Dine Brands Global Inc (DIN) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 DineEquity earnings conference call. My name is Anne and I will be your coordinator for today's call. (Operator instructions).

As a reminder, this conference is being recorded for replay purposes. At this time all participants are in listen-only mode. We will be facilitating a question and answer session following the presentation.

I would now like to turn the presentation over to Stacy Roughan. Please proceed.

Good morning and thank you for participating on DineEquity's first-quarter 2009 conference call. Today with us from management are Julia Stewart, Chairman and CEO; Jack Tierney, CFO; and Gregg Kalvin, Corporate Controller.

Before I turn the call over to management, let me remind you of our Safe Harbor regarding forward-looking information. Today, management may discuss information that is forward-looking and involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different than those expressed or implied in such statements. We caution you to evaluate such forward-looking information in the context of these factors, which are detailed in today's news release as well as in our most recent Form 10-K filing with the Securities and Exchange Commission.

In addition, DineEquity disclaims any intent or obligation to update these forward-looking statements.

In conjunction with our prepared remarks today, we have provided additional information for your viewing on our IR website at DineEquity.com. The document can be found under the calls and presentations section of the IR site posted as supporting material for today's webcast. If you haven't already done so, we encourage you to download the presentation.

Additionally, on this call we may refer to certain non-GAAP financial measures. These non-GAAP financial measures are described in our news release today, which is also available on DineEquity's IR website. Now I would like to turn the call over to Julia Stewart.

Thanks, Stacy, and good morning, everyone. Today we will provide you with a quick overview of our first-quarter 2009 results, update you on IHOP's system momentum, our progress in energizing the Applebee's brand and then touch upon our debt position and financial flexibility. So let's start by covering some of our key performance factors for the first quarter 2009.

We were pleased with our same-store sales performance, which showed improvement versus the fourth quarter last year for both IHOP and Applebee's. While the challenging consumer landscape persisted into the new year, each brand's focus on appealing value offerings resonated with our guests in the first quarter. IHOP's systemwide same-store sales performance returned to positive territory with a 2% increase for the first quarter 2009 compared to the same quarter last year, and up from our fourth-quarter performance of negative 1%.

IHOP's performance benefited from the use of national media to support All You Can Eat Pancakes during the January-February time frame. This reflected a shift from local advertising historically used in the first two months of the year as we optimized our advertising dollars and entered 2009 with a full year of planned national advertising to support the IHOP brand.

All You Can Eat Pancakes was an appealing value message coming out of the holiday months, which was then followed by a new limited time offer, loaded country hash browns, which was another strong performer. IHOP also celebrated a record National Pancake Day during the first quarter. Guests from all over the country celebrated National Pancake Day by enjoying more than 2.5 million free buttermilk pancakes, and we raised more than $1.3 million on behalf of children's charities, far surpassing our goal.

But you know, it really isn't about giving away free food. It's about making a difference in the lives of children in need across the country. And even a challenging economy proved no match for our guests' incredible generosity. These factors, combined with record guest satisfaction scores, operator rankings that place 91% of IHOP franchisees as an A or B operator, and a successful series of regional business conferences during the first quarter has allowed IHOP to enter the year on an exceptionally strong footing. We introduced IHOP's new limited-time offer, Strawberry Festival, yesterday, and are particularly excited about the strong pipeline of limited time offers and promotional tie-ins planned for the balance of the year, which will drive our ability to create an insurmountable lead in family dining.

So let's turn to Applebee's. Applebee's systemwide domestic same-store sales decreased 3% for the first quarter 2009 compared to the same quarter last year, which proved a tough comparison as it was the only positive comp quarter last year. Importantly, our first-quarter same-store sales results showed improvement from fourth-quarter levels last year. Applebee's marketing efforts during the quarter were anchored by the return of our profitable value offering, two for $20, in addition to a steak promotion featured in January and Pick 'N Pair, which was aimed at driving our lunch business.

We also experienced a strong level of gift card redemptions, which were approximately 11% systemwide compared to the same quarter last year. And we renewed our support of Carside To Go in March with commercial tags incorporated into our national advertising efforts. We believe supporting Carside To Go is a clear area of opportunity for Applebee's as we look to address negative traffic trends.

