-prem consideration set during COVID and have maintained that business since.
When I look at our coverage universe of casual diners, at least, they're all company-owned and operated, with the exception of you being all franchised. I'm wondering whether that might be the answer to this question. But as you meet with investors, what question are you surprised you don't get, or the question you get that maybe you think the company's misunderstood? Clearly, when I talk to investors, they just say, "Oh, they're all in casual dining." But you are more like a QSR in reference to the ownership model, more like a casual diner or family diner in terms of the product you're selling and the experience. So I'm just wondering whether that is and just how you address those questions.
You know, Jeff, the thing that we really want to make sure investors understand is that because we're franchised, we're asset-light. So that's a different margin profile. That's a different cash flow profile. That's also a different capital structure, right? Because we're franchised, it allows us to have access to whole business securitization, which is investment-grade cost of capital. It allows us to have higher leverage, lower cost of capital, and covenant-lite. And so we can look at our capital structure as apples to apples versus other company-owned concepts in our segment. And the other thing I would point out is that, again, because we're highly franchised, we're actually a lot bigger than people realize. So the two brands combined, we do about $8 billion in system sales a year.
And I think we go through about $2 billion a year in terms of the supply chain goods and services that we purchase with our franchisees on behalf of our franchisees. And so if you look at the supply chain benefit, the cost of capital benefit, the scale benefit in terms of our marketing campaigns is much bigger than people realize than our market cap would indicate.
And to your point, investors sometimes lump us more often than not in with the wholly-owned restaurants, brands, and companies and don't appreciate the different model in terms of the cash we generate, the margin that we have, et cetera.
That is the number one question or conversation we have with people who are just walking them through this.
We do ask that question several times.
But the fact that, right, to have $8 billion in system sales but then when you're just taking the royalty off of that, it's a much higher margin percentage but it's a much lower margin dollars. Therefore, your market cap tends to be smaller because it's just what you're bringing in, so it requires a little bit of hand-holding. But clearly, there are positives and negatives to both sides of things. My last question from a broader industry perspective. GLP-1s get a lot of attention or did a couple of years ago. That trend really seemed to have slowed down. We didn't hear much about it over the past year. It seems to be ramping up again, whether it's because it's become more affordable or covered by insurance potentially or in a soluble pill form.
It just seems like it's the most formidable challenge the restaurants have from a diet or fad perspective. I'm just wondering what data you look at, whether it's something you see as something you can address or it's a concern over the next few years?
So to date, we haven't seen a notable impact on our business. But as you said, we're certainly aware of the way it's changing in terms of and how available it may become, particularly for our guests, right, as it becomes more affordable. So we sort of think about it two ways. One is, yeah, from an innovation standpoint and from a menu standpoint, we're thinking about higher protein entrées. We're thinking about smaller portions. We're thinking about lower-calorie entrées and just to anticipate the demand for that. But at the same time, it's also important to keep in mind that many of the reasons to come to Applebee's or IHOP are special occasion. And we're also not fast food, right? And we're not fast casual. It's not an everyday thing, everyday at lunch thing. So people come to have a date night.
They come because the Little League team won. They come after church. And so I don't think the occasion of dining out and human beings want to come together to celebrate and be together changes even with the weight loss drugs, although we do need to make sure that we're not vetoed by someone who's got that point of view.
Yep. Jeff, the other thing is that if you think about this, IHOP's been 60, 65 years old. Applebee's is 50-somewhat years old. We've been through so many cycles of other dietary sort of fads before. And so again, to John's point, the way people view us, the way people interact with us, it's been so consistent over many, many cycles. And we have yet to see any sort of evidence otherwise.
Yep. Right. With only a few weeks left in 2025, obviously, you guys are looking to 2026. I'm just wondering, what are you most excited about for Dine Brands as we think about the next 12 months relative to 2025?
We're most excited about what we call Dual Brands, which is our big idea. So we have a product now where we have Applebee's and IHOP in the same restaurant. So it's the same square foot. Imagine an IHOP adding an Applebee's or an Applebee's adding an IHOP. When you enter the restaurant, there's the red side and the blue side, and guests can co-mingle and eat on either side. We have one combined menu, so it's an all-day dining menu that goes from breakfast through late night, so sort of the IHOP blue to the red part of the menu. And we've got 40 open outside the U.S., and we brought it to the U.S. for the first time this year in San Antonio. We opened one in February.
