Dine Brands Global, Inc. (DIN) Q1 2018 Earnings Report, Transcript and Summary

Welcome to the First Quarter 2018 Dine Brands Global, Inc. Earnings Conference Call. My name is Jason and I will be your operator. At this time, all participants will be in a listen-only mode. Later, we will have a question-and-answer session. [Operator Instructions] Also please note, this conference is being recorded. I will now turn the call over to Ken Diptee, Executive Director of Investor Relations. You may begin, sir.

Good morning and welcome to Dine Brands first quarter 2018 conference call. I'm joined by Steve Joyce, CEO; Gregg Kalvin, Interim CFO, Corporate Controller; Darren Rebelez, President of IHOP; and John Cywinski, President of Applebee's. Before I turn the call over to Steve, please remember 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 may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-Q filing. The forward-looking statements 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 also available on Dine Brands press release and website. With that, I'll turn the call over to Steve.

Thank you, Ken. Good morning, everyone. By now you have time to read our press release issued today. I am very pleased to say that our strategy to transition Dine Brands to a growth company is the attraction. I'd like to put to rest false news about the death of casual family dining and the abandonement by millenials of the categories. Our businesses are growing and approximately half of our guests are under the age of 34; and the last time I looked, those are millenials. For the second quarter comps sales for both, IHOP and Applebee's showed sequential grouping. Additionally, each brand achieved positive comp sales and outperformed their respective categories based on industry sales and traffic data. IHOP returned to positive comp sales and was aided by continued improvement in traffic trends which we are working aggressively to sustain and robust growth in highly incremental to those business. Importantly, the brand remains very healthy and accounted for approximately 70% of first quarters [indiscernible] before corporate overhead. Applebee's achieved the highest quarterly comp sales increase since the first quarter of 2011. With positive sales and traffic for the second consecutive quarter, I would like to highlight that Applebee's off premise business also experienced very healthy growth in comp sales and traffic. This is the direct result of the brand's commitment to continually improve the guest experience which includes the recent enhancements to our mobile app and online ordering platform. The overall improvement in both IHOP's and Applebee's comp sales and traffic for the last two quarters can be partially attributed to the continued focus by our franchises as well as our operations and culinary teams on service axles providing abundan value and exceptional menu variety and meeting the ever changing convenience needs of our guests. Many of these initiatives being rolled out at both brands are also part of our approach to be bolder. We are very encouraged by the results for each brand, particularly at Applebee's. The brand has made great strides over the last 12 months and we believe the reasonable momentum at Applebee's is sustainable for several reasons. These include but aren't limited to strong support from our franchises on our go-forward strategy, being more nimble and able to quickly react to changes in the competitive landscape, innovative and memorable breakthrough advertising to drive traffic, decision-making supported by quantitative driven consumer insights, good progress in overall franchisee health, expectations for fewer non-collectability issues compared to 2017 as the brands continues to stabilize, expectations from normalized contributions to the national advertising funds from franchisees beyond 2018 and enhancements to key growth platforms such as off premises business. Remember, Applebee's was one of the first change in casual dining to offer cards together [ph] and now with new to go-packing to ensure our food remains warm and delicious, our guests can immediately enjoy from their favorite neighborhood restaurant while off premise. We know that meeting the convenience needs of consumers can influence their dinning decisions. Our off-premise strategy includes effective communication of our complete value proposition, so in price [ph]. We