Denny’s Inc. ((DENN)) has held its Q1 earnings call. Read on for the main highlights of the call.
Denny’s Inc. Earnings Call Reflects Cautious Optimism Amid Challenges
The recent earnings call for Denny’s Inc. conveyed a sentiment of cautious optimism. While the company celebrated successful promotional strategies and growth in Keke’s Breakfast Cafe and digital efforts, it also acknowledged challenges such as declining same-restaurant sales and macroeconomic pressures impacting consumer spending and commodity costs.
Promotional Success with BOGO Offer
The Buy One Slam Get One for $1 deal proved to be a successful promotional strategy for Denny’s, driving significant traffic with nearly 70% of transactions coming from lapsed or new customers. This initiative helped improve April’s same-restaurant sales to approximately flat, demonstrating the effectiveness of targeted promotions in attracting customers.
Keke’s Breakfast Cafe Performance
Keke’s Breakfast Cafe reported a robust 3.9% increase in same-restaurant sales for the first quarter, significantly outperforming the BBI Family Dining Index in Florida by nearly 400 basis points. This performance highlights the brand’s strong market presence and customer appeal in the region.
Digital and Off-Premise Growth
Denny’s digital and off-premise sales strategies contributed positively, with off-premise sales improving same-restaurant sales by 1% in Q1 and now representing a 22% mix. Digital enhancements also led to a conversion rate increase of over 16%, showcasing the company’s successful adaptation to evolving consumer preferences.
Brand Partnerships and Awareness
A collaboration with NVIDIA boosted Denny’s brand awareness, with an Instagram post becoming the company’s top-performing content by impressions in the past 16 months. This partnership underscores the importance of strategic alliances in enhancing brand visibility.
Decline in Same-Restaurant Sales
Despite some successes, Denny’s faced a 3% decline in same-restaurant sales, with domestic franchise restaurants reporting a 3.2% decrease. This decline highlights the challenges the company faces in maintaining consistent sales growth.
Impact of Macro Pressures
Macroeconomic challenges, including inflation and negative consumer sentiment, have created a competitive, value-driven environment. These pressures have impacted consumer spending, posing challenges for Denny’s and the broader restaurant industry.
Higher Commodity Costs
The significant increase in egg prices, driven by avian flu, has doubled egg costs and impacted margins, leading to a temporary surcharge on meals including eggs. This highlights the vulnerability of restaurant margins to fluctuations in commodity prices.
Closure of Underperforming Restaurants
As part of its strategy to optimize operations, Denny’s closed 14 franchise restaurants with average unit volumes of approximately $1 million. This move is aimed at closing underperforming locations to streamline the company’s portfolio.
Forward-Looking Guidance
Looking ahead, Denny’s guidance points towards the lower half of their same-restaurant sales guidance range of negative 2% to positive 1% for the year, influenced by macroeconomic challenges such as consumer sentiment and inflation. Despite a 3% decrease in same-restaurant sales for the quarter, the company remains optimistic, driven by successful promotions and off-premise sales growth. Keke’s Breakfast Cafe continues to show positive momentum, and the company is adjusting its commodities expectations to 3-5% while maintaining its G&A guidance.
In summary, Denny’s earnings call reflects a cautious optimism amidst a challenging environment. While successful promotions and growth in digital and off-premise sales provide reasons for optimism, the company faces ongoing challenges from macroeconomic pressures and declining same-restaurant sales. Strategic initiatives, such as closing underperforming locations and leveraging brand partnerships, are key to navigating these challenges.