The declining price of gas will provide welcome financial relief to the typical diner of Applebee's and IHOP and perhaps encourage them to return for a dinner out, said the parent company's CEO.
"Gas prices have fallen the last 50 days, and that is encouraging for the back half of the year and why we say that we are cautiously optimistic," Dine Brands CEO John Peyton told Yahoo Finance Live. "We know that gas prices do correlate — we do believe that will encourage some of those lower income guests to return to IHOP more frequently and Applebee's more frequently than they have."
The elevated price for gas weighed a bit on Dine Brands' performance in the second quarter.
Peyton told analysts on an earnings call Tuesday that guest frequency fell a "couple" percentage points in the quarter for those households earning less than $50,000 a year. Those earning above $75,000 saw a "significant" increase in guest frequency, Peyton explained.
Here is how Dine Brands performed versus analyst estimates for the second quarter:
Net Sales: $237.8 million vs. $237.3 million
Applebee's Same-Store Sales: +1.8% vs. +2.2%
IHOP Same-Store Sales: +3.6% vs. +3.9%
Diluted EPS: $1.65 vs. $1.64
Full Year Adjusted EBITDA Guidance: $230 million to $250 million (reiteration); vs. $244.5 million
Dine Brands shares fell slightly on the news. The stock popped close to 5% following Peyton's relatively upbeat comments on Yahoo Finance Live.
Shares are down about 5% year to date, out-performing the S&P 500's 14% drop.
To Peyton's point, gas prices have pulled back noticeably in recent weeks — setting the stage for potentially better sales for the restaurant industry in coming months.
Gasbuddy notes the national average of gas has fallen under the $4 a gallon mark for the first time since early March. Since hitting a peak of $5.03 on average on June 14, gas prices have fallen over $1. Gasbuddy estimates Americans are spending nearly $400 million less on gas than they did in mid-June.
"The economic backdrop remains uncertain, but we continue to believe that the restaurant category will hold up relatively well (as it has during past recessions) should consumer spending being to tighten," said Citi restaurant analyst Jon Tower in a note to clients.