We'll have 30 by the end of the year, and we'll have another 50 that we can see line of sight to next year. And the economics of it are what are so compelling, Jeff. So it's adding one and a half to two and a half times the revenue when you add the second brand into the box. And that incremental revenue flows at 30%-40% because the fixed costs are the same. The guests love it. Even when you look at day parts, the off-brand, so Applebee's in the morning, IHOP in the evening, never sell less than 15%. So at 10:30 A.M., people are ordering steaks and ribs in the morning, and at night, they're ordering pancakes and omelets. And so the franchisees are intrigued by it because of the improved economics. Guests are enjoying the best of both brands.
Clearly, it's good for us because it fuels unit growth as well as royalty revenue for us. It also helps us even rescue some closures, right? In a system our size, you've got 1%-2% of restaurants that close every year because they built themselves 30 years ago. The contract is ending, or maybe they're not as profitable as they once were. A lot of them are adding this brand in order to the second brand in order to keep going.
Just from a...
Oh, go ahead.
Jeff, the best way to experience it is to be there. But short of that, I do encourage investors to check out our website.
We have a video on our website that gives you a sense of what it feels like to be inside of our restaurants. You get to see a glimpse of the menu, how the guest experience would be like. And it's really the best way to know what we're talking about. And what's unique about it from a strategic standpoint, right, is not only is it a big idea, it's hard to replicate. So 20 years ago, IHOP happened to buy Applebee's and create Dine Brands. And we happen to be the only company that owns a Premier AM brand and a Premier PM brand. When you put those two together, you're programming all four day parts without cannibalizing one or the other.
So we uniquely are able to do that. And it's a competitive advantage, right? It's a pretty high walled garden.
You know, I think about the years of looking at this space. I think of Dunkin', who has Baskin's, and they tried that, and I thought it was a home run. And yet most franchisees ultimately said, "You know what? We want to be one or the other." So it's an interesting dynamic.
Yeah. And there've been other combinations of fast food, like KFC and things like that. But the issue there was they were the same day part competing with one another, where this is purely additive. Applebee's does not serve breakfast today. IHOP is open 24/7 or 24/2, but dinner is its historically weakest day part. So to be able to add Applebee's to dinner makes a big difference for them.
So by the way...
So now IHOP gets to serve mimosa and Bloody Marys in the morning when we couldn't do that before because of the liquor license.
Gotcha. So if I walked into one and I got a combined menu for the two, so I can sit on either side, look at a menu that has some of each item. But if I ordered a burger, which both of your brands have, and then said I wanted a short stack, I mean, you could just pick and choose whatever you wanted, and they have chefs that can just handle it all.
Yeah. For those of you who are from the Northeast, it's like a diner, right? It's an all-day dining menu. And we have subtle cues, like the earlier day part of the menu is more blue, and the later day part is more red in a nod to both of the brands. But it's exactly that. And people are literally mixing and matching. We had a hypothesis that people would come into the restaurant and prefer to eat on one side or the other. They don't care. They just want access to the menu. We've also invented mash-up items of the two, only available at the dual brand. So for example, if you've been lying awake at night wondering when someone's going to come up with a buffalo chicken omelet, we have that now, right? So it's the IHOP boneless buffalo chicken wings in an Applebee's omelet.
It's actually the number one selling omelet in the dual brand restaurants.
Interesting. So you're saying there was one in February, and at the end of this year, there will be 30.
Yep.
These are just quick conversions, obviously, that you're able to go from one to 30 in 10 months.
Round one is entirely conversions. When we look at the potential landscape, right, so like many companies, we have a tool and a model that can evaluate every market in the country. And we put our inputs in. Does it have 50,000 people? What's the household income? How much traffic goes in and out during the day? That kind of thing. We see an opportunity for 900 of these. 450 of that 900 are in what we would call white space. So there's no Applebee's. There's no IHOP. There's no local franchisee. And so it's just have at it. And then there's another 450 that are targets for our existing restaurants. So an existing IHOP or Applebee's franchisee could add the second brand because there isn't a competitor around, and the market would support it.
