DIN - Dine Brands: Even Undervalued Growth Prospects Are Still Worrying

2024-06-25 12:43:42 ET

Summary

• The company operates almost entirely through franchises, which provides cash flow predictability, reduced Capex, and higher profit margins but limits its ability to execute long-term promotions consistently.
• Dine Brands has significantly increased its investment in technology, modernizing its Point of Sale systems and integrating AI to personalize customer experiences and increase average check sizes.
• Dine Brands is experimenting with dual-brand units (IHOP and Applebee's together) to optimize costs and balance customer traffic, though this model requires careful market selection to avoid cannibalization and ensure.
• Dine Brands reported a revenue decrease of 3.5% and an EBITDA drop of 8.43% in Q1 2024 compared to the previous year, with Applebee's and IHOP showing weaker same-store sales than the industry average.
• Despite the undervaluation, limited growth prospects and challenges in long-term promotional consistency suggest that Dine Brands may underperform in the medium term. The franchise model's constraints and the need for operational cohesion in full-service restaurants are significant hurdles.

The company and how it positions itself in the current industry context

First of all I would like to point out that the latest restaurant industry developments and consumer trends were recently broken down in my latest article on Restaurant Brands International ( QSR ). Therefore, to ensure the conciseness of the discussion, I recommend reading at least the first section of the aforementioned article, as we will discuss topics that have already been introduced.

A little bit of history

The year was 1958. The Everly Brothers released their single "All I Have to Do Is Dream" and Eisenhower signed the National Aeronautics and Space Act, formally creating NASA, which began work in October of that year. That same year, the first International House of Pancakes (IHOP) opened in the suburbs of Los Angeles. Two years later the first franchise was opened, and in 1961 the company had already become publicly traded. With financing from the issuance of shares, founders Al and Jerry Lapin began to control several franchised brands from the controlling company called International Industries....

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