NASDAQ:DENN Denny's Q2 2024 Earnings Report $3.88 +0.18 (+4.72%) As of 12:31 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Denny's EPS ResultsActual EPS$0.13Consensus EPS $0.17Beat/MissMissed by -$0.04One Year Ago EPS$0.14Denny's Revenue ResultsActual Revenue$115.90 millionExpected Revenue$118.98 millionBeat/MissMissed by -$3.08 millionYoY Revenue Growth-0.90%Denny's Announcement DetailsQuarterQ2 2024Date7/30/2024TimeAfter Market ClosesConference Call DateTuesday, July 30, 2024Conference Call Time4:30PM ETUpcoming EarningsDenny's' Q1 2025 earnings is scheduled for Monday, May 5, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Denny's Q2 2024 Earnings Call TranscriptProvided by QuartrJuly 30, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:02Greetings, and welcome to Denny's Corporation's Second Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kayla Money. Operator00:00:28Thank you. You may begin. Speaker 100:00:33Good afternoon. Thank you for joining us for Denny's Q2 2024 Earnings Conference Call. With me today from management are Kelly Vilade, Denny's President and Chief Executive Officer and Robert Furostek, Denny's Executive Vice President and Chief Financial Officer. Please refer to our website at investor. Denny's.com to find our Q2 earnings press release along with the reconciliation of any non GAAP financial measures mentioned on today's call. Speaker 100:01:01This call will be webcast and an archive of the webcast will be available on our website later today. Kelly will begin today's call with a business update. Then Robert will provide a recap of our Q2 financial results and the development update before commenting on guidance. After that, we will open it up for questions. Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward looking statements. Speaker 100:01:36Management urges caution in considering its current trends and any outlook on earnings provided during this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10 ks for the year ended December 27, 2023, and in any subsequent Forms 8 ks and quarterly reports on Form 10 Q. With that, I will now turn the call over to Kelly Vilade, Denny's President and Chief Executive Officer. Thank you, Kayla. Speaker 100:02:15Good afternoon, everyone, and thank you for joining us. Today's discussion will focus on the exciting progress we have made to bring profitable traffic driving initiatives to our flagship Denny's restaurants. We'll also talk about our continued optimism for our growth brand, Kiki's Breakfast Cafe. After that, Speaker 200:02:29we'll provide updates on our quarterly financial results and our full year 2024 guidance expectations. With that, let's get started. The first half of this year has been intensely competitive on value across the industry and we are very pleased that Denny's outperformed the BBI Family Dining sales index for the 2nd consecutive quarter proving that even in the toughest of environments we continue to steal share. Specifically, Denny's system same restaurant sales decline included choppiness from Easter and spring break in April, strong momentum in May and then an overall industry softening in June that was further impacted by a tougher prior year comparison. Importantly though, on a regional basis, we continue to outperform or gain market share relative to BBI Family Dining sales in our key states of California, Texas, Florida and Arizona. Speaker 200:03:15And lastly, we are very pleased so far with 3rd quarter sales trends as we continue to outpace benchmarks proving we are winning the summer with our guests. I want to commend and thank our teams and our franchisees for their dedication, focus and execution that continues to propel us ahead of the competition. Denny's is America's diner and we want to dominate the breakfast occasion. This is evidenced by our year to date outperformance relative to BBI Family Dining breakfast traffic of over 200 basis points. But we also continue to innovate as we are determined to drive traffic during all day parts. Speaker 200:03:46Most recently, this has entailed the expansion of our 3rd virtual brand, Vanda Burrito, which helps maximize labor productivity by over indexing at weekday, dinner and late night, while providing convenience and meeting guests where they are. Throughout Q2, we expanded Banda Burrito to over 300 restaurants, prioritizing California's expansion first to provide additional revenue channels given the potential impact of AB1228. We saw the traffic gap compared to QSR in California cut in half during that quarter as a result of lowering price relative to QSR and the expansion of this additional revenue channel. We remain encouraged by the early results and expect this new virtual brand to deliver similar incremental sales volumes and margins as our other successful virtual brands, the Burger Den and the Meltdown. This confidence has driven us to accelerate and expand Banda Burrito to a nationwide rollout that is already well underway and expected to be completed by the fall. Speaker 200:04:38Turning to value. Denny's has always been known as a value leader in the industry serving quality affordable meals to our guests. Q2 was no different as we highlighted our reprised All Day Diner Deals menu that featured Super Slam, a fan favorite, as well as other famous breakfast plates and value options for lunch and dinner. During the all day diner deals promotional time frame, Denny's share of wallet expanded and was among the top full service performers. We attribute this directly to our highly successful barbell strategy, which advertises traffic driving value messages and ensures our in restaurant merchandising entices guests with irresistible and craveable premium products such as our new Berry Waffle Slam and the Sweet and Smokey BLT and E. Speaker 200:05:19We've also highlighted our delicious new dessert options and milkshakes that are still proven to be highly incremental add ons. And we aren't done innovating yet. We're about to go even deeper into value, bringing back a key brand differentiator in a big way. In just a few short weeks, we will officially relaunch and go national with our 2,468 menu with an added $10 category. This is a value extensive testing and reengineering. Speaker 200:05:51This evolved platform with the top rated value concept across multiple options we tested. Consumer research validated an increased likelihood of guests ordering and making a special visit to Denny's due to positive perceptions around variety, relative value and the inclusion of fresh high quality ingredients. Our test results suggest that not only can this revamped platform drive incremental traffic and incite new customer trial, but is also engineered to protect profitability. We are truly optimistic about what this can do for the back half of our year. Additionally, during the quarter, we began reigniting our local co ops by reestablishing those that had disbanded during the pandemic. Speaker 200:06:26This local advertising investment by the system represents $12,000,000 annually, approximately half of which is incremental. An immense amount of work has been done with our agency partners as we learn more about our specific Denny's guests. Our data suggests we can speak more effectively to our target guests through a larger focus on local media. Q2 was a transitional quarter with many co ops restarting in mid April and more rolling in throughout the quarter and into early July. With the time it takes to receive the funds and then deploy them against media, we believe the full weight of co op advertising will be realized in Q3 and beyond. Speaker 200:06:59We believe it's also why we are continuing to see momentum in July. And finally, we are very pleased to have completed the rollout of our new cloud based POS system in all company restaurants and we're continuing to expand this in franchise restaurants. We now have approximately 130 restaurants on the new platform and it is opening the door to provide future labor savings, smart upsell opportunities, server handhelds and payment at the table. Additionally, our new cloud based POS is an even bigger benefit for our franchise restaurants as the new equipment package comes with an upgraded kitchen visualization system or KBS, which provides meaningful waste saving opportunities. In summary, Q2 was another competitive quarter where we continue to outpace the industry and execute our playbook. Speaker 200:07:42We've made significant progress thus far in the year driving incremental traffic, introducing new craveable menu items, launching our 3rd virtual brand, reigniting incremental co op investments, finalizing testing of our revamped remodel program and completing the rollout of our new cloud based POS system in all company restaurants. We remain confident in our strategies and initiatives as we enter the second half of the year with a fan favorite value platform, realizing the full benefit of incremental advertising, introducing new incentives to ignite our remodel program and POS installation and a national rollout of our 3rd virtual brand, Banda Burrito. The future is definitely bright for our flagship Denny's brand. And now moving on to the Kiki's brand. During the quarter, Kiki's continued to make progress narrowing the gap to BBI family dining sales in Florida. Speaker 200:08:29And over the last year, we have cut the gap by over 400 basis points with momentum that has continued in the Q3. The Kiki's brand has accomplished so much in such a brief time building out the operations support team and the data is clear that we are making headway. During the quarter, Kiki's continued to innovate and update their menu with new options like grits and gluten free toast and also revamp the kids' meals to serve families more value. These small simple changes have been accretive to guest check average and resulted in improved guest satisfaction scores. Turning to Kiki's development, we opened our 2nd corporate cafe in Tennessee just outside of Nashville and Gallatin. Speaker 200:09:05As excited as we were about our Henderson, Tennessee Cafe being on pace to deliver approximately $2,000,000 in annualized sales volume, Gallatin is proving to be even better and bolstered by expanded outdoor patio seating capacity. On top of that, we also completed our 1st remodel test at our largest volume corporate cafe in Orlando during June. And while it's still very early, we are extremely encouraged by the trend shift at that location and look forward to sharing more in the future. This new image will be just what we need to refresh and update Kiki's Cafes in Florida and there's big upside when we do this. We have so much to look forward to with the Kiki's