Dine Brands Global Inc (DIN) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2014 DineEquity, Inc. earnings conference call. My name is Ellen and I will be your conference operator for today. As a reminder, today's event is being recorded for replay purposes. 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.

Thank you. Good morning and welcome to DineEquity's second-quarter 2014 conference call. This morning, I'm joined by Julia Stewart, Chairman and CEO; Tom Emrey, CFO; and Gregg Kalvin, Corporate Controller. Before I turn the call over to Julia and Tom, let me remind you of our Safe Harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors, which can cause the actual results to be substantially different than those expressed or implied. We caution you (inaudible) forward-looking information in the context of these factors, which was detailed in today's press releases, as well as in our most recent 10-Q filings. The forward-looking statements made today are as of today and assumes no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial measures, which are described in our press release and are also obtained on DineEquity's Investor Relations website. With that, I will now turn the call over to Julia Stewart. Julia?

Thanks, Ken. Welcome, everyone. We appreciate you joining us this morning. As you may know, we issued two press releases today regarding our earnings results and the refinancing of our debt. And before we discuss the results for the second quarter, I would like to make a brief comment on the press release regarding the proposed refinancing of our long-term debt. We have announced our intention to refinance our existing 9.5% senior notes and senior secured credit facility. In light of securities law requirements, we will not be discussing the proposed refinancing or answering any questions regarding the transaction during today's call. Thank you in advance for your understanding.

Now I will begin by providing a brief update on our business and key initiatives. Tom will then review the financial highlights for the second quarter. We reported another successful quarter. Adjusted earnings per diluted share for the second quarter increased 14% to $1.16 compared to the same period of 2013. Demonstrating our commitment to create value for our shareholders, we returned over $29 million during the second quarter in the form of cash dividends and share repurchases. We continue to execute against our strategic objectives, building momentum at both of our brands. Although we have made solid progress over the last year, we, of course, are not content. We are clearly focused on driving consistent and sustainable positive sales and traffic.

With that said, it gives me great pleasure to announce that for the seventh consecutive year, both IHOP and Applebee's were again ranked number one in their respective categories by Nation's Restaurant News on the basis of US systemwide sales for the last fiscal year. Additionally, IHOP also ranked number one based on total growth in US systemwide sales in family dining. These achievements truly reflect our franchisees' commitment. I would like to thank all of our franchisees for their dedication and hard work. Congratulations on being number one once again.

Now let's turn to IHOP's second-quarter performance. IHOP continues to significantly outperform the family dining segment based on industry sales and traffic data. For the second quarter, domestic systemwide sales increased 3.2%, reflecting positive sales across all dayparts. This is IHOP's fifth consecutive quarter of positive same-restaurant sales. I would like to highlight that we are revising guidance upward for IHOP's 2014 same-restaurant sales to range between positive 1% and positive 2.5%. This reflects an increase from previous expectations of between positive 0.5% and positive 2%.

Now, over the last year, we have made great strides and have taken bold steps to improve performance. To take our brand to the next level, we are in the early stages of the search for a new President of IHOP. As we proceed into the second half of the year, we are continuing to execute on our plans to sustain IHOP's performance. Our vision includes capitalizing on opportunities to broaden IHOP's appeal and focus on consumer attitude and behavior. We are acting on several key strategic priorities to evolve the brand and retain our position as the category leader. We are moving forward to identify and create opportunities for growth in guest frequency, average check, same-restaurant sales and positive traffic.

We have conducted comprehensive consumer research and now have an even better understanding of who our consumers are and what they want. We are better positioned to effectively target potential guests to drive sustainable and positive sales and traffic. Our strategy involves positioning the brand across target segments, building excitement through culinary innovation and guest engagement and executing on our key strategic priorities, which includes improved advertising and media, including digital and social media campaigns, a modern restaurant remodel, superior service and an unrivaled menu. The second core menu enhancement launched this past June 2 and is part of our ongoing category renovation strategy. Simplification continues to be an important part of our menu transformation and while we are always testing new and innovative items, we have also been focusing on easing execution and reducing complexity.