can find value as much more than just a price point, it's everything that's against experiences across the dinning spectrum including convenience; this part of our business is highly incremental. While we anticipated an Applebee's growth plans would gain traction early in early 2018, the brand stabilization will gradually overtime. Legally, that we will continue to make progress over the next year and return to unit growth towards the end of 2019. As a holding company, our retention [ph] and committed team members are focused on supporting the success of the brand, as well as our franchisees. Make no mistake, we are actively supporting the growth of our two strong brands. To that end, we've added key leadership to our consumer insight teams for both brands over the last year to ensure that we remain guest focused across all initiatives. Steve Levigne recently joined us as Vice President of Insight & Analytics at Applebee's after nearly 25 years at McDonald's. Additionally, Carrie Stojack joined us as Vice President Consumer Insights at IHOP. Carrie's a restaurant industry veteran with 20 years experience building and leading consumer insight functions which includes for post at Taco Bell as Director of Consumer Insights. Our [indiscernible] brand specific consumer insights teams had made meaningful progress on developing our best-in-class analytics capabilities, this is critical to providing essential customer information to support our decision-making. In addition, investing in talent Dine Brands through the establishment of the Dine Research Institute has invested in data science to connect brand sentiment and guest conversations to actual results. To date, we have been able to analyze multiple years of guest feedback and sales data related to our brands. This has helped draw the connection between what drives consumers decisions and key items such as guest feedback on our menus, limited time offer performance, opportunities to differentiate ourselves from the competition, and much much more. As a result, we are guest better than ever before in addition to what they want and expect from our brands. We have also highlighted the dashboard to better understand sales trends by analyzing how limited time offers, competitive influence and other factors can have in the impact. These are just a few of the many ways that we are investing in our brands and creating significant value for our franchisees. Such investments are supported by our asset like business model which generates significant cash. This enables us to make ongoing investment in our brands to drive long-term growth and provide a very attractive return of capital to our shareholders. Darren and John will provide an overview of our brand specific strategies in greater detail little later. Switching gears briefly to the return of capital to shareholders; as a reminder, this is and always be our top priority. We paid our quarterly dividend in the first quarter totaling approximately $18 million. Additionally, we repurchased approximately 139,000 during the first quarter for a total of $10 million. We view our stock at the compelling upside investments for Dine [ph]. You can't continue to expect a balanced approach inclusive of meaningful share repurchases as part of the recently announced shift at our capital allocation strategy. Looking at the big picture for Dine, we are further strengthening positions in the company for long-term success. We made great strides over the last year, stabilizing the performance of both brands and we're encouraged by our progress. We are currently working to strengthen our balance sheet by refinancing our debt late this year and reducing our exposure to higher interest rate risk. We'll provide additional updates in due course. Turning to our international business; expanding our global footprint remains an improvement growth vehicle for us and we are encouraged by the interest in our two iconic brands outside of the U.S. In fact, we signed a development agreement for five IHOP restaurants in Mexico, additionally, we marked Applebee's 15th year in the Kingdom of Saudi Arabia with the recent opening of our newest location in Riyadh. The restaurant is the 23rd Applebee's opening since 2003. We continue to build international expansion as an important growth engine for us. With that, I'm going to turn the color over to Greg to discuss the financial results. Greg?

