Denny's (NASDAQ:DENN) Corporation (NASDAQ:DENN) reported a 1.8% growth in same restaurant sales for the third quarter of 2023, despite softening traffic levels. The company's strategic focus on breakfast options, value propositions, and off-premise options, along with menu innovation and new technology implementations, are driving its growth. Denny's is also expanding its off-premise business with a new virtual burrito brand, Banda Burrito, and is optimistic about the growth and expansion of Keke's Breakfast Cafe, despite construction challenges.
Key takeaways from the earnings call:
- Denny's Q3 2023 earnings showed a same restaurant sales growth of 1.8%, driven by pricing and off-premises sales.
- The company is testing a new virtual burrito brand, Banda Burrito, as part of its off-premise business expansion.
- Denny's has launched the Denny's gain program to support team member development.
- Keke's Breakfast Cafe has redesigned its menu, resulting in check growth, and is testing alcohol offerings.
- Denny's has signed development agreements for the opening of a hundred new Keke's units over the next five years.
- Denny's executives discussed their focus on guest experience, value offerings, and breakfast, and provided details on current and future pricing strategies.
Denny's attributed the softening of restaurant traffic to declining consumer confidence due to rising interest rates and geopolitical events. However, the company has hedged against potential downturns in Q4 and expects Denny's domestic system-wide same restaurant sales to be between 2.75% and 3.5% in the quarter.
Despite the challenges, Denny's is optimistic about its progress and plans to strengthen and revitalize the brand through new strategies. The company has launched a new fall core menu that incorporates guest feedback and desired beverage options, and completed successful promotions like Baconalia.
Keke's Breakfast Cafe, a Denny's subsidiary, has redesigned its menu to provide a cleaner look while showcasing its high-quality ingredients. This redesign has already resulted in check growth, and the company is currently testing alcohol offerings in several cafes. Keke's has opened three cafes this year and signed development agreements with current franchisees to open four more. The company is also expanding its concept to the Denny's franchise system, with several development agreements secured.
Denny's is confident in its asset-light business model and its ability to generate meaningful cash flow. The company has signed development agreements for a hundred units with Keke's franchisees, expressing excitement about the growth potential. The agreements include 14 different franchisees, with a timeframe typically starting with a year to get the first unit in the ground and extending up to five years.
Denny's executives also discussed their off-premise business expansion, including a test with Franklin Junction and the potential to expand their virtual brands. They addressed the current sales trend, noting a slowdown since mid-August and a sequential decline in October compared to September.
The company is working with a group called Other Tomorrows and is building new locations in Tennessee. The initial ones may be more expensive until they optimize the buildout. The next earnings conference call will be in February to discuss the fourth quarter 2023 results.
InvestingPro Insights
Adding to the comprehensive analysis of Denny's Corporation (NASDAQ:DENN), InvestingPro provides real-time data and tips that could further enrich the understanding of the company's performance and outlook.
InvestingPro data reveals that Denny's has a market capitalization of $479.76 million, with a P/E ratio of 12.93. The revenue for the last twelve months as of Q2 2023 stands at $472.69 million, marking a 10.04% growth. However, the three-month price total return as of late 2023 has seen a significant dip of -26.45%.
Among the InvestingPro Tips, it's noteworthy that the management has been aggressively buying back shares, indicating confidence in the company's potential. Yet, 3 analysts have revised their earnings downwards for the upcoming period, and the revenue growth has been slowing down recently. The company's short-term obligations exceed its liquid assets, which might pose a risk in the near future.
For a more detailed analysis and additional tips, consider exploring the InvestingPro platform, which offers extensive insights into various companies, including Denny's. With InvestingPro, you can access a total of 9 additional tips for Denny's, aiding in a more comprehensive understanding of the company's performance and potential.
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