Applebee’s feels a pinch from higher gas prices

The casual-dining chain on Wednesday said it is seeing some pullback from lower-income consumers, particularly in April, when same-store sales softened. It pointed to rising gas prices in the wake of the Iran war, as well as a tough comparison to last year, when same-store sales rose 4.9%.

Average U.S. gas prices hovered around $4 per gallon in April and more recently have surged to around $4.50. Gas is now more than 50% more expensive than it was before Iran locked down the Strait of Hormuz in March.

“Our value-conscious guests are price-sensitive,” said John Peyton, CEO of Applebee’s parent Dine Brands, in an earnings call. “Guests are very sensitive to increases in gas prices and the basics and the cost of living.”

He said Applebee’s will continue to focus on value-based marketing and disciplined operations to manage the bumpy environment. And the company did not budge on its outlook for the year: It still expects same-store sales growth of between 0% to 2% at Applebee’s in 2026.

The April slowdown followed a solid first quarter for Applebee’s, which reported same-store sales growth of 1.9% for the three-month period ended March 30. Prices were up 4%, mix was positive and traffic was negative, executives said. Weather impacted the results by negative 94 basis points.

Sales were driven in part by the popularity of the new O-M-Cheeseburger, which is halved and served cut-side-down in a skillet of melted cheese. The limited-time offer became the best-selling burger in Applebee’s 2 for $25 value menu and helped make Valentine’s Day the single best sales day in the brand’s history.

The burger was also a hit on social media, generating more than 9 billion impressions and driving 80 times more organic views than the average campaign. It even inspired copycats at some other casual-dining chains.

Applebee’s will continue to lean into that sort of innovation on the 2 for $25 menu as it works to appeal to those price-conscious customers. About 33% of customers ordered a 2 for $25 or other value-priced item in the quarter, consistent with recent times. And about 62% of them opted to pay extra for more premium items or add-ons.

Applebee’s is also working on some operational updates to improve the customer experience. That has included simplifying the kitchen workflow and instructing managers to spend more time in the dining room. Last quarter, manager visibility contributed to higher customer satisfaction scores, Peyton said.

Off-premise was another bright spot in the quarter for Applebee’s. Same-store sales in pickup and delivery rose 3.5%, thanks to third-party delivery and promotions during the Super Bowl and the NCAA basketball tournament. Off-premise order accuracy is another area it is looking to improve.

Over at IHOP, same-store sales were flat year over year. That included 3% higher prices, negative traffic and mix, and an 80-basis-point impact from weather. The breakfast chain outperformed its peer group on both sales and traffic as measured by Black Box Intelligence. And April sales held steady.

The chain is finding success with promoting higher-priced items such as New York Cheesecake Pancakes alongside its $6 value meals. It also got a boost from off-premise last quarter. Same-store sales increased 2.6%, mostly from third-party delivery. A new catering channel is also showing promise, with same-store sales up 16%.

Like Applebee’s, IHOP is focusing on operations. A new POS system and handheld ordering tablets are helping to speed up table turns, which were 6% faster than the previous quarter. It’s also fielding fewer customer complaints.

Dine continues to be bullish on combining its two flagship brands under one roof. It now has 43 Applebee's-IHOPs open domestically with another 13 under construction, and expects to finish the year with 80 total.

Co-branded restaurants are generating 1.5 to 2.5 times as much revenue as a stand-alone location and will fuel Dine’s development pipeline in the coming years. The company believes there is room for 900 of them nationwide over the next eight to 10 years, split evenly between new sites and conversions of existing Applebee’s or IHOPs.

So far, 10 different franchisees have opened one, two of which are new to the system.

“We believe dual brands will provide that step function change to franchisees’ unit economics outside of a normal comp growth,” said Dine CFO Vance Chang. “So we're very enthusiastic about pushing that agenda, and franchisees as well.”

Overall in the quarter, Applebee’s and IHOP opened 24 restaurants and closed 40.

Dine’s total revenue for Q1 was $225.2 million, up nearly 5% year over year. This was mainly due to Applebee’s acquisition of 47 locations from franchisees last year, which added revenue to the books.

Net income was $7.4 million, down from $8.2 million a year ago.

Dine’s stock took a tumble on Wednesday after it issued a corrected version of its earnings report showing that adjusted net income and adjusted earnings per share were lower than initially stated.

Adjusted net income in the quarter was $11.1 million for an adjusted EPS of 88 cents. An earlier version reported adjusted net income of $13.5 million for an adjusted EPS of $1.07.

Dine’s stock was down 3.5% as of market close Wednesday.