Thank you, Steve. Good morning, everyone. I'll begin with a recap of our financial performance for the first quarter of 2018. Our adjusted EPS was $1.11 compared to $1.28 for the first quarter of 2017. The decline was primarily driven by a decrease in gross profit from franchise operation due to an increase in franchise contributions of approximately $13.5 million to the Applebee's national advertising fund offset by our lower federal income tax rate in 2018 and our increases in both brand name restaurant sales. As we discussed in our full year 2018 financial guidance, we plan to meet a one-time $30 million contribution to the Applebee's national advertising fund during the first half of 2018. Given our $13.5 contribution in Q1, we expect to contribute remaining $16.5 million in the second quarter of this year. The decline in frnachise operations gross profit versus Q1 fiscal 2017 was mainly due to the increase in franchise contributions to the ad funds just discussed. The overall decline was partially offset by the increases in both brand same-restaurant sales in Q1 2018. Consolidated revenues were approximately $188 million for the first quarter of 2018 compared to approximately $191 million for the same period of last year. The decline was primarily due to the new franchising of IHOP company-operated restaurants in June of 2017, partially offset by the same restaurant sales increases for both brands. Excluding the IHOP company-owned sales revenues in Q1 2017, franchise revenues increased by $800,000 in Q1 '18 versus the same period of 2017. Turning briefly to G&A; our G&A in the first quarter declined approximately $42 million compared to approximately $50 million in the first quarter of 2017. The decline was primarily due to approximately $9 million of non-recurring cash severance and equity compensation charges related to executive separation that occurred in the first quarter of 2017. I'd like to point out that our G&A in the first quarter of 2018 was slightly higher on a run rate basis than what we expect for the remainder of the year. We reiterate our full year guidance for G&A which is expected to range between $147 million and $156 million. Turning to our tax rate; our GAAP effective tax rate for the first quarter of 2018 was approximately 25% compared to 40% for the same quarter last year. The decline in the tax rate was due to the enactment of the Tax Cuts & Jobs Act in December of 2017. Regarding the cash flow statement; cash flows from operating activities for the first quarter were approximately $16.5 million compared to approximately $19.5 million for the first quarter of 2017. The overall decline was mainly attributed to slightly lower net income and changes in working capital. Adjusted free cash flow for the first quarter of '18 was approximately $15 million compared to $19 million for the same period of last year. The variance was primarily due to the decline in cash from operations as previously discussed. Regarding capital allocation, we paid quarterly cash dividends during the first quarter totaling $17.5 million and we purchased approximately 139,000 shares for $10 million. Regarding Applebee's financial health -- franchisee's financial health; we continue to make progress with consisting franchisees who have experienced higher levels of financial difficulties due to the lower sales results between 2015 and 2017. Currently non-timely loyalty and advertising payments are concentrated to three franchisees. We continue to provide various forms of assistance to franchisees which today has primarily included co-leaders [ph] of non-viable restaurants and the waiver of related terminations fees in a certain loan arrangements. We are encouraged by the progress we've made, as well as the gradual decline in Applebee's bad debt expense and the improvement in the brand's comp sales over the past two quarters. Regarding new accounting guidance, and like I highlighted effective January 1 of this year we adopted the guidance of accounting standards, location 606 which is titled revenues from contact with customers. This guidance affect us in two primary areas; one, how revenues are recognized from franchise and development agreements, and two; how we account for the national advertising revenues in expense. Specifically we've adjusted revenue, part franchisee revenue and expense and the related income tax effects on both a GAAP and adjusted basis. This increased our operating income statement for the first quarter of 2017 by approximately $1 million after-tax. To conclude, we are pleased with our early 2018 results for both the Applebee's and IHOP brands and expect their respective growth plans will continue during the year. We continue to invest in our two strong brands to drive sustainable positive sales in traffic while returning substantial capital to shareholders via dividend and share buybacks. Looking ahead, as we discussed at our Investor Day in February this year, we're currently pursuing refinancing our securitized debt in 2018 we'll update you as the year progresses. With that, I'll turn the call over to John.

