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Denny’s expects strongest annual sales growth in a decade

Denny’s expects strongest annual sales growth in a decade

Brand officials say revitalization efforts, such as remodels and menu changes, continue to drive momentum.

Denny’s Corp. is expecting to see its strongest same-store sales growth in a decade this fiscal year as menu improvements and restaurant remodels boost sales and guest traffic.

In a call Monday with Wall Street analysts following the report of strong second-quarter results, John Miller, Denny’s president and CEO, said officials expect same-store sales for the year to rise between 5.5 percent and 6.5 percent at domestic company-owned restaurants. That’s a significant increase from earlier projections of 3.5 percent to 4.5 percent.

At domestic franchised locations, the company expects same-store sales to climb to between 5 percent and 6 percent, rising from earlier projections of an increase between 2.5 percent and 3.5 percent.

“We are now targeted to produce our strongest year of same-store sales growth in a decade,” Miller said. “The execution of our brand revitalization strategy focusing on improving the food, service and atmosphere at our restaurants has positioned Denny’s to benefit from the improving consumer economic environment.”

Denny’s has been working on its brand since 2009, when the Spartanburg, S.C.-based chain launched the “America’s Diner” campaign, which has focused on updating the 62-year-old chain’s broad appeal. The goal was to attract younger customers without losing the more typical diner demographic of seniors and families.

More contemporary marketing and edgy social media efforts have helped, but the chain’s primary focus has been improving the quality of the menu, along with a “Heritage” remodel plan and service enhancements that have driven consistent results.

For the July 1-ended quarter, domestic same-store sales rose 7.3 percent systemwide, including increases in both average check and traffic. The chain has recorded comparable sales increases in 16 of the past 17 quarters, and guest traffic rose during the last three quarters systemwide, Miller said.

Same-store sales increased 7.9 percent at domestic company-owned locations and 7.2 percent at domestic franchised units. Some of that increase was a result of menu prices rising roughly 2.5 percent year to date, Miller said.

But check averages also were boosted by a favorable menu mix shift, with guests trading up for higher priced dishes and buying less from the $2 $4 $6 $8 Everyday Value Menu.

The value menu accounted for about 17 percent of the systemwide sales mix during the quarter — slightly less than the 18 percent in the first quarter this year — and Miller said the company is okay with that.

“It’s doing what it’s designed to do and maintaining frequency for guests that might not have been there without a value program,” he said. “That’s a great lever that we have and a tool in our toolkit to pull if we need to accelerate it or pull off the gas a little. But we’re pleased to see the work in raising the quality and other drivers for that other 80 percent of guests, and their business is taking root as well.”

Menu changes, what's next for The Den

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Denny’s continued work on its core menu continued during the quarter, rolling out five new dishes in June, including the Cali Club, a Chicken Philly Melt, and the Spicy Sriracha Burger. Nine menu items were cut and another seven were tweaked with a new recipe or process improvement, Miller said.

The chain also now highlights gluten-free items on the menu and is posting calories on menus nationally, which Miller said, “aligns with our consumers’ expectations for information and transparency.”

The company is offering fewer but more focused limited-time offers. This month, for example, Denny’s is spotlighting four dishes tied to the movie “Fantastic Four,” and in September the focus will shift to a Big Burger Bash menu, with five premium burgers alongside three core burger offerings, Miller said.

Miller also attributed improving sales to the ongoing “Heritage” remodel program, which has now been applied to about 25 percent of the chain’s 1,696 restaurants. By the end of the year, all company units will be remodeled, he said. Between 2016 and 2018, about half of the franchise base will be remodeled.

“We expect this program to continue to be a sales and traffic growth driver for our brand, allowing our menu, service and media improvements to all work together,” said Miller.

The mostly franchised chain ended the quarter with 160 company-owned units and 1,536 franchised units.

Denny’s also plans to continue growing its Millennial-focused nontraditional concept called The Den, which is typically on or near college campuses. Currently, the chain includes 14 locations of The Den, and the company expects three more to open this year, though Miller said openings would be “opportunistic driven.”

“It’s not in a position for scale at this point,” he said, “but it’s been great learning for the brand. It’s a tremendous opportunity for us to appeal to a Millennial crowd that has firsthand captive audience opportunities to share with us, what they like about the image of it, the product development.”

Contact Lisa Jennings at [email protected].
Follow her on Twitter @livetodineout

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