Dine Brands Global Inc (DIN) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the DineEquity first-quarter 2011 investor conference call, my name is Modesta and I will be your operator for today. At this time, all participants under a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a remainder, this conference is being recorded for replay purposes. I would like to turn the conference over to your host, many Greg Kalvin, Senior Vice President and Corporate Controller. Please proceed, sir.

Good morning and thank you for participating on DineEquity's first-quarter 2011 investor conference call. Today, I'm joined by Julia Stewart, Chairman and CEO, and Jack Tierney, CFO. Before I turn the call over to Julia and Jack, let me remind you of our Safe Harbor regarding forward-looking information.

Today, management may discuss information that is forward looking and involves known and unknown risks, certainties, and other factors which may cause the actual results to be materially different than those expected 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 10-Q filing with the Security and Exchange Commission. The forward-looking statements made today are as of the date hereof and assume no obligation to update or supplement any forward-looking statements. Additionally, on this call, we may river to certain non-GAAP financial measures. These non-GAAP financial measures are described in our news releases today, and are also available on DineEquity's IR web site.

With that, I'll turn the call over to Julia Stewart, Chairman and CEO.

Thanks, Greg and good morning everyone, welcome to our first-quarter 2011 earnings call. Let me begin by saying that we are very pleased with our first quarter results and believe that the cache of the IHOP and Applebee's brand is continuing to grow. In a highly competitive environment, we have more than held our own. I'm particularly pleased with Applebee's, where our revitalization strategies are now having a positive effect on every day parts, resulting in an upward revision to our full year same-restaurant sales outlook. And at IHOP, the team is working hard to optimize our marketing and menu strategies to re-energize the brand and build an insurmountable lead in family dining.

Well, let's begin our look at the quarter with a walk through our operating performance for each of the brands starting with Applebee's. Applebee's continues to generate momentum as our revitalization strategies take hold in meaningful ways. Notably, we have successfully maintained market share during these tough times for the category. Applebee's domestic system-wide same restaurant sales increased 3.9% for the quarter. This was our third consecutive quarter of positive same restaurant sales growth. And March, marked the tenth consecutive month that the Applebee's system out paced the competitive set.

The shift of the Easter holiday into the second quarter, provided 60 basis points of same restaurant sales lift for the quarter. We also saw improvement from extending business hours and promoting late night, making Applebee's the place for lunch with the new all-you-can-eat, soup, salad and bread stick combination starting at just $5.99. Appealing to guests with our refreshed two for $20, menu featuring new Cajun flavored items and continuing to build on Applebee's reputation for offering flavorful, healthy options with a new great tasting and under $5.50 lineup at the beginning of the quarter. Innovation has continued into the second quarter with the new Sizzling entrees like the Sizzling Smokehouse Chicken Stack. And we will introduce new items throughout 2011 in conjunction with our remaining menu updates, which will be rolled out in May, August and November, including the one we just rolled out in February.

Applebee's commitment to offer an outstanding experience to guests doesn't stop at the menu and an additional 43 restaurants were remodeled during the quarter. However, the physical remodel of an Applebee's is only one part of a larger revitalization program. Updating the restaurants alone won't drive improved performance; the accompanying staffing improvements, training, and marketing initiatives are also key. That said, the physical remodel is a critical part of the equation, and our plan is to have at least 27% of the domestic system remodeled by the end of the year. I'm pleased to report that we are ahead of schedule and that sales results from this initiative remain strong.

Moving on to re-franchising. In the first quarter, we successfully closed on the sale of 65 company-operated restaurants, in St. Louis, Missouri; parts of Illinois; and Washington, D.C. These markets are now in the hands of highly experienced, local operators and the transactions are further evidence of our steady migration to a fully-franchised system. Despite the challenging business environment, we continue to see interest in our remaining company operated restaurants. In keeping with our usual practice, we will only announce sales after we have signed an asset purchase agreement.

