Dine Brands (NYSE:DIN) Misses Q3 Revenue Estimates

Full Report / November 01, 2023

Casual restaurant chain Dine Brands (NYSE:DIN) fell short of analysts' expectations in Q3 FY2023, with revenue down 13.1% year on year to $202.6 million. Turning to EPS, Dine Brands made a non-GAAP profit of $1.46 per share, down from its profit of $1.66 per share in the same quarter last year.

Dine Brands (DIN) Q3 FY2023 Highlights:

  • Revenue: $202.6 million vs analyst estimates of $203.5 million (small miss)
  • EPS (non-GAAP): $1.46 vs analyst estimates of $1.29 (12.9% beat)
  • Free Cash Flow of $27.4 million, up 38.2% from the previous quarter
  • Gross Margin (GAAP): 48%, up from 40.4% in the same quarter last year
  • Same-Store Sales were up 2% year on year (beat vs. expectations)
  • Store Locations: 3,446 at quarter end, increasing by 10 over the last 12 months

Operating a franchising model where the company doesn’t own and operate all of its restaurants, Dine Brands (NYSE:DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.

The company was founded in 1958 with the launch of IHOP, which stands for International House of Pancakes. IHOP is known for breakfast fare such as eggs, pancakes, and waffles, all washed down with come coffee or juice. The locations resemble classic American diners, complete with cozy booths and counter seating.

Applebee’s was founded in 1980 and acquired by Dine Brands in 2007. Applebee's is known for its lively bar and grill atmosphere and offers a diverse range of hearty American dishes such as burgers, pasta, and steaks. Beer and alcohol is served, which often attracts sports fans to the bar for game days.

Dine Brands serves the middle-income family and overall casual diner. At Applebee’s and IHOP, you’ll find parents who want to eat out where there is a kids menu and where other guests will not mind a little bit of noise from the little ones. You’ll also find groups of friends catching up over drinks or burgers. In short, Dine Brands offers good food at prices that won’t break the bank in a place that is lively and not too stuffy or fancy.

Sit-Down Dining

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Multi-brand full-service restaurant competitors include Darden (NYSE:DRI), Brinker International (NYSE:EAT), Bloomin’ Brands (NASDAQ:BLMN), and The Cheesecake Factory (NASDAQ:CAKE).

Sales Growth

Dine Brands is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, Dine Brands can still achieve high growth rates because its revenue base is not yet monstrous.

As you can see below, the company's revenue has declined over the last four years, dropping 1.84% annually as it didn't open many new restaurants.

Dine Brands Total Revenue

This quarter, Dine Brands reported a rather uninspiring 13.1% year-on-year revenue decline, missing analysts' expectations. Looking ahead, the analysts covering the company expect sales to grow 1.75% over the next 12 months.

Number of Stores

The number of dining locations a restaurant chain operates is a major determinant of how much it can sell and how quickly company-level sales can grow.

When a chain like Dine Brands doesn't open many new restaurants, it usually means there's stable demand for its meals and it's focused on improving operational efficiency to increase profitability. As of the most recently reported quarter, Dine Brands operated 3,446 total locations, in line with its restaurant count a year ago.

Dine Brands Operating Retail Locations

Taking a step back, Dine Brands has kept its locations more or less flat over the last two years compared to other restaurant businesses. A flat restaurant base means Dine Brands needs to boost foot traffic and turn tables faster at existing restaurants or raise prices to generate revenue growth.

Gross Margin & Pricing Power

We prefer higher gross margins because they not only make it easier to generate more operating profits but also generally indicate pricing power and differentiation, whether it be the dining experience or quality and taste of food.