So you really have an incremental 450 boxes you can get from this. But another 450 boxes is just converting or adding the other one.
The new build would be the 450 boxes, and then adding the brand onto the other 450 would be driving average unit AUV and royalty revenue.
So there'll be 30 at the end of this month. And next year, you'll add an incremental 50, so we'll be up to 80.
Yeah.
Seems like that is a growth vehicle for a company that has struggled at times to put up new unit growth when you're so mature.
Yeah. What investors are telling us they're looking for is unit growth and comp sales. And so this is a vehicle to drive unit growth that we haven't had before. And it certainly is driving unit growth at a much quicker pace than we've had the last couple of years.
So just that jumps to my unit growth question, which, again, historically has been a challenge for a lot in casual dining because it's a fairly mature segment. But your ability over the next few years or your confidence to see net unit growth either at each individual brand or as a portfolio. I know it's been a number of years where on a net basis, it ends up being modest closures. How's your thinking about the next few years from a net unit growth perspective?
Yeah. So we haven't put an exact date on when we expect to return to net unit growth, but we are at short term, not medium or long term. You got to think about the components that we have. So you could build a single unit IHOP, which our IHOP franchisees have been doing, opening 30 to 40 new restaurants a year for years. You could build a new Applebee's. We have a new prototype that costs about $1 million less to build than the current one, which we're going to build ourselves next year to prove out the economics. And we've got the dual brand as an option. And by the way, 80% of new IHOPs are conversions. So it's a great conversion brand. So we like to think that we have an option for almost every market.
And particularly with the dual brands, we can see driving toward short-term net unit growth. The challenge for brands like ours, you mentioned, because they're mature, is that when you've got 3,500 restaurants, you have a 1%-2% close every year, which is normal. So we have to open 100 to net plus 10 or plus 20 because we'll close 80 a year. And again, that's because 30-year contracts have run out. Landlords have made different decisions. The market has moved away from where that restaurant is.
Got it. Right. Well, the other question that obviously gets a ton of attention is the comp growth, which Applebee's reverted positive most recently. IHOP is still negative, but seemingly you guys appear to be encouraged by both brands' trajectories. So I'm just wondering your ability or confidence to forecast sustaining that positive comp growth at Applebee's and the time frame with which to get back to positive comp growth at IHOP?
Sure. Applebee's had a tough 2024 as the consumer mindset changed around wanting to know the full cost of the meal. So as we've leaned into 2 for $25, as I mentioned, that's made a big difference in driving traffic and comps. The last two quarters have been positive after six quarters of negatives. We think that is sustainable and notable because the 2 for $25 option on our menu has been on the menu forever. We didn't advertise it. We didn't advertise it, interestingly, because over time, each of the franchisees had established their own entry-level price. Some were $25, some were $26, $27, $28. You can't advertise that nationally, unless you have at least 80% of them in the same place. Earlier this year, all the franchisees agreed to $25.
And since we've been focusing on that message primarily, you're seeing the change. We've got other things in the works. And to keep it fresh, we have a pipeline of innovation. So each quarter, we'll introduce a new entree at the $25 level and a new app so that not only are we communicating the value message, but we're communicating innovation and something new and fresh to come in for. IHOP, same story. The Everyday Value that I mentioned is phase one of a two-phase effort. So phase one was putting together a program that will drive traffic into the restaurants, which the Everyday Value is clearly doing. IHOP's traffic has grown every month this year versus its comp set. And in the last quarter, had absolute traffic growth for the first time in a decade, which is tremendous. We said publicly several years, but it's a decade.
So that's tremendous. Phase two is converting that traffic to higher ticket items once they're in the restaurants. So as we were driving the traffic in the first couple of months, we had all of our tabletop displays and promotional items highlighting the $6 and $7. Now, which is sort of classic retail strategy, right? The $6 and $7 is in the back of the menu. And all of our in-restaurant collateral is around the high-margin, high-ticket items, which is now driving guests to the higher items. And we don't want guests that didn't know about it to find it. We want them to come in and order the higher-priced items. And we're beginning to see the needle move on that.