brand because we know Kiki's is poised to continue stealing share from the competition while also growing into new markets like California and Texas later this year. Speaker 200:09:48This brand continues to amaze me with the steadfast commitment and enthusiasm from our teams and our franchisees all working towards the goal of becoming one of the largest competitors in the fastest growing daytime eatery segment. In closing, we are in the final stages of launching many initiatives that will move the needle for years to come for both brands. From our proven remodel programs, new technology platforms, incremental investments in advertising and new revenue channels through virtual brand offerings. There is so much to look forward to in both of our brands. I could not be more proud of our teams, our franchise partners and all those leading these amazing brands taking great care of our guests every single day. Speaker 200:10:24I'll now turn the call over to our CFO, Robert Borostik. Speaker 300:10:28Thank you, Kelly, and good afternoon, everyone. Denny's reported Q2 domestic system wide same restaurant sales of negative 0.6%. Denny's domestic system wide same restaurant sales were comprised of approximately 5% in pricing, net of changes in product mix related to increased value Denny's domestic average weekly sales per restaurant for the second Denny's domestic average weekly sales per restaurant for the Q2 were $38,000 including off premises sales of approximately $8,000 or approximately 20% of total sales. Kiki's delivered system wide same cafe sales of negative 4.6 percent for the quarter. But as Kelly mentioned, the brand continues to make great progress closing the gap to the Florida index. Speaker 300:11:21Kiki's expanded the rollout of alcoholic beverages to over 40% of the system providing check building opportunities in those locations and we look forward to continuing the expansion. Turning to our Q2 financial details. Total operating revenue was $115,900,000 compared to $116,900,000 for the prior year quarter. Franchise and license revenue was $61,600,000 compared to $62,000,000 for the prior year quarter. This change was driven by decreases in franchise occupancy revenue and franchise sales, partially offset by an increase in franchise advertising revenue, primarily related to higher local advertising co op contributions for the current quarter. Speaker 300:12:11Adjusted franchise operating margin was $30,800,000 or 50 percent of franchise and license revenue compared to $31,600,000 or 50.9 percent for the prior year quarter. The margin change was primarily due to lower sales and lease terminations. Additionally, the margin rate was impacted by approximately 80 basis points related to higher advertising, which increases revenue, but it's margin neutral. Company restaurant sales were $54,300,000 compared to $54,900,000 for the prior year quarter. This was primarily driven by a decrease in same restaurant sales, partially offset by 3 additional Kiki's equivalent units for the current quarter. Speaker 300:13:00Adjusted company restaurant operating margin was $7,200,000 or 13.2 percent of company restaurant sales compared to $8,500,000 or 15.4 percent for the prior year quarter. This margin change was primarily due to a decrease in same restaurant sales and increases in marketing and general liability insurance costs for the current quarter. Approximately 80 basis points of the unfavorable change in margin rate was the result of increase in marketing expenses, while general liability and medical insurance adjustments negatively impacted the rate by approximately 50 basis points for the current quarter. Commodity inflation was approximately 1% for the quarter, an improvement over the approximately 2% we have experienced over the last two quarters. Additionally, team labor inflation was 3% in Q2, unchanged from Q1. Speaker 300:13:58We have not experienced a material increase in team wages at our 22 California company restaurants as a result of AB1228. We believe this is in part due to our servers earning well above the AB1228 minimum wage when factoring in tip income. General and administrative expenses for Q2 totaled $20,500,000 compared to $20,200,000 for the prior year quarter, primarily driven by an increase in corporate administrative expenses. These results collectively contributed EBITDA of $20,300,000 The effective income tax rate was 25.1% compared to 23.8 percent for the prior year quarter. This change in rate was primarily due to discrete items related to share based compensation for the prior year quarter. Speaker 300:14:52Adjusted net income per share was $0.13 in the current year quarter compared to $0.15 for the prior year quarter. Our quarter end total debt leverage ratio was 3.7 times. We had approximately $267,000,000 of total debt outstanding, including $258,000,000 borrowed under our credit facility. We continued our commitment to returning capital to our shareholders through share repurchases, while also balancing our longer term goal of growing the Kiki's brand, which will contribute additional incremental adjusted EBITDA and cash flow in the near future. During the quarter, we allocated $4,700,000 to share repurchases while also investing $5,000,000 in cash capital expenditures primarily related to Kiki's development. Speaker 300:15:41At the end of the quarter, we had approximately $91,000,000 remaining under our existing repurchase authorization. Next, to recap our 2nd quarter development highlights. Our brands opened 4 combined restaurants during the quarter, consisting of 3 new Denny's franchise restaurants and 1 company owned Kiki's Cafe. There were also 15 closures with an average unit volume of slightly under $1,100,000 and were open on average for 24 years. Over that timeframe, trade areas have shifted, which negatively impacted their viability. Speaker 300:16:19Despite these closures, we remain encouraged by the overall strengthening of the broader franchise portfolio. As I mentioned last quarter and the trend remains the same, while same restaurant sales have softened, we have seen expansion in our franchise average unit volumes as we closed lower performing restaurants. Moving to Kiki's, we opened 1 company cafe during the quarter in Gallatin, Tennessee, marking the 2nd cafe opened outside of Florida and the 2nd cafe in the Nashville, Tennessee market. In addition, there are currently 4 cafes under construction with several others in permitting and site approval phases. Let me now discuss the business outlook section of our earnings release. Speaker 300:17:04Despite outperforming the BBI Family Dining Index, Denny's has experienced many of the macroeconomic factors that are impacting the broader restaurant industry. As a result of these impacts, we are adjusting our 2024 domestic system wide same restaurant sales guidance to between negative 1% and positive 1% compared to 2023. Our year to date closures are currently above our midpoint of guidance. However, typically restaurants remained open during the summer months, absent lease expirations to capture the summer travel sales. We will continue to monitor closures into the fall and provide an update if appropriate. Speaker 300:17:46Given current construction progress, we now anticipate opening 30 to 40 restaurants on a consolidated basis, inclusive of 12 to 16 Kiki's openings and a consolidated net decline of 20 to 30 restaurants. We are projecting 20 24 commodity inflation to be between 0% and 2% and for labor inflation between 3% and 4%. Our expectations and 4%. Our expectations for consolidated total general and administrative expenses are between $82,000,000 $85,000,000 including $11,000,000 related to share based we are now shifting our range for consolidated adjusted EBITDA to between $83,000,000 $87,000,000 Lastly, I would like to thank our dedicated franchise partners, restaurant operators and results driven brand teams who have remained focused on delivering a best in class guest experience while continuing to drive our strategic priorities, especially given the current consumer environment. That wraps up our prepared remarks. Speaker 300:18:57I will now turn the call over to the operator to begin the Q and A portion of our Operator00:19:03call. Thank you. At this time, we'll be conducting a question and answer Our first question comes from Michael Thomas with Oppenheimer. Please proceed with your question. Speaker 400:19:44Hi, good afternoon. Speaker 500:20:02Hey, Michael, are you there? Operator00:20:04I don't think he's not there. Let me go to our next question. Our next question comes from Todd Brooks with The Benchmark Company. Please proceed with your question. Speaker 600:20:24Hey, can you hear me okay? Speaker 500:20:26Yes, we have you, Todd. Thank you. Speaker 600:20:29Okay. Thank you all. Couple of questions. Robert, you talked about kind of a net price mix impact of 5% in the quarter. The prior quarters barbell had been working and you were kind of netting out to relatively flat mix, if memory serves me correctly. Speaker 600:20:47Did mix hold flat or with the additional pressure on the consumer has mix now dipped negative? Speaker 500:20:54Yes, Todd. So the mix for the quarter was a slight negative impact to overall GCA. So net pricing was 5%. I believe the mix impact largely driven from some additional value actually was about a negative 1% impact driving that down to the 5% that we quoted in my script. So again, actually somewhat intentional as we continue to push additional value. Speaker 600:21:26Great. Thank you. And then just talking about value mix in general, I don't think you shared what percent of sales were considered on value platforms. And based on kind of early testing on 2, 4, 6, 8, 10, thoughts on how high that value mix could creep in the second half of twenty twenty four? Thanks. Speaker 600:21:47I'll jump back in queue. Speaker 200:21:49Sure. Hi, Todd. This is Kelly. And yes, absolutely. We didn't touch on it and kind of overemphasize it because it really has remained flat, slightly down. Speaker 200:21:58So it was 18% down from just about 19% last quarter. And so we saw a lot of movement. We were advertising all day diner deals. We felt better about that. It had actually was margin positive for us given what we had been doing before and given how we engineered that. Speaker 200:22:12So we saw tiny bit down and then our to the second part of your question, our 2, 4, 6, 8 platform, 2, 4, 6, 8, 10 actually, now engineered to have that $10 price point in it. That's actually mixing mid teens and it had higher in some markets as we did the test. But we feel really confident in both the consumer feedback, the operator