- Revenue: $115.9 million, compared to $116.9 million for the prior year quarter.
- Franchise and License Revenue: $61.6 million, compared to $62 million for the prior year quarter.
- Adjusted Franchise Operating Margin: $30.8 million, or 50% of franchise and license revenue.
- Company Restaurant Sales: $54.3 million, compared to $54.9 million for the prior year quarter.
- Adjusted Company Restaurant Operating Margin: $7.2 million, or 13.2% of company restaurant sales.
- Commodity Inflation: Approximately 1% for the quarter.
- Team Labor Inflation: 3% in Q2, unchanged from Q1.
- General and Administrative Expenses: $20.5 million, compared to $20.2 million for the prior year quarter.
- Adjusted EBITDA: $20.3 million.
- Effective Income Tax Rate: 25.1%, compared to 23.8% for the prior year quarter.
- Adjusted Net Income Per Share: $0.13, compared to $0.15 for the prior year quarter.
- Total Debt Outstanding: Approximately $267 million.
- Share Repurchases: $4.7 million during the quarter.
- Cash Capital Expenditures: $5 million primarily related to Keke’s development.
- Same-Restaurant Sales: Domestic system-wide same-restaurant sales of negative 0.6%.
- Average Weekly Sales Per Restaurant: $38,000, including off-premises sales of approximately $8,000.
- Keke’s Same Cafe Sales: Negative 4.6% for the quarter.
- Restaurant Openings: Four combined restaurants during the quarter (three new Denny’s franchise restaurants and one company-owned Keke’s cafe).
- Restaurant Closures: 15 closures with an average unit volume of slightly under $1.1 million.
Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Denny's Corp (DENN, Financial) outperformed the BBI Family Dining Sales Index for the second consecutive quarter, indicating strong competitive positioning.
- The company successfully expanded its third virtual brand, Banda Burrito, to over 300 restaurants, with plans for a nationwide rollout by fall.
- Denny's Corp (DENN) relaunched its 2468 menu with an added $10 category, which has shown promising test results in driving incremental traffic and protecting profitability.
- The company completed the rollout of a new cloud-based POS system in all company restaurants, which is expected to provide future labor savings and operational efficiencies.
- Keke's Breakfast Cafe, a growth brand for Denny's Corp (DENN), showed progress by narrowing the sales gap to the Florida index and opening new locations with strong performance.
Negative Points
- Denny's Corp (DENN) reported a 0.6% decline in domestic system-wide same-restaurant sales for Q2 2024.
- Keke's system-wide same cafe sales declined by 4.6% for the quarter, reflecting challenges in the Florida market.
- Total operating revenue decreased to $115.9 million from $116.9 million in the prior year quarter.
- Adjusted company restaurant operating margin dropped to 13.2% from 15.4% in the prior year quarter, impacted by lower sales and increased costs.
- The company adjusted its 2024 domestic system-wide same-restaurant sales guidance to between negative 1% and positive 1%, reflecting uncertainties in the macroeconomic environment.
Q & A Highlights
Q: Can you provide more details on the net price mix impact of 5% in the quarter?
A: The mix for the quarter was a slight negative impact to overall GCA. Net pricing was 5%, with the mix impact largely driven by additional value offerings, resulting in about a negative 1% impact.
Q: What percentage of sales were on value platforms, and how high could the value mix go in the second half of 2024?
A: The value mix remained flat, slightly down to 18% from 19% last quarter. The 246810 platform is mixing mid-teens, with some markets higher. We are confident in its potential to drive incremental traffic and maintain margins.
Q: How did same-store sales trends from June into July compare, and what drove the improvement?
A: June was the lowest month at down 1.5%. July showed a material improvement, trending favorably and outperforming the negative 0.6% in Q2. This improvement is attributed to the deployment of co-op advertising and the addition of Banda Burrito in some locations.
Q: Can you share more about the $2 to $10 menu test and its impact on traffic and margins?
A: The 246810 menu mixed mid-teens overall, with the $10 price point performing well. The test markets saw immediate traffic gains, and the menu remained margin positive due to well-engineered add-on categories.
Q: Are you seeing consumers trading down and eating at home more, and how is Denny's addressing this?
A: While grocery prices are still high, we see some changes in check behavior, such as fewer beverage orders. However, our in-restaurant merchandising and barbell strategy have helped offset potential trade-down effects.
Q: What is the outlook for Keke's same-store sales growth in the second half of the year?
A: Keke's has been narrowing the gap to the Florida index, despite a challenging environment. New restaurants outside Florida are performing well, and remodels and new offerings are expected to drive growth.
Q: How is the competitive environment affecting Denny's, and is the $2 to $10 menu enough to stay competitive?
A: The $2, $4, $6, $8 menu is a strong value platform unique to Denny's. Consumer research and market tests indicate it can drive traffic without eroding margins. We also have other potential value offerings if needed.
Q: Can you provide an update on the Keke's development pipeline?
A: There is no material change, but we are having productive conversations and tours. The new restaurants in Tennessee are performing above the system average, and we are working on expanding the pipeline.
Q: How is California performing, and what impact has AB 1228 had?
A: California's performance is slightly below the overall negative 0.6% for the quarter. However, we have cut the gap to QSR in half, partly due to AB 1228. The $2, $4, $6, $8 menu test in California outperformed other markets.
Q: What kind of sales lift do you see from adding Banda Burrito in stores?
A: Banda Burrito is expected to deliver similar incremental sales volumes as our other virtual brands. The early results are promising, and we are expanding it to more locations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