I'm sorry, but phase two of that for IHOP is, oh, now that's where we're in that.
Underway. Underway.
Okay.
Jeff, the other thing is, so John's talked about the customer acquisition strategy, right? So part of the customer retention strategy is operations and remodeling to improve the guest experience. What I mean by that is, right, so in terms of operations, the key focus is going to be consistency and simplicity, meaning John and Lawrence have reduced the number of windows that we have going from 10 to 12.
Advertising messages.
Advertising messages down to six to eight. And what that does is it simplifies, not just in terms of marketing teams. They don't have to set up each campaign separately and allows the media dollars to be spent more efficiently because you get to be on air more frequently, less dark periods. But for the franchisees, it's easier to learn the operations of it because you don't have to learn a new menu item as frequently. We're not adding complexity to it. And so that improves the table-turn order accuracy and reduces the guest complaint. So that's on the op side. And then the piece about remodeling is that, as we know, value is a function of what you're paying for versus what you're getting. And what you're getting is not just the food. It's also the experience.
And the ambiance, the vibe of the restaurants is hugely important to our guests. So we have a big incentive program out there to encourage our franchisees to remodel. And so that the combination between good service first and also the ambiance of the restaurant will ensure the return, the guest retention part of this equation.
Because we do talk a lot about franchisees, and oftentimes mom-and-pop franchisees can be under greater pressure than larger players, I think it's somewhat unique to your situation, at least with Applebee's. Maybe just if you were to summarize the health of those franchisees and through difficult periods, their confidence to grow and willingness to remodel and spend and whatnot, how would you characterize the health of the franchise system at each of the two brands?
I'll talk a little bit about the characteristics of the franchisees, and Vance can talk about the franchisee health. Very different franchisee profiles, considering that both portfolios are more or less the same size, right? So 1,700 IHOPs, 1,550 Applebee's. IHOP has 265 franchisees, 50% of whom own five or fewer restaurants. And that 50% that own five or fewer are legit owner-operators, right? The four or five family members are in the restaurants, cooking, serving, cleaning, and it's a true family business. On the Applebee's side, we have only 30 franchisees, and the largest one owns 420 of the restaurants, so practically a quarter of the portfolio. And they are, generally speaking, more professional organizations with human resources and technology and revenue management. And so very different profiles.
On the Applebee's side, as a result of that, you've got a pretty healthy franchisee base with deep pockets, deep resources, and things like that. On the IHOP side, we always have to pay attention, but as revenue is growing, that's good because it's improving margins in both brands this year.
Yeah. Jeff, as John mentioned, sales sort of is the cure for everything, generally speaking. What we're experiencing is that labor and commodity cost market baskets have come under control now. It wasn't like earlier in the year or last year where sales were going down and costs were going up. Although still elevated, but they've sort of maintained about a flattish level for both labor and food costs, and sales are improving. So as that sort of you have that situation happening, franchisees' margins are improving, and we're seeing that across the system. As any system would have, right? We have this normalized bell curve, so we have the tail of restaurants that are underperforming versus system average, and then we have the head of it where it's overperforming better than average.
We have dedicated operations team and initiatives and design in place to help those franchisees with the lower-performing restaurants to take out costs, find efficiency. What's really interesting is that there is a very strong correlation to profitability and guest complaints. A negative correlation. The lower the guest complaint, the higher the margin. A key part of the focus is just about guest service, making sure that managers are visible to our guests, making sure that orders are done right and accurate and fast, making sure that the restaurants are remodeled. That, over time, will drive the profitability of the lower-performing restaurants.
Right. And being that it is a franchise model, we're not as much talking about food and labor because that's from the franchisee's perspective. But when you said flattish, maybe just remind us what the inflation level was for food and labor in 2025 and what you think that is going to be in 2026?
I think it's easier to project for food. We're looking at flat to, I think, in the case of Applebee's, potentially slightly deflationary sort of environment for a market basket for Applebee's. Still a little bit probably low single-digit inflation for IHOP because of eggs and coffee. And on the labor side, it's really region-specific. And because that's not done on a centralized basis, it's franchisee by franchisee, it's a little harder to quantify. But I would say that we're hearing a lot less complaints about labor now from the franchisees. And we're seeing that in their P&Ls. The other issue that the franchisees had before that we don't have anymore is just the availability of labor. They used to have a hard time staffing the restaurants properly no matter what.