feedback, the alignment with the franchisees and then just the true equity that we have in 2,468. Speaker 600:22:39And within that mix, Kelly, sorry for the follow-up, but you talked about all day diner deals being margin positive. Let's call it 2 through 10 instead of listing each time. How does that impact the organics as it makes us higher? Speaker 200:22:54That's a good question. No, I think we think we did not see any margin erosion in the 2, 4, 6, 8, 10. That's a good handle you just described for us. We'll see if we can try that one on for size. But we didn't see any margin erosion. Speaker 200:23:09And again, we think we've really engineered this one. I will call out for just for reference, we actually not only did we add the $10 price points thinking relative to the times, it's been a while since this offer has been out, but we also made the $2 $4 those are add on categories and yet the consumer responded incredibly well to that. So those add on categories are helping and they also were feedback was feedback given to us from our franchisees, helped with the alignment and when we put that into test, it just created variety in everyone's mind and it's still just it created just that much more excitement for us in how we've engineered Speaker 600:23:48it. Perfect. Thanks, Kelly. Speaker 200:23:51Thank you. Operator00:23:54Our next question comes from Jake Bartlett with Truist Securities. Please proceed with your question. Speaker 700:24:00Great. Thank you so much for taking the questions. My first is on the trajectory of Centra sales. You mentioned softening in June. I think the commentary in July was more framed about market share or just outperformance versus the index. Speaker 700:24:16We don't have the benefit of that index. So I'm hoping you can just frame an actual in trends in same store sales trends, just because we don't have the data I think that you're referring to. So how did same store sales trend from June into July, if you can share that? And maybe just a little more context of how they trended in the quarter itself. Speaker 500:24:40Yes. Hey, Jake, this is Robert. Happy to answer that. Good to hear your voice. So when you're looking at trends, we are trending favorably into July when you look at the total for Q2. Speaker 500:24:56So that negative 6% that we delivered in Q2 with actually we actually are outperforming that as we move into July in actually a pretty material way. June was actually the lowest of our 3 of the 3 months in the quarter at down 1.5%. So actually a pretty material change in trend and that's even before we launch into the 2, 4, 6, 8, 10, 210, as Todd described it, about week 3 into August. So again, we're really kind of pleased on the way the Operator00:25:39quarter has trended to start. Great. Speaker 700:25:42And maybe, Robert, if you maybe share whether July was positive, it sounds like July would have been positive, but maybe if you can confirm that. And I'll let you give you a chance to do that in one sec. But the rest of the question is, I look at this implied second half guidance for same store sales and it's negative 1% to roughly 3% positive. So really, really wide range. I think in the past sometimes you've given us where you feel most confident in that range. Speaker 700:26:13That might be helpful. It sounds like you do have so many things coming to bear with the co op, co ops kind of fully rolled in, the band of burrito coming on, the 2 through 10. What would I mean, it seems that would it just be the macro environment really turning to the worst from here that would put results into the negative territory in the back half here? Speaker 500:26:40Yes. So let me answer your first part of that question. July is pretty much flat at this point, Jake, so a point a half or so improvement now as we've gone out of late Q2 into the Q3. With regard to what why that range, right, that negative 1% to plus 1%, if you look at that, we with all of the initiatives that we have in play and we're very, very excited about the ones you've listed. So you went with the 210, full benefit of co ops, remodels are starting. Speaker 500:27:16We have Xenial now into like roughly 10% of the system, including all of the company restaurants. We are in now 300 plus restaurants with our next virtual brand, our 3rd virtual brand, Banda. We have a lot of reason to be excited and I would like to say that we would be at the top end of that range. The reality is we are in a very volatile macroeconomic environment, which we don't control. So we will execute against the things that are within our control, all of those positive benefits that I've listed out to you just a second ago and look to drive towards the top end of that range, but hedging given the environment that we're in. Speaker 700:28:01Great. Thanks a lot. I'll pass it on and jump back. Thanks. Speaker 500:28:05Thanks, Jake. Operator00:28:07Our next question comes from Michael Tuomas with Oppenheimer. Please proceed with your question. Speaker 400:28:13Hi, sorry about that. Can you guys hear me? Speaker 200:28:16Yes, we can. Operator00:28:17Okay, perfect. Welcome back. Speaker 400:28:19Thanks. And sorry if I missed this or you said it, but can you share a little bit more about the test of the $2 to $10 menu? I mean, did it drive incremental traffic in the test? And I think you mentioned the $10 price point and something about mid teens mix. So was that specific to the $10 price point within that menu or were you saying overall that that new menu is mixing in mid teens? Speaker 400:28:43Is that the first part? Thanks. Speaker 200:28:45Yes. Great, Michael. Thank you. I'll start with the last thing you said, which is the total mix of the menu, 2, 4, 6, 8, 10 is mixing roughly mid teens with some markets way higher not way higher, some higher than that, but the average has been about that. And then so the $10 price point has been actually okay. Speaker 200:29:04That's going to benefit us. That was certainly important in certain markets like California, as you can imagine. But we are absolutely in the test. And the reason we move forward is because we immediately did see a traffic gain in those markets and across all the restaurants that we tested in. So we feel really good about that. Speaker 200:29:20We actually saw because this was it stayed margin positive because of way not only the way the menu was engineered, but those add on categories have really helped us. And the consumer still sees that as a benefit and sees so many options from us in that category that it really has performed very well for us. Operators like it, franchisees are aligned and excited about this offer. Speaker 400:29:44Perfect. Thanks. And then we've heard from some other restaurants, even some fast food companies talking about consumers trading down, and now eating at home a little bit more. So I'm wondering, are you seeing that at all? Do you think you see that in your data? Speaker 400:30:00And if you're not, maybe why do you think that is relative to some others? Thanks. Speaker 200:30:04I think it's a fair it's certainly fair. When grocery prices when we are still ahead of where grocery inflation is, we definitely feel like people are probably still saying, I should just cook at home a little bit more often. For us, we're actually we can see some change in check if it's indicative of us, but maybe a little bit of I'll order one less beverage or beverage incidences are slightly down quarter to date and year to date, but our add ons, we're doing a lot of merchandising. We've done that differently this last year. That's really helped to aid us in that. Speaker 200:30:36We talked about how more effective how much more effective our barbell strategy has been. So really proud of the things we've done in restaurants, the things our servers are doing to sell and upsell sides and different things even if maybe that extra add on beverage isn't happening or they're having water instead. So it's not like we can't see it, but we feel like we've had good strategies to offset that potential trade down. Operator00:30:58Thank you. I'll hop back in. Speaker 200:31:01Thanks, Michael. Operator00:31:04Our next question comes from Nick Yajan Sathyan with Wedbush Securities. Please proceed with your question. Speaker 800:31:12Thank you. I want to focus a little bit more on Kiki's. I mean, I think you guys had some menu changes at the end of last year, along with some of the Florida weakness that had resulted in the negative comps, if I'm not mistaken. I think we anniversary some of that starting in Q3. So how should we think about the same store sales growth trajectory at Kiki's into in the second half? Speaker 200:31:43Yes. I think that's a great that's fair, great question, Nick. And I think what you're absolutely right. So you started with gas in Florida. It is a really different environment in Florida. Speaker 200:31:54It's challenging. The industry has been negative 3 quarters. Family dining has been negative 4 quarters and so it's just been a tough environment and we've seen Kiki's gaining cutting that gap in half as of late. So it's definitely there's definitely some challenges that makes it in Orlando where we have big presence even harder. The things that we are excited about, we've opened as we've mentioned in the scripts, 2 restaurants outside that are company owned restaurants. Speaker 200:32:20The new restaurants that are opening significantly higher volumes than the system average. So that's encouraging and these are places that nobody really knows of us and the team has just done an outstanding job there. The remodel of the Doctor. Phillips location in Orlando, I was just there, is absolutely gorgeous and we're incredibly encouraged by those results. The other things we've talked about, that remodel potential is big for us. Speaker 200:32:42We're entering California and Texas this year and have, some really exciting growth plans, beyond that even. But we're excited about the potential they have still to add patios, remodel programs, have had new food offerings, kids meal upgrades and improvements that they've made. So and just lots of really good work that's gone on. Alcohol is in about 70% of the locations as of right now. So and that's just getting started really with some great new sangrias, mimosas. Speaker 200:33:11So there's lots to be excited about. There are some just tough comps in that market. Speaker 800:33:20And the entry into Texas and California as company owned locations or franchisees starting to build themselves? Speaker 200:33:29Yes. Those are franchise. We'll go we have franchise partners that are actually Denny franchisees excited about California and Texas. And Texas will