And one last note on same-store sales -- in the first quarter 2009 the Easter holiday mismatch on year-over-year domestic same-store sales comparisons negatively impacted IHOP's performance by an approximate 50 basis points and positively impacted Applebee's performance by approximately 60 basis points. The impact differs by brand, primarily due to increased traffic IHOP experiences around the breakfast day parts during the Easter holiday weekend compared to Applebee's lunch and dinner day parts, which experience traffic decline around the Easter holiday weekend.

Now, looking ahead at Applebee's, we are committed to our strategies to energize Applebee's and are now beginning to experience significant traction in energizing the brand and improving operations. All of our efforts have been guided by consumer research. We know what our guests want and need and are focused on exceeding their expectations. Just yesterday we began advertising our craveable new line of Applebee's Real Burgers. Real Burgers like the A-1 Steakhouse Burger and the Fire Pit Burger are made with fresh, never frozen, hand-formed 100% ground chuck served on a split-top bakery bun.

We also introduced a new line of Sliders, including French Dip, Barbecue Pulled Pork, Southern Chicken Style and Traditional Cheeseburger Sliders and a new Chicken Parmesan Tanglers appetizer to the menu as well as a handful of new beverages. As with Applebee's Real Burgers, we plan to introduce additional new foods supported by national advertising as we focus on differentiating Applebee's from the competitive set with great new grill and bar offerings that Americans love.

These new food messages will also be coupled with strategic value offerings. With the introduction of Applebee's Real Burgers, we have evolved the look and sound of our advertising with a focus on mouth-watering food photography and great new music featuring Grammy award-winning artists Sugarland. Our guests are looking for real, honest food served in a genuine environment, and that is exactly what Applebee's stands for.

In these ways we made great strides in energizing Applebee's and look forward to continuing to enhance our marketing and menu efforts throughout the year.

Turning to operations improvement, I am pleased to say that we have successfully introduced an A-B operator scorecard rating system at Applebee's, just as we did at IHOP in 2003. As of the end of the first quarter 2009, 73% of Applebee's domestic franchisees rated as an A or a B operator. The scorecard is comprised of quantifiable measures, such as operations assessments, guest satisfaction scores and health and safety measurements. Guests still tell us that it's critical that we get the food right, as ordered, served at the proper temperature and incorporating manager table visits to the guest experience. At the end of March 2009 we achieved all-time high scores for a number of measures, including our overall dine-in guest satisfaction score.

Jack will touch upon our strong Company restaurant operating performance at Applebee's in a moment. However, the team has made terrific strides, and I'm particularly pleased to say that we are operating more profitable restaurants but not at the expense of the guest experience.

Finally, turning to our re-franchising efforts, as previously announced, we re-franchised five of the seven company-operated restaurants in Albuquerque in the first quarter 2009. We continue to market company-operated Applebee's restaurants. However, while interest from both new and existing franchisees remains strong, progress in bringing transactions to fruition has been slowed by the lack of available financing. The credit conditions do not appear to be materially improving for prospective buyers. We continue to work creatively with these interested parties to help them overcome the negative credit conditions; but, frankly, we can only do so much and will only agree to deals at valuations that make sense for our shareholders.

I would remind you, as I said on our last call, we do not need to sell any Company restaurants to stay in compliance with our debt covenants in 2009.

Now for a more detailed discussion of our financial performance for the first quarter 2009, I'm going to turn the call over to our CFO, Jack Tierney. Jack is such a terrific addition to the team, and I'm pleased to have him leading our financial discussion today.

Thanks, Julia, and good morning, everyone. Let me first walk through key performance highlights for the first quarter and then touch on our debt position.

Reported EPS for the quarter was $1.80 excluding the gain on debt repurchases and the gain on asset sales related to the refranchising of the New Mexico restaurant. EPS was $0.72, an increase of 46.9%. This improvement is primarily due to higher margins at company-operated restaurants, a 2% increase on IHOP's same-store sales, partially offset by a higher tax rate and a 3% same-store sales decline in the Applebee's system.

