Denny’s Inc. ((DENN)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Denny’s Inc. painted a mixed picture, reflecting both positive strides and ongoing challenges. While there were notable improvements in system-wide sales and successful promotional strategies, these were counterbalanced by declines in same-restaurant sales and increased operating costs. The overall sentiment leaned towards neutral, as the positives and negatives seemed to balance each other out.
Sequential Improvement in System-Wide Sales
Denny’s reported a 1.3% decline in system-wide same-restaurant sales, marking a 170 basis point sequential improvement from the first quarter. This improvement indicates a positive trend in sales performance, despite the overall decline.
Successful Promotions Driving Traffic
Promotional strategies, such as the buy-one-get-one Slam for $1 deal and the 4 Slams under $10 promotion, have been successful in driving significant traffic and encouraging return visits from both new and lapsed customers.
Strong Off-Premise Sales
Off-premise sales have been a bright spot for Denny’s, contributing a 1.5% improvement in same-restaurant sales during the second quarter. This segment continues to bolster overall sales figures.
Keke’s Breakfast Cafe Growth
Keke’s Breakfast Cafe showed strong performance with a 4% increase in same-restaurant sales compared to the prior year quarter, outperforming the BBI Family Dining Index in Florida by over 220 basis points.
Margin Improvement Efforts
Efforts to improve margins have identified significant savings opportunities through reduced food and non-food costs, potentially delivering up to 200 basis points of savings over the next 12 to 18 months.
Digital and Loyalty Program Enhancements
The launch of a new points-based loyalty program is expected to enhance customer engagement and drive frequency, contributing between 50 to 100 basis points in traffic over time.
Decline in System-Wide Same-Restaurant Sales
Despite some positive trends, system-wide same-restaurant sales declined by 1.3%, attributed to macroeconomic pressures in key markets such as Los Angeles, San Francisco, Houston, and Phoenix.
Challenging Consumer Environment
The consumer environment remains challenging, with household incomes under pressure and selective consumer spending impacting overall sales.
Higher Income Tax Rate
The effective income tax rate increased to 34.3% from 25.1% in the prior year quarter, primarily due to discrete items related to share-based compensation.
Increased Operating Costs
Operating costs have risen due to increased product costs and inefficiencies in new cafe openings, with commodity prices holding steady at 5% during the quarter.
Forward-Looking Guidance
Looking ahead, Denny’s management provided a cautiously optimistic outlook for the remainder of the fiscal year. Despite a 1.3% decline in system-wide same-restaurant sales, the company remains focused on value-driven initiatives like the buy-one-get-one Slam promotion, which has increased traffic by 5%. Off-premise sales continue to be robust, and the company aims for $80 million to $85 million in adjusted EBITDA. Denny’s also plans to open 25 to 40 new locations while closing 70 to 90, aligning with its strategy to optimize operational efficiency.
In summary, Denny’s earnings call highlighted a balanced mix of positive developments and ongoing challenges. While promotional strategies and off-premise sales show promise, the company faces hurdles in the form of declining same-restaurant sales and increased operating costs. The forward-looking guidance reflects a cautious optimism, with strategic initiatives aimed at driving growth and efficiency in the coming months.