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Denny’s Sees Same-Store Sales Turnaround

Pensacola, Florida Denny's
A Denny's at Pensacola, Florida. photo/Denny's Corp

SPARTANBURG, S.C. — Denny's Corporation reported on Wednesday a rise in same-store sales and restaurant locations in 2011. Samestore sales grew 0.7 percent in 2011, a welcome relief compared to a 3.6 percent drop in 2010.

  That growth breaks down to a 0.7 percent increase at franchised units and a 0.8 percent increase at company-owned units, which make up 12 percent of the chain. The company noted that the increase in company and franchise same-store sales is the first time both have been positive since 2007.

The trend continued in the fourth quarter of the year, with its same-store sales at franchised restaurants growing by 1.8 percent.

Foodservice researcher the NPD Group shows that the casual dining sector has seen a drop in traffic count since 2009, with a two percent drop in 2011. But Denny's has managed to buck that trend. Its guest counts in its company restaurants were up 0.2 percent. That's an improvement over the 1.9 percent drop it saw in 2010, a year the sector saw a 3 percent drop, according to NPD. Denny's also saw an increase in guest check average, which was up 0.3 percent in 2011 compared to a 1.7 percent drop the year before.

Denny's chief executive officer John Miller states, "In 2011 Denny's made great progress as we generated positive same-store sales and guest counts overcoming the ongoing challenging consumer economic environment. This is a testament to the success of our positioning as America's favorite diner, emphasizing everyday affordability with attractive Limited Time Only products."

The chain saw a growth in restaurant locations as well. As of December 28, 2011, the casual dining chain had 1,685 units, a net growth of 27 restaurants from 2010.

Miller says that working closely with franchise owners has helped the company move forward. "We are encouraged about the progress we have made thus far. We will continue to work closely with our franchisees to maintain the growth in new units, sales and profitability, while generating additional free cash flow to further strengthen our balance sheet and repurchase shares in our efforts to increase long-term shareholder value."

The chair of the independent Denny's Franchisee Association thinks the turnaround for the brand has been because of the collaborative approach between Denny's Corporation and franchise leadership. Tennessee-based franchisee Craig Barber thinks one of the key efforts in the turnaround was the everyday affordable 2-4-6-8 menu offerings along with franchisee collaboration of creation and rollout of the marketing message. "For me, the turnaround for our brand began in 2009. It gained traction in 2010 and began to be visible to the outside world in 2011," Barber says. "Three consecutive quarters of positive same store sales is not insignificant, particularly in this challenging environment, but many of the elements for that success began in early 2010."

Denny's Corporation saw a net income of $112.3 million in 2011. It largely benefitted from a one-off $89 million tax benefit from the release of a valuation allowance on certain deferred tax assets.

Chief financial officer Mark Wolfinger stated: "Our franchise focused business model has enabled us to continue to strengthen our balance sheet, giving us more flexibility to support our franchise-focused growth and return value to shareholders. We anticipate building upon our momentum by further driving franchise revenue growth through new units and increased same-store sales, which will enable us to deliver increased profitability and free cash flow."

Denny's brand stresses they're always open with web series, "Always Open"

Foodservice analyst John Gordon is watching as Denny's Corporation launches an identity around "America's Diner" to differentiate it from other 24-hour coffeehouses. He thinks that message will resonate at the restaurant level, with the diner image connoting 24-7 availability, comfort food, and a diverse menu for all dayparts. "Its prices have a higher inherent margin," the analyst of unit restaurant economics declares. He explains that the $2-4-6-8 price points in the menu drive traffic using the classic barbell strategy to attract traffic and to offer higher margin fare.

The company expects to see between 44 to 49 new franchised restaurants in the system in 2012. In a casual dining sector that has seen lower sales year after year, the company expects a modest increase in same-store sales, from 0 to 2 percent.

Franchisee leader Barber has high hopes for what's ahead for the brand. "(CEO) John Miller is a joy to work with. His heart for the brand along with its franchisees could not be better," he states. "We look forward to continued innovation, improved execution and strategic efficiencies that provide growth, capital and expansion for the brand."

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