Now let's review Applebee's performance for the second quarter. I'm pleased to report that Applebee's domestic systemwide sales increased 0.6%. The sales improvement was supported in part by dual messaging advertising strategy on TV across the lunch and the dinner dayparts. Early in the second quarter, the messaging centered around lunch combos and two for $20. In May, we continued the lunch combos campaign and transitioned to Fresh Flavors of the Southwest. This approach promotes variety and has worked to generate consumer interest in both dayparts.

While Applebee's outperformed the casual dining segment based on industry sales and traffic data, we are still not satisfied with the results. We have more to do to restore consistent and sustainable positive performance. As I mentioned last quarter, for Applebee's to remain the category leader and evolve, we have hit the reset button. I have been very involved with our new President of Applebee's, Steve Layt, and the entire team. We are completing a thorough evaluation of our strategy to improve the perception of the brand and maintain relevance in every daypart that Applebee's competes in. This includes a deep dive into several areas, including our menu architecture and design, our pipeline of new and improved menu items, our value proposition, our advertising and media mix and our bar business.

We have developed brand fundamentals that we believe will deliver results over time. The foundation of the reset is built on five key strategies -- first, achieving operations excellence to deliver in-restaurant speed and consistency; second, being the leader in brand perception with our target segments; third, define dayparts strategies that drive profitable and sustainable growth; fourth, delivering a personalized experience with Applebee's to build guest loyalty; and fifth, defining the Applebee's of the future to adapt to the new marketplace. We have identified new consumer targets and we are developing a grill and bar pipeline that will reinvent our menu. The core menu innovation will address the food and beverage profile of the modern grill and bar with new and exciting products being launched across our food and bar business to support all dayparts. We will share more in the coming months.

Now regarding our international business, our international strategy for both brands is coming into focus. We are cultivating strong development partnerships while leveraging our existing infrastructure. We see our most promising growth prospects in the Middle East, Asia and Latin America. Our plan is to tailor our brands to best meet the needs of local consumers while being faithful to the strong heritage they both enjoy.

During the first half of this year, we've developed a compelling strategic plan, which focuses on two primary objectives -- first, enhance our value proposition to attract best-in-class international franchisees and second, create a long-term sustainable international growth engine by opening the right restaurants in the right places with the absolute best franchisees. We are pleased with our progress to date and will provide a comprehensive update on our October 28 third-quarter earnings conference call.

We have also continued to advance our shared services platform, which allows our two brands to focus on key factors that drive the business while leveraging the resources and expertise of our scalable support structure. We believe this is a significant competitive advantage. We will continue to make strides on foundational improvements and brand innovation by leveraging our shared services platform. With that, I will turn the call over to Tom to discuss the second-quarter financial highlights.

Thanks, Julia. Good morning, everyone. I will first walk you through the income statement highlights and then make a few comments on the balance sheet and our free cash flow. Let me start by saying that we are very pleased that both Applebee's and IHOP reported positive second-quarter sales compared to the same period of 2013. It was another solid quarter as adjusted earnings per diluted share grew by 14% to $1.16 compared to $1.02 for the second quarter of 2013. The improvement was primarily driven by higher franchise segment profit, which was a result of higher domestic sales at IHOP, new restaurant development over the last 12 months and lower bad debt expense.

Turning to G&A, G&A expenses in the second quarter declined to approximately $35 million from $36 million in the second quarter of 2013, mostly as a result of lower costs for legal and professional services. For the first half of 2014, G&A expenses were basically flat compared to the same period last year. Consistent with prior years, G&A is backloaded in the second half of the year. This is mainly driven by personnel, professional services and both brand franchise inventions.

Moving on to the balance sheet, the cash balance as of June 30, 2014 was roughly $100 million. This is compared to $133 million at March 31, 2014. Cash is down from the end of March primarily because of interest and tax payments in the second quarter. Regarding free cash flow, I want to again point out that our 2014 guidance calculates free cash flow after subtracting any mandatory lease payments and mandatory debt service to highlight how much is available for dividends and share repurchases. Based on this method, we generated $50 million in free cash flow in the first six months of the year.

