A slide accompanying Denny’s chief executive officer Kelli Valade’s presentation at the recent ICR Conference in Orlando, Fla., was titled “Rise of a new day.”
The presentation itself was unquestionably upbeat, despite the company’s current plan to close as many as 150 underperforming locations, 88 of which were shuttered in 2024 (out of its systemwide total of just over 1,400).
“For Denny’s, a reset was needed coming out of the pandemic. We’ve been evaluating the portfolio every way you can imagine and identified a group that couldn’t be rehabilitated,” Valade said. “It’s tough work we know we have to do.”
It should also get the company back to net growth by 2026, she said. The long-range outlook for the company includes flat to 1% net unit growth per year, average unit volumes of $2.2 million (they were $1.9 million in 2023, according to Technomic), and a company margin target in the mid-teens. Add in Keke’s, a breakfast café brand the company acquired in 2022, and the outlook beefs up significantly, with 5%-to-6% general and administrative cost reduction expected, as well as 3% net unit growth, flat to slightly positive same-store restaurant sales, 5%-to-7% adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) growth on an annual basis, and 2.5x to 3.5x debt leverage.
But back to the flagship that is Denny’s. Valade expects to reach that $2.2 million AUV target through increased frequency and an expanded guest base. An improving – and stabilizing – consumer is playing into this, but so too is the chain’s sharpened focus on regaining its value leadership position, helping to drive preliminary fourth quarter same-store sales results of 1.1% (Denny’s has been flat to slightly negative throughout the rest of 2024).
“(Consumers) came back to life in the back half of the year,” she said. “I’m thrilled with the positive comps, but also the sequential improvement is important.”
That’s because it proves the August relaunch of its $2-$4-$6-$8 value menu, with an added $10 category, is “clearly resonating.”
“And we were able to re-engineer it so that it was profitable for franchisees,” Valade said. “We brought it back in a smart way.”
Denny’s playbook also includes bolstering its off-premises business. The chain continues to lean into its Banda Burrito virtual brand, for instance, which leverages existing labor without cannibalizing the core business.
“There is less than 1% of an overlap of guests. Seventy-five percent of guests ordering from our virtual brands are in the evening and late-night daypart,” Valade said.
Another critical initiative is Denny’s remodeling program – a $250,000-per-restaurant investment that Valade said is “delivering big.” Denny’s completed nearly two dozen locations last year, which yielded 6.4% sales and 6.5% traffic lifts.
“The plan is to go as fast as we can,” she said.
Finally, Denny’s launched a loyalty program in 2023 and is now enhancing it to create more one-on-one relationships with guests.
“We have a decent loyalty program today with 5 million customers in our database who are more frequent diners. When we launch the new program, we will get into more personalized journeys with them,” Valade said. “We are ready to pull that lever and see impact in 2025.”
The potential of Keke’s
Meanwhile, Denny’s spunky younger sibling Keke’s is expected to turn in a 3% same-store sales increase in Q4 based on preliminary results. Valade said the concept has stolen share from competitors and the “momentum is exciting.”
Keke’s is now present in six states with California, Texas, and Colorado expected to be added this year.
“It was a great move to bring in a small but mighty brand with so much potential,” Valade said, adding that it’s also a “great new opportunity” for Denny’s franchisees. “The strategy is to grow this thing and use a little bit of our capital to get some of them open and leverage Denny’s franchisees. (The plan) is aggressive, but we’re putting the pieces into place.”
Contact Alicia Kelso at [email protected]
