Applebee's And IHOP's SSS Growth Expectations Dwindle, Analyst Downgrades Dine Brands Global

Wedbush analyst Nick Setyan downgraded Dine Brands Global Inc DIN to Neutral from Outperform at a reduced price target of $65 from $80.

The analyst is bearish on Applebee's and IHOP's below-consensus (2.8%) same-store sales (SSS) growth. 

Consequently, Setyan lowered Applebee's Q2 SSS growth estimate to 2.0% from 2.5% on an expected slowdown related to unfavorable weather, higher competition, and staffing challenges.

The analyst also reduced Applebees' SSS growth estimate for 2023 to 2.8% from 3.3% and 2024 to 2.0% from 2.5%, citing the risk for further reduction as this year progresses. 

The analyst lowered the IHOP Q2 SSS growth estimate to 2.0% from 3.5% and for 2023 to 3.8% from 4.3% on staffing challenges.

On the other hand, Setyan maintained the estimate for the gross margin for Applebee's at 96.5% and IHOP at 84.0% in Q2. 

However, the analyst lowered the 2023 gross margin estimate for Applebee's to 96.4% (from 96.5%) and IHOP to 83.7% (from 84.0%). 

Apart from this, the analyst also sees no sign of meaningful growth in share repurchases in the near term and believes the management is prioritizing rebuilding cash in the near-medium term.

Overall, Setyan lowered the EPS estimate to $6.06 from $6.20 (consensus: $6.34) for 2023 and $6.35 from $6.49 (consensus: $6.91) for 2024. 

Price Action: DIN shares are trading lower by 4.89% at $61.07 on the last check Wednesday.