Following our strategy, we returned approximately $59 million this year in the form of share repurchases and dividends. In the second quarter alone, we repurchased approximately 189,000 shares or $15 million of our common stock and additionally, we paid a second-quarter cash dividend totaling approximately $14 million.

Now regarding the refinancing of our debts, as Julia mentioned earlier, we issued a separate press release to announce our intention to refinance our long-term debt and we will provide an update in due course. We will also update our 2014 financial performance guidance, including an update on our capital allocation strategy should a transaction be completed. It is important to note that our current interest expense guidance for 2014 does not include any savings from our refinancing.

In summary, we are very excited about the progress we made at both of our iconic brands. We've generated solid growth in adjusted EPS this year. We continue to generate substantial free cash flow. We've returned significant cash to shareholders and we are making strides to broaden the international presence of our brand. With that, I will now turn the call back to Julia for closing comments. Thank you.

Thanks, Tom. To close, we delivered strong earnings growth in the second quarter. We continue to maintain tight management of our G&A. We are taking the strategic steps to build a solid platform for long-term growth at both of our brands and we continue to create value for our shareholders, returning over $29 million during the second quarter in the form of cash dividends and share repurchases. I am confident that our strategy and importantly our ability to consistently achieve our goals will continue to position the Company for long-term success. Now with that, Tom and I would be pleased to answer your questions. Operator?

(Operator Instructions). John Ivankoe, JPMorgan.

Thank you so much. If I can ask maybe an indirect question about the refi, have you been communicating or do you plan to communicate a strategy that could include potential acquisitions or are you willing at this point to say that the DineEquity go forward will exist of the two current brands that you have in your portfolio?

John, this is Ken. Thank you very much for the question. At this time, we will not be making any comments regarding the refinancing transaction.

Could we separate from the refinancing to maybe just get back from the shared services model in terms of whether you do think that's a scalable model or you would want to scale that model for an additional brand or are you happy having what you currently have?

Yes, we've always said, John, that the whole shared services model is both leverageable and scalable and that remains exactly that. So it's certainly leverageable and scalable. I think right now we are very focused on the two brands and the refinancing.

Okay, understood. Secondly, if I may, I think there's been maybe some average ticket movement at Applebee's maybe around Take Two as you've given customers an opportunity to trade up. So help me understand if that's the case and maybe put the context of Applebee's traffic as franchisees report to you relative to the industry and what you think that future trend might be.

So clearly when you think about second quarter, we were slightly positive on the Applebee's side, as I said, 0.6%. That was made up of both a slight traffic decline and a slight average check increase. That is certainly not what we are satisfied with. We want to see more aggressive, consistent growth and that's what we are very focused on.

I will tell you the franchisees on the Applebee's side have been very thoughtful and strategic about pricing. We can certainly price with inflation and certainly they have, but it's really been de minimis. They are very focused on making certain they are providing value to the guest and we, as the franchisor, have been very supportive of that. But clearly our opportunity is to be much more, as I said throughout my remarks, much more consistent and sustainable than that traffic growth increase.

Thank you.

Bryan Elliott, Raymond James.

Thanks and good morning. Kind of a follow-up to that is just maybe ask the Applebee's question this way. So clearly in the broad restaurant and retail consumer world, we are seeing a real bifurcation of spending patterns from upper income consumers doing pretty well and getting increased buying power and the spending of that in sort of the middle, lower middle strata of the income stream, not seeing any real purchasing power increase, possibly still seeing decreases and struggling with continued spending levels. In the context of that, can you talk about what you are seeing at Applebee's and to drive the traffic gains that you are focusing on and then hoping for this further work at the lower price point tiers of the menu? Is that an area of focus given that bifurcation and spending is clearly continuing to occur?

