Amid another challenging quarter marked by widespread value offerings, Denny’s reported a 1 percent increase in systemwide same-store sales for the third quarter ended Sept. 26.
The Spartanburg, S.C.-based family-dining chain said it plans to stimulate growth with an aggressive refranchising effort. It also plans to sell property occupied by low-volume restaurants.
The refranchising initiative would result in the conversion of 90 to 125 company operated restaurants over the next 18 months. Of the chain’s 1,715 units, 1,534, or roughly 90 percent, are currently franchise locations.
The company said it would like to see the percentage of franchised units hover between 95 percent to 97 percent.
Earlier this week, the company took one step in that direction. Denny’s said it will add more than 50 restaurants in Canada and the Philippines through new development agreements in those countries.
“Our refranchising and development strategy will enable us to further evolve as a franchisor of choice that provides more focused support services, all while yielding a higher quality, more asset-light business model,” CEO John Miller said in a statement. “As always, we remain committed to profitable system sales growth, driving market share gains, delivering strong returns on invested capital and generating compelling returns for shareholders, including the return of capital.”
The move to an “asset light” business model will result in a re-evaluation of certain support functions, Miller said. These cost-saving initiatives will be shared over the coming quarters, he added.
CFO Mark Wolfinger said the company also plans generate about $30 million from the sale of properties currently occupied by lower-volume restaurants. That would involve the sale of roughly 25 percent to 30 percent of 95 properties owned by Denny’s. The company plans to reallocate sale proceeds into higher-quality real estate.
During the quarter, Miller said delivery continued to drive off-premise sales which now represent 10.5 percent of total sales at company restaurants and 10 percent at franchise units.
Roughly, 71 percent of domestic restaurants are active with at least one third-party delivery partner. Miller said off-premise orders are “highly incremental” transactions that tend to be made by 18-to-34-year-olds during dinner and late at night.
Stores that have adopted the new Heritage design model are also helping sales with a lift hovering in the mid-single-digit range.
Miller said 80 percent of restaurants will sport the new look by the end of 2018.
“These remodels will continue to be a significant tailwind for our brand's revitalization over the next few years,” Miller said.
Denny’s reported net income of $10.8 million for the quarter, or 16 cents per share, compared with $9.3 million, or 13 cents per share, for the same quarter a year ago. Revenue was up 19.4 percent to $158 million, from $132.4 million in the year-earlier period.
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