In summary, I will repeat what I referenced last quarter, Applebee's performance is clearly leading the competitive set. This is the result of the comprehensive brand strategies we have been employing since the acquisition, which center on innovation to deliver improved operations, a re-invigorated menu, enhanced marketing, and a refreshed look with a remodel. All these efforts are focused on differentiating the Applebee's brand and re-vitalizing the restaurant experience to offer guests a unique experience they just can't get anywhere else.

Turning now to IHOP, as you saw from this morning's release, domestic system-wide same restaurant sales were down 2.7% during the quarter. IHOP's performance was a reflection of two major promotions, one of which produced disappointing results while the other has performed more successfully. In January, we reintroduced all-you-can-eat pancakes limited time offer, which did not resonate with guests as we had hoped. That was followed in February, by chicken and waffles, a differentiated idea that has been well received.

In these tough economic times, we continue to grow system sales and maintain our leadership position in family dining. IHOP is emphasizing value and differentiation, but we need to better differentiate the customer experience to drive sales and regain momentum. The just completed market research has taken a holistic view of the brand and the findings will be incorporated into all aspects of our business - - operations, menu, ambience and decor, and advertising. We feel confident that many of the key insights can create a positive impact over the remainder of the year, and that by continuing to evolve our strategies IHOP will be in line our full year same restaurant sales outlook of positive 1% to negative 2%.

As we look to leverage the power of our brands outside the restaurants, this morning I have some exciting news to share with you related to IHOP licensing. We have just entered into a third party agreement that will put IHOP branded frozen breakfast products in approximately 3,000 Walmart stores across the country during the second quarter. The number of stores where IHOP's new line will be available is evidence not only of Walmart's confidence, but the power of IHOP's appeal with consumers. We see the program as a great opportunity to extend the reach and relevancy of the IHOP brand and look forward to updating you on this new development in the weeks and months ahead.

Now, in terms of operations, one of the areas we've made great strides in during the quarter was enhancing IHOP franchisee profitability. A good example is the work in progress with franchisees that focuses on better portioning tools. These new tools will deliver meaningful savings by ensuring less waste in the kitchen without compromising quality, freshness, or portion size. Our ongoing dialogue with franchisees during the quarter involved a series of well-attended regional business conferences where we shared our operational goals for 2011, the marketing calendar, and sales drivers for the year and system-wide training opportunities. These important sessions also included forums focused on growing brand loyalty, cost management, and IHOP's new voice of the guest survey tool.

In terms of expansion, franchisees opened 13 new IHOP restaurants during the quarter. And we are squarely on track both domestically and internationally with new openings for the year. We are also pleased to report a very strong opening in Guatemala, IHOP's newest country, where our franchisee is now planning a second restaurant, given the overwhelmingly positive response to the first. Our development pipeline remains strong and our franchise partners remain eager to open new restaurants both within the US and abroad.

One final note for the quarter that I would be remiss not to mention. IHOP's Sixth Annual National Pancake Day raised a total of $2.5 million in donations for Children's Miracle Network hospitals and other charities. That's nearly $8 million we raised for charities since IHOP began this national program. And we salute the brand, our franchisees, and our guests for their excellent work and generosity.

Now, before I turn the call over to Jack to take you through a more detailed financial review, I would also like to highlight the progress made with our capital structure. Through the use of re-franchising proceeds and free cash flow, we successfully reduced our debt by nearly 9% this quarter. And we remain committed to continue making progress to reduce debt. We were also opportunistic in the quarter by taking advantage of favorable conditions in the credit markets; successfully repricing our senior secured term loan facility to take advantage of lower rates. As we have been clear since the acquisition, and illustrated again last quarter, paying down debt has been and will continue and remain a fundamental priority.

With that, let me turn the call over to our CFO, Jack Tierney.

Thank you, Julia. I would like to start today's discussion by adding to Julia's comments about our recent financial events. Then, I will provide a review of the first quarter financial performance.

