8-K: Denny's Corporation Announces Preliminary Q4 and Fiscal Year 2024 Results, Exceeds Benchmarks

Denny's Corporation reported positive same-restaurant sales growth for both Denny's and Keke's in the fourth quarter of 2024, outpacing industry benchmarks and expanding Keke's footprint.

Summary

• Denny's Corporation released preliminary unaudited financial results for the fourth quarter and fiscal year ending December 25, 2024.
• Denny's domestic system-wide same-restaurant sales increased by 1.1% in Q4, while Keke's saw a 3.0% increase.
• For the full year, Denny's domestic system-wide same-restaurant sales decreased by 0.2%, and Keke's decreased by 1.7%.
• Denny's opened 4 new franchised restaurants in Q4 and 14 for the full year, while closing 30 and 88 restaurants respectively as part of a strategic initiative to close lower volume locations.
• Keke's opened 8 new cafes in Q4 and 12 for the full year, expanding into four new states in Q4: California, Colorado, Nevada, and Texas.
• The company anticipates achieving the low end of its previously communicated Adjusted EBITDA guidance range of $81 million to $84 million.
• The company ended 2024 with $261.3 million of borrowings under its credit facility.
• The company plans to release full financial results and 2025 guidance on February 12, 2025.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong Q4 performance and strategic initiatives, but also acknowledges some challenges with full-year results and restaurant closures. The sentiment is cautiously optimistic.

Positives

• Both Denny's and Keke's exceeded their respective BBI indices in Q4.
• Keke's development accelerated with 8 new cafes opened in Q4 and expansion into four new states.
• Denny's relaunched its remodel program and completed 23 remodels in 2024.
• The company is on track to meet the low end of its Adjusted EBITDA guidance.
• Denny's value menu relaunch provided a 2.0-2.5% sales lift with minimal impact to check.
• The Banda Burrito rollout increased same-restaurant sales by 70bps in both Q3 and Q4.
• Keke's remodel program is showing a 6-8% sales lift based on testing.
• Denny's alcohol program rollout increased same-restaurant sales by 110bps in Q4.
• Denny's new website resulted in ~100bps of additional online sales.
• Keke's first paid media campaign drove 4-6% traffic lift.

Negatives

• Denny's domestic system-wide same-restaurant sales decreased by 0.2% for the full year 2024.
• Keke's domestic system-wide same-restaurant sales decreased by 1.7% for the full year 2024.
• Denny's closed a significant number of restaurants (88) in 2024 as part of a strategic initiative.
• Keke's Q4 domestic system-wide same-restaurant sales were impacted by ~110bps related to hurricanes.

Risks

• The company faces risks related to economic conditions, public health, and political events that could impact consumer spending.
• Commodity and labor inflation could negatively affect profitability.
• The company's ability to maintain adequate liquidity for its cash needs is a risk.
• Competitive pressures within the restaurant industry could impact performance.
• The company's ability to integrate and derive benefits from the Keke's acquisition is a risk.
• Adverse publicity and health concerns could negatively impact sales.
• Changes in business strategy or development plans could affect future performance.
• Regional weather conditions and overall changes in the general economy could impact results.
• The company's debt obligations and ability to access capital are ongoing risks.

Future Outlook

The company anticipates achieving the low end of its previously communicated Adjusted EBITDA guidance range of $81 million to $84 million and will release full financial results and 2025 guidance on February 12, 2025.

Management Comments

• Kelli Valade, Chief Executive Officer, stated, 'We continued our positive momentum through the fourth quarter by delivering solid domestic system-wide same-restaurant sales* and outpacing both Dennys and Kekes respective BBI indices.'
• Kelli Valade also noted, 'Kekes development also accelerated, as we opened eight new cafes and entered four new states.'
• Kelli Valade further commented, 'We close 2024 proud of these and other accomplishments, and recognize there is still more to do. As we look ahead, we remain focused and diligent in driving incremental traffic, improving operational efficiency and creating value for shareholders.'

Industry Context

The results indicate that Denny's is performing well against industry benchmarks, particularly in same-restaurant sales growth, and is actively expanding its Keke's brand. The strategic closure of underperforming Denny's locations is a common practice in the restaurant industry to improve overall brand health and profitability. The company's focus on remodels and technology upgrades aligns with current industry trends to enhance customer experience and drive sales.

Comparison to Industry Standards

• Denny's outperformed the BBI Family Dining sales benchmark for the fourth consecutive quarter, indicating a strong competitive position.
• Keke's also outperformed the BBI Family Dining sales benchmark in Florida for the second consecutive quarter, demonstrating its strength in that market.
• The company's strategic closure of 88 underperforming Denny's restaurants is similar to actions taken by other large restaurant chains to optimize their portfolios.
• The average unit sales of $2.3M for new Denny's openings is a positive sign of the brand's continued appeal.
• Keke's remodel program lift target of 6-8% is comparable to the results seen by other restaurant chains implementing similar initiatives.
• The company's focus on off-premises sales, which reached 21% for Denny's and 16% for Keke's in Q4, aligns with industry trends towards increased delivery and takeout options.
• The company's debt leverage ratio of 3.3x in 2023 and 3.0x in 2024 is within the range of other publicly traded restaurant companies.

Stakeholder Impact

• Shareholders can expect to receive full financial results and 2025 guidance on February 12, 2025.
• Employees may be impacted by the strategic closure of underperforming Denny's restaurants.
• Franchisees will benefit from the company's focus on remodels and technology upgrades.
• Customers will experience enhanced dining options with the remodel program and new menu items.
• Suppliers may see changes in demand based on the company's restaurant closures and new openings.

Next Steps

• The company will release full financial and operating results for Q4 and fiscal year 2024 on February 12, 2025.
• The company will also provide financial guidance for 2025 on February 12, 2025.
• The company will continue to focus on driving incremental traffic, improving operational efficiency, and creating value for shareholders.

Key Dates

Keywords

restaurant, same-restaurant sales, franchise, EBITDA, remodel, Keke's, Denny's, sales, development, closures