8-K: Denny's Corporation Reports Mixed Q4 and Full Year 2024 Results; Focuses on Value and Expansion

Denny's Corporation reports mixed Q4 and full-year 2024 results, highlighting same-restaurant sales growth at Denny's and Keke's, offset by revenue declines and strategic restaurant closures.

Summary

• Denny's Corporation reported its fourth quarter and full-year results for 2024.
• Total operating revenue for Q4 2024 was $114.7 million, slightly lower than the $115.4 million in the prior year quarter.
• For the full year 2024, total operating revenue was $452.3 million, compared to $463.9 million in the previous year.
• Denny's domestic system-wide same-restaurant sales increased by 1.1% in Q4 but decreased by 0.2% for the full year.
• Keke's domestic system-wide same-restaurant sales increased by 3.0% in Q4 but decreased by 1.7% for the full year.
• Denny's opened four franchised restaurants and closed 30 franchise restaurants in Q4 as part of a planned acceleration of lower-volume restaurant closures.
• For the full year, Denny's closed 88 restaurants.
• Keke's opened eight new cafes in Q4 and expanded into four new states.
• Operating income for Q4 was $14.5 million, compared to $7.7 million in the prior year quarter.
• Full-year operating income was $45.3 million, compared to $52.8 million in the prior year.
• Adjusted EBITDA for Q4 increased by 11.1% to $22.2 million.
• Full-year adjusted EBITDA was $81.4 million.
• Net income for Q4 was $6.8 million, or $0.13 per diluted share.
• Full-year net income was $21.6 million, or $0.41 per diluted share.
• The company expects Denny's domestic system-wide same-restaurant sales to be between (2.0%) and 1.0% for 2025.
• The company anticipates opening 25 to 40 consolidated restaurants and closing 70 to 90 in 2025.
• Commodity inflation is projected to be between 2.0% and 4.0%, and labor inflation between 2.5% and 3.5% in 2025.
• Total general and administrative expenses are expected to be between $80 million and $85 million in 2025.
• Adjusted EBITDA is projected to be between $80 million and $85 million for 2025.
• Share repurchases are planned between $15 million and $25 million for 2025.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While revenue and some sales metrics are down, the company is taking proactive steps to improve performance, such as strategic closures, remodels, and value offerings. The outlook for 2025 is cautious but includes plans for share repurchases, indicating some confidence in the future.

Positives

• Denny's and Keke's outperformed their respective BBI Family Dining indices in Q4 2024.
• Denny's is enhancing its brand health by accelerating the closure of lower-volume restaurants.
• Keke's is expanding rapidly, opening a record number of cafes and entering new states.
• The company is investing in remodels to improve restaurant performance.
• Adjusted EBITDA increased in Q4 2024.
• The company is focused on delivering shareholder value through cost reduction and traffic driving initiatives.
• Denny's relaunched iconic value menu during Q3 providing 2.0-2.5% sales lift since launch with minimal impact to check.
• The alcohol program rollout to ~80% of the Denny's system increased same-restaurant sales by 110bps in Q4.
• The launch of a new and improved website resulted in ~100bps of additional online sales for Denny's.
• Keke's established a remodel program lift target of 6%-8% based on testing performance.
• Denny's average Google rating increased from 3.76 in 2019 to 4.39 in 2024.

Negatives

• Total operating revenue decreased for both Q4 and the full year 2024.
• Denny's domestic system-wide same-restaurant sales decreased for the full year 2024.
• Keke's domestic system-wide same-restaurant sales decreased for the full year 2024.
• Denny's closed a significant number of restaurants as part of