As we have previously communicated, the February repricing of our term loan facility will bear interest at LIBOR with a LIBOR floor of 125 basis points or a current rate of 4.25%. The one-time cash cost of the repricing was $12.3 million. The accounting treatment for these costs included a Q1 charge of $4.1 million related to third-party costs of the transaction, and an additional $8.2 million of capitalized costs. Included in the capitalized costs is a 1% soft call early prepayment fee, as required by the original term loan, and fees related to our increased revolving credit facility. The $8.2 million in cost will be amortized over the remaining lives of the term loan and revolver.

As we announced in early April, we signed a lease termination agreement on the Applebee's restaurant support center in Lenexa, Kansas which we will exit prior to September 30th, 2011. Until that time, we will continue paying our current rent of approximately $300,000 per month. For accounting purposes, roughly $140,000 per month reduces the principal portion of the existing $35 million financing obligation with the remaining $160,000 charged to interest expense in our P&L. The related building asset will also continue to be depreciated through the exit date. The lease termination will reduce our total debt by approximately $34 million at the exit date.

During the first quarter of 2011, we recognized a $4.5 million non-cash impairment charge related to furniture, fixtures and leasehold improvements that will remain in the current Lenexa facility after we vacate. Additionally, in the second quarter, we will recognize a $21 million pre-tax charge. This charge represents $20 million in cash termination fees to the current building owner and $1 million of third party closing costs. As a result of this charge, we will realize cash tax benefits of approximately $8 million this year. Under the terms of the agreement, we expect the cash lease termination fee to be paid during the second half of 2011.

During the first quarter, we reduced our overall debt by $179 million. This decline was comprised of $85 million in cash proceeds and reduction of financing obligations from the sale of 65 Applebee's company operated restaurants and $94 million from cash on hand and free cash flow. As at the end of the first quarter, our senior bank debt totaled $734 million and our outstanding bonds totaled $793 million. In the first quarter of 2011, we reduced bank debt by $110 million, and bond debt by $32 million. Under the term loan indenture, we have the ability to purchase and retire up to $100 million of junior debt inclusive of the bonds.

Now turning to a discussion of our first-quarter 2011 financial performance. Net income available to common stockholders was $28.1 million, compared to $12.8 million in 2010. This increase was primarily due to gains on the sale of 65 company operated Applebee's restaurants, lower interest expense due to our refinancing, and repricing, elimination of the series A preferred stock, and a lower effective tax rate. These items were offset by higher extinguishment and debt modification costs, impairment charges due to the Lenexa move, and lower profit due to the impact of the sale of 148 restaurants during the last two quarters. Our first quarter adjusted net income available to common stockholders was $26 million, compared to $18.7 million last year. This increase was primarily due to the elimination of the series A preferred stock, and a lower effective tax rate, offset by the impact of the sale of restaurants.

Applebee's company operated restaurant sales declined $70 million in the quarter. This was due primarily to the franchising of Applebee's company operated restaurants in the last two quarters, and the closure of 7 restaurants in 2010, partially offset by an increase in company same restaurant sales of 0.7%. Applebee's company operated restaurant margin was 15.3% in the first quarter, compared to 14.8% for the first quarter last year. The favorable comparison was primarily due to the re-franchising of company operated restaurants, the closure of 7 company operated restaurants, a 1.9% carry over increase in menu pricing, and favorable food and beverage costs, partially offset by a decline in guest traffic and unfavorable facility costs.

First quarter 2011 G&A expenses were $38 million, versus $40.4 million last year. We expect full year G&A to be in line with our guidance of $157 million to $160 million with the lighter Q1 amount being attributable to timing this early in the year. First quarter 2011 interest expense declined $8.7 million primarily due to lower non cash interest expense from our refinancing. We reduced full year interest expense guidance by $6 million, as a result of repurchasing $32 million of our bonds, reducing debt earlier in the year than planned, and the impact of first quarter re-franchising activities on financing obligations.

Our effective tax rate for first quarter 2011 was 28%. This rate was lower than our expected full year rate due to a benefit from a favorable first quarter IRS ruling related to the timing of tax payments on gift card sales and redemptions. For the remainder of 2011, we expect our tax rate to be approximately 36%.

