Dine Brands Global Inc (DIN) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the DineEquity Inc. fourth-quarter and fiscal 2011 investor conference call. My name is Keith, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later on, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes.

And I would now like to turn the conference over to your host for today, Mr. Ken Diptee, Executive Director of Investor Relations. Please go ahead, sir.

Good morning, and thank you for participating on DineEquity's fourth-quarter and fiscal 2011 and 2012 guidance investor conference call. Today, I am joined by Julia Stewart, Chairman and CEO, and Tom Emrey, CFO.

Before I turn the call over to Julia and Tom, 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, 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 press releases, as well as in our most recent 10-K filing with the Securities and Exchange Commission. The forward-looking statements made today are made as of the date hereof, and assumes no obligation to update or supplement any forward-looking statements.

Additionally, we may refer to certain non-GAAP financial measures. These non-GAAP financial measures are described in our press releases today and are also available on DineEquity's Investor Relations website.

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

Thanks, Ken, and good morning, everyone. As you know, we issued two press releases this morning for our earnings results and guidance. We would like to use this call as an opportunity to provide additional commentary on the press releases and further amplify those items that we feel deserve additional attention.

After we've provided some color on this morning's news, we will open the call up for your questions.

We are pleased with our solid fourth-quarter and fiscal 2011 performance. Since bringing our two iconic brands together, we have remained focused on delivering against our financial and operating priorities.

One, since the Applebee's acquisition in 2007, we have reduced total debt by approximately $719 million, or 29%. Two, we've re-franchised 132 Applebee's Company-operated restaurants in 2011 and an additional 17 in the first quarter of 2012, bringing the total to 342 Company-operated restaurants since the acquisition, now making DineEquity 95% franchised.

Three, since 2007, we've reduced G&A by $38 million, or 19%. And four, we've maintained annual free cash flow in excess of $100 million since fiscal 2009.

In 2011, we made significant progress in delivering value to our shareholders. Excluding the one-time tax benefit for 2011, we reported adjusted EPS of $4.29, achieving the most optimistic end of our full-year guidance range.

We also continue to progress with our ongoing efforts to deliver value to consumers, driving menu innovation and advancing operational excellence to enhance the guest experience. Our focus on these areas will continue throughout 2012. There is more that can be done.

Now let me provide some details on the performance of both brands, and let's start with Applebee's. We are pleased with the results at Applebee's. Domestic systemwide same-restaurant sales for the fourth quarter returned to positive territory. This marks sequential improvement from the third quarter of 2011. 2011 also marked the first full year of essentially flat comp traffic since the acquisition of Applebee's.

To drive sales, we are continuing with our efforts to revitalize the brand. Late-night continues to contribute to our success, and we are seeing ongoing positive impact from the initiatives we started in 2010.

During the fourth quarter, Applebee's alcohol sales mix reached 15%, which is an all-time high for the brand. Our guests are consistently telling us that Applebee's is a great place to be with family and friends. This reflects the guest affinity for the Applebee's brand as a neighborhood destination. This continues to be a key point of differentiating Applebee's.

And during the fourth quarter, our successful sizzling entrees platform and value-oriented 2 for $20 campaign helped to drive solid results. The sizzling entrees campaign, featuring our double-barrel whiskey sirloin, proved to be a winner with guests.

Another aspect of our revitalization is the remodel program. I am pleased to report that 81 Applebee's restaurants were remodeled during the fourth quarter, bringing the total number remodeled in 2011 to 351. When combined with new openings in previous remodels, 583 Applebee's restaurants, or 31% of the domestic system, have the new look. The program will continue at a rapid pace in 2012.

We continue to utilize the exciting new physical appearance of our restaurants as an opportunity to focus on improved service and create a unique dining experience for our guests. From a pure sales perspective and [pre-post net of control], remodeled restaurant experienced a mid-single-digit percentage increase on average. The total impact of the remodels to 2011 domestic system same-restaurant sales growth was approximately one third of a percent.

Importantly, 95% of our restaurants are now franchised. Our highly-franchised business model requires less capital investment and reduces the volatility of the Company's cash flow. In the fourth quarter, we successfully completed the sale of 66 Applebee's Company-operated restaurants in the New England area. In January of this year, we also refranchised 17 Company-operated restaurants located in the mid-South area. As of today, we have 137 Applebee's Company-operated restaurants remaining to sell. In addition, we will keep 23 restaurants in Kansas City proper as a test market.