Thanks, Greg and good morning, everyone. We're certainly pleased with our progress at Applebee's and very optimistic about our future. Q4 momentum has continued into Q1 with a healthy 3.3% increase in comp sales, our mission has been to generate organic growth and we've achieved this over the past six months by driving incremental traffic at the expense of our competitors. Throughout this timeframe Applebee's has consistently outperformed the CDR category on both traffic and sales; now for context this represents the best sustained traffic performance that Applebee's has achieved in more than a decade. Now, we recently met with our franchisees and not surprisingly, they are proud of their progress to date. Most importantly, they are confident about our strategic plan moving forward while the results can be attributed to multiple variables. From my perspective, it all starts with a genuine culture of franchisee collaboration. The certain piece of this partnership is a disciplined process around guest, operations and financial validation. We have very sophisticated and engaged franchisee partners, and we actively seek data driven assessment, discussion, debate and alignment as part of any initiative that we pursue. In addition, our talented Applebee's leadership team is now firmly in place and frankly, making a big difference. Our brand leaders are savvy industry veterans with 8 of 10 being new enroll over this past year. This team expects to succeed and they thrive in the results oriented culture of accountability that we've established here at Applebee's. The chemistry and credibility they quickly developed with one another and franchisees is really quite remarkable. The most recent addition to the team as Steve Joyce referenced is Steve Levigne, our Vice President of Consumer Insights & Business Analyst. Steve is a highly regarded executive who held a comfortable leadership position for McDonald's USA over much of the past decade before joining us in January. Steve will partner with me and the extended leadership team to ensure we remain true to our core brand essence and guest driven in all that we do. Importantly, our restaurant level execution continues to steadily improved under the leadership of Kevin [ph], our Chief Operations Officer. Particular note, our improvements in server attentiveness, cleanliness or accuracy, speed of service, and of course, overall guest satisfaction; equally important system-wide variability on these key operating metrics has narrowed considerably overtime. We also continue to simplify our back of house kitchen operation leading to greater efficiency and productivity. From a restaurant P&L perspective, we plan to capture 65 basis points of cost reduction in 2018 in partnership with PricewaterhouseCoopers. Now this represents more than 100 basis points of opportunity on a full year annualized basis. And as we continue our profit optimization journey, we fully expect this pursuit to yield meaningful results in '19 and '20 as well, if not beyond. Now these initiatives enabled reinvestment into both quality in portion while increasing capacity for culinary innovations from Chef Steven Bogoralli [ph] and his team. This ultimately supports our strategic focus on abundant value and variety. Again, we are committed to reestablishing Applebee's culinary culture around broadly appealing in mainstream American flavored profiles. On the marketing front; we continue to evolve the leverage eating good in the neighborhood as perhaps the most relevant distinctive and relatable brand position in the industry. The combination of leveraging strong brand equities in innovating around new brand platforms is proving successful. And along the way, we're extraordinarily thoughtful to only introduce food and beverage innovation our restaurant teams can execute with a high degree of proficiency and excellence. Under the leadership of Joel Yashinsky, our Chief Marketing Officer; Applebee's is once again defining who we are and what we stand for in the eyes of our guests. With the benefit of an approximate $14 million dine investment in Q1, we were able to support the ad onsite while successfully investing in testing, production and incremental media. Additionally, our to-go packaging technology and service investments are beginning to pay dividends under the leadership of Scott Gladstone [ph]. Scott is our Vice President, responsible for Applebee's off-premise strategy while we continue to innovate in market to real benefits; you'll hear more in the future about our delivery strategy to fully optimize this important convenience driven occasion. One of the cool benefits of our turnaround is the diversification of our very unique and balanced guest profile. Now Steve alluded to this, millennial's accounts -- believe it or not, for the largest segment and approximately 30% followed closely by GenX [ph] at 28%, in-boomers at 27%, the very youthful GenZ group would account for the balance for our guests at 15%. Bottom line, we're driving incremental growth and we appear to be doing so by extending our reach among light and even lapsed users while also improving visit frequency among our important core heavy users. Now switching gears to portfolio optimization; we continue to evolve and selectedly refine our franchisee portfolio by shifting assets to some existing franchisees, as well as some franchisees who are also new to the system. The most recent example of this was the acquisition of a small number of restaurants in South Dakota, Nebraska and Iowa by the Legacy Apple, one of our existing franchisees. This follows last year successful acquisition of Utah restaurant by our newest franchisee, Apple Mountain [ph]. We anticipate a handful of additional transactions this year designed to strengthen the brand for the long haul. And I'll be sure to provide some more on this subject as warranted on upcoming calls. In closing, I'm really proud of our team, our franchised partners and our early results. While this remains an intense market share battle, I believe we're extraordinarily well positioned moving forward. It's very clear to me that America has rediscovered it's love for Applebee's and we are committed to nurturing this relationship for sustained growth and relevance well into the future. With that, I'll turn it to Darren.