Turning to Applebee's performance in more detail, by focusing on our restaurant profit performance initiatives, we significantly increased our restaurant operating margin to 16.4% by delivering a 470 basis point improvement with record high customer satisfaction scores, truly an impressive performance in the face of lower same-store sales results. Approximately two-thirds of the 470 basis point improvement was driven by higher pricing and improvement in the management of labor and food expense, partially offset by higher commodity costs. Labor expenses improved due to more effective scheduling, better kitchen productivity, overtime reduction and hourly wage rate management. Labor costs further benefited from a reduction in management incentive expenses as the results of the revision of the manager bonus program in the second quarter of 2008.

Food usage reductions resulted primarily from menu price increases taken during the quarter, reduced wage and menu mix shift. These improvements were partially offset by higher commodity costs and increased bar usage. We are cautiously optimistic that these improvements are permanent and will benefit future quarters.

The other one-third of the 470 basis point improvement was primarily related to refranchised restaurants and other transition-related activities.

Looking at G&A, consolidated G&A in the quarter was $47.2 million. Included in G&A are one-time expenses related to the formation of the co-op of $6.3 million. Excluding this cost, G&A expenses for the quarter were $40.9 million or 14% better than the same quarter last year and in line with Company guidance of $165 million to $175 million for the year. This improvement is primarily due to reduced overhead expenses made possible by Applebee's refranchising efforts as well as acquisition, integration and cost savings activities. Consolidated G&A included $3.2 million in non-cash stock compensation expense.

Looking at income taxes, our effective tax rate for the first quarter was 31.1%, which is in line with our full-year expectations of approximately 34%. Last year's first quarter rate of 9.7% was unusually low due to low pretax income being benefited by FICA tip credits from company-owned restaurants.

Moving to our cash performance, consolidated cash from operating activities was $57.7 million for the first quarter of this year. Cash flow benefited from the timing on tax payments of approximately $20 million in the first quarter and from higher payables for advertising that we expect to pay in the second quarter.

The IHOP business generated $4.5 million of cash from the structural runoff of principal payments related to its long-term notes receivable. Consolidated capital expenditures were $3.2 million, and free cash flow was $59 million for the quarter. We define free cash flow as cash from operations, plus the receivables runoff, less CapEx.

During the first quarter we reduced securitized debt by $87.8 million. We repurchased $78.4 million of securitized debt through open market purchases. We also repaid $9.4 million through scheduled repayments and utilized after-tax proceeds from our New Mexico refranchising to reduce debt.

Now turning to our debt ratios, our consolidated leverage ratio at the end of the first quarter was 6.2 times compared to our covenant of 7.5 times. Our debt service coverage ratios, or DSCRs, were 3.7 times for IHOP's securitization and 3.7 times for the Applebee's securitization, both above the minimum threshold of 1.85 times. With the proactive steps we have taken to reduce debt and increase profit, we remain comfortably in compliance with our covenants at the end of the quarter.

Now I will turn the call back to Julia.

Thanks, Jack. So let's go through and continue to manage our business for the long term and remain focused on those things that are within our control. We've maximized our financial flexibility in a prudent way, and we are now focused on moving forward in 2009, executing our strategic agenda for the Applebee's and IHOP brands. We are an experienced franchisor of restaurants with a proven expertise in revitalizing and optimizing brands. This is what we are good at, and we plan to drive our businesses forward and meet our commitments in 2009, despite economic challenges. We did just that in 2008, and we plan to do the same thing again this year.

With that, we'd be happy to answer any questions you might have. Operator?

(Operator instructions) Bryan Elliott, Raymond James.

I wanted to drill down a little bit more in detail on the Applebee's store level margin improvement. I guess, could you give us some magnitude maybe on the food line and the labor line? And also, was there any further adjustments in the amount of depreciation and amortization subsequent to the fourth quarter, as maybe we finished up purchase accounting adjustments, etc.?

Essentially, the way we broke it down is, the one third of the 470 basis point improvement -- some of that did relate to transition-related activities. And so that is not operational and will not continue in the future. The two thirds that we did break down in terms of being operational -- as you know, we did increase prices. In the press release I think we said we were up 3.5%. We did have higher commodity costs in the quarter versus last year, and actually we had some other costs as well that were up. And we were able to offset this through the pricing, some mix and improvement in the labor and food costs.

But we don't have detailed breakouts of that.

I guess that will be in the Q. A sense of when the Q will be out?