We remain very selective in the process and hold buyers to a strict set of criteria to ensure that they possess significant operating experience, are financially qualified and share our vision for revitalizing the Applebee's brand. As we previously stated, we will only pursue transactions that makes sense for shareholders.

Now, I would like to take a moment to highlight our Applebee's gift card sales, which increased 6% to $300 million in system sales in 2011, including $215 million generated from our third-party distribution relationships. Gift card redemptions were roughly 6% of system sales in 2011. And lastly, Applebee's celebrated Veterans Day in the fourth quarter with its third annual national event, with more than 1 million veterans and active-duty military enjoying a free entree with friends and family in one of our highest traffic days of the year. We are privileged to continue playing a large part in this national day of remembrance and respect.

Now let's turn to IHOP. Clearly, IHOP is still not where we want it to be, but we are seeing some progress. Although fourth-quarter domestic systemwide same-restaurant sales declined 1%, it marked the second consecutive quarter of improving sales. As always, a well-communicated value message remains a high priority. We recognize that we must continue to be innovative and creative, enticing -- with creative, enticing offerings that satisfied the value-oriented guest.

To that end, we launched our seven for $7 menu in the first quarter of 2012. The menu features a variety of great meals for just $7. This offering provides guests with a unique IHOP experience at an exceptional value.

We are committed to delivering a strong value proposition and are continually performing tests to ensure a pipeline of new and exciting items. Notably, IHOP achieved record gift card sales, supported by an increase in distribution outlets carrying IHOP gift cards, which are now available through approximately 70,000 retail outlets. For the fourth quarter, gift card sales totaled nearly $20 million, of which approximately $13 million were generated from third-party distribution relationships. This is up sharply from $7 million in third-party sales in the fourth quarter of 2010. For the full year, gift card sales rose 51% to $32 million, demonstrating interest in the brand.

We are currently implementing the Plan for Success initiative aimed at improving IHOP restaurant operations, enhancing menu offerings and driving traffic. We are doubling our efforts to create unique and differentiated menu items that only IHOP can provide. Additionally, we are transitioning our promotional platform away from the limited time offer strategy to using featured items for longer periods of time.

We are also focused on creating new advertising campaign and increasing our presence in digital and social media.

In addition to our marketing efforts, we have tested and are launching new programs to improve our operations. One example is our Service Excellence program, which has been developed in conjunction with our franchisees. The program refocuses franchisees' teams on the key themes that guests have told us they want from IHOP -- attentiveness, speed of service and better teamwork. Early test results from the program have yielded positive feedback from guests. All restaurants are expected to be on the new program by June 2012.

We are deploying more resources to work closely with our franchisees to ensure they are meeting our aggressive standards. We have a redesigned operational evaluation program that raises the bar on operating standards. Our franchisees are embracing this tool as a great way to calibrate and recalibrate their teams and improve performance.

We believe that the steps we are taking will help differentiate IHOP and continue to improve results over time. With that, I would like to turn the call over to our CFO, Tom Emrey, for a discussion of our financial results.

Thanks, Julia. I would like to highlight a few key points of the press release you've read this morning. In fiscal 2011, we reduced our debt by over $300 million, or 15%. For the full year, bank debt was reduced by $162 million, bond debt was reduced by $59 million, and financing and capital lease obligations were reduced by $88 million. In the fourth quarter alone, we reduced debt by $116 million.

Our year-end leverage ratio of 5.3X underscores our commitment to deliver shareholder value by generating substantial free cash flow at a lower debt. As a result of paying down debt, our 2010 refinancings and the debt repricing in early 2011, we were able to reduce interest expense by $39 million in 2011 from the prior year.

We remain focused on our operating priorities and generated free cash flow of $108 million in 2011. We believe this emphasizes the strength of our highly-franchised model, and we will continue to use this free cash flow to pay down debt and strengthen our balance sheet.

