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Applebee's is turning its business around, one cocktail at a time

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  • Applebee's is turning its business around, one cocktail at a time

    • Applebee's cheap cocktails are driving massive traffic to its restaurants.
    • The company has had four consecutive quarters of positive same-store sales growth since initiating this strategy.
    • Applebee's parent company Dine Brands' stock is up more than 70 percent since January.

    It's been a record-setting year for Applebee's and the restaurant is showing no signs of slowing down, even as its competitors are struggling with getting guests in the door.

    Cheap alcoholic beverages and dinner deals lured in customers during the third quarter and helped boost same-store sales up 7.7 percent, John Cywinski, president of Applebee's, told CNBC. This is massive growth compared to the rest of the industry, which saw same-store sales up 1.2 percent in the same period, according to Black Box Intelligence data.

    Cywinski said this was the best performance for the brand in at least 14 years and that both dine-in and to-go sales grew in the quarter. Dine Brands, Applebee's parent, reported its results on Wednesday.

    "Applebee's is back to its roots," he said. "The evidence is four consecutive quarters of growth, 43 consecutive weeks of positive comp sales, [and] outperforming every segment of the restaurant industry."

    Competition in the industry is getting stiff. Customers have more choices than ever of where to eat, how to eat and what to eat. Mobile apps and delivery has made getting meals so easy, that some customers are cutting back on trips to restaurants in favor of having food show up at home. Cheaper grocery prices, too, have driven diners to cook more meals at home. These issues persisted in the third quarter, as traffic industry-wide fell 1.2 percent, according to Black Box.

    This was not the case at Applebee's, however, Cywinski said. In the first nine months of the year, same-store sales were up 5.5 percent, the bulk of the gain came from increased traffic, he said.

    In 2017, the company began a campaign of offering $1 margaritas, dubbed Dollaritas, an effort to bring in younger diners, who tend to prefer limited-service chains like Chipotle, Chick-fil-A and Taco Bell, where they can order and go. The chain also does monthly drink promotions like its Halloween-themed $1 Zombie drink, which was garnished with a gummy brain.

    "The beverage program is important to us," Cywinski said. "Half of our growth is dine-in and a good chunk of that is beverage driven."

    Cywinski also sees another upside: "Frankly, because [customers] are getting a great value on the beverage side, they tend to be ordering desserts and appetizers."

    Applebee's is not only getting more people to dine-in at its restaurants, but has also improved its to-go sales with curbside pickup. In the third quarter, off-premise sales grew 37 percent and now account for 10 percent of total sales.

    Cywinski expects these sales to double to 20 percent in the next few years. In addition, the company plans to have delivery available at about 1,000 restaurants by the end of 2018.

    Raymond James analyst Brian Vaccaro upgraded Dine Brands shares to a strong buy from outperform in the wake of the earnings report, saying he had "increased confidence" in Applebee's ability to sustain its same-store sales gains in 2019.

    He set a price target of $108 on Dine Brands shares on Thursday. The stock, which is up about 70 percent since January, closed Friday just above $87.

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