Cash flow from operating activities increased $20.2 million, to $50.5 million primarily due to the timing of cash interest payments on bonds, and cash tax benefits received in Q1 from Q4 2010 refinancing. These benefits were partially offset by the impact of re-franchising and higher gift card redemptions in the first quarter. Our free cash flow guidance remains unchanged, but included in this guidance is the $21 million in lease termination payments. Off setting these payments are $16 million in favorable tax benefits, consisting of $8 million for the write off of certain refinancing costs as a result of the Q1 repricing and $8 million for the second half lease termination payments. We will also have favorable interest expense and higher comp sales outlook for Applebee's.

Overall, we are very pleased with our first quarter results given our significant debt reduction and our future ability to de-lever our balance sheet when exiting the Lenexa facility and our solid business operations. Now, I will turn the call back to Julia.

Thanks, Jack. And before we take your questions, I would like to close with the following thoughts. During the first quarter we delivered against the strategic priorities we established over 3.5 years ago when we transformed the company by acquiring Applebee's and creating DineEquity. To date, we have paid down $776.4 million in debt, or 29% inclusive of retiring our series A preferred stock. We have refranchised 258 Applebee's company operated restaurants. We continued to revitalize Applebee's, as we did with IHOP almost a decade ago, by using our holistic approach to brand management, looking at marketing, menu, operations and remodel initiatives to drive growth across all-day parts.

At IHOP, we're emphasizing innovation and strong value positioning to build affinity with guests and we remain committed to using free cash flow, to pay down debt through the end of 2012. These are all initiatives we have delivered on consistently, and we will continue to do so. As we do, we will leverage the resources and expertise of our scalable, centralized support structure to create exciting new opportunities for growth for our shared services platform. With that, Jack and I would be pleased to answer any questions you might have. Operator?

(Operator instructions) Chris O'Cull; SunTrust Robinson. Please proceed.

My first question relates to Applebee's same-store sales. Julia, it appears that the franchise comps have been much stronger than the Company comps the past few quarters. What do you think is causing that?

Great question. Well, I know that some of this is cyclical. If you go back three or four years, there was a time when the Company was better than franchise and so some of that is timing. I do think, I hate to comment on the weather. I really don't like to ever talk about it. But this is one of the few times where you may hear me say, because the large majority of our Company restaurants are and were in first quarter in Michigan and in New England, we really did get really hurt with the weather. I'm not saying that's the total reason. I do think that, you know, part of our reasoning behind selling Company restaurants is in part so that we are largely franchise and not dependent on some of the ebbs and flows with the P&L. But I think some of it is timing and some of it is where we are located and some of it is the reality that, you know, we are getting out of that business. But, there's no question first quarter really did hurt us with the weather.

Okay. Fair. And then another question on IHOP. On the last call, you mentioned the IHOP team was going to be conducting some consumer research to determine why sales have softened. Will you share some insights into how difficult you think it's going to be to address the softening sales?

Well, the segmentation research, which was what I was speaking of, is completed. I love the research, much the way we did it with Applebee's, because it does speak to all the various consumer segments in depth, asks a variety of questions that really gets at, not only what they like and dislike, but, what they would like to see from us. And that's the work that we are incorporating as we speak.

Now, it isn't all going to happen overnight, and I don't want to lay out my playbook for the competitors. But what I can tell you is that the research was incredibly insightful. We can't wait to begin working on it and evolving our current strategies. And as I said in my prepared remarks, in operations, menu, ambience and decor, and advertising. We have some unique opportunities.

I think the reality is you will see that. I guess the best part of the research is there isn't anything I saw in that research that we can't affect, or that we can't fix.

Great. Thanks. You're welcome.

Bryan Hunt; Well Fargo Securities. Please proceed, sir.

Good morning. This is Kevin standing in for Brian.

Hi, Kevin.

Can you talk about the quantity versus check at Applebee's? Traffic versus check, I'm sorry.