For fiscal 2011, adjusted net income available to common stockholders was $78 million, or $4.29 per diluted share, excluding a one-time tax benefit, compared to $62 million, or $3.50 per diluted share, in 2010. The year-over-year increase of $16 million was primarily due to the redemption of the Series A perpetual preferred stock in 2010, lower cash interest expense and lower income taxes, partially offset by lower segment profit due to re-franchising.

Now I would like to elaborate on the one-time tax benefit I just referred to. The benefit was recorded as a result of an analysis of our legal and operating structure which was performed in 2011. As a result of eliminating our securitized debt, we were able to more clearly align our operating activities with our legal entity structure. This action during 2011 resulted in current-year state tax savings and is expected to result in additional future state tax savings. This analysis was completed late in the fourth quarter of 2011, so our effective tax rate for fiscal 2011 was 32.6%. Including the one-time tax benefit, our fiscal 2011 tax rate was 28.4%.

With respect to Company-owned restaurant margins, for the full year 2011, Applebee's Company-operated restaurant margin was 14.5% compared to 14.8% in 2010. The decline was caused by higher labor and payroll expenses, commodity inflation and incremental investment in local advertising. These items were partially offset by the refranchising of lower-margin restaurants, the realignment of our distribution centers and a higher average guest check. And now I will turn the call back to Julia.

Thanks, Tom. Let's look at our performance expectations for 2012. We believe that the economy will continue to influence consumer discretionary spending. We recognize that differentiating our two iconic brands and offering value must remain paramount. Our guests return for the quality food, excellent service and great ambience.

Applebee's is the leader in casual dining, as measured by domestic systemwide sales. Our goal is to attain the highest marks in guest satisfaction, improve same-restaurant sales and traffic and be the franchisor of choice. We have a strategy in place and are focused on leveraging a combination of initiatives to achieve these objectives.

Through a more comprehensive approach to marketing, menu innovation, operational improvements and our remodel program, we believe that Applebee's is poised for long-term success. These factors give us confidence that Applebee's will deliver domestic systemwide restaurant sales in the range of 0.5% to positive 2.5% in 2012. And from a development perspective, Applebee's franchisees are expected to build between 30 and 40 new restaurants this year, the majority of which are projected to be opened in the US.

At IHOP, we have seen sequential improvement in domestic systemwide same-restaurant sales in the previous two quarters. Sales are not where we want them to be and there is still additional work that must be done.

To that end, we will continue working with our franchisees on improving operations, moving rapidly on product testing and innovation and ensuring we have the right value message. We are focusing on a menu pipeline of new ideas that are relevant to the brand and compelling to our guests.

Our culinary platform, which we discussed with you last quarter, continues to influence our work on signature items, health and wellness offerings, while simplifying the menu.

These initiatives will be complemented by ongoing consumer research. We believe these factors will position IHOP to deliver domestic systemwide same-restaurant sales in the range of negative 1.5% to positive 1.5% in 2012.

Turning to development, IHOP franchisees are expected to build between 45 and 55 new restaurants this year, the majority of which are projected to be opened in the US.

We continue to strengthen our value proposition, innovation and service platform to regain momentum at IHOP.

So as a recap, 2011 was a solid year for DineEquity, in which we met or exceeded all of our performance metrics. And while we still have work to do at both brands, I am pleased with the progress we have made. We leveraged our shared services model to manage G&A and refranchised 132 Applebee's Company-operated restaurants, which allowed us to significantly reduce our total debt.

Looking ahead to this year, I am optimistic about our long-term strategy to drive shareholder value. We expect to use the majority of our free cash flow to pay down debt.

With that, Tom and I would be pleased to answer any questions you may have. Operator.

(Operator Instructions) Chris O'Cull, SunTrust Bank.

My first question is just a point of clarification. Was the 6% increase in Applebee's gift card sales, was that for the year or during the holiday period?

That was for the year, Chris. That was the whole year.

Okay, what was the holiday period, if you looked at the fourth quarter?

I don't know if I have that at my fingertips.

I assume it was greater than 6%.

Chris, I'm going to have to get back to you. I do not have that my fingertips.

Okay. That's fine. And then Julia, would you maybe provide us an update on the progress IHOP is making on some of the service or guest satisfaction issues? Maybe just the number of stores that have already made some changes, what those changes were.

And then as a follow-up, how do you plan to monitor changes in guest satisfaction more closely going forward at IHOP?

