Dine Brands Global (DIN) , parent of Applebee's and IHOP restaurants, soared more than 12% Thursday on the back of much better-than-expected fourth quarter results. The stock price rose nearly $11 a share to a 3-and-a-half-year high after the company reported earnings per share of $1.70, $0.13 ahead of consensus estimates, and revenue of $214 million, $17 million better than the consensus.
This was a great quarter, with both IHOP (same-store sales up 3%) and Applebee's (comps up 3.5%) participating. Franchise revenue rose more than 21% and gross margins improved by 670 basis points. The company ended the quarter with 1846 Applebee's locations (down 90 from last year) and 1808 IHOP locations (up 46).
The company pulled off one of the best restaurant marketing campaigns we've seen -- since Dominos Pizza's (DPZ) 2010 pizza formula campaign -- when it announced last June that it was changing the name of IHOP (International House of Pancakes) to IHOb (International House of Burgers). I'll admit, that announcement had me scratching my head, but it turned out be a gimmick in order to announce a new line of burgers at IHOP.
The restaurant business is all about putting customers in the seats, and with so many choices for consumers, it is difficult for chains to distinguish themselves. DIN's campaign appears to have driven traffic to IHOP, which put up its fourth consecutive quarter with positive same-store sales, as well as its highest comparable sales number since the third quarter of 2015. In addition, management guidance for 2019 is positive, with expectations for same store sales to be in the +2% to +4% range for both IHOP and Applebee's.
The company also raised the dividend 9.5%, from $0.63 to $0.69, which implies a 2.8% yield. In addition, DIN repurchased approximately 479,000 shares during the quarter, and has a new $200 million repurchase authorization in place. It's no secret that I am a fan of companies that simultaneously increase their dividends and buy back shares.
You might think that yesterday's jump in DIN shares would drive its forward price earnings ratio to lofty levels, yet that is not the case. DIN now trades at about 14x 2019 consensus earnings estimates, and 12x 2020 consensus estimates.
I'll admit that I have not been to an IHOP in many years, but have been very impressed by occasional visits to Applebee's. In fact, last year I had meals there in three different states (Montana, New York, and Pennsylvania), and all were consistently good. The company has done well with its menu offerings and drink specials, which have been drawing customers.
DIN is a shining example of what a solid, creative ad campaign can do to differentiate a restaurant brand. Denny's (DENN) did it with its free post-Super Bowl breakfasts years ago, Dominos did it, and now DIN is reaping the rewards of its own brand of creativity. Granted, gimmicks won't work if the food quality is not good, but DIN seems to have mastered that as well.