Thanks, John and good morning, everyone. IHOP's first quarter comp sales increased 1% driven by a strong performance in our new day involved Iowa's [ph] offerings. The popular $3.99 All You Can Eat Pancakes promotion and solid growth in our off premise business. Notably, our comp sales improved sequentially from the second consecutive quarter despite several lower easters [ph] in March. Additionally, we outperform the category in the first quarter based on industry data for comp sales, traffic and guest experience. Over the last two quarters, IHOP's comp sales has improved by over 400 basis points. Now let me provide some color on the recent momentum. We experienced very impressive growth in our all-timers business with first quarter to go comp sales up a strong 31%. To go accounted for 6.5% of total sales at the end of the first quarter, up 150 basis points compared to the same quarter last year. Solid performance by very compelling value propositions including $3.99 All You Can Eat Pancakes mentioned earlier which marked the first time we attached a national price point to this campaign. We sharpened our focus on all aspects of the guest experience and operational improvements which included rolling out a new measurement system and hospitality training platform to be more guest set. Over the past year, we significantly enhanced our marketing strategy with the addition of industry veteran, Brad Haley, as IHOP CMO. Brad joins us from CKE Restaurants where he served as CMO and was responsible for all facets of marketing and public relations for the call junior and Harvey's brains. Additionally, we partnered with Top Tier ad agency, Droga [ph] to launch new and edgy creator. We've implemented more effective and efficient media buying easing steady to our analytics tools. And lastly, as part of our National Pancake Day fundraising campaign, we invited current and former Children's Miracle Network Hospital's patients to create a new pancake reciepe and crowned our first-ever kid chef, 9-year old leukemia survivor, Starlot Sharon [ph]. Starlot, along with IHOP's health culinary, Naval Kentucky [ph], appeared on more than 20 market-leading TV and radio programs in cities like New York, Atlanta, Phoenix and her hometown of Mobile Alabama. Starlot showed off her winning oatmeal raise and cookie pancake and talked about how the funds collected on IHOP National Pancake Day helped kids like her. I'm pleased to say that this year's campaign was a success raising over $3 million. We're confident in our ability to sustain IHOP's momentum as most of the catalysts are within our control. These include providing abundant value, leveraging our deep culinary pipeline of new items that are unique to IHOP, and innovating marketing that resonates with consumers just to name a few. What we're experiencing today is a result of flawlessly executing the strategy that IHOP in conjunction with our franchisees developed and launched last year. That strategy is grounded in four key pillars; significantly enhancing the guest experience, running great restaurants, driving traffic, and being aggressive [ph]. I'll begin my comments with significantly enhancing the guest experience. IHOP's Rise 'N Shine remodel program plays a significant part in shaping our guest perceptions of the brand. Based on guest feedback winning from guest intercepts and focused groups, they told us that our pre-remodeled restaurants were feeling outdated and a bit dragged [ph]. The remodel program has helped to successfully reshape the consumer experience with a layout that feels more inviting but being open and cheerful. The modern décor also helps the brand until useful and our restaurants more welcoming. Our franchisees completed 46 remodels in the first quarter and we expect them to have approximately 275 completed this year. Since the inception of the Rise 'N Shine remodel program, over 660 restaurants or approximately 40% of the domestic system has been remodeled. We expect the pace of remodel to continue at run rate in the range of 250 to 300 per year until completion driven by healthy franchisee, they are enthusiastic about program. As I mentioned earlier, we sharpened our focus on the guest experience. This resulted in a noticeable improvement in our guest satisfaction scores across all key categories such as overall experience, intent to revisit, price value, food and beverage, and service experience according to data from MTD [ph]. Not only have we seen improvement on an absolute basis but also relative to our peers. In today's world, dinning and technology go virtually hand-in-hand; technology influences how and where we decide to dine. With that in mind, we're focused on engaging our guests both inside and outside our restaurants through an omnichannel experience. We're seeing continued solid traction from the rollout of our enhanced website and the launch of our mobile app. In fact, the average checked are online to-go orders was approximately 36% higher and all over in our premise orders in the first quarter. With the launch of our new international pancakes lineup on the screen