Yes, that's a great question. So right -- as I said, the entire IHOP system will be on this new service platform, if you will, come June 2012. So right now we've got, gosh, a couple hundred restaurants we are seeing some very good progress in terms of speed of service, guests feeling like there is a teamwork going on. We really are making some progress.

And so with the entire system on it by June, I think it is more of a pull-push strategy. Feel very good about that. But as you know, there are many pieces to that service piece. And so we are clearly monitoring them with the raising of the bar in terms of the amount of voice-of-the-guest work that we are doing, the consumer insights work we are doing, additional proprietary research, adding resources. So we are throwing a lot at it, if you will, in terms of both resources and support to the franchise community, and actually looking at the results.

So when you add it all up, we feel pretty good about where we are. I think that is a great question come the next investor call to see about the progress that we've made. Because by then, the large majority of the system will be on it.

Okay, fair enough. One last one. Are you seeing any changes to the composition of same-store sales at IHOP following the new under $7 menu (multiple speakers)?

It is probably too soon to tell, Chris. I mean, that's the real honest answer is -- we had some initial good results. But remember we were only on television with the Seven for $7 menu for three weeks, and then we went right into Lorax. So, again, that is probably a better look-see come midyear.

Okay. Fair enough. Thanks, guys.

Peter Saleh, Telsey Advisory Group.

My question is on the alcohol sales at Applebee's. It sounds like your 15%, all-time high. Could you just give us a little bit more color in terms of what is driving that? Is it all driven by late-night or are you seeing more alcohol sales at dinner as well?

It is both. It is both literally during the dinner daypart, as well as the late-night daypart. We are just seeing more people purchasing a drink. If you think back -- gosh, it's probably been a couple years ago -- when we talked about the percentage of people that were either drinking water or not ordering a drink; today, with our suggested selling and the programs we've put in place, we are seeing a lot more people even having that one drink.

Are you starting to see more consumers as well purchasing desserts and appetizers as well, or is the mix starting to move higher?

That has stayed pretty much the same. The big jump in that was when we first introduced those -- if you had them in the Applebee's restaurants -- I'm addicted to them -- they are $1.99 -- those little small sundaes -- when we first introduced that, we saw a blip and then it sort of stayed at a higher level since then. But there really hasn't been -- I haven't seen any huge changes. It has a lot more to do with the liquor mix that we spoke of earlier.

Can you just give us some -- I don't know if there is anything that changed on the credit markets and the ability of franchisees to access more capital if they need it.

We have always said that our franchisees, because they are such a robust group, we only have 40 of the Applebee's franchisees, and they have always had access to capital. Now, for a while there, they may have complained about what the coupon rate was, but they've always had pretty good access to capital (multiple speakers).

Yes, there hasn't been any recent trade changes in that that we've noticed.

It has been pretty positive for a while.

Great. Thank you very much.

Bryan Elliott, Raymond James.

I guess I wanted to say on IHOP, and get a sense from you of kind of what the competitive landscape is out there. Obviously, the family dining consumer continues to be under a lot of pressure, with rising grocery bills and gas prices, et cetera. We have seen some decent-sized chains go into Chapter 11. Are you seeing anything from those guys specifically or the competitors more generally, on getting more aggressive on pricing or couponing? If you could just give us a little more color on what you are seeing out there in that family dining segment.

There is no question that the family dining segment is -- I think at this point is sort of flat, if not slightly down overall. Certainly in family dining, you are drawing a little bit from other segments, not just family dining. But in the family dining category, there are some regional players that have been -- had mixed results, and there certainly have been some entrepreneurs or independents that have gone down.

But in general, it is more flattish. And in terms of anybody doing something dramatically differently, we really haven't seen that. If you look at the market share over the last several years -- and I think on our May call we can have a better update on -- I don't have the numbers yet; it is just too soon in the year. But on the May call, I should be able to have market share for 2011 numbers. We usually get that right around --.

Yes, there's a lag.

April, May, I'll have a better sense for where the share went and how it was stolen and from whom. But in general, I don't see a lot of change there. Certainly we've been trying to keep our focus on differentiating ourselves and coming up with unique and differentiated items, and that is really the focus for IHOP.

Fair enough. Thanks.