I think it's a great question and I think the way to think about it is over the last several quarters, we are not seeing a lot of change. Those people on the lower end that want to shop the menu continue to shop the menu. Those on the higher end that have that capability and price really isn't a subject are of the same. So that change, Bryan, over the last several quarters hasn't necessarily moved a lot, if you will. What I will tell you is what is different is we, based on this proprietary research we did, are very focused on some target segments where we have a unique opportunity both with our menu and our value structure and frankly just the way we market to bring those people in more often. That is exactly what we are focused on. So think of us as not changing much from the lower end to the higher end socioeconomically, but really focused on some target segments where we know there is some opportunity and some upside.

If those target segments are not broken out by income strata, can you give us a little help in understanding what those segments are and how you expect to appeal to them?

Yes, it's pretty proprietary, so I am trying to answer your question without being direct. We do know about their socioeconomic status. More importantly, we know what they need, what they want and what their expectations are of us specifically in the category. And so there are some very specific things we need to do mainly in the food itself, the menu itself and in the service platform. There are very specific things we need to do to make those people come in and make them come back more often and that's the focus we are on right now. I know this sounds a little bit trite, but it's really less about the ultimate price and it's much more about the menu items, the taste of the food and the service, the ambience, the overall experience and we are very focused on that.

Would some of those segments then maybe fall into generational rather than income groupings?

I would say -- I know where you guys are going with these questions. It's less about age and generational; it's more about sort of an emotion attuned to how they think about restaurants and casual dining and us in particular and what is it going to take to get them to come more often. That equation isn't just -- it's absolutely not just about price; it's the other things I mentioned. So they are very clear about what they want us to do differently and we have to find our sweet spot, especially in competing against fast casual. We're not going to be ultimately just a fast casual restaurant, but we have to find those sweet spots to more effectively compete in that arena. Less about price, more about the service platform, the experience and then the menu is less about -- it's more about the taste of the food and certain things we have to do differently. And that is what we are maniacally focused on.

One quick follow-up and then I will move on, but I recall (inaudible) answer maybe several quarters ago, maybe a year plus ago, you were experimenting, testing with kind of a dedicated quick order and to-go area at the hostess stand for lunch, I believe it was. Can you let us know if that's still underway or what the learnings from that were?

Sure, the learnings were fairly substantive and I guess the -- I'm sure you're going to say this seems like common sense, but one of the things we learned is, for 50 years, we have been teaching people to walk into a casual dining restaurant, look at the hostess, the hostess says how many in your party and seats you and suddenly after 50 years, we wanted you to walk into an Applebee's and say, no, I will take the fast casual dining experience to the left or I will take the regular dining experience to the right. And that was both confusing and not necessarily working for our consumer base. So we believe there is a different way to think about each of the dayparts and each of the ways we may bring it to life in an Applebee's with a consumer base.

So the key learning is, if for 50 years you're used to doing it one way and now we are teaching you to do another, we have to be much more mindful and thoughtful about how we do that and we probably have to market differently to you and we have to educate you on the why and the wherefore. Why would it be so important to have a fast casual lunch at Applebee's? And that really goes -- that's more of an integrated marketing strategy that goes to the menu, to the price point, to the service, to the marketing, to every aspect of it. And I think the key learning is we try to do one thing differently and the truth of the matter is that entire environment at lunch really has to be different. So we are doing some additional work and some additional testing, but it was a great key learning for us that simply just saying to people come in and do something differently doesn't work.

In addition to that, the other learning in addition to this sort of what I will call service platform was the bar business and there is a tremendous opportunity at Applebee's for us to play in a very different way in the bar business. That was sort of another offshoot out of some of that research, so we are doing some pretty substantive work around the bar to make it -- I guess the way to think about it is more modern, more contemporary, more relevant to the guest of today and a good example of that is an area like craft beer. Think of us as really exploring what we can do in craft beer. So just being much more contemporary and relevant, but still being very thoughtful about the individual dayparts.

Very helpful, thank you.

Chris O'Cull, KeyBanc.

Thank you, good morning. Julia, as IHOP lapped some difficult comparisons, do you think the check can continue to grow or will traffic gains be needed to successfully lap some of these more challenging comparisons?