Traffic versus check. Well, we don't ever give detailed breakouts. But the one thing I will tell you is for all of first quarter, the franchise system was very positive in traffic and in sales. And think of it as a nice balance between check and traffic.

Okay. And I know you took menu pricing at the end of 2010, so that I'm sure that played a roll in the average check growth. But have you noticed consumers trading up, or the mix improving as consumers order that extra appetizer or dessert or drink?

So let me clarify. The terms I just described to you about check and traffic, was for franchise. Right?

Yes.

And that increase that you talked about in pricing, that 1.9% increase, that was from 2010 in the Company restaurants and it's a carry forward. Right? We didn't take pricing in first quarter in the Company restaurants. I think I mentioned in my prepared remarks we have four menu roll outs in 2011. Those provide opportunities if you want to take pricing, you can take it during one of those four roll outs. We did not take any pricing on the Company restaurants in that first roll out in February.

So any price increase right now is just a carry over from 2010, and we do see with check and traffic, not to the degree we are seeing with franchise, but we do see some of that same mix on the Company side. But there's no question that part of that carry over is affecting the Company operations in terms of average check.

Okay. Thank you. And we started to notice that some of the other casual dining operators are rolling out discounting again. Perhaps in response to higher fuel prices. Do you have any plans to expand your value offering through these two products that you are offering on the menu?

I love this question, because, again, it reiterates what we have been doing now for a couple of years, which is we have been engineering our products so that when we put them on television, or we put them on the menu, we make money and our franchisees make money. So we don't have to discount existing products, because everything that we are putting on our menu or our television is making money. So the two for $20, the $5.99 lunch promotion, all of those items, the Company makes money and the franchisees make money. So we do not have to discount existing items. But we will continue to emphasize value and in the products that we are doing on television and in our menu. The only thing I can speak to is the fact that we have got such a robust pipeline, we don't need to discount existing products.

Great. Thank you for your time.

Bryan Elliott; Raymond James. Please proceed.

Good morning. I just wanted to touch base on the remodel program which you mentioned, Julia in your prepared remarks. Just wondering if you could give us a sense of sales improvement from the remodel in the 3% to 5% range. I'm just wondering if you are seeing that? If you looked at the systemwide comp gain, how much you might attribute specifically to the remodel.

Great question. The big picture is, the good news is, I think I said at the end of last year, we thought we could get to 25% of the system being remodeled by the end of this year. And as you heard from my prepared remarks, we are now at 27% and climbing. So, the franchisees have really taken hold of this remodel program and going at a much faster clip than we anticipated. So that's great news.

In terms of the remodel program itself, with 40 some restaurants remodeling this quarter, it's not going to impact the chain of our size. But the individual restaurants are seeing some terrific comp sales increases. And it's kind of a range if you will, and I think I mentioned that before in the 3% to 5% range, pre-post net of control. Obviously there are extenuating circumstances where we are seeing even higher than that, even in our own company stores. But on average, I think 3% to 5% pre-post net of controls is a good number. And again the best news is the franchisees are exceeding their targets and wanting to do them faster and sooner because they like what they see, which is really great news.

And so on, a trailing 12 basis, the increment of what has been remodeled now through end of Q1 versus end of Q1 last year, might be, what, 15% or so of the system? Or a year on year, a 12 month basis?

I would have to check on that. It sounds about right, Bryan, but I can check on that.

Okay.

I think we will be done in a couple of years, which is even better news. But, I would say closer to ten, but I can check it for.

Okay. All right. And then on the licensing, just curious, breadth of introductory, you know, product offering?

It's eight SKUs. It's all in the frozen category. You should be able to get them at your local Walmart there in Atlanta, probably within the month.

Okay. And all frozen breakfast items?

Yes. All frozen breakfast, all eight SKUs are frozen breakfast, at this point. Obviously, we will keep a mark on how well we are doing and we may include other items. But right now, working with a co-packer we are with the eight SKUs.