Coming out of COVID.
Coming out of COVID. And we don't have that anymore.
So a couple of things. One, do you get the franchise? On what frequency do you get the franchisee P&L that you can see how they're?
Once a quarter. But a quarter in arrears. So right now, we just got the Q3.
Gotcha. Okay. And I'm surprised when you say Applebee's is flat to modest deflation for next year because I would have thought beef. What beef is what percentage of the Applebee's commodity basket? Is it not?
Probably. So it's not a fixed sort of portion, but roughly in the 10-ish%, I think, is what we're looking at. But it's flexible because it's part of our menu, but we can adjust our promotions depending on what's expensive, what's not, so.
Yeah. Because we also both IHOP and Applebee's jointly participate in a national purchasing co-op that the franchisees own, and we all sit on the board of. They're pumping $2 billion a year of goods and services into the restaurants. And so at any given time, 60%-80% of commodities are contracted. And so because of that volume in that organization between the two brands, the purchasing co-op, it's called CSCS, has got forward pricing locked in for beef and other things. Doesn't mean we're not exposed, but we're hedging it better than others that way because of the scale there.
So 60%-80% of your commodity basket for the portfolio is pretty well locked for next year. And a flattish type number is therefore not likely to.
At least through mid-next year, and so based upon what we know about what's locked in and at what rates, enables Vance to say Applebee's will be flattish, IHOP will be up a couple of single digits.
Yep. Right, and below the operating level at the restaurant level is the G&A, which in a franchise model really garners a lot of the attention because that's the costs that are primarily in your control. I think it's roughly 2.5% of sales.
Of system sales.
Of system sales. That is among the lowest in the industry. Again, depending on who you're comparing stuff to, because if you look through your QSR peers, they're also in the twos. Casual dinners with company-operated models would dream of being that low. But what do you think is the right level for that G&A versus the 2.5% today? Maybe where do you see that over the next couple of years?
I think 2.5% is probably the right way to think about it because we are a franchise model. The G&A that we have is primarily designed to support the franchisees in terms of menu innovation, operations, marketing, etc., and if you think about the margin profile of Dine as a whole, put aside the marketing part of it, marketing revenue, marketing expense, which is a passthrough, we're like a 50-ish% EBITDA margin business, right, so G&A is sort of the only cost structure we have because otherwise it's just royalty stream, and as we grow our dual brand footprint, I do see us able to leverage the G&A infrastructure, so I do see this as a short-term sort of target, but longer term, we should see more efficiency out of our platform.
We're deceptively small from the outside in, right? So if you're looking at us from the outside in, you see 3,500 restaurants, you see $8 billion in revenue. But because we're a franchisor, we have 500 people at corporate. And half of those people are in the field servicing restaurants, etc. Now that we own 70 restaurants, yes, we've got employees there. But running this $8 billion business is a 500-person endeavor, and 120 of them are in technology, that kind of thing. So it's a lean operation relative to the size of the business.
Well, we do have a few more minutes, but I wanted to pause and see if there are any questions in the audience before I continue. I will wrap it up with my last couple of questions. One, Fuzzy's hasn't come up at all. When you have two very large brands, I could see how a third brand of a smaller size doesn't get as much attention. What is the future of Fuzzy's? Will it play a much bigger role in the entity, or is it just kind of more of a smaller one-off?
Yeah. So Fuzzy's is our taco concept, tacos and margaritas. There's about 120 of them. Half of them are in Texas, and then the others are in another 12 states in and around Texas. Started as a Dallas-based brand. We bought it a couple of years ago because, number one, we wanted to diversify out of full-service dining, and that was the objective there to get into fast casual. We liked the Mexican concept in tacos, which are growing. We particularly liked the Fuzzy's version because it's not a Mexican-style taco as much as it's a Southern California-inspired taco, which, when we did our testing, was really liked sort of across the country. So it can go in the Northeast, the South, the Midwest. And since we've purchased it, we've learned a lot, and we have some fixing up to do. So, for example, it was overbuilt in Dallas.