menu, we introduced a fund raiser to engage with our guests so the international passport feature in IHOP's mobile app. The feature entitles guests to download the app, visit our restaurants and order all three of our new internationally inspired pancakes. Once guests have taken pictures of all three pancakes and uploaded them to the app, they are entered into our [indiscernible]. Since passport feature is rolled out, we have seen downloads of the app more than double. This part of our strategy to leverage technology to engage with guests and drive frequency. Our guests wanted us to leverage technology to make their experience more enjoyable and we let them. We've recently entered into a strategic relationship with Comcast and are currently upgrading Wifi [ph] in all of our restaurants and expect completion by the end of the year. Our focus is to leverage technology where appropriate to eliminate pressure [ph] points from that guest experience. We have several test and plan to achieve this and we'll provide updates on those initiatives during the course of the year. Now let's turn to running great restaurants. IHOP franchisees [ph] takes great pride in restaurant operations. We implemented several initiatives to enhance operations and embedded training and franchisee support. For instance, we recently rolled out an enhanced scoring system for franchisees making it more guest centric to focus on food and service. We rolled out our I-hospitality program which encompasses rewarding team members at the restaurant level for outstanding performance in several areas such as delivering great food for our guest and outstanding teamwork. IHOP franchisees continue to do great work by focusing on quality food and service and receiving the results in our guest satisfaction metrics. The outbreaks to the in-restaurant Wifi discussed earlier will facilitate better guest engagement, support the enhanced rollout of our Dine N Play online training platform that contains several new topics, as well as support other technology platforms. Lastly, we changed our field organization structure to create six regional teams having more resources to provide holistic support to address franchisee operations, training and marketing needs at a local level. Switching gears to the third strategy, driving traffic. IHOP's culinary team continues to innovate at the highest level to impress guests. Our guests want abundant value and variety and we deliver it. In the first quarter, we introduced big and bold omlettes with our world famous pancakes which not only provides guests with plenty of food and variety for the price but also provides a perfect balance of sweet and savory. We're taking action to create a more sustainable value on our menu which we believe will drive positive traction. We're housing the largest opportunities we have to drive traffic is around delivering a compelling value proposition for our guests. On the innovation front, we've recently launched the new IHOP creation section of the menu which highlights the best in creativity from our culinary team. More than half of this section is portable and includes unique items such as buying off signature pancake sliders and the ultimate waffle stacked sandwich. Innovate advertising that breaks through the quarter is also crucial to driving traffic. During the first quarter we unvieled [indiscernible] new creative coupled with a shift in our media buy to launch our pancakes, pancakes, pancakes campaign as part of IHOP's 60th anniversary celebration. We'll have plenty of news to share over the next few months in conjunction with the 60th anniversary to keep IHOP top of mind and to attract new guests to our restaurant. Turning to the final column, being where the guest is. With our online ordering platform fully deployed and supported by our mobile app, we saw a continued significant growth in our off premise business. First quarter deferral comp sales increased sharply served by a very solid traffic growth an improvement in chat. We believe the new IHOP creations sections of menu will have a positive impact of our off premise business, given the high affordability of more than half of the items. We remained focused on meeting the convenience needs of our guest who are continuing to test delivery and work on the integration of technology to simplify restaurant operations. Regarding unit development; new openings by franchisees continued at a healthy pace in the first quarter. We opened 16 restaurants globally in the first quarter in line with our expectations with a strongest pace of openings in the first quarter and over a decade. This state of confidence our franchisees have in the IHOP brand, they are building to identify and develop quality sites and the return they generate on their investment. To close, we are encouraged by where we are currently through this [indiscernible] of our four point strategy. Looking ahead, we're confident in our ability to build a current momentum and drive sustainable positive sales and traffic. With that, I'll now turn the call back over to Steve for closing comments. Steve?