It should come out Thursday.

Okay. I was a little confused, I guess, on what you meant by transitional costs and -- that won't be [recurring]. I thought maybe you meant there that that's just the benefit of taking the refranchised stores out of the base that maybe were lower margin or something. Maybe you could --

And that's part of it. Certainly, taking the refranchised restaurants out of the base helped the margin in this quarter. But there were also some transition activities in relation to the purchase accounting adjustments.

Chris O'Cull, SunTrust.

Given the improved leverage ratio, it doesn't seem that refranchising proceeds are as critical today as they may have been two or three quarters ago. At this point, does it make sense to hold off or hold out, I guess, for a better financing market or some sort of margin recovery at the restaurant level before getting aggressive with the selling prices of the stores?

Well, it's certainly a fair comment that we are doing far better than we were, certainly, when we purchased the restaurants, and it's fair to say that this has been a difficult environment. So what I said on the call, I think, is really true. We're certainly proceeding, but we've got to do what's right for the business and for our shareholders. So we'll keep you posted, but at this point we're certainly taking a look at it. But at this point no changes, certainly in our strategy. It has always been our intention to sell the restaurants, and that has not changed.

But timing may be a factor. We'll keep you posted.

During the quarter, the free cash flow, I think you said, it was roughly $58 million with changes in net working capital contributing a fair portion of that or a source of funds. Should we expect this to reverse in the subsequent quarters, or is the CFO guidance just that it remains unchanged? Is that conservatism, or -- ?

Well, I think the first quarter is probably one of our best quarters in terms of cash flow. But as I pointed out in the cash flow, there was about $20 million of tax payments that is really just timing. So you can take that $58 million down by $20 million, and then there's also some advertising and some other payables, quite frankly, that are up higher, and we'll end up paying them in the second quarter.

So our guidance really still is the same.

Right. At this point we haven't changed any of our guidance. And for the full year that's $100 million to $110 million.

How much of that reflects changes in net working capital?

About $30 million.

Also, why not change the guidance to reflect a better margin? I know you said two thirds of the improvement was sustainable. Your guidance implies for the full year that we could see margins down significantly in remaining quarters, which, it doesn't sound consistent with the comments you made.

It's a fair question and we are all smiling because we knew we would be challenged about our guidance. I think, certainly in the 8.5 years I've been here, we don't typically revise guidance in first quarter. Certainly, mid-year, when we have more months underneath our belts, be more than happy or likely to do that. But this is a very challenging economic environment, and from day to day and month to month we don't know what the future brings. Who knew a month ago we'd be talking today about swine flu?

So I'm a little bit hesitant, and I think the team is as well, to revise guidance. We are certainly looking at all the factors. When we get to the end of the second quarter, if we feel likely that we are going to be set, we'll absolutely revise the guidance. But that 50 to 150 basis points improvement on the Company ops really does reflect the low end and the high end of our comp sales forecasts on Applebee's restaurants.

So we'll keep that. Obviously, we are looking closely at that. And absolutely, challenge us at the end of second quarter. But it's just, I think, a little premature, given all that's going on. Call us prudent.

That's fair enough. In this environment, it makes sense.

I guess the question regarding the new promotions at Applebee's -- I actually tried some of those burgers, which were excellent --

Excellent!

I did. They were great. How do you plan to communicate this? In terms of -- obviously, national advertising. But should we see price points on this spot? Should we see just different products coming out during the quarter?

Think of us as advertising Real Burgers. Did you see the spot? Because it ran yesterday and today. Have you seen the spot yet?

I have not.

Okay. There's a terrific 30-second spot out all about Real Burgers. I think it's some of the finest food photography I've really ever seen, and it really focuses people that there's something unique and different at Applebee's, and certainly we're the only large player in the industry serving real burgers, not frozen. So there's a real opportunity here to take advantage of that. And we think we can take advantage not just in advertising, television advertising, but the web and in-store and local promotions. And the franchisees have really gotten behind this locally, doing PR.

So you'll see it every which way throughout the quarter. And then, as we proceed through the balance of the year, not, certainly, wanting to give away our strategy, but you'll see additional new items introduced. So that same strategy will continue throughout the year. And behind that we'll continue to do some value offerings as well so that -- the hamburger is such a value it doesn't necessarily need price points, but we will continue the value message as a secondary or additional message.