Reza Vahabzadeh, Barclays Capital

Your same-store sales guidance for Applebee's for 2012, obviously favorable to recent trends in 2011. But a more cautious same-store sales outlook on IHOP. Can you just talk about the differing position that those brands are at? Is it the category that makes you more cautious? Is it store level execution? Is it the end consumer?

There is no question that we said when we get all things going at Applebee's, all the different strategies, we felt pretty good about the results. And I think we are finally seeing the remodels, the advertising, the menu work, the operations, all of that is coming together at Applebee's and giving us a good sense of where we are going to be in 2012. That is why I think we've got that solid forecast.

On the IHOP side, we are not as far along in the differentiating as we are at Applebee's, and I think we are building that momentum in 2012. And I think that gives us some amount of cautious optimism. But I think it would be prudent to be a little more cautious on where we are just in terms of timing and sequencing.

I think that is really the way you should take it, is that we are trying to make sure we are being prudent about the guidance we give for both of them.

Got it. And then as far as your change in promotional strategy on Applebee's going to longer dated promotions from limited time offers, can you just talk about that for a while?

Sure. It is IHOP, not Applebee's. And IHOP had done six -- had been sort of notorious for historically doing six limited time offers on television and in-store. And the way you should be thinking about this is starting in April, you'll have the regular menu in the restaurant, but you will also have a separate handout. Which is a pretty aggressive handout that has both value items on it, it has new items on it, it features the under 600 calories for kids. Think of it as being a much more robust way to think about the menu and new items, and then you will start to see that advertising talking about all the great stuff we have at IHOP, not this limited time only, to try to hurry up and bring people in for four weeks and then do something else. It is really featuring a lot more of our new innovation and creativity, which gets people used to the fact that ongoing, you get to see new items but they stay on the menu. I get to come back anytime and have them, as opposed to hurry up, better do it in three weeks or it is gone. And I think that resonates better with guests and we certainly have seen that on the Applebee's side as well.

And they are all aligned with our pillars for our menu development, too.

Right. As I said earlier, you will see health and wellness on the menu. You will see innovation. You will see better focus on signature. It really aligns with all the pillars we talked about. So at any given time, you're sort of meeting all of our guests' needs, which is what we heard in our research.

Got it. Can you bring us up to date on potential supply chain savings and your distribution and overall supply chain platform, in terms of consolidation of DCs or any other initiatives?

Yes, we've made some huge progress. And we should be pretty much completely done by the end of this year. Maybe with one area exception, where it is under an old contract, and the franchisees and the co-op have agreed we should probably wait for that contract to run out, which is in the South. But beyond that, we should be pretty much locked and loaded by the end of this year. So it is good news.

It is good news, and we are also looking for new areas where the co-op can be of benefit to our sales and the franchisees as well.

Yes, they are always looking for new and innovative ways. And remember, I mentioned to you -- it is a great question -- I mentioned to you last year that once we had the food sort of in a good place, they would start going after nonfood, whether it was equipment, furniture, fixtures. I mean, they've got their sights on more than just the (multiple speakers) commodities.

Is there an amount of savings or basis points of savings that the system is looking for from that supply chain efficiencies?

We've always said that in the first couple years, they were looking to get 3% savings, and they will beat that mark. But in terms of -- one thing we've learned through some of our benchmarking, every single company in the restaurant space does it differently. Everybody starts with a different basis. Everybody measures different things, whether it is savings, whether it is cost avoidance.

So we thought going here would be a little confusing, because it is something different for each chain and where they are individually. I can tell you that the co-op regularly communicates to all of its franchise constituencies at DineEquity, and the franchisees are very pleased with the results that they are getting, both in the middle of their P&L in terms of just reduction and share costs.

They've done some consolidation of particular items and contract signing that have been very, very useful. So the best way to think about it is our franchisees making more money year-over-year. And are they feeling about good about their relationship with the co-op? And to that degree, the answer is yes, and they do feel good about where they are with the co-op.

Candidly, it doesn't really do much for us. We are down to such a di minimis amount of Company restaurants. But it really does benefit the franchisees, and they are pleased with the results.

Got it. Forgive me if I missed this, but how many Applebee's stores were remodeled by franchisees or the Company in 2011?