And last question for Jack. Just clarifying the free cash know guidance, the Lenexa cash outflow to terminate the lease, I just wanted to clarify, I believe that was not in prior free cash flow guidance and now is. Is that a correct recollection?

Yes, that's right, Bryan.

Yes. So essentially, that's an increase in the cash flow guidance obviously, correct?

Well, --

I'm finding that I'm a little slow. Sorry.

You're right. That was not in the guidance. That was $21 million. Also, not in the guidance was about $16 million of tax benefits related to the Lenexa payment, as well as the repricing, that was not in the guidance. So that makes us about $5 million short. And, you know, we do have better interest expense guidance, as well as increased comp sales at Applebee's after tax. We are kind of saying the guidance remains unchanged.

All right. Thanks for that clarification.

Reza Vahabzadeh; Barlcays Capital.

Good morning. On the same store sales front and the consumer specifically, with the record gasoline costs and the food cost inflation, recognizing the environment has not been easy the last year or two either, is there a different approach than these three taken going forward? Is there increased potential volatility in same-store sales, just any of your thoughts on that front would be appreciated.

Great. Well, on the gas prices, I do get asked that a lot, and we are just not seeing that as a major factor in either of the brands. And in the commodity increases, we didn't see them in first quarter. In fact, as you heard from Jack's comments we had favorable food costs at the Company restaurants. So, whatever commodity costs that we might see increasing this year, we can price to cover them in both brands. We can certainly cover inflation with our brand cache and the work that we have done.

So I'm cautious in terms of saying that it won't have an impact. It just hasn't to date. And I think, frankly, because our strategies are so embedded into differentiation and value creation, we just don't need to do anything differently. I think it's steady as she goes with both brands focusing on value and differentiation. I'm pleased with that and clearly it does help us that at both brands we have the extended pipeline in terms of the new food products and items. That's a big competitive advantage for us, because we just don't have to go in and discount existing items.

As far as same-store sales for Applebee's, were there day parts that you were particularly pleased with, or maybe not so pleased with?

All day parts are growing and I couldn't be more pleased with lunch, dinner, snack, and late night at Applebee's. It's sort of hitting on all cylinders.

Okay. And then lastly, franchisee margins, are they holding up as well considering seemingly they have taken less pricing at Applebee's and the costs are obviously rising.

Yes, we have a little bit of insight into their P&Ls and they fall very similarly, not completely, but similarly to the Company operations. So in first quarter, many of them didn't see the kind of cost increases on the commodity line, just as Company ops didn't see it as well, and I think they are poised for if they need to take pricing this year, they will.

Certainly with four menu rollouts in 2011 for Applebee's, they do have an opportunity throughout the year to take pricing, but right now, they are kind of holding the line and their margins are healthy and doing well, but, again, I think we are all poised if need to, and that's the best news of the day. Our research says if we need to, we can, either at the Company ops or the franchise side.

Thank you much.

Thank you.

Destin Tompkins; Morgan Keegan.

Julia, most of my questions have been asked but another one on sales. Before, I think on the last conference call and this may have been for the fourth quarter, but you had kind of described sales as being lumpy and bumpy. I'm just curious, when maybe you saw that change and, you know, one of your casual dining tiers had mentioned that the sales in the bar and grill segment had taken a turn for the worse as gas prices started to rise. You know, did you see that? And, I mean, is there any correlation there that you have noticed through the first quarter?

Yes, let me speak to the brands individually. On the casual dining side, in other words on the Applebee's side, as I mentioned earlier, every month, every day part, we're seeing great growth. So, our competitive set may be in a different place than we are, but we feel really good about our results. So much so that we raised our guidance, as you know, for Applebee's. So we did not see those changes.

On the IHOP side, I think I was candid with, it was a bit of a tale of two halves in first quarter, with all you can eat not performing to our expectations or certainly as it had historically. And chicken and waffles performing much better. So in family dining, we are obviously still leading the way and still doing well. I always like to remind people that on the IHOP side, we had double market share in 10 years. And we've grown the average restaurant volume almost 30%. We had a long history of success. I don't want one quarter to make or break us, but I feel really good about the work we are doing. No, I wouldn't say we've seen what you may have heard from others.

