Remodels unlocking growth at Denny's

by Monica Watrous
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Denny's also is revamping its menu with new core items that include premium sandwiches on seven-grain bread.

 

SPARTANBURG, S.C. — Denny’s Corp. is on track to achieve its highest yearly same-store sales growth for company-owned restaurants in a decade. A top driver behind the casual dining chain’s turnaround is remodeling. Denny’s rolled out its “heritage” reimage program last year and plans to accelerate the renovations in the coming year based on positive performance at the upgraded units. The company completed 35 remodels during the quarter for a total of 129 year-to-date.

“Results have been positive with increases in same-store guest traffic coming at all day parts, with dinner seeing the strongest lift,” said John Miller, president and chief executive officer, during an Oct. 27 call with financial analysts to discuss third-quarter performance. “We have remodeled 38 of our company restaurants through the first three quarters of this year with the goal of completing approximately 45 by the end of the year. This, along with the 26 completed late in 2013, means nearly 50% of our company restaurants will be showcasing the heritage image. Due to the strong performance, we will continue to accelerate remodels at the company restaurants with a target of completing 45 to 50 remodels in 2015.”

For the third quarter ended Sept. 24, Denny’s had net income of $8,343,000, equal to 10c per share on the common stock, up 19% from $7,031,000, or 8c per share, in the prior-year period. Total operating revenue totaled $117,032,000, which compared with $117,275,000 in the same quarter of the previous year. Weighing on restaurant sales was lost business during the temporary closings of several restaurants, including Denny’s highest-volume unit in Las Vegas, during reconstruction and remodeling.

Denny’s reported its strongest quarter of system-wide same-store sales in the past two and a half years. Domestic system-wide same-store sales rose 2.4%, which included a 4.1% increase at company restaurants and a 2.1% increase at domestic franchised restaurants.

“Our company restaurants achieved the highest quarterly same-store sales increase in the last eight years,” Mr. Miller said.

In addition to the remodels, Denny’s has revamped its menu with more than 20 changes created to simplify operations and improve margins. During the quarter, the chain introduced new core items, including a pair of premium sandwich entrees with new seven-grain bread. A limited-time Greatest Hits Remix promotion featured Denny’s signature dishes with a twist, reducing complexity in the kitchen.

“In the fourth quarter, our limited-time-only menu introduces seasonal and holiday flavors into our build-your-own Grand Slam with check-building, premium options like pumpkin pancakes and gingerbread french toast, in addition to a new holiday premium red velvet shake, which is available, as well as the all-new turkey and dressing sandwich with dippable turkey gravy,” Mr. Miller said. “Additionally, we have updated our $2, $4, $6, $8 value menu with a number of market-tested changes designed to keep the traffic-driving capabilities of the platform very strong, but also balancing the need to improve margins.”

Denny’s also is expanding its footprint with nontraditional formats, including an on-campus, fast-casual-style unit at the University of Alabama. The restaurant features “a much more millennial-friendly design” with a scaled-down menu that includes all-day breakfast items, burgers, burritos, sandwiches and salads.

“We believe that Denny’s can compete successfully in the nontraditional market and look forward to opening more university locations utilizing this format starting later this year,” Mr. Miller said.
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