We remodeled, on the Company side, about 40 for the year. And the franchisees did a couple of hundred. And then if you add it all up to date, it is over -- almost 550 that have been remodeled. And as I said, we will be aggressive again this year.

Got it. Thank you.

Destin Tompkins, Morgan, Keegan.

Julia, forgive me if I missed some of your prepared remarks, but I want to follow up on the commentary around Applebee's sales momentum. You mentioned a lot of things, the remodel, the advertising, menu, all that stuff coming together. Do you feel like there was -- at least the fourth quarter improvement, do you feel like a portion of that was a weather benefit? And I guess how do you gauge kind of the underlying trend in the business? And then I guess as it relates to -- I think you also had a press release out about a new advertising agency. If you'd just kind of help put some context into some of those items it would be helpful.

Sure. We talked about this the last couple of days, this whole notion of the weather. And I don't have a -- I'm looking at Tom -- I don't have a quantifiable number on the weather. But intuitively, it had to have had some positive effects. But I would tell you that I can't quantify it yet, and I don't know if we are ever going to be able to. But in general, the franchisees are saying, look, it has been a mild winter, although certainly not this week. But I would say that it probably had some effect. I don't know how meaningful that is.

We are certainly looking at it. Frankly, I would say, if anything, it would have more of a first-quarter impact than a fourth-quarter; most of the winter doesn't start in our world until December. But I can't quantify that. It is a great question.

It clearly had (multiple speakers).

It's got to have had.

But we don't think it was a determinating factor for what happened in the fourth quarter.

Right. And on your other question -- which, just to remind everyone was about advertising -- great question. On the Applebee's side, I think they felt, and we at DineEquity certainly supported the fact, that they had probably gotten their best work done with the agency, and felt it was appropriate while they were doing well to at least consider a change. And as they went through the sourcing of that, they really -- I think they are going to announce that tomorrow -- found somebody they thought would take them to a whole different level. And I think that was the notion of making a change, and we all are very supportive of that, to go to sort of the next level of creativity and differentiating.

And you know, I talked about this for a couple years. And certainly when I worked there before, this notion of neighborhood really is something very, very unique and special that nobody else can own and we are known for that. If you do any kind of focus group work, it is usually the first word that comes out. And I think they are looking for the creativity that can take that to a whole different level. So we are all very excited about the notion of taking that branding work and that brand promise work and that differentiation to a whole other level.

Okay, great. And then on the guidance for the restaurant operating margin at Applebee's, how much of that is just the mix of Company-owned restaurants that is left over versus improvements that you are seeing? And if you are seeing improvements, kind of what are the drivers there?

Basically, the way I would look at it is -- and I don't want to guide on each individual component piece of it -- but just to sort of summarize it. There is a list that we will see in 2012 from the remaining restaurants having a higher margin rate than the ones we got rid of, the ones that were refranchised. We expect a margin improvement from higher sales. We expect modest benefit from a couple of other things, like depreciation and so forth, that just happen to be -- didn't start (inaudible) in 2012. So those are the main pieces of why we see the margins improving as we move from 2011 to 2012.

But it is important to point out that as we refranchise, which is our expectations as we move through 2012 more, that that margin rate will move up and down based on the composition of the restaurants that remain in our portfolio.

Thank you.

John Ivankoe, JPMorgan.

I would like to get back to the Applebee's comps a little bit. Especially in the fourth quarter, I guess a couple of things. Company versus franchise comps, I understand the comparisons are very different last year, but what if anything we should read into Company doing different than franchisees in the fourth quarter, that maybe franchisees are lapping and the Company is benefiting from is the first point.

And secondly, on the consolidated comp that you reported, it is not a great number versus the industry. It generally showed some improving results, especially through December. So I just wanted to get a sense of how you felt Applebee's did relative to the industry, and what might change for you to kind of get back some share, which I think is part of your long-term plan for the business.

Let me try to answer a couple of those -- and feel free to jump in here. On the Company, side we -- as you saw from the detail -- we did do some things on the Company side, (technical difficulty) investing in local advertising, which was a test to see how that would work. And we have shared those results with our franchisees, so many of those are picking up. The best way to think about it is just some different ways of doing the work locally, which obviously had a positive impact on Company-operated top-line sales, which has been sort of interesting. That is your best hope, that R&D restaurants can test some things in front of others. So that is part of it.