And then on the licensing agreement at IHOP, is there any detail you can give us on the terms to help us with the modeling as we think about that?

We haven't disclosed any of those terms. I do think later in the year, when we've got more information under our belt and more sales, we would be more than happy to disclose, I think to all of our investors and analysts, a little more detail for your modeling. I think it's probably too soon to say anything at this point, but I promise later in the year when we have more information, we'll share that appropriately.

Thank you.

Sure.

John Ivankoe; JPMorgan. Please proceed.

Can you give us a little bit more color on your COGS in the first quarter. I presume a lot of that came from the co-op and how that may have offset things that may have been logical cost increases like beef, anything grain base, and vegetables were higher for a lot of people. And how that COGS benefit may carry forward in 2011. In other words, as co-op and perhaps other benefits just so powerful that it all sets the commodity pressure that everyone else is talking about.

Yes, the way you should think about it is in the first quarter menu mix and the fact that we just had better costs of goods is what probably more than anything, impacted the fact that we were slightly favorable on the Company side. We had guided at the beginning of this year, that IHOP's commodity costs would be about 1.5 point negative and IHOP would be about 3% negative. I think we still feel that that's the case. It might be slightly worse than that, given everything that's been happening. But like I said, we have plenty of room to price with inflation to cover those costs. It's not a terrible concern. I think the co-op does gets credit for doing a nice job on forward buying, and putting things under contract, and looking at wherever we can make particular deals to do so. But, like I said, we've not seen that as being extraordinarily an issue. And certainly first quarter, it just didn't come to fruition. I think we may see more of that in the second to the fourth quarter.

Okay. And secondly, and it's just a small question maybe, your share count for the year, your guidance, I think if I read it was [$18.3 million] and you are higher than that in the first quarter. Are you buying back a decent amount of stock in the year?

John, this is Jack. Essentially the $18.8 million includes the series B preferred. And our guidance does not include that, because whether the series B preferred is in, or out, has very little impact on the EPS. Because if the share count is in on the series B, then the accretion is in, and if it's out, the accretion is out as well. So when you run the math, whether it's in or out, has very little impact on EPS. And so our guidance always is without the series B in there.

Okay. All right. Yes, I always forget that. Thank you for clarifying.

No problem.

Carla Casella; JPMorgan. Please proceed.

Did you say who is manufacturing the product, the IHOP product, for Walmart for you?

We did not. And, again, I feel very comfortable in providing a lot more insight and detail towards the end of the year. But think of it as a large co-packer.

And you say that the roll out is starting now. But we will know more information by later in the year?

Yes. I would say in the next 30 days, my understanding from Walmart and the brand, is we will be fully on shelves in 3,000 of the Walmarts. So if you go today, you may not see it, but I promise you'll see it in the next 30 days. I think the brand is doing a major kickoff with consumers next week.

And is this an exclusive with Walmart?

It is not, interestingly enough. It is not.

Okay. Great. And then so you will get just a royalty on the product, I assume?

That is correct.

Okay. Great. Thanks.

I think it has a wonderful opportunity to add to the brand. I'm very excited about that.

Great. Thanks. Thanks, Carla.

Peter Saleh; Telsey Advisory Group.

Give us an update on the late night initiative, what percentage of the system is open until late night? Midnight or later, and then alcohol mix, are you seeing that moving up at Applebee's?

The system that's open past midnight really hasn't changed, that number, and I'm looking for the exact number. But that did not change a lot in first quarter. I will check the number, but it didn't really change. It's pretty much the same in terms of the growth we are still seeing growth at all day parts, including late night. And the mix was pretty much in the first quarter as the fourth quarter. I think on the last call it was 13.8% and that's what it was last quarter. Not a lot of change, but certainly nice growth, just like the other day parts.

Are you seeing any change at all in the two for $20 in terms of mix?

