Denny's to focus on menu, design improvements

Denny’s Corp. will continue to focus on non-breakfast items, limited-time offers and its restaurant redesign program, company officials said Monday as they discussed second-quarter results.

This week, Denny’s will launch a new core menu, which includes more non-breakfast offerings such as a sirloin steak entrée and a prime-rib cobb salad, said John C. Miller, chief executive at the Spartanburg, S.C.-based company.

“These new products reflect our continued focus on improving the quality and craveability of all the products we offer, with a special focus of on the competitiveness of our ‘beyond breakfast’ items,” he said.

The company did not release further details on the new menu.

Officials attributed a 0.6-percent increase in part to limited-time offers such as the Baconalia! promotion, as well as Red, White and Blue Plate Specials celebrating American favorites with items such as the bourbon bacon burger and apple pie French toast.

The company also introduced its first iced coffee drink, Miller said, which has been gaining traction with customers.

“Guests are responding positively to the new coffee blends, and we've seen a small increase in coffee incidents, which is now averaging over a thousand cups per week per store,” Miller said.

The company’s ongoing $2/$4/$6/$8 value menu continues to mix in the high teens, Miller added. Although the value menu performed similarly during the first quarter, the offerings make up about 4 percent more of the menu mix than it did last year.

Continued improvements

Since the beginning of the year, 57 franchisee-owned Denny’s locations have been remodeled, Miller said. There are about 20 more planned, with a majority of them to be completed by the end of the third quarter.

“Just as we have made improvements in our menu offerings and guest service scores, we are looking at ways to improve the facilities,” he said. “For example, we are updating our look with new carpet styles, wall and accent colors, roof and tabletop colors and the like… We decided to take additional time to assess some of the early learnings from the first remodels before moving ahead more aggressively.”

Anton Brenner, senior research analyst at ROTH Capital Partners said that although the company’s restaurant redesigns may spur consumer interest, returns will be slow for Denny’s.

“Denny's sales comps remain sluggish and industry headwinds suggest that an immediate acceleration is unlikely,” he wrote. “Store remodels being implemented over the next several years may bolster guest traffic as would macro factors such as higher employment.”

However, Denny’s executives remain hopeful. “We continue to be encouraged by the positive consumer reviews, as well as the sales comp increase, primarily in traffic, in keeping with our historical mid-single-digit gains, even in these more challenging times,” said Miller.

For the quarter ended June 26, Denny’s reported net income of $6.2 million, or 7 cents per share, compared with $4.6 million, or 5 cents per share during the year-earlier period.

Adjusted net income, which excludes loss on debt refinancing, tax effect, impairment charges and gains on sales of assets — was $7.6 million, or 8 cents per share, up from $6.5 million, or 7 cents per share the prior year.

Revenue for the quarter was $116.6 million, falling 6.5 percent from $124.7 million in the year-earlier period.

The company also experienced a 0.6-percent increase in same-store sales during the quarter.

For the full-year 2013, Denny’s expects same-store sales to rise between zero and 1 percent systemwide, with net unit-count growth of 5 to 10 restaurants. Denny’s currently has 1,690 locations systemwide.

Contact Erin Dostal at [email protected].
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