Dive Brief:
- The Edge Consulting Group has sent a letter to Dine Brands’ board of directors calling for “urgent strategic action,” according to a Monday press release.
- Edge, which has a roughly 1% stake in Dine, wants the company to make changes to its finances, improve operations at its core brands, and add “seasoned operational leaders” to the board. Dine Brands declined to comment on the letter.
- The letter comes after Dine Brands posted same-store sales growth of 4.9% at Applebee’s and a decline of 2.3% for IHOP.
Dive Insight:
Edge is asking the board to refinance $500 million in debt, suspend or redirect Dine’s annual dividend and consider divesting non-core assets, like Fuzzy’s Taco Shop, which the company bought in 2022 for $80 million. Fuzzy’s Taco Shop posted a same-store sales decline of 11.8% for the second quarter, according to an earnings release.
Edge said it has spent “considerable time” looking into Dine’s operations, finances and corporate governance.
“Without urgent structural change, Applebee’s and IHOP will continue down the same path as TGI Friday’s — brand decay, market irrelevance, and shareholder value destruction,” Jim Osman, CEO and founder of The Edge Consulting Group, said in the letter to Dine.
Osman said the challenges impacting Dine Brands aren’t related to casual dining. He believes that Dine needs to change its leadership, execution and capital allocation. Currently, same-store traffic is behind its peers by 5% to 10% and operational rollouts are not yet complete, he said. In addition, “$500M in high-cost debt drains cash, and a $30M+ annual dividend starves modernization,” he said.
Under Edge’s plan for financial repair, the investor said Dine should refinance $500 million in debt to free up cash, redirect or suspend $30 million in annual dividends to fund modernization and issue a strategic review of Fuzzy’s for $50 to $60 million to “sharpen brand focus.”
The investor is also urging Dine to complete the following initiatives:
- Implement KPI dashboards at the store level to improve ticket time, accuracy and labor efficiency.
- Simplify menus to boost speed of service and margins.
- Complete kitchen display system rollouts across Applebee’s and IHOP locations.
- Install TurboChef ovens “to improve prep times and food consistency.”
Edge also wants changes at the board level, urging the addition of directors that have “deep restaurant operations and franchise finance expertise.” The activist firm wants Dine to establish a franchisee advisory council with incentives linked to scorecards.
“This is a clear, actionable path to restoring credibility, brand relevance, and shareholder value — with a realistic 150–200% total return opportunity in 24–36 months,” Osman wrote.
Applebee’s and IHOP have been making headway on various areas Osman said need work. Applebee’s is in the process of developing a new prototype for smaller, more modern restaurants that optimize off-premise.
Dine is also expanding its co-branded Applebee’s and IHOP locations, which tend to drive higher sales and traffic than standalone restaurants. Applebee’s also has had recent success in value plays and menu innovation, which helped drive sales and traffic growth last quarter, ending a negative sales streak. IHOP underwent a significant menu upgrade last year and will lean into value to help drive traffic.
This isn’t the first time an activist investor has targeted Dine Brands. In 2020, JCP Investment Partnership proposed in a proxy statement that the company should spin off IHOP into a separately traded company. Nothing came from that proposal.