And certainly, we saw the momentum come back that we lost some of it in third quarter. And we feel that as we look out to 2012 and doing all the right things, I think we feel very good about where we were in our momentum. And some of the direct competitors certainly had not had the success that we had had in the last year and a half, so it doesn't surprise me that there was some catch up there. And I think that is all about how do you stay the course and stay the momentum. And that is what I feel best about, is our results for the last couple of years have really been, as you know, outpacing and outstripping the competitive set. And one quarter doesn't make or break a trend, so I feel pretty good about that.

And I think clearly that is why we have the guidance where we do the -- we are going to be prudent and respectful, but we feel good about where we are in 2012 with them.

And in terms of where we even are in the current quarter, is it like a performing line, you could perform better? In other words, you said maybe it was just a share issue in the fourth quarter. We should expect that to kind of change in the near term?

Yes, I think the way -- again, I certainly -- we don't guide quarterly, and it is for that very reason, things up and down. But I think the best way you should think about it is we feel really good about the full year 2012, what is in the pipeline, what the plan is, the franchisees being so focused and being aggressive with the remodels, the work we are doing with advertising and marketing, the pipeline.

For me, I look at the year and say, it is robust, we feel good about it, we are very confident, and that is the way you should think about it. I think spending too much time quarter to quarter can --

Or within a quarter.

Right, or in a quarter, can be difficult, yes.

Of course. And if I just may continue. It does look like that -- or I would assume that mix would have been positive in the fourth quarter, given the fact that your alcohol sales were up. I mean, others in the industry I guess it is a little bit mixed, but it is not necessarily a negative mix environment I guess is what I will say.

Where are you kind of in your average ticket right now both on the pricing and the mix a side, and what do you think it means for 2012? Your guidance might suggest that traffic could even be flat. I don't want to overinterpret that but what is your sense on average ticket?

On the Applebee's side, we have been hovering right around $12.75, $12.80. Almost $13. And on the IHOP side, we've been hovering just under $10. We haven't seen a huge amount of movement. I mean in any given promo or quarter you might see a little bit up a little bit down, but not huge, huge movement. I think just a slight uptick. Nothing huge or dramatic.

Okay, so I guess average ticket is flat year on year. The fourth quarter and that is also your expectation for '12, or --?

Not flat. I'm looking at the check. It is slightly up at both IHOP and Applebee's.

And on the Applebee's side, Julia, what type of pricing are you -- do you think is right for the current economic and competitive environment?

As you know, we don't predict pricing, and nor do we -- we can't set it. Franchisees do their own thing. I think what I would maintain for the last couple years is what I would say again for 2012. On both brands, franchisees feel comfortable they can price with inflation, and I would suggest that would happen again this year.

There is nothing -- I've heard nothing from the franchisees to suggest that they want to be aggressively pricing. They know this is a price-value-oriented consumer. They want to ensure good value. But I also think they would be very comfortable pricing with inflation. And nothing we see from our consumer research would suggest we can't price with inflation.

Okay, great. Understood. Thanks.

Will Slabaugh, Stephens Inc.

Yes, this is [J.R. Bizzle] on for Will Slabaugh. I was just wondering if you all could -- I know on prior quarters that you've discussed franchisees and averaging roughly mid-single-digit comp growth from remodels. Are you continuing to see these similar returns from the remodels?

Yes. On the Applebee's side, the pre-post-net of control is hovering right around that low-single-digit, mid-single-digit that we've spoken of. There doesn't appear to be any change. In the few remodels we did on the Company side, we saw very much the same thing.

Okay, and as a follow-up, mainly touching on the same thing, but with the new units that you've added, are the metrics similar in both concepts, seeing a trend of positive growth?

We don't comment on inter-quarter, but on fourth quarter, you did see improvement in both brands.

Okay, thank you.

Jordan Hughes, Goldman Sachs.

It seemed to me like you talked a little bit more about value offerings at Applebee's last quarter. I was just wondering if you could talk about your plans for fiscal '12 for really value on the menu. And has there been any kind of a change in what you're expecting there?