actually be company and franchise. So we have some excitement building for sure. Operator00:33:47Got Speaker 800:33:47it. And then just kind of an overall question on the competitive environment. Obviously, QSR is getting even more competitive, casual dining even more competitive as we head into the second half. Is this sort of 2 to 10 menu enough, do you think? Or is there sort of maybe another I guess are we going to see it necessary to be even more aggressive than that going forward? Speaker 200:34:18Yes, I think that's a fair question. Well, there's no doubt it's kind of a value war out there with everybody just racing to get to the next just the next offering that might really ignite some new customer trial and get them from grocery, if you will. I think for us 2,468 by far was again it's a true equity for us. People know the Denny's brand for that offering. And so when we looked at consumer research what we learned from the consumer even before going to those in market restaurants, it matched. Speaker 200:34:48It really said, yes, this is unique and different. We do think this could be the value platform that signifies the strength we have always had in value, but that we now have an everyday value platform. I think the other thing we've had original Grand Slam was also something that was really strong for us. So we've got some we have pantry. We have ideas on the pantry that still could play a big role for us if in fact 2,468 does not deliver the way we think it will, but every indication says this Operator00:35:14is a strong traffic driver for us. Speaker 800:35:18Thank you very much. Operator00:35:22Our next question comes from Brian Mullen with Piper Sandler. Please proceed with your question. Speaker 200:35:28Hi. This is Ally Arfstrom on for Brian Mullen. Thank you for taking the question. Just wanted to ask about the potential remodels for the Kiki's fleet in Florida and curious if there's any update on a timeline or cost per unit perspective? It's a great question. Speaker 200:35:43So we don't yet. So we've got into that. We're under we started with looking at the next round that we could look at. It's really early for that first location. It's about 6 weeks in right now. Speaker 200:35:55We also have to optimize the cost, right? So we really have to look at and scale this a little bit more before we're able to say this is the definitive cost of that remodel and therefore the return that we expect to get the sales lift and traffic lift we need. So we need just more test units to be able to scale that and then be able to specifically talk to that, speak to that. Speaker 500:36:15The other piece of the puzzle there is, is this is a brand that just turned 18 years old, made it to adulthood finally, and it has not had a remodel program up until this point. So whatever we do should be a significant improvement. You can see the pictures in our investor deck of pre and post of what we have been doing and has the likely ability to be a very material improvement. We do need more test units though. There's no doubt about it. Speaker 500:36:50But we are really, really pleased with how we got out Operator00:36:54of the ground with this. Our next question comes from Todd Brooks with The Benchmark Company. Please proceed with your question. Speaker 600:37:10Hey, thanks for squeezing me in again. Just two quick ones. One, you didn't call California performance out specifically. And just if any color you could give us on the same store sales performance of that market and the complexion of how you get there, if it's further down traffic than the rest of the chain, but you've made it back with more aggressive menu pricing to offset the Fast Act or any thoughts there? And then I have one follow-up. Speaker 500:37:40Yes, Tom, this is Robert. So a really good question. So I would say that California, if we were down 0.6% for the quarter, they're slightly below that, a little slightly worse. When you look at Texas, in California though, we did steal share from QSR and we do attribute that a little bit to the AB1228 and how we're performing in that. In fact, the gap that we were experiencing to overall QSR, we've cut in half in California specifically. Speaker 500:38:15When you Speaker 200:38:16look at Texas, I'll give Speaker 500:38:17you the smile stage, that's where half of our restaurants are. Texas is about in line with performance. Arizona is actually outpacing that negative 0.6%. They were actually positive in the quarter. And then Kelly spoke at length with regard to Florida. Speaker 500:38:33It is by it is our worst performing state right now. So that gives you a sense of the smile states for us. Speaker 200:38:42And Todd, I'll add one more thing to the California, the core of that question on how California is performing. I will tell you that we had a significant amount of the test restaurants for 2, 4, 6, 8 in California and those outperformed the other markets that we're testing that offer in. So we're really excited about that. The last thing I'll say about that market is San Diego and LA. So we talked about those co ops coming back online. Speaker 200:39:05Those 2 markets, LA and San Diego, which are a pretty big percentage of our restaurants in California are just now getting started. So we expect there to be even more benefit later on this quarter for those co ops in California especially. Speaker 600:39:19That's great. Thanks. And then my other one is just to Kiki's follow-up. So you mentioned Tangentially franchisees opening in California. It sounds like a companyfranchisee split with the 1st Texas units. Speaker 600:39:35It wouldn't be a call if I didn't ask you about an update to the development pipeline for Kiki's. I know that some franchisees were waiting to see the Tennessee store performance. It sounds like from everything you said, Kelly, those stores are outstripping the brand average in Florida. So just any update we can get on that pipeline would be great. Thanks. Speaker 200:39:57Of course. Sure. There's really no material change, but a lot of really great conversations, a lot of tours to that restaurant, those two restaurants now in Tennessee, and they are over performing. They're 2,000,000 plus versus the 1.9 system average. So we're continuing to be really excited and then working on that pipeline. Speaker 200:40:16We're absolutely working on the pipeline. Speaker 600:40:19Okay, great. Thank you both. Speaker 200:40:21Thanks, Tyler. Thanks, Tyler. Thank you, Tyler. Operator00:40:25Our next question comes from Jake Bartlett with Truist Securities. Please proceed with your question. Speaker 700:40:31Great. Thanks for taking the follow-up. My name is back to my other question. And it was the improvement in July from June. Is that in tandem with what you saw from the market? Speaker 700:40:42Or is it Denny's specific your outperformance expanding versus the market? And if that's the case, just remind us what drove that you think from June to July? Speaker 500:40:56So the first part of that question, Jake, is when we look at the market, not only did we improve upon our trend, but we are actually outpacing the BBI family index in a very material way. So that is also expanded. So it's not only our change in trend, but broadly an even further outperformance to the industry with regard to that. Speaker 200:41:23I do think too, Jake, to the question, I think there's a little bit again, we've mentioned those co op dollars take a minute to deploy the media, see the reaction to that. But I think there's a little bit there in terms of that media started, some of that extra and incremental media started in April for many markets. I think we got a little bit there. We got a few Banda burritos that were added. California went first. Speaker 200:41:45So, I think that's a little bit of what's aiding us in the comps in July. And certainly against the industry, we're pretty excited about that. Right. Speaker 700:41:54And with Banda, can you you have good experience with it now. How is that what kind of a sales lift do you see when you add a Banda option in the store? Speaker 200:42:04Yes. The good news we see it to be and expect it to be similar in terms of the dollars that it contributes as to the other virtual brands that we have. And because it's still ramping up and it's early in many locations, those 300 plus that are already in and we have many more to go. In fact, we have a lot that will be going in August and we're excited about that. The ease of operations and execution of it has been phenomenal. Speaker 200:42:27We've checked with operators and franchisees. So we're pretty bullish on it delivering the same as our other 2 virtual brands. And it's got really relevant offerings, especially on the West Coast. Speaker 700:42:38Got it. And then the last question is on the G and A. It was lowered a bit, but that was really, I think, just the stock based comp side of it. So in terms of kind of tightening the belt on G and A, do you think there's opportunity there? Or are you perhaps kind of holding off just because you view the industry slowdown as temporary? Speaker 700:42:58Is this a sign that you see light at the end of the tunnel for the industry trends or maybe there's just not any factor cut at this point? Speaker 500:43:10Yes, Jacob, that's a fair question with regard to that. To be very transparent, we did invest to grow the Kiki's brand, that is some of what we have experienced over the last couple of quarters and the last couple of years, frankly. And you can start to see that come to fruition now, that guidance of 12% to 16% that's been maintained all year long. The pipeline is continuing to grow. So we're really pleased with regard to what we're experiencing out of Kiki's. Speaker 500:43:43We are very diligent with regard to our G and A spending. We know that that is part of the story and work to be very conservative with the balance of the portfolio, balance of the Demi's brand, but investing clearly investing in our growth vehicle. Speaker 700:44:03Great. Thank you very much. Appreciate it. Speaker 500:44:06Thanks, Jake. Speaker 100:44:07And thank you, everyone. I'd like to thank you for joining today's call. We look forward to our next conference call in October when we will discuss our Q3 2024 results. Thank you, and have a great evening.