We've got a cold that hurt a little bit. Several of the original franchisees were not restaurateurs, but they were doctors and dentists who were looking to invest, but they didn't really know how to run a restaurant. All of that had to be cleaned up. And what we're most excited about is the new business model. So the business model today at Fuzzy's is you go to the counter, you order your tacos and your drink, you get a buzzer, you sit down, you close out your ticket, and you're done. What that doesn't allow for, since your ticket has been closed, it makes it more difficult for the guests to order a second round of tacos, a second margarita, watch the TV screens because it looks and feels kind of like a sports bar. And so now we just opened our first new concept restaurant in Houston.
We're calling it Fast Casual Plus, where we take your order at the table, leave the ticket open, run the food to you, and we're already seeing what we wanted to see, which is second drink orders, second taco orders, and we've got half a dozen franchisees excited by that new model that are looking to build the same, so we still think there's a there there, but we're working on it before we declare success.
Got it. And with a franchise business model, I would be remiss if I didn't ask a little bit about capital allocation because you do generate a fair amount of cash, and your CapEx relative to that is relatively low. So as we think about capital allocation, $30-$40 million in CapEx, I don't know if that's a reasonable run rate. So how you think about that? I think that's more like $20 million assumed in the long term. So presumably, there's some short-term company ownership that's maybe driving that higher. But if you could talk about that. And then the dividend versus share purchase, I know you recently lowered the dividend. How do you think about balancing those two things relative to ultimately your use of leverage?
So I'll start by explaining some of our capital allocation priorities. The most important thing is organic investments, which is the CapEx piece you're referring to, and I'll break into that a little bit more. The second piece is capital return, which is the dividend versus buyback discussion. The third piece is just protecting the balance sheet. So in terms of organic investments, assuming we're a 100% franchise business, our typical technology CapEx is, call it $15 million a year, upgrading, refreshing systems, and etc., etc. The incremental CapEx budget outside of that 15 or so is currently spent in company restaurants. I say the breakdown of that is, call it 70/30, 70% of the incremental CapEx is remodeling and dual brand construction. The 30% of it is, I will call it deferred maintenance, things that we probably should have done a while ago to make sure the restaurants are.
The franchisee should have.
The franchisee should have done to make sure that the restaurants are in good operational tip-top shape. But that's not going to be ongoing because we're going to refranchise these restaurants in due time. So that's for the time being. And especially for the construction piece of it, it's a one-time thing. And once it's done, it's done, right? So that's the CapEx portion that gives you a sense of the building blocks of what makes up the CapEx piece. The second bucket, which is the capital return math, right? Given where the stock is trading at, given the multiples we're trading at, and given the momentum that we're seeing with the base business that we're experiencing, it seems like there is a disconnect between where we're trading versus where we should be trading.
So it's just a more efficient way for us to return capital to shareholders is through buybacks while still maintaining a very healthy dividend yield based on where we're trading right now. So that's how we think about it. It's not necessarily a fixed dollar amount of budget is how we think about it. It's sort of a relative discussion based on where the stock is trading at, and there's this ROI math that we're constantly doing.
And the leverage as a component of that, like the leverage levels you're at today and where you'd like to be over time?
So we are in the fours right now. So we feel comfortable to be in the fours to fives leverage level, generally speaking. And if you compare us to other franchise brands, they're usually in the five to six times levered. We don't think we should be at that level because we're not a QSR. We're a full-service dining. So we should be one or two turns lower than them. But we shouldn't be compared against other casual dining restaurants because they're usually in the one to two turns leverage level, but they're company-owned, so a completely different ownership model, different cash flow profile. Our capital structure is supported by the royalty streams in a securitized sort of entity. So as I said earlier, it's investment-grade cost of capital. It's covenant-lite, and it's super flexible.
You're in the fours, and you're happy to remain in the fours.
Yeah.
Gotcha. Well, that's great. Well, I think we've wrapped up on time, but we wanted to thank Dine Brands and specifically John and Vance for joining us, and hopefully you have a good day of meetings and feel free to catch them in the halls, but otherwise thank you all for joining us today.
Great. Thank you.
Thank you.