Not really. The two things -- that's a good question. The two things I would say is that -- just to refresh everyone's memory, we put Two for $20 on the menu at Applebee's -- gosh -- it has probably been a couple of years ago now. And what we do on the Two for $20 on the menu is every three or four months, if not sooner, we rotate new items in and out. So people still get the Two for $20 and the notion of value, which is still running 18%, 20% of the mix. It changes a little bit if we advertise it on television, it goes slightly up. But I think people have come to expect that Two for $20 value, two entrees and an appetizer.

It is a mainstay.

It is a mainstay. But I think the notion that we keep updating that creatively and bringing in new items gives people that fresh interest and appeal. So we will see that throughout 2012, and without giving away too much competitive information.

But you will also see some ongoing value commitments and communication on our advertising. But I think we will rotate that in and out with new items, if you think about that. Frankly, that is the same with IHOP, this work we are doing on the menu handout. You will always see a value message for the balance of the year, so very similar strategy.

And that is (multiple speakers).

Yes, that is obviously new for IHOP. So that is the way to think about both of them continuing the value message, both on the menu and periodically in communicating to the guests via television. More of that is new news on the IHOP side.

Great. Thanks. And just one question on the balance sheet. You reduced that by about $300 million this year. Do you have a target for what you kind of hope to reduce debt by in fiscal '12?

We don't guide on that, but obviously, debt reduction is the most important thing we have going on from a financial perspective. And we are continuing to comply with all of our covenants and pay down debt on a rapid basis with the free cash flow that we generate.

Okay. Thank you.

(Operator Instructions) Bryan Hunt, Wells Fargo Securities.

Good afternoon, Julia and Tom. This is Kevin McClure in for Brian. Most of my questions have been answered, but I did have one broad question about advertising. Are you changing the channels in which you are choosing to advertise, and what have you found to be the most effective channel to get your message out?

On the IHOP side, you recall midyear last year we talked about the fact that we had tried some new things at the beginning of last year, and we were going back to our original strategy, which had a lot more to do with cable and some of the work we had done on the channels there, and less about network, because we didn't have enough to make it meaningful.

I did say in my prepared remarks that we were going to do more social media this year with IHOP, because we saw that as an important factor in our work in being relevant with our guests. We are always looking at -- as we media buy, we are always looking at being the best steward for the brands, obviously, because it is not our money, it is the franchisees' money. We are always looking at what is the best way to think about putting that on television. And a lot of that, frankly, has to do with what is the latest and greatest. And whether you move it from NBC to CBS to ABC or network, it has everything to do with the results. And we are very blessed to work with great partners that help us look at that each and every day. So I would tell you there are fluxes and there are changes.

It is continually evolving.

Yes (multiple speakers). But always within the mindset of -- that their industry, what is working. So it is not, in my mind, I don't think meaningful enough to say, oh my gosh, it is a huge change. But certainly both brands spending more time, effort, resources and money against social media.

Great. That's all for us. Thank you for your time.

Michael Gallo, CL King.

My question, Julia, is just on the Seven for $7. I was wondering what you are seeing in terms of mix on that. And then also what kind of impact you might expect that to have on check, particularly as you put some media weight behind it. Thank you.

Unfortunately, I don't comment on inter-quarter results, but feel free to please ask that question on our next investor call. Not only will I be able to give you mix and what it has done to average check, but it would have been at that point more than three weeks.

So as I said earlier, it is pretty early in the phase to talk about it, but we don't comment inter-quarter other than I said I was encouraged about how it had been reflected in the marketplace.

Thank you. And just a question for Tom. Tom, what should we model for depreciation for 2012?

That is not an item we guide on. And it will continue to get smaller as we refranchise, so that is something we will have to look at as we move through time. It could get down to a relatively small number.

Just to reiterate, each time we sell Company restaurants, we reissue new guidance.

We will have to redo the (multiple speakers).

We promise you each time we do that, we've always reguided changing the numbers, and we will absolutely give you an update.

Okay. Thank you.

Ladies and gentlemen, that concludes the question-and-answer portion of our call. And with that, I would like to turn the call back over to management for closing remarks.

Thanks, operator, and thank you all very much for joining us this morning. Our first-quarter 2012 reporting date is May 1, 2012. If you have any questions, please feel free to call Ken, Tom or myself. We are here for you, and we thank you very much for your time today.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us, and you may now disconnect. Have a great rest of the day.