Jack, does the current leverage ratio give you the opportunity to repay the preferred stock?

Actually, it does not.

Not yet.

No. I think there are -- go ahead, Gregg.

Below 6.

Below 6?

Yes.

It needs to be below 6 before we can do anything like that.

Below 6 -- to really make sure you thoroughly understand -- when the leverage ratio sustains at below 6, you can pay down the preferred, you can buy back stock, you can do whatever you want. So we're close.

Okay. And the preferred -- does the rate increase soon for the preferred?

Yes, it's --

At the end of this year, it raises by 2%.

The end of this calendar year?

Correct.

Steven Rees, JP Morgan.

Just to follow up on Chris' question, so unfortunately, it does look like bar and grill is getting a lot more competitive, and specifically on the price points. I think we are seeing $5 out of Friday's and $7 out of Chili's. So I guess, one, does this concern you? And I guess, two, how do you think Applebee's is positioned to be able to compete at these sort of price points, if you have to?

So I don't know if concern is the right word. I think if people want to really do heavy discounting, we're going to let our competitors do the heavy discounting. Our price-value is so strong, and I think we've taken advantage of that strong price-value with, as Jack mentioned, record operating scores, which I'm very proud of, and certainly people coming in and saying, well, I'm getting all of this for only such and such a price, all this great service. Clearly, our consumer research says that's what people like.

But make no mistake about it. We'll continue to introduce new products throughout the year, but we'll also have value messages. And our two for $20 has clearly, clearly resonated with guests. So that's something we may want to continue. But the way you should look at it as this deep discounting, it's not an area we think we need to play in or want to play in.

Just on the IHOP side, the improvement was impressive, given the environment. I guess some of that was the shift to national versus local. Can you just talk about the advertising strategy there, how much will be national this year versus last year? And then I guess on the Applebee's side, if there's anything to note there in terms of advertising shifts?

Okay, so good question. Last year, five of the six product promotions at IHOP were nationally advertised; this year, six of six. So this additional January-February network advertising -- there's no question, that certainly helped. But I also think, all the other things we put into play have made a difference as well, not just National Pancake Day, which again was another record. We get a halo from that day, which is pretty amazing.

But we'll continue to do those product promotions throughout the year. We actually, I think as I mentioned, have some promotional tie-ins as well. I think it's interesting, Steve, to note that, certainly IHOP doesn't have the advertising war chest that Applebee's does, so you are playing in different arenas. But I think I give the team a ton of credit at IHOP for figuring out unique, creative ways that don't cost a lot of money but trying to get awareness. And I think you'll see some of that this year. So I'm very hopeful and clearly optimistic about the year and what IHOP has in store.

From an advertising standpoint, that's really the news on IHOP -- that they continue to look for creative, innovative ways to get there. On the Applebee's side they've gotten very creative about purchasing significantly more spot TV in the company markets. I think they are up 20% year-over-year, just because of the marketplace. And then on a national basis there's some weakness. And so what we are seeing is negotiating some great price opportunities and then, frankly, just getting significant upside on our sports deals, which was NCAA, the MLB and the NBA -- really some positive momentum there.

So both working, but sort of in very different ways.

Great, and just finally, I guess for Jack and Gregg, can you just walk me through the impact of the purchasing co-op on the income statement, how that impacted G&A, how you expect it to flow throughout the year and if there was any impact or benefit to the Company restaurant margin improvement you saw?

We took a charge of $6.3 million in the first quarter, and that's the full charge of the co-op --

Incentive plan.

-- incentive plan, and we'll pay that. We paid approximately $3.5 million to date. We'll pay another tranche mid-year and then a smaller tranche in the first part of 2010. But the full P&L or financial statement impact, it has already been taken. So that's why we've adjusted for our G&A, if you will, to that 14%. We've taken that out on a run rate basis for the first quarter.

And then, to answer your question specifically about improvement and the actual margin of the Company operation -- not to date. It's so soon; literally, they formed in February and they've begun the hard work and heavy lifting of major contracts, protein contracts for both brands. So as I said, I think on the last call, I feel pretty comfortable that by the end of the year, certainly by fourth quarter we'll start to see some of that improvement and then next year as well.