Thanks, Darren. To close, I believe the shifts in our Company's philosophy will have a significant positive impact on further developing a performance based culture. We are a company that believes that community happens when people eat together and Dine Brands nurtures and grows the worlds most loved restaurant brands while united communities have a great food and memorable dining experiences. Our culture will be driven by accountability, transparency, collaboration and innovation while recognizing it's celebrating our franchisees and team members. Our growth strategies for both brands are gaining traction and we are very encouraged by the early results this year. We are laser focused on driving long-term sustainable positive sales and traffic. We know the path of success is a marathon and not always a sprint. I applaud the great work being done by franchisees and team members who execute our strategy everyday. We will continue to leverage the benefit of our highly desirable 100% franchise business model to invest in the long-term success of our brands. We're taking the necessary steps to further strengthen IHOP and Applebee's and position them to built insurmountable leaps in their respective categories. At the corporate level, we are prudently working to improve our balance sheet and we'll score strategically expanding or brand portfolio. So sum us; the outlook for dinning brand is great. We've set high goals for ourselves which I'm very confident we can and will achieve. Now we'll be pleased to open the call for any question you might have. Operator?

[Operator Instructions] And first we have Stephen Anderson from The Maxim Group.

I wanted to ask about your off premise, and more specifically about your delivery strategy. We've got some note from one of your peers talking about how the delivery is actually influencing the same restaurant sales growth and they want into the franchise rather the company-owned versus franchise numbers showing that there is a discrepancy. I think it might be the fact that more concentration of these companies on units in markets. I wanted to ask; in the areas we've want delivery so far -- so first of all I want to see what your penetration is to-date? And what your strategy is with partnering with a third-parties?

Okay. So I'm going to let the [indiscernible] the question. Obviously, deliveries are very important component for us. We are actually focused primarily on takeout. However, we're going to deliver wherever the guest want and if that's through delivery, we can't. Obviously based on the size of our system, we're continually trying to be expand our coverage which is in the 40 plus percentage basis point at this point and we've got relationships with several of the key delivery folks. But let me let the brand talk stuff that their business.

Steve referenced that 40% to 50% of the citizen can access delivery at the moment; so that be your approximate coverage; we have very specific partnerships with Jordache [ph], Amazon. We're astronauts and deliver logic and certainly in dialogue with we've reached 200 and 300 of our restaurants are actively leveraging delivery in a timely incremental; so that would be the context from an Applebee perspective.

I would really echo just what John said, it's essentially the same here. We're testing delivery right now in about 100 restaurants with Amazon [indiscernible] and we do have some franchisees engaging with Uber Eats as well. [Technical Difficulty].

Next we have Michael Gallo from C.L. King.

Good morning, and congratulations on the improved momentum. I guess question for John; John obviously you've had the benefit year-over-year of the additional contributions made to the advertising fund, and certainly, you have a continuation of that here in the second quarter. I was wondering your confidence level -- how you plan to bridge as we get into the second half of the year and beyond as you won't have the benefit of having that increased level of contribution? And what are you doing in terms of incremental franchisee advertising, contribution and national that will help you maintain similar advertising wage [ph]? Thanks.

So we remain very confident to your first point of the question. And then I would assume that there our advertising contribution rate remains the same, we had extensive discussions with our frnachisees and we have some advertising commitments contingent upon performance and therefore I'm not concerned about back half of the year if that's your ultimate question.

And then, I guess John what I think about some of the success you've had -- you've been able to kind of go back to some of the historically successful items such as Riblets [ph], you mentioned you doing a lot more analytics; should we think about from your analysis that there are a lot of other opportunities to perhaps bring back some items that might have some meaningful brand equity, and item like -- obviously, Riblets [ph] which was enormously successful early in the year; should we think about that coming back in different forms and different flavors later in the year? Thanks.

Michael, I think that's accurate. For me Applebee is a bit of reservoir of untapped equity and potential innovation around those equities and I don't believe there are any constraints around what's possible so long as we stay focused on our core guest and don't lose sight of who we are and stand for in everything that we do. So yes, you can expect continued innovation but smart validated innovation -- validated from not only a guest perspective but operations and financial.

Our last question comes from John [ph] from JPMorgan.

According to the notes, I guess the transcript -- I mean, it looks like the first quarter ended a lot softer or so much softer than where it began in the quarter. So hoping that we could talk about kind of inter-quarter comp trend, especially relative to the industry that seem to have done the opposite which has strengthened as the quarter went on. I'm asking this question really in the context of the variability that your LTOs are putting into the business, I mean if that's something that you guys are comfortable with that, the LTOs are doing what they're supposed to in the month of which you're running them or if we can kind of migrate having more permanent platforms and permanent promotions, maybe take some of that volatility out of the business?