Dine Brands has best-in-class unit economics for a restaurant company, enabling it to invest in areas such as marketing and talent to stay one step ahead of the competition. As you can see below, it's averaged an exceptional 44.1% gross margin over the last two years. This means the company makes $0.44 for every $1 in revenue before accounting for its operating expenses. Dine Brands Gross Margin (GAAP)

Dine Brands's gross profit margin came in at 48% this quarter, marking a 7.6 percentage point increase from 40.4% in the same quarter last year. One quarter's performance shouldn't determine your long-term view of a company, but Dine Brands's margin expansion is a wonderful sign in the near term. It shows the company received better terms from its suppliers, and if this trend continues, it could suggest a less competitive environment where it has better pricing power and more stable input costs (such as ingredients and transportation expenses).

Operating Margin

Operating margin is a key profitability metric for restaurants because it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

in line with the same quarter last year. This indicates the company's costs have been relatively stable.

Dine Brands Operating Margin (GAAP)

Zooming out, Dine Brands has exercised operational efficiency over the last eight quarters. The company has demonstrated it can be one of the more profitable businesses in the restaurant sector, boasting an average operating margin of 20.5%. On top of that, its margin has remained more or less the same, highlighting the consistency of its business.


These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.

In Q3, Dine Brands reported EPS at $1.46, down from $1.66 in the same quarter a year ago. This print beat Wall Street's estimates by 12.9%.

Dine Brands EPS (Adjusted)

Between FY2020 and FY2023, Dine Brands's adjusted diluted EPS dropped 3%, translating into 1% average annual declines. We tend to steer our readers away from companies with multiple years of falling EPS, especially restaurants, which are arguably some of the hardest businesses to manage because of constantly changing consumer tastes, input costs, and labor dynamics. If there's no earnings growth, it's difficult to build confidence in a company's underlying fundamentals, leaving a low margin of safety around its valuation (making the stock susceptible to large downward swings).

Wall Street expects Dine Brands to continue performing poorly over the next 12 months, with analysts projecting an average $0.03 year-on-year decline in EPS each quarter.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Dine Brands's free cash flow came in at $27.4 million in Q3, in line with the same quarter last year. This result represents a 13.5% free cash flow margin.

Dine Brands Free Cash Flow Margin

Over the last eight quarters, Dine Brands has shown solid cash profitability, giving it the flexibility to invest organically, acquire other restaurant chains, pay down debt, or participate in shareholder-friendly schemes such as share buybacks or dividends. The company's free cash flow margin has averaged 8.76%, well above the broader restaurant sector. However, its margin has averaged year-on-year declines of 3.6 percentage points. Although we'd rather see free cash flow conversion increase, short-term fluctuations like this aren't a big deal.

Return on Invested Capital (ROIC)

Dine Brands has an excellent track record of making successful investments and is led by a competent management team. Its five-year average return on invested capital (ROIC) is 16.6%, beating other restaurant companies by a wide margin.

We like to track ROIC because it tells us about a company’s prospects for profitable growth and its management team's ability to achieve it through capital allocation decisions such as organic investments, acquisitions, and share buybacks. ROIC is also a helpful tool to benchmark performance versus peers, and just like how we focus on long-term investment returns, we care more about a company's long-term ROIC because short-term market volatility can distort results.

Key Takeaways from Dine Brands's Q3 Results

With a market capitalization of $766.5 million, Dine Brands is among smaller companies, but its $140.1 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

While revenue missed by a bit, same store sales growth was better. Also it was good to see Dine Brands beat analysts' EPS expectations this quarter. That really stood out as a positive in these results. On the other hand, its gross margin sadly missed analysts' expectations and its revenue missed Wall Street's estimates. Overall, this was a mixed quarter for Dine Brands. The stock is flat after reporting and currently trades at $49.29 per share.

Is Now The Time?

Dine Brands may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for everyone who's improving the lives of others, but in the case of Dine Brands, we'll be cheering from the sidelines. Its revenue growth has been weak over the last four years, but at least growth is expected to increase in the short term. And while its marvelous same-store sales growth has been in a league of its own, unfortunately, its lack of new restaurant openings is a headwind to revenue growth.

Dine Brands's price-to-earnings ratio based on the next 12 months is 7.8x. While we think the price is reasonable and there are some things to like about Dine Brands, at the moment, we think there might be better opportunities elsewhere in the market.

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