I think we've always said that we want that traffic to grow. That is the long-term health of the business and we certainly want that. We believe that the work we are doing helps us get towards a long-term traffic increase and that is literally what we are continuing to work against. Certainly our strategy is to be able to deliver the consistent and sustainable sales and traffic. It is not a marathon -- It is a marathon, it's not a sprint, so we are confident in the strategy, but it is going to take a little bit of time, if you will, to get us that more balanced results in both traffic and average check. But certainly our goal was never just to increase the check; it was always to create that sustainable traffic increase and that is exactly what we are focused on.

The menu changes in June and I think there's another one planned for November at IHOP. Will those be a boost to the check average or are they going to be pretty neutral year over year to the check?

It's always hard to tell. Certainly our test results have been that consumers loved the menu we rolled out in January, loved the menu we rolled out in June, just finished testing the one that rolls in November and in general, people really do like the changes that we are making to the menu. Some of that is structural. Some of that is architecture. Some of that is engineered. Some of that is pricing. Some of that's -- well, it's less about pricing. It's more about pictures, where we put items. People read right to left, what that looks like. So it's the combination of all of those things, but a lot of those check increases came from us putting the prices on the sides and the drinks, and that was done last year. So it's less about pricing; it's much more about engineering and architectural work.

Okay, okay, but there's still a favorable menu mix shift with the new menus?

That is correct. That's a fair -- yes, that's absolutely fair.

Okay. Then what are some of the objectives of the Take Two promotion? Do you expect people to shift from the two for $20 platform or is it serving other purposes?

You're saying Two for $20 going to Two for $25? Is that what you are asking?

No -- well, the Take Two at Applebee's for $10.99.

Yes, it's really all about giving people difference, different reasons to visit and broadening the appeal. Two for $20 has been there for a while and everybody, as you know, in the industry has copied it. So it is us being innovative and creative and thinking a little bit differently about ways that provide value to the consumer. It's not just about price, but it does provide more variety and flexibility both for our franchisees and for our consumers.

Are franchisees starting to look at the Two for $25 that you guys have been testing?

Yes, there are some franchisees doing the Two for $25, yes, absolutely.

Okay and then just one last one. Did the World Cup games affect your all's June sales at all at Applebee's?

I never heard that. I never heard anybody say anything about it other than everybody had a favorite pick of who they wanted to win. But other than that, I never -- I'm looking at the data as we speak and I'm not seeing anything that in any way impacted that.

Okay, great. Thanks, guys.

Jeff Farmer, Wells Fargo.

Great. Thanks and good morning. You guys did touch on a lot of this, but just in reference to driving frequency, you went over a whole bunch of stuff, but it seems like we've heard a lot of this from your peers, which I know makes it tough. But, again, if I think about this, just the importance of new food news, everyday value, speed of service, things like shorter limited time offer windows, with a lot of concepts similarly seeming to pursue sort of very similar strategies and admittedly, you guys sort of get the ball rolling and a lot of people will follow what you've done in the past, having said that, it still makes it pretty difficult. So how can Applebee's stand out when, even if you do have a good sort of traffic driving idea, it doesn't take long for someone else to knock it off? How can you sort of break through that clutter?

I think it's a fair comment. We certainly talk about that a lot internally. First of all, we do have the largest marketing budget in the industry. So there's no question that has -- our voice is louder than everyone else's, so that certainly does provide us some opportunity. We have 37 domestic franchisees who own 1900 restaurants and so they are both committed, they have the wherewithal, the access to capital to do whatever is necessary to invest in the business for the future. I never shortchange that. This is a very, very motivated, insightful group of franchisees. They have been around a long time, so their opinion matters and they have been sort of working with us side-by-side through all of this.

I also think it's safe to say that, as we finalize some of these strategies we've been talking about, I think the way you would think about them is that we are taking some pretty bold steps with the reset button. Now obviously the proof is in the pudding, but I think the reset button and really getting very bold about how we differentiate ourselves for the longer term, that it gets harder and harder and harder to steal from us shamelessly because the kinds of things we're talking about are pretty bold and pretty unique, whether it's the bar business, whether it's the food, whether it's the way we market ourselves. Those are going to be our unique differences and clearly we own neighborhood and we've got to bring that to life. We've been talking about that for a while.

