Release Date: May 05, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Denny's Corp (DENN, Financial) introduced a successful Buy One Slam, Get One for $1 promotion, which attracted nearly 70% of transactions from lapsed or new customers.
- The company saw a positive impact from its off-premise sales, contributing a 1% improvement in same restaurant sales during Q1, with off-premise channels now representing 22% of total sales.
- Keke's Breakfast Cafe, a growth brand for Denny's Corp (DENN), reported a 3.9% increase in same restaurant sales and outperformed the BBI Family Dining Index in Florida by nearly 400 basis points.
- Denny's Corp (DENN) launched innovative menu offerings like Slammin' Sodas, which increased beverage incidents by over 100 basis points.
- The company is making strategic investments in digital enhancements, including a new loyalty CRM platform set to launch in the back half of the year, expected to drive future sales growth.
Negative Points
- Denny's Corp (DENN) reported a 3% decrease in same restaurant sales for the first quarter, losing traction compared to the BBI Family Dining Sales Index.
- The company faced macroeconomic pressures, including negative consumer sentiment due to tariffs and higher prices, leading to reduced consumer spending.
- Adjusted company restaurant operating margin decreased to 9.1% from 13.0% in the prior year quarter, impacted by higher product costs and inefficiencies in new cafe openings.
- Egg prices significantly impacted margins, with costs increasing 3 to 4 times, leading to temporary surcharges at some locations.
- Denny's Corp (DENN) closed 14 franchise restaurants during the quarter, consistent with its strategy to close underperforming locations.
Q & A Highlights
Q: You talked about your April same store sales improving to flattish, and you introduced some new compelling value via some LTO. Can you talk about how that strategy is shaping the way you're thinking about the rest of the year, and do you believe you'll need to lean into that form of discounting and value even more to sustain the momentum?
A: Kelli Valade, CEO: We feel good about our $2 $4 $6 $8 everyday value strategy and will continue to refine it. The Buy One Get One promotion was a breakthrough for us, especially for lower-income consumers. We are pleased with the results and will continue to refine our everyday value strategy. It's not always about discounting but ensuring our offerings break through the clutter.
Q: You mentioned donating some market share during the first quarter relative to your peer group. Can you talk about whether your trends improved in April and if this was seen across the peer group as well?
A: Kelli Valade, CEO: We saw a change in trend against competitors when we introduced the promotional value in late March. This led to improvements across all income cohorts. We are excited about the transactions and the overall success of this promotion.
Q: Can you talk about forward outlook for menu pricing and how we should think about mix with the $1 BOGO running this quarter?
A: Robert Verostek, CFO: We will have approximately 3% rollover pricing from 2024 and plan a 2% system average pricing in May. The effective pricing will be 1% to 1.5%. The BOGO mix is about 4% to 5%, with a $0.30 impact on check, resulting in less than 0.5 point of mixed impact from this promotion.
Q: Can you quantify how much the egg surcharge might have helped same store sales in the period?
A: Robert Verostek, CFO: The impact was very limited, less than $100,000 in royalties. It was applied only in selected restaurants where egg prices were significantly higher.
Q: Regarding the inefficiencies of opening new Keke's impacting company margin by 70 bps, is there anything that can be done to mitigate this impact?
A: Robert Verostek, CFO: These inefficiencies are a function of time. It takes about six months to reach efficiency and another 6 to 12 months to optimize. The small base of company cafes means this will be a recurring theme until we expand or refranchise.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