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallDenny's Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Denny's Earnings HeadlinesDenny's Celebrates Scholars with Prestigious Hungry for Education™ Scholarship AwardsApril 30 at 9:32 AM | globenewswire.comAnalysts Set Denny's Co. (NASDAQ:DENN) Price Target at $7.63April 30 at 1:35 AM | americanbankingnews.comJames Altucher: Do not invest in AI unless…I made millions during the crypto boom. Many “experts” are now saying… Artificial Intelligence opportunities could be even bigger.May 2, 2025 | Paradigm Press (Ad)Denny's: Hitting A 'Grand Slam' May Take Longer Than You ThinkApril 29 at 8:58 PM | seekingalpha.comStacking Dennys NASCAR Podcast - 2025 Talladega - Jack Link's 500 DFS, Betting PicksApril 26, 2025 | msn.com2 arrested after physical confrontation outside of Denny’sApril 26, 2025 | msn.comSee More Denny's Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Denny's? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Denny's and other key companies, straight to your email. Email Address About Denny'sDenny's (NASDAQ:DENN) Corp. engages in the operation of restaurants and franchised, and licensed restaurants. It operates through the Denny's and Other segments. The Denny's segment includes the results of all company and franchised and licensed Denny’s restaurants. The Other segment refers to the results of all company and franchise restaurants. 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There are 9 speakers on the call. Operator00:00:02Greetings, and welcome to Denny's Corporation's Second Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kayla Money. Operator00:00:28Thank you. You may begin. Speaker 100:00:33Good afternoon. Thank you for joining us for Denny's Q2 2024 Earnings Conference Call. With me today from management are Kelly Vilade, Denny's President and Chief Executive Officer and Robert Furostek, Denny's Executive Vice President and Chief Financial Officer. Please refer to our website at investor. Denny's.com to find our Q2 earnings press release along with the reconciliation of any non GAAP financial measures mentioned on today's call. Speaker 100:01:01This call will be webcast and an archive of the webcast will be available on our website later today. Kelly will begin today's call with a business update. Then Robert will provide a recap of our Q2 financial results and the development update before commenting on guidance. After that, we will open it up for questions. Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward looking statements. Speaker 100:01:36Management urges caution in considering its current trends and any outlook on earnings provided during this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10 ks for the year ended December 27, 2023, and in any subsequent Forms 8 ks and quarterly reports on Form 10 Q. With that, I will now turn the call over to Kelly Vilade, Denny's President and Chief Executive Officer. Thank you, Kayla. Speaker 100:02:15Good afternoon, everyone, and thank you for joining us. Today's discussion will focus on the exciting progress we have made to bring profitable traffic driving initiatives to our flagship Denny's restaurants. We'll also talk about our continued optimism for our growth brand, Kiki's Breakfast Cafe. After that, Speaker 200:02:29we'll provide updates on our quarterly financial results and our full year 2024 guidance expectations. With that, let's get started. The first half of this year has been intensely competitive on value across the industry and we are very pleased that Denny's outperformed the BBI Family Dining sales index for the 2nd consecutive quarter proving that even in the toughest of environments we continue to steal share. Specifically, Denny's system same restaurant sales decline included choppiness from Easter and spring break in April, strong momentum in May and then an overall industry softening in June that was further impacted by a tougher prior year comparison. Importantly though, on a regional basis, we continue to outperform or gain market share relative to BBI Family Dining sales in our key states of California, Texas, Florida and Arizona. Speaker 200:03:15And lastly, we are very pleased so far with 3rd quarter sales trends as we continue to outpace benchmarks proving we are winning the summer with our guests. I want to commend and thank our teams and our franchisees for their dedication, focus and execution that continues to propel us ahead of the competition. Denny's is America's diner and we want to dominate the breakfast occasion. This is evidenced by our year to date outperformance relative to BBI Family Dining breakfast traffic of over 200 basis points. But we also continue to innovate as we are determined to drive traffic during all day parts. Speaker 200:03:46Most recently, this has entailed the expansion of our 3rd virtual brand, Vanda Burrito, which helps maximize labor productivity by over indexing at weekday, dinner and late night, while providing convenience and meeting guests where they are. Throughout Q2, we expanded Banda Burrito to over 300 restaurants, prioritizing California's expansion first to provide additional revenue channels given the potential impact of AB1228. We saw the traffic gap compared to QSR in California cut in half during that quarter as a result of lowering price relative to QSR and the expansion of this additional revenue channel. We remain encouraged by the early results and expect this new virtual brand to deliver similar incremental sales volumes and margins as our other successful virtual brands, the Burger Den and the Meltdown. This confidence has driven us to accelerate and expand Banda Burrito to a nationwide rollout that is already well underway and expected to be completed by the fall. Speaker 200:04:38Turning to value. Denny's has always been known as a value leader in the industry serving quality affordable meals to our guests. Q2 was no different as we highlighted our reprised All Day Diner Deals menu that featured Super Slam, a fan favorite, as well as other famous breakfast plates and value options for lunch and dinner. During the all day diner deals promotional time frame, Denny's share of wallet expanded and was among the top full service performers. We attribute this directly to our highly successful barbell strategy, which advertises traffic driving value messages and ensures our in restaurant merchandising entices guests with irresistible and craveable premium products such as our new Berry Waffle Slam and the Sweet and Smokey BLT and E. Speaker 200:05:19We've also highlighted our delicious new dessert options and milkshakes that are still proven to be highly incremental add ons. And we aren't done innovating yet. We're about to go even deeper into value, bringing back a key brand differentiator in a big way. In just a few short weeks, we will officially relaunch and go national with our 2,468 menu with an added $10 category. This is a value extensive testing and reengineering. Speaker 200:05:51This evolved platform with the top rated value concept across multiple options we tested. Consumer research validated an increased likelihood of guests ordering and making a special visit to Denny's due to positive perceptions around variety, relative value and the inclusion of fresh high quality ingredients. Our test results suggest that not only can this revamped platform drive incremental traffic and incite new customer trial, but is also engineered to protect profitability. We are truly optimistic about what this can do for the back half of our year. Additionally, during the quarter, we began reigniting our local co ops by reestablishing those that had disbanded during the pandemic. Speaker 200:06:26This local advertising investment by the system represents $12,000,000 annually, approximately half of which is incremental. An immense amount of work has been done with our agency partners as we learn more about our specific Denny's guests. Our data suggests we can speak more effectively to our target guests through a larger focus on local media. Q2 was a transitional quarter with many co ops restarting in mid April and more rolling in throughout the quarter and into early July. With the time it takes to receive the funds and then deploy them against media, we believe the full weight of co op advertising will be realized in Q3 and beyond. Speaker 200:06:59We believe it's also why we are continuing to see momentum in July. And finally, we are very pleased to have completed the rollout of our new cloud based POS system in all company restaurants and we're continuing to expand this in franchise restaurants. We now have approximately 130 restaurants on the new platform and it is opening the door to provide future labor savings, smart upsell opportunities, server handhelds and payment at the table. Additionally, our new cloud based POS is an even bigger benefit for our franchise restaurants as the new equipment package comes with an upgraded kitchen visualization system or KBS, which provides meaningful waste saving opportunities. In summary, Q2 was another competitive quarter where we continue to outpace the industry and execute our playbook. Speaker 200:07:42We've made significant progress thus far in the year driving incremental traffic, introducing new craveable menu items, launching our 3rd virtual brand, reigniting incremental co op investments, finalizing testing of our revamped remodel program and completing the rollout of our new cloud based POS system in all company restaurants. We remain confident in our strategies and initiatives as we enter the second half of the year with a fan favorite value platform, realizing the full benefit of incremental advertising, introducing new incentives to ignite our remodel program and POS installation and a national rollout of our 3rd virtual brand, Banda Burrito. The future is definitely bright for our flagship Denny's brand. And now moving on to the Kiki's brand. During the quarter, Kiki's continued to make progress narrowing the gap to BBI family dining sales in Florida. Speaker 200:08:29And over the last year, we have cut the gap by over 400 basis points with momentum that has continued in the Q3. The Kiki's brand has accomplished so much in such a brief time building out the operations support team and the data is clear that we are making headway. During the quarter, Kiki's continued to innovate and update their menu with new options like grits and gluten free toast and also revamp the kids' meals to serve families more value. These small simple changes have been accretive to guest check average and resulted in improved guest satisfaction scores. Turning to Kiki's development, we opened our 2nd corporate cafe in Tennessee just outside of Nashville and Gallatin. Speaker 200:09:05As excited as we were about our Henderson, Tennessee Cafe being on pace to deliver approximately $2,000,000 in annualized sales volume, Gallatin is proving to be even better and bolstered by expanded outdoor patio seating capacity. On top of that, we also completed our 1st remodel test at our