So I know the proof is in the pudding, but the best way to think about it is longer term being much bolder about the way we differentiate ourselves and it makes it a lot harder to be able to steal shamelessly as we hit that reset button and think more creatively about our future. But I don't want to underestimate the importance of being bold in every one of those moves. The good news is we are very aligned with our franchisees and they are very much supportive of being much more -- best way to say it is bold and aggressive.

That's helpful and actually just a couple hopefully quick questions. Going back to Bryan's questions about that targeted customer segment, the conversation you guys were having, recognizing that you don't want to tip your cards too much there, but I am curious, as you look at these consumers and you do sort of the work there, do you have a decent understanding in terms of things like macro drivers for example that might impact their decision to visit the restaurant, job creation, disposable income growth, energy prices, whatever it is? Do you have any sort of additional layers of understanding as to what sort of drives these customers or would hold them back from restaurant visits?

Yes, I think this may surprise you, but we've done a fair amount of proprietary research and consumers talk less about that, whether they are buying white goods or not or whether this month they got two tax benefits or one. They talk a lot more about the emotional connection with a restaurant and what matters to them and that's the work that we have gotten just maniacally focused on about some of the emotional things that attract a consumer or make a consumer come back more often. And the good news is it's all the things that we can control. So the really great news is they don't talk as much about the economy or how many hours they had to work or whether they got a pay raise. What they talked to us about is -- the good news is the things we can control, whether it's the ambience, the decor, the experience, the way they interact with the food server at the table, what they think about, what the emotional connection is with the brand. All of that is more important today than it was 5, 10 years ago. The good news is we know about it and we're going after it with a vengeance, but it really is less about the things we can't control, which is actually the best news of the day.

Okay and then I apologize for running long here, but just one more on sort of the structural headwind that's pretty dramatically facing casual dining. You are very familiar with this. You've been doing this a while. You are seeing a lot of this happen. So again, really it's been about a decade that this industry has seen negative transaction trends and you could obviously point to excess capacity going back to the mid to late 2000s and there's arguably still excess capacity. But in the last four, five, six, seven years, you've seen share shift to fast casual players, the Whole Foods effect, things like that. As you look out over the next three, four, five years, any reason to believe that that sort of longer-term structural dynamic will change for the casual dining sector?

Yes, it's really hard for me to talk about the casual dining sector because I don't know what each individual brand is doing, vis-a-vis, competing more effectively. I can tell you that Applebee's has been building 40 to 50 restaurants a year. I don't see that changing. I think there is a great deal of interest in the future of the brand. I think the work that we are doing helps distinguish and differentiate us and makes us more competitive in the fast casual arena, which is what I care about. So I would say, at least for our brand, I have a lot of confidence in what it's going to take to differentiate it and compete more effectively in the future.

I see that all very much as a positive, not a negative, and then the brand carries with it a certain amount of cache because it's been around over 30 years. And so I'm going to take advantage of that as well, but I understand the new fandangled item that comes out there and everybody gets excited about, but what they go back to is something that is not only tried-and-true, but that takes them with them and I think that's what Applebee's is intending to do and that's the path that we are on. So no, I'm very confident and comfortable with our brand. It's harder for me to speak to the industry because I don't know what others are really doing to compete more effectively.

Thank you.

Alton Stump, Longbow Research.

Thank you and good morning. I guess I have two quick questions. First off, as far as the tablet rollout, I don't think I heard that mentioned yet. Any update on that, how it's going, what the outlook is, if there's any change to sort of how you view that from your last call?

No, no real fundamental change. We are making progress rolling the program out and learning as we go and continuing to make refinements. We expect to be somewhere around half rolled out by the end of the year.

There's been a lot of talk about driving traffic growth at Applebee's. Is that a key driver in your view or could that be a key driver of higher traffic?

Yes, a lot of the folks out there that have been writing about it have been talking about us driving traffic. We don't have that knowledge yet. I think what we are much more interested and what we are solving for is consumers told us it was their number one pain point at an Applebee's was they didn't like the fact that the food server left with their credit card and they didn't like the fact that they would often have to wait for the check. So that goes away with this new technology. The longer-term implications for what it does for the tip or what it does to speed of service or what it does to the average check, too soon to tell.