Just one more thing. The $20 million of unpaid deal expenses -- I didn't see an update there, but is that still expected to be paid this year?

Actually, we paid that day one of second quarter. So it is gone. We paid it.

Okay, perfect.

And you're right; it was $20 million.

Michael Gallo, CL King.

I just wanted to ask the Applebee's margin question in a little bit different way. I look at the margins in the quarter at over 16%; that was with, I think, commodity costs that were still up year-on-year. If you assume the comp guidance for the year similar to what occurred in Q4 -- sorry, in Q1 -- on the Applebee's side, with commodity costs coming down, the changes in the incentive structure program will recur for the remaining three quarters. Why wouldn't you be able to achieve similar margins or potentially better margins on the commodity side versus what you had occur in the first quarter?

So it's a great question. And I think the answer is really similar to what I said before. It's early in the year. We do not have official guidelines out from the co-ops. They are just beginning their process. The more information we know, we'll certainly filter that into our actual calculations on the Company ops side in our forecast.

I think we'll be in a much better position, if we are going to revise guidance, to do that closer to the middle of the year. But I think there's a so many variables going on right now we are taking appropriate, I think, conservative approach.

I understand, but I guess the question I'm asking is, was there something in the first quarter operating margins, be it you planned labor for a lower comp than what happened or etc., that you think made that margin better than you would expect it to be? Or it's just too early in the year and you had a better quarter and there wasn't anything that really stuck out?

As we mentioned earlier, about a third of the 470 basis point improvement is related to transition activities as well as re-franchise of the restaurants last year. So that will not be reoccurring. So about a third of that improvement is not reoccurring.

A follow-up on that same question, obviously, you're seeing the big improvement in margins now. Are you finding that franchisees are willing to give the benefit of the doubt and be willing to purchase units based on the run rate improvement in margins? Or are they still looking to buy units based on a multiple of the trailing operating earnings?

So you have potential franchisees and existing franchisees. And I think the issues -- and I've said this before -- it's less about buying of the restaurants or what the multiple may be. It's a lot more about the credit market and the difficulty in getting access to credit. So we'll continue to take a look at that and continue to make appropriate comments as the year progresses.

Tom Forte, Telsey Advisory Group.

I had a couple of questions on refranchising and then one on promotional activity. On the refranchising front, can you think about or can you give your additional thoughts? When you entered the year, I think you were looking to do 200 locations you were hoping to refranchise. Are there thoughts on if the credit markets start to thaw in the second half of this year, then the 200 is still possible? Or, depending on how long we remain in this tight credit market, at what point does the 200 seem optimistic?

I think a lot of these questions may be premature because I just don't know what I don't know. And certainly I'll keep you informed; you'll know as soon as we know. But at this point it's business as usual. We continue to guide that we are going to actually sell these 200. If things change, we'll share that with you. I think I've mentioned several times, if we don't have a deal in hand by probably June or July, it's going to be really difficult to close by the end of fourth quarter anyway. So you can keep that in the back of your mind. And I think at the end of second quarter, when we have our call, if not sooner, we'll really have to take a hard look at it.

On the debt covenant comments, regarding your ability that you could go without refranchising a single location and stay within your covenants for 2009, any thoughts on 2010 and beyond?

We haven't really guided on that.

Yes, we are not prepared to project out that far yet.

We haven't guided on that. But certainly, for '09 I think we have said repeatedly it's not an issue.

Great. And then last question on promotional activity, when you think about the increasing promotional activity in the casual dining space, do you think that this is purely a sign of the recession, or are these permanent menu changes? For example, do you think two for $20 will stay on at Applebee's beyond the recession as a reflection of change to competitive environment, or are these promotions really just a sign of the recession?

Well, I appreciate the question. I'm going to be shameless for about 30 seconds. When you have a rich and robust pipeline and you have lots of new menu items to promote, you have a unique opportunity, which we have that both brands to, throughout the year, give people reasons to visit, to differentiate our brand by new product quality and new items. And so I would strongly urge for all my years in this business, one would much prefer to introduce new products that bring new freshness and new appeal to the business as opposed to discounting your existing items.