No, when we advertise on television, it goes up a 2%. When it's not on television, it stays right around 18% or 19% menu mix on the menu. And then when we go on advertise, it goes like 22% or 23%. So that's staying pretty constant as well. It's just that steady growth in all day parts.

And then my last question, are there any regional trends that you can call out?

No. As I said, the one thing is obviously first quarter was tough weather-wise on the New England states. Frankly, for everyone. Our franchisees, our Company stores, and both brands, you know, first quarter was tough in the heavy hit snow areas. I'm thrilled that it's May in America. But that's really it. Everything else has been pretty steady.

Great thank you.

Sure.

Bryan Elliott; Raymond James. Please proceed.

Thanks. It's my understanding that it's May across the globe and I wondered if you could update us on the international expansion, particularly Applebee's.

Oh, you are so funny. It is May everywhere. What was I thinking? International is doing a nice steady growth. I think I mentioned before, both brands are making their development growth marks internationally. Franchisees are excited about developing in both brands. We are seeing nice steady progress and growth on both sides, so that business is going well. There's no question that South America has been particularly successful for Applebee's, as has the Middle East for both brands. We have got a lot of interest. So I think as we get bigger internationally, we'll give more in-depth. At this point, we are small enough that we are just seeing that steady growth, but think of it as positive.

Thank you.

Sure.

Chris O'Cull; SunTrust Robinson. Please proceed.

Jack, I just had a follow-up regarding the model. It appears there's several one-time cash payments and tax benefits, could you give us some guidance on what to expect in terms of changes in networking capital for the upcoming quarter?

Chris, the way I would think about that in the quarter, you know, there's not going to be much change. I mean, most of this stuff we talked about, the $21 million payment to get out of the Lenexa lease is going to be made in the second half. The tax benefits for that payment are in the second half. Really, the only piece of tax benefits that we would get in the second quarter is part of the $8 million related to the repricing and I don't know exactly how much that will be. Does that help you?

That helps. Maybe I can go offline with some of the questions. There's been some swings in the networking capital and I understand refranchising plays a factor in that. Maybe talk a little bit about, if we are not refranchising and once we get through some of these refinancing tax benefits, what should your changes in net working capital look like on annual base in addition.

It would be minor. It would be absolutely minor. If we are not refranchising and we don't run the Company stores, there's not much that's going to change in our working capital. It is going to be a little cyclical with fourth quarter having the gift card receipts. And then, you know, we start pleading that out in the first quarter. But working capital changes, when we model it internally, ex-the restaurants is very minor changes.

Okay. Great. Thanks.

Okay.

Micah Kaplan; Bank of America. Please proceed.

Hi, Jack. I don't know if you have an exact number, but last quarter, you gave us the [324] as a trailing pro forma adjusted EBITDA number. Is it safe to assume that that's crept up a little bit with the performance this quarter?

You know what, that number is in our press release.

Oh, is it?

Yes. Let me just grab it.

No, I'm sorry. I didn't realize that was adjusted for all the asset sales. And then just on the bottom buybacks, you borrowed $2 million, $30 million in the this quarter, just given the current levels. How do you think about incremental buybacks there from a cost of capital standpoint?

Essentially, you know, we look at it as currently, if we paid down bank debt, we save 4%. If we pay down the bonds, yield to maturity is 7.5%. And as long as we have a view that interest rates are not going to dramatically spike, it looks like bonds would be something that we'll keep our eye on over the year.

Okay. And then just to clarify on the trailing number in the press release. So that is adjusted for all the asset sales or that's just on a reported basis?

No, no, I'm sorry. That's just the trailing.

Okay. Appreciate it.

Okay.

At this time, there are no further audio question. I would now like to turn the call over to Julia Stewart for closing remarks.

Well, thanks, operator and thanks all of you for joining us. The next reporting date will be for the second quarter and that will be August 2nd. So put that on your calendar. In the meantime, if you have any questions please feel free to call Jack or myself. We are here for you and we thank you for your time.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.