Okay, it makes sense. They just one quick follow-up. Could you break out at least in general terms looking at the 3.2% same-store comp growth for IHOP, how much of that was pricing mix versus traffic?

Let's see, on the 3.2% for IHOP, it looked like about two-thirds was pricing and about one-third was [P mix].

Okay, great. Thank you.

Peter Saleh, Telsey Advisory Group.

Great, thanks. Julia, you mentioned, for Applebee's, a personalized experience at Applebee's was one of the pillars. Can you elaborate a little bit more on that?

Yes, so back to my proprietary research, not trying to give way the moon and the stars, but something that came out loud and clear frankly with every target segment, what came out is this notion that people really wanted to customize their experience as much as possible. And we think both with the branding of neighborhood and a lot of the testing that we are doing, there is a way to customize that. The way you should think about that is both things we do in the experience, as well as the way we market to you. So a good example of that would be a loyalty program where I know everything about you and I know how often you come in and what you eat and what you don't eat and when you bring your friends and family and when you sit at the bar and I can talk to you one-on-one and really customize that experience for you. And certainly pay-at-the-table technology can do that. Certainly the way we talk to you via the loyalty program and the way we allow you to work with the menu so that you can customize within the menu. So there's lots of different ways to take you and make your experience very special and very unique to you and we are very again focused on that. I don't want to give away too many secrets, but there are certainly ways to do that that create this sort of unique opportunity. Some of those you are starting to see us do, which is that whole online and social marketing that we have started doing, which is having an immediate and pretty substantial impact.

Great, thank you very much.

Michael Gallo, CL King.

Good morning. Most of my questions were answered. I just want to delve into Applebee's, the loyalty program you were testing, I think 160 locations if I recall. I was wondering if you can give us an update on where that stands, how it's going, when we might expect a broader rollout and what some of the findings are. Then I have one other follow-up question. Thank you.

So it's probably a fair question to ask me at the next quarter's conference call. We are a work in progress. As you may or may not be aware, the biggest single thing you have to work on in the loyalty programs is the algorithms and that's what we are in the midst of working on both technologically and obviously from a marketing perspective. So we are right smack dab in the middle of working with it. The platform is built; there's no issues there. I think I mentioned before the platform has been built in a shared services environment, so the platform is there for IHOP and the platform is there for Applebee's and both are testing it. But right now, the biggest opportunity is the algorithm and how that works to increase traffic and delight our guests. So we are in the middle of that process. We should have more answers for you by the October conference call.

Okay, great. And then just had a follow-up question on tablets. Obviously you've been rolling them out at Applebee's and obviously you are excited about some of the benefits there. I was wondering where the IHOP brand stands in terms of tablets, whether that's something you are looking at or just your general thoughts there. Thank you.

So it's a great question. You may or may not be aware that in the IHOP system about 50% of the system use server banking and about 50% of the system use cashiers. So one of the things we have to find out is whether there is a value add for the pay-at-the-table technology in both those service platforms or if one has to be more than the other. So that's a work in progress or do we skip that technology and go to the next? So we are a work in progress. There's a couple other things that are ahead of that in line that are more important to the IHOP business we are taking a look at, but certainly IHOP will learn from the Applebee's rollout and what is important. But when you've got 50% of the system doing cashier banking and 50% doing the food server banking, you have just got to be thoughtful about whether that makes sense. Again there's some other technological advances that we are looking at at IHOP that frankly are more important than that.

Okay, great. Thanks very much.

This concludes the question-and-answer session. I will turn the call back to Julia Stewart for final remarks.

Thanks, operator. Thank you for participating today. Our next reporting date is scheduled for October 28. If you have any questions in the interim, you should feel free to call Ken, Tom or myself. Have a great day.

Ladies and gentlemen, thank you so much for your participation in today's conference. This does conclude our presentation and you may now disconnect. Have a great day.