So I'm in a rather unique -- as I said, I get to be shameless for 30 seconds -- a unique opportunity here with a rich, robust pipeline on both sides of the business, that throughout the year we can introduce new items. And we don't have to discount existing items if we don't want to. Certainly, I think a value message is important. But I think it plays a secondary role to our rather rich, robust pipeline for the balance of the year. I'm really glad you asked the question because it provides me sort of a unique opportunity to talk about what is uniquely different, I think, at Applebee's and IHOP.

Bryan Elliott, Raymond James.

I guess I wanted a couple of other items, but first I want to kind of beat the Applebee's margin question a bit, again. The guidance for Applebee's margin improvement remains, I believe, 50 to 150 BPS for the year.

Right.

And that is off a base last year of 11.7%?

That is correct.

And this goes back to a prior question -- I forget who asked it. But basically, people are looking at the 16% plus in the first quarter and wondering why we are going to see such sequential deterioration. And even if there's some transitional one-time improvement that got the margin up to 16%, I think that is still a bit confusing to me and to others why that big base in the first quarter won't sustain at an absolute level, forgetting the deltas year over year. But gee, we're at 16%. Why are we going to go back to 13%?

I think it's a fair question. I understand the concern. I think we are appropriately projecting caution, given this environment. And we really will feel better about having this dialogue, and you should ask all these same questions at the end of second quarter, of me. But I think we will be in a much better position to say, willing to revise or change our guidance. But gosh, with everything going on in this environment, I just think caution is the better way to project this.

Fair enough. Follow-up, too, I guess. Applebee's -- historically, the company stores going back for years, always -- the first quarter was always the strongest seasonal quarter, contrary to some other chains. Given that the mix of Company stores is changing with the refranchisings, is it possible that that seasonal impact actually increased, given the differential in the base now? I don't know if you have the data to look at that now, but that's just a thought that comes to my mind.

We'll take a look at that. There is no question that gift cards and gift card redemptions in first quarter play a big part of some of the increases at Applebee's, which is a good thing. But I'd have to go off-line and take a look at that, and if there's something worthy of it, we'll issue a quick statement. But I'd have to take a real hard look at that.

I guess, to answer your question in the short run, nothing pops out. We are all looking at each other saying no, I don't think so. But we'll certainly take a look.

Another question I have that relates to -- and I appreciate you giving us a cash flow statement this morning. The sale proceeds were listed at $8.8 million in the first quarter, proceeds of asset sales. Does that reflect anything other -- in addition to the five Albuquerque units?

It's primarily the Albuquerque units, but there's some other things in there. There are other -- a few things in there, besides Albuquerque.

But isn't that the majority of it, in Albuquerque?

It's the lion's share.

[Chris Sipple], Blue Lion Capital.

Can you talk about the benefit to the income statement from unredeemed gift cards in the quarter?

We don't disclose that level of detail, typically. What you will see is a buildup in Q4 on gift cards on the deferred side, and basically we recognize the revenue from the accounting perspective and collect the cash in Q1. But we don't give that level of detail. But it will affect the cash flow statement in both Q4 and Q1 as to variability, if you will, where the Q2 and Q3 are more stable, just because of how the sales are made, mostly in the last half of the year.

So it was a benefit in the first quarter?

A benefit from an income level from recognizing of revenue because you're collecting most of your cash in December, for example, and then people are redeeming it 30-60 days later. And most of it's flushed out or a lot of it's flushed out in Q1.

You will see a benefit to receivables in Q1 where you will see a buildup in Q4 and the opposite of the revenue.

One more question on the balance sheet. The assets held for sale of $8 million -- given you guys closed the refranchise of those 38 stores in the quarter, were there more stores put in that asset held for sale bucket during the first quarter?

There's a couple -- there's two remaining from New Mexico that are part of that number that will hopefully close in the next several months of the total New Mexico population. Five of the seven closed, and there's two outstanding. So that's part of that number.

And were there new stores classified as assets held for sale during the quarter?

No, I don't believe so.

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to pass the call back to Julia Stewart for closing remarks.

Operator, thank you. Well, I certainly appreciate the call today. I look forward to our next conference call, which is July 28, which we'll discuss second quarter and year to date. If you have any questions in the interim, you know we are always available. Feel free to give us a call. And have a great day. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a great day.