I would say that your assessment of the quarter is not that accurate. I would say we are very early within the quarter and I want to talk month by month but we had variability within the quarter but there was no deceleration during the quarter and in fact, based on promotions which we think are highly effective as our driving traffic and riding additional opportunities for our franchises to drive profit. We were very satisfied with the way the quarter played out, both at the beginning and the end. And the momentum that has continued into the second quarter. So I would say that you should look at our progress as being relatively steady and consistent and the momentum continues to build.

But did you begin the quarter with a five -- I mean, wasn't that something that you talked about a couple months ago?

We did it for Applebee's.

Yes, and I'm sorry if that wasn't clear, that's what I was talking about. I apologize; I mean, it was specifically -- my question was 100% related to the Applebee's business.

Obviously, the January results were driven by a very successful LTO in the Riblets [ph] and Blue Moon, and so that was particularly well received. But I would also say to you that as we look at where we are, there is no deceleration but there is variability based on the motion providing and the acceptance of them all of which are positive -- so which are more positive than others, and so I was -- I think I would view rather look at it as January is a really strong month and as we talked about but we're having other strong months as well and we expect to continue to do that based on the promotions.

Plus every tactical event and promotion tends to have a slightly different objective and strategy; I would tell you from a traffic perspective, we're very pleased with our business and our moment throughout the quarter.

And then secondly, I mean you guys obviously are big enough within casual dining and family dining, that you must have a lot of thoughts about the way that kind of the consumer is going to play out over the next year. And certainly in the first quarter there are some very uneven weather and lot of consumers really just starting to see the benefit from taxes and their paycheck maybe in the middle of the first quarter and there could have been some relief rally or some reaction to that but is it kind of possible for you to talk about your overall outlook for branded casual dining -- same-store traffic as we kind of move throughout the next year? I mean, whether your analytics telling you just in terms of the baseline of what your plan is built on?

I don't want to represent the casual dining category but we're all seeing the same thing which is a consumer confidence level that's robust, we're seeing enhanced spending very low on employment -- I think record unemployment. In household incomes increasing which maybe driving some of that; so it may be a bit early to flag a tailwind in the category but certainly from my perspective it has improved which may bode well for the future but it's a little early to call that.

I'd add on those comments as well and I'd still say from a family dining perspective, we still view this as a market share of situation where consumers hold it in a little bit better shape and so they have some more money. But we're still having to take traffic and incremental business from our nearing competitors to compete; so we told you this as highly competitive environment and we're going to take share for our competitors.

And then the final question; I know before we had talked about 300 basis points potentially coming from the PwC work in another place that have 200 to 300 basis points coming from the PwC work. And I think some of the comments on this call be related to the run rate in fiscal '18 perhaps equaling 100 basis points from the PwC work. One, just wanted to get a sense of kind of what the end game is, you know, others margin savings at the PwC work will deliver franchisees? And then secondly, how much of that cost savings do you think will be reinvested in some way back in the system whether few portions or less pricing or labor or what have you?

Insightful question; so franchisees, the 33 or so that we have in the Applebee system are very enthusiastic at this. So this is a profit optimization initiative, it's a multi-year journey having had experience with other brands, in particular, with PwC. You're right that on an annualized basis, a 100 basis points at Applebee's will -- on an annualized basis be captured in '18. And then I would expect that ultimately the big bold goal is -- and most of that by the way would be in food related initiatives but some of this would lead into labor and 200 plus basis points perhaps 300 would not be an unrealistic objective overtime.

We have the same initiatives going with PwC and similarly we see opportunities in both food and labor. The run rate is really contingent on the ability to capture this stuff and then at various times in the year you actually start to realize the savings on an annualized run rate. But it kind of begins at different points throughout the year and so that run rate will start to build overtime as these opportunities are brought to fruition.

And that concludes our question-and-answer session.

Well, thank you again for your time today. We are scheduled to report results for the second quarter on August 1. And we'll look forward to speaking with you then. Have a good day.