Remodels, Menu, Propel Denny’s 3Q Results


Bottom line: The ongoing brand revitalization at Denny’s ‑ a two-pronged approach encompassing a remodeling effort and select menu tweaks - is paying dividends.

The operator and franchisor of the 1,700 unit family concept posted the strongest quarterly systemwide spike in same store sales over the past two and a half years and the highest store growth at company restaurants since 2006.

For the third quarter, Denny’s reported same store sales rose 4.1 percent at its company operated stores and just over 2 percent at its domestic-based franchised units. Systemwide, same store sales rose 2.4 percent.

In a conference call with analysts and investors, Denny’s Corp. President and Chief Executive, John Miller, said that the third quarter results have spurred the company to raise its annual guidance for company store sales in 2015.

“We’re building on that (revitalization),”Miller told attendees, “Since late last year we’ve completed 129 remodels (including 38 company restaurants) and saw a jump in all three day parts with dinner getting the biggest lift.” Miller said Denny’s was on track to “achieve the highest annual same store sales growth for company restaurants in the past 10 years.”

The Spartanburg, S.C.-based company reported third quarter earnings jumped nearly 19 percent from the year ago period to $8.3 million, while revenue remained flat at $117 million.

The unit façade upgrade known as the “Heritage” look was installed at 35 restaurants over the third quarter including 5 company stores. CFO Mark Wolfinger explained the upgrade runs roughly $275,000 for company stores and in the low $200,000 range for licensees depending on the extent of the project. Some 40-45 company stores are scheduled to undergo the enhancement in 2015.

Meanwhile, check averages at company units rose 3.1 percent, with about 1.7 attributable to pricing increases. With the expenses associated with the adoption of the Affordable Care Act as well as a number of state wage initiatives, Wolfinger told analysts that prices would most likely be subject to an additional 2 percent to 3 percent hike next year.

Commenting on Denny’s back of the house strategies, Miller said that the company added two new entrée items over the quarter and instituted roughly 20 menu changes to its current $2-$4-$6-$8 Value Menu selections – primarily directed toward the lower end $2 and $4 offerings.

The rosy quarter also freed up some $12.8 million in additional cash flow, of which $8 million was used to purchase 1.2 million shares as part of the stock buyback program the company  launched in 2010 with a goal of repurchasing nearly 21 million shares.

Denny’s also revealed to attendees it’s looking to expand its non-traditional footprint in venues such as colleges and universities in a strategy to expand the truncated menu and service style concept it opened on the campus of University of Alabama at Birmingham.

During the quarter, the 60-year old company opened nine new licensed units and closed 13.

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