largest volume corporate cafe in Orlando during June. And while it's still very early, we are extremely encouraged by the trend shift at that location and look forward to sharing more in the future. This new image will be just what we need to refresh and update Kiki's Cafes in Florida and there's big upside when we do this. We have so much to look forward to with the Kiki's brand because we know Kiki's is poised to continue stealing share from the competition while also growing into new markets like California and Texas later this year. Speaker 200:09:48This brand continues to amaze me with the steadfast commitment and enthusiasm from our teams and our franchisees all working towards the goal of becoming one of the largest competitors in the fastest growing daytime eatery segment. In closing, we are in the final stages of launching many initiatives that will move the needle for years to come for both brands. From our proven remodel programs, new technology platforms, incremental investments in advertising and new revenue channels through virtual brand offerings. There is so much to look forward to in both of our brands. I could not be more proud of our teams, our franchise partners and all those leading these amazing brands taking great care of our guests every single day. Speaker 200:10:24I'll now turn the call over to our CFO, Robert Borostik. Speaker 300:10:28Thank you, Kelly, and good afternoon, everyone. Denny's reported Q2 domestic system wide same restaurant sales of negative 0.6%. Denny's domestic system wide same restaurant sales were comprised of approximately 5% in pricing, net of changes in product mix related to increased value Denny's domestic average weekly sales per restaurant for the second Denny's domestic average weekly sales per restaurant for the Q2 were $38,000 including off premises sales of approximately $8,000 or approximately 20% of total sales. Kiki's delivered system wide same cafe sales of negative 4.6 percent for the quarter. But as Kelly mentioned, the brand continues to make great progress closing the gap to the Florida index. Speaker 300:11:21Kiki's expanded the rollout of alcoholic beverages to over 40% of the system providing check building opportunities in those locations and we look forward to continuing the expansion. Turning to our Q2 financial details. Total operating revenue was $115,900,000 compared to $116,900,000 for the prior year quarter. Franchise and license revenue was $61,600,000 compared to $62,000,000 for the prior year quarter. This change was driven by decreases in franchise occupancy revenue and franchise sales, partially offset by an increase in franchise advertising revenue, primarily related to higher local advertising co op contributions for the current quarter. Speaker 300:12:11Adjusted franchise operating margin was $30,800,000 or 50 percent of franchise and license revenue compared to $31,600,000 or 50.9 percent for the prior year quarter. The margin change was primarily due to lower sales and lease terminations. Additionally, the margin rate was impacted by approximately 80 basis points related to higher advertising, which increases revenue, but it's margin neutral. Company restaurant sales were $54,300,000 compared to $54,900,000 for the prior year quarter. This was primarily driven by a decrease in same restaurant sales, partially offset by 3 additional Kiki's equivalent units for the current quarter. Speaker 300:13:00Adjusted company restaurant operating margin was $7,200,000 or 13.2 percent of company restaurant sales compared to $8,500,000 or 15.4 percent for the prior year quarter. This margin change was primarily due to a decrease in same restaurant sales and increases in marketing and general liability insurance costs for the current quarter. Approximately 80 basis points of the unfavorable change in margin rate was the result of increase in marketing expenses, while general liability and medical insurance adjustments negatively impacted the rate by approximately 50 basis points for the current quarter. Commodity inflation was approximately 1% for the quarter, an improvement over the approximately 2% we have experienced over the last two quarters. Additionally, team labor inflation was 3% in Q2, unchanged from Q1. Speaker 300:13:58We have not experienced a material increase in team wages at our 22 California company restaurants as a result of AB1228. We believe this is in part due to our servers earning well above the AB1228 minimum wage when factoring in tip income. General and administrative expenses for Q2 totaled $20,500,000 compared to $20,200,000 for the prior year quarter, primarily driven by an increase in corporate administrative expenses. These results collectively contributed EBITDA of $20,300,000 The effective income tax rate was 25.1% compared to 23.8 percent for the prior year quarter. This change in rate was primarily due to discrete items related to share based compensation for the prior year quarter. Speaker 300:14:52Adjusted net income per share was $0.13 in the current year quarter compared to $0.15 for the prior year quarter. Our quarter end total debt leverage ratio was 3.7 times. We had approximately $267,000,000 of total debt outstanding, including $258,000,000 borrowed under our credit facility. We continued our commitment to returning capital to our shareholders through share repurchases, while also balancing our longer term goal of growing the Kiki's brand, which will contribute additional incremental adjusted EBITDA and cash flow in the near future. During the quarter, we allocated $4,700,000 to share repurchases while also investing $5,000,000 in cash capital expenditures primarily related to Kiki's development. Speaker 300:15:41At the end of the quarter, we had approximately $91,000,000 remaining under our existing repurchase authorization. Next, to recap our 2nd quarter development highlights. Our brands opened 4 combined restaurants during the quarter, consisting of 3 new Denny's franchise restaurants and 1 company owned Kiki's Cafe. There were also 15 closures with an average unit volume of slightly under $1,100,000 and were open on average for 24 years. Over that timeframe, trade areas have shifted, which negatively impacted their viability. Speaker 300:16:19Despite these closures, we remain encouraged by the overall strengthening of the broader franchise portfolio. As I mentioned last quarter and the trend remains the same, while same restaurant sales have softened, we have seen expansion in our franchise average unit volumes as we closed lower performing restaurants. Moving to Kiki's, we opened 1 company cafe during the quarter in Gallatin, Tennessee, marking the 2nd cafe opened outside of Florida and the 2nd cafe in the Nashville, Tennessee market. In addition, there are currently 4 cafes under construction with several others in permitting and site approval phases. Let me now discuss the business outlook section of our earnings release. Speaker 300:17:04Despite outperforming the BBI Family Dining Index, Denny's has experienced many of the macroeconomic factors that are impacting the broader restaurant industry. As a result of these impacts, we are adjusting our 2024 domestic system wide same restaurant sales guidance to between negative 1% and positive 1% compared to 2023. Our year to date closures are currently above our midpoint of guidance. However, typically restaurants remained open during the summer months, absent lease expirations to capture the summer travel sales. We will continue to monitor closures into the fall and provide an update if appropriate. Speaker 300:17:46Given current construction progress, we now anticipate opening 30 to 40 restaurants on a consolidated basis, inclusive of 12 to 16 Kiki's openings and a consolidated net decline of 20 to 30 restaurants. We are projecting 20 24 commodity inflation to be between 0% and 2% and for labor inflation between 3% and 4%. Our expectations and 4%. Our expectations for consolidated total general and administrative expenses are between $82,000,000 $85,000,000 including $11,000,000 related to share based we are now shifting our range for consolidated adjusted EBITDA to between $83,000,000 $87,000,000 Lastly, I would like to thank our dedicated franchise partners, restaurant operators and results driven brand teams who have remained focused on delivering a best in class guest experience while continuing to drive our strategic priorities, especially given the current consumer environment. That wraps up our prepared remarks. Speaker 300:18:57I will now turn the call over to the operator to begin the Q and A portion of our Operator00:19:03call. Thank you. At this time, we'll be conducting a question and answer Our first question comes from Michael Thomas with Oppenheimer. Please proceed with your question. Speaker 400:19:44Hi, good afternoon. Speaker 500:20:02Hey, Michael, are you there? Operator00:20:04I don't think he's not there. Let me go to our next question. Our next question comes from Todd Brooks with The Benchmark Company. Please proceed with your question. Speaker 600:20:24Hey, can you hear me okay? Speaker 500:20:26Yes, we have you, Todd. Thank you. Speaker 600:20:29Okay. Thank you all. Couple of questions. Robert, you talked about kind of a net price mix impact of 5% in the quarter. The prior quarters barbell had been working and you were kind of netting out to relatively flat mix, if memory serves me correctly. Speaker 600:20:47Did mix hold flat or with the additional pressure on the consumer has mix now dipped negative? Speaker 500:20:54Yes, Todd. So the mix for the quarter was a slight negative impact to overall GCA. So net pricing was 5%. I believe the mix impact largely driven from some additional value actually was about a negative 1% impact driving that down to the 5% that we quoted in my script. So again, actually somewhat intentional as we continue to push additional value. Speaker 600:21:26Great. Thank you. And then just talking about value mix in general, I don't think you shared what percent of sales were considered on value platforms. And based on kind of early testing on 2, 4, 6, 8, 10, thoughts on how high that value mix could creep in the second half of twenty twenty four? Thanks. Speaker 600:21:47I'll jump back in queue. Speaker 200:21:49Sure. Hi, Todd. This is Kelly. And yes, absolutely. We didn't touch on it and kind of overemphasize it because it really has remained flat, slightly down. Speaker 200:21:58So it was 18% down from just about 19% last quarter. And so we saw a lot of movement. We were advertising all day diner deals. We felt better about that. It had actually was margin positive for us given what we had been doing before and given how we engineered that. Speaker 200:22:12So we saw tiny bit down and then our to the second part of your question, our 2, 4, 6, 8 platform, 2, 4, 6, 8, 10 actually, now engineered to have that $10 price point in it. That's actually mixing mid teens and it had higher in some markets as we did the test. But we feel really confident in both the consumer feedback, the operator feedback, the alignment with the franchisees and then just the true equity that we have in 2,468. Speaker 600:22:39And within that mix, Kelly, sorry for the follow-up, but you talked about all day diner deals being margin positive. Let's call it 2 through 10 instead of listing each time. How does that impact the organics as it makes us higher? Speaker 200:22:54That's a good question. No, I think we think we did not see any margin erosion in the 2, 4, 6, 8, 10. That's a good handle you just described for us. We'll see if we can try that one on for size. But we didn't see any margin erosion. Speaker 200:23:09And again, we think we've really engineered this one. I will call out for just for reference, we actually not only did we add the $10 price points thinking relative to the times, it's been a while since this offer has been out, but we also made the $2 $4 those are add on categories and yet the consumer responded incredibly well to that. So those add on categories are helping and they also were feedback was feedback given to us from our franchisees, helped with the alignment and when we put that into test, it just created variety in everyone's mind and it's still just it created just that much more excitement for us in how we've engineered Speaker 600:23:48it. Perfect. Thanks, Kelly. Speaker 200:23:51Thank you. Operator00:23:54Our next question comes from Jake Bartlett with Truist Securities. Please proceed with your question. Speaker 700:24:00Great. Thank you so much for taking the questions. My first is on the trajectory of Centra sales. You mentioned softening in June. I think the commentary in July was more framed about market share or just outperformance versus the index. Speaker 700:24:16We don't have the benefit of that index. So I'm hoping you can just frame an actual in trends in same store sales trends, just because we don't have the data I think that you're referring to. So how did same store sales trend from June into July, if you can share that? And maybe just a little more context of how they trended in the quarter itself. Speaker 500:24:40Yes. Hey, Jake, this is Robert. Happy to answer that. Good to hear your voice. So when you're looking at trends, we are trending favorably into July when you look at the total for Q2. Speaker 500:24:56So that negative 6% that we delivered in Q2 with actually we actually are outperforming that as we move into July in actually a pretty material way. June was actually the lowest of our 3 of the 3 months in the quarter at down 1.5%. So actually a pretty material change in trend and that's even before we launch into the 2, 4, 6, 8, 10, 210, as Todd described it, about week 3 into August. So again, we're really kind of pleased on the way the Operator00:25:39quarter has trended to start. Great. Speaker 700:25:42And maybe, Robert, if you maybe share whether July was positive, it sounds like July would have been positive, but maybe if you can confirm that. And I'll let you give you a chance to do that in one sec. But the rest of the question is, I look at this implied second half guidance for same store sales and it's negative 1% to roughly 3% positive. So really, really wide range. I think in the past sometimes you've given us where you feel most confident in that range. Speaker 700:26:13That might be helpful. It sounds like you do have so many things coming to bear with the co op, co ops kind of fully rolled in, the band of burrito coming on, the 2 through 10. What would I mean, it seems that would it just be the macro environment really turning to the worst from here that would put results into the negative territory in the back half here? Speaker 500:26:40Yes. So let me answer your first part of that question. July is pretty much flat at this point, Jake, so a point a half or so improvement now as we've gone out of late Q2 into the Q3. With regard to what why that range, right, that negative 1% to plus 1%, if you look at that, we with all of the initiatives that we have in play and we're very, very excited about the ones you've listed. So you went with the 210, full benefit of co ops, remodels are starting. Speaker 500:27:16We have Xenial now into like roughly 10% of the system, including all of the company restaurants. We are in now 300 plus restaurants with our next virtual brand, our 3rd virtual brand, Banda. We have a lot of reason to be excited and I would like to say that we would be at the top end of that range. The reality is we are in a very volatile macroeconomic environment, which we don't control. So we will execute against the things that are within our control, all of those positive benefits that I've listed out to you just a second ago and look to drive towards the top end of that range, but hedging given the environment that we're in. Speaker 700:28:01Great. Thanks a lot. I'll pass it on and jump back. Thanks. Speaker 500:28:05Thanks, Jake. Operator00:28:07Our next question comes from Michael Tuomas with Oppenheimer. Please proceed with your question. Speaker 400:28:13Hi, sorry about that. Can you guys hear me? Speaker 200:28:16Yes, we can. Operator00:28:17Okay, perfect. Welcome back. Speaker 400:28:19Thanks. And sorry if I missed this or you said it, but can you share a little bit more about the test of the $2 to $10 menu? I mean, did it drive incremental traffic in the test? And I think you mentioned the $10 price point and something about mid teens mix. So was that specific to the $10 price point within that menu or were you saying overall that that new menu is mixing in mid teens? Speaker 400:28:43Is that the first part? Thanks. Speaker 200:28:45Yes. Great, Michael. Thank you. I'll start with the last thing you said, which is the total mix of the menu, 2, 4, 6, 8, 10 is mixing roughly mid teens with some markets way higher not way higher, some higher than that, but the average has been about that. And then so the $10 price point has been actually okay. Speaker 200:29:04That's going to benefit us. That was certainly important in certain markets like California, as you can imagine. But we are absolutely in the test. And the reason we move forward is because we immediately did see a traffic gain in those markets and across all the restaurants that we tested in. So we feel really good about that. Speaker 200:29:20We actually saw because this was it stayed margin positive because of way not only the way the menu was engineered, but those add on categories have really helped us. And the consumer still sees that as a benefit and sees so many options from us in that category that it really has performed very well for us. Operators like it, franchisees are aligned and excited about this offer. Speaker 400:29:44Perfect. Thanks. And then we've heard from some other restaurants, even some fast food companies talking about consumers trading down, and now eating at home a little bit more. So I'm wondering, are you seeing that at all? Do you think you see that in your data? Speaker 400:30:00And if you're not, maybe why do you think that is relative to some others? Thanks. Speaker 200:30:04I think it's a fair it's certainly fair. When grocery prices when we are still ahead of where grocery inflation is, we definitely feel like people are probably still saying, I should just cook at home a little bit more often. For us, we're actually we can see some change in check if it's indicative of us, but maybe a little bit of I'll order one less beverage or beverage incidences are slightly down quarter to date and year to date, but our add ons, we're doing a lot of merchandising. We've done that differently this last year. That's really helped to aid us in that. Speaker 200:30:36We talked about how more effective how much more effective our barbell strategy has been. So really proud of the things we've done in restaurants, the things our servers are doing to sell and upsell sides and different things even if maybe that extra add on beverage isn't happening or they're having water instead. So it's not like we can't see it, but we feel like we've had good strategies to offset that potential trade down. Operator00:30:58Thank you. I'll hop back in. Speaker 200:31:01Thanks, Michael. Operator00:31:04Our next question comes from Nick Yajan Sathyan with Wedbush Securities. Please proceed with your question. Speaker 800:31:12Thank you. I want to focus a little bit more on Kiki's. I mean, I think you guys had some menu changes at the end of last year, along with some of the Florida weakness that had resulted in the negative comps, if I'm not mistaken. I think we anniversary some of that starting in Q3. So how should we think about the same store sales growth trajectory at Kiki's into in the second half? Speaker 200:31:43Yes. I think that's a great that's fair, great question, Nick. And I think what you're absolutely right. So you started with gas in Florida. It is a really different environment in Florida. Speaker 200:31:54It's challenging. The industry has been negative 3 quarters. Family dining has been negative 4 quarters and so it's just been a tough environment and we've seen Kiki's gaining cutting that gap in half as of late. So it's definitely there's definitely some challenges that makes it in Orlando where we have big presence even harder. The things that we are excited about, we've opened as we've mentioned in the scripts, 2 restaurants outside that are company owned restaurants. Speaker 200:32:20The new restaurants that are opening significantly higher volumes than the system average. So that's encouraging and these are places that nobody really knows of us and the team has just done an outstanding job there. The remodel of the Doctor. Phillips location in Orlando, I was just there, is absolutely gorgeous and we're incredibly encouraged by those results. The other things we've talked about, that remodel potential is big for us. Speaker 200:32:42We're entering California and Texas this year and have, some really exciting growth plans, beyond that even. But we're excited about the potential they have still to add patios, remodel programs, have had new food offerings, kids meal upgrades and improvements that they've made. So and just lots of really good work that's gone on. Alcohol is in about 70% of the locations as of right now. So and that's just getting started really with some great new sangrias, mimosas. Speaker 200:33:11So there's lots to be excited about. There are some just tough comps in that market. Speaker 800:33:20And the entry into Texas and California as company owned locations or franchisees starting to build themselves? Speaker 200:33:29Yes. Those are franchise. We'll go we have franchise partners that are actually Denny franchisees excited about California and Texas. And Texas will actually be company and franchise. So we have some excitement building for sure. Operator00:33:47Got Speaker 800:33:47it. And then just kind of an overall question on the competitive environment. Obviously, QSR is getting even more competitive, casual dining even more competitive as we head into the second half. Is this sort of 2 to 10 menu enough, do you think? Or is there sort of maybe another I guess are we going to see it necessary to be even more aggressive than that going forward? Speaker 200:34:18Yes, I think that's a fair question. Well, there's no doubt it's kind of a value war out there with everybody just racing to get to the next just the next offering that might really ignite some new customer trial and get them from grocery, if you will. I think for us 2,468 by far was again it's a true equity for us. People know the Denny's brand for that offering. And so when we looked at consumer research what we learned from the consumer even before going to those in market restaurants, it matched. Speaker 200:34:48It really said, yes, this is unique and different. We do think this could be the value platform that signifies the strength we have always had in value, but that we now have an everyday value platform. I think the other thing we've had original Grand Slam was also something that was really strong for us. So we've got some we have pantry. We have ideas on the pantry that still could play a big role for us if in fact 2,468 does not deliver the way we think it will, but every indication says this Operator00:35:14is a strong traffic driver for us. Speaker 800:35:18Thank you very much. Operator00:35:22Our next question comes from Brian Mullen with Piper Sandler. Please proceed with your question. Speaker 200:35:28Hi. This is Ally Arfstrom on for Brian Mullen. Thank you for taking the question. Just wanted to ask about the potential remodels for the Kiki's fleet in Florida and curious if there's any update on a timeline or cost per unit perspective? It's a great question. Speaker 200:35:43So we don't yet. So we've got into that. We're under we started with looking at the next round that we could look at. It's really early for that first location. It's about 6 weeks in right now. Speaker 200:35:55We also have to optimize the cost, right? So we really have to look at and scale this a little bit more before we're able to say this is the definitive cost of that remodel and therefore the return that we expect to get the sales lift and traffic lift we need. So we need just more test units to be able to scale that and then be able to specifically talk to that, speak to that. Speaker 500:36:15The other piece of the puzzle there is, is this is a brand that just turned 18 years old, made it to adulthood finally, and it has not had a remodel program up until this point. So whatever we do should be a significant improvement. You can see the pictures in our investor deck of pre and post of what we have been doing and has the likely ability to be a very material improvement. We do need more test units though. There's no doubt about it. Speaker 500:36:50But we are really, really pleased with how we got out Operator00:36:54of the ground with this. Our next question comes from Todd Brooks with The Benchmark Company. Please proceed with your question. Speaker 600:37:10Hey, thanks for squeezing me in again. Just two quick ones. One, you didn't call California performance out specifically. And just if any color you could give us on the same store sales performance of that market and the complexion of how you get there, if it's further down traffic than the rest of the chain, but you've made it back with more aggressive menu pricing to offset the Fast Act or any thoughts there? And then I have one follow-up. Speaker 500:37:40Yes, Tom, this is Robert. So a really good question. So I would say that California, if we were down 0.6% for the quarter, they're slightly below that, a little slightly worse. When you look at Texas, in California though, we did steal share from QSR and we do attribute that a little bit to the AB1228 and how we're performing in that. In fact, the gap that we were experiencing to overall QSR, we've cut in half in California specifically. Speaker 500:38:15When you Speaker 200:38:16look at Texas, I'll give Speaker 500:38:17you the smile stage, that's where half of our restaurants are. Texas is about in line with performance. Arizona is actually outpacing that negative 0.6%. They were actually positive in the quarter. And then Kelly spoke at length with regard to Florida. Speaker 500:38:33It is by it is our worst performing state right now. So that gives you a sense of the smile states for us. Speaker 200:38:42And Todd, I'll add one more thing to the California, the core of that question on how California is performing. I will tell you that we had a significant amount of the test restaurants for 2, 4, 6, 8 in California and those outperformed the other markets that we're testing that offer in. So we're really excited about that. The last thing I'll say about that market is San Diego and LA. So we talked about those co ops coming back online. Speaker 200:39:05Those 2 markets, LA and San Diego, which are a pretty big percentage of our restaurants in California are just now getting started. So we expect there to be even more benefit later on this quarter for those co ops in California especially. Speaker 600:39:19That's great. Thanks. And then my other one is just to Kiki's follow-up. So you mentioned Tangentially franchisees opening in California. It sounds like a companyfranchisee split with the 1st Texas units. Speaker 600:39:35It wouldn't be a call if I didn't ask you about an update to the development pipeline for Kiki's. I know that some franchisees were waiting to see the Tennessee store performance. It sounds like from everything you said, Kelly, those stores are outstripping the brand average in Florida. So just any update we can get on that pipeline would be great. Thanks. Speaker 200:39:57Of course. Sure. There's really no material change, but a lot of really great conversations, a lot of tours to that restaurant, those two restaurants now in Tennessee, and they are over performing. They're 2,000,000 plus versus the 1.9 system average. So we're continuing to be really excited and then working on that pipeline. Speaker 200:40:16We're absolutely working on the pipeline. Speaker 600:40:19Okay, great. Thank you both. Speaker 200:40:21Thanks, Tyler. Thanks, Tyler. Thank you, Tyler. Operator00:40:25Our next question comes from Jake Bartlett with Truist Securities. Please proceed with your question. Speaker 700:40:31Great. Thanks for taking the follow-up. My name is back to my other question. And it was the improvement in July from June. Is that in tandem with what you saw from the market? Speaker 700:40:42Or is it Denny's specific your outperformance expanding versus the market? And if that's the case, just remind us what drove that you think from June to July? Speaker 500:40:56So the first part of that question, Jake, is when we look at the market, not only did we improve upon our trend, but we are actually outpacing the BBI family index in a very material way. So that is also expanded. So it's not only our change in trend, but broadly an even further outperformance to the industry with regard to that. Speaker 200:41:23I do think too, Jake, to the question, I think there's a little bit again, we've mentioned those co op dollars take a minute to deploy the media, see the reaction to that. But I think there's a little bit there in terms of that media started, some of that extra and incremental media started in April for many markets. I think we got a little bit there. We got a few Banda burritos that were added. California went first. Speaker 200:41:45So, I think that's a little bit of what's aiding us in the comps in July. And certainly against the industry, we're pretty excited about that. Right. Speaker 700:41:54And with Banda, can you you have good experience with it now. How is that what kind of a sales lift do you see when you add a Banda option in the store? Speaker 200:42:04Yes. The good news we see it to be and expect it to be similar in terms of the dollars that it contributes as to the other virtual brands that we have. And because it's still ramping up and it's early in many locations, those 300 plus that are already in and we have many more to go. In fact, we have a lot that will be going in August and we're excited about that. The ease of operations and execution of it has been phenomenal. Speaker 200:42:27We've checked with operators and franchisees. So we're pretty bullish on it delivering the same as our other 2 virtual brands. And it's got really relevant offerings, especially on the West Coast. Speaker 700:42:38Got it. And then the last question is on the G and A. It was lowered a bit, but that was really, I think, just the stock based comp side of it. So in terms of kind of tightening the belt on G and A, do you think there's opportunity there? Or are you perhaps kind of holding off just because you view the industry slowdown as temporary? Speaker 700:42:58Is this a sign that you see light at the end of the tunnel for the industry trends or maybe there's just not any factor cut at this point? Speaker 500:43:10Yes, Jacob, that's a fair question with regard to that. To be very transparent, we did invest to grow the Kiki's brand, that is some of what we have experienced over the last couple of quarters and the last couple of years, frankly. And you can start to see that come to fruition now, that guidance of 12% to 16% that's been maintained all year long. The pipeline is continuing to grow. So we're really pleased with regard to what we're experiencing out of Kiki's. Speaker 500:43:43We are very diligent with regard to our G and A spending. We know that that is part of the story and work to be very conservative with the balance of the portfolio, balance of the Demi's brand, but investing clearly investing in our growth vehicle. Speaker 700:44:03Great. Thank you very much. Appreciate it. Speaker 500:44:06Thanks, Jake. Speaker 100:44:07And thank you, everyone. I'd like to thank you for joining today's call. We look forward to our next conference call in October when we will discuss our Q3 2024 results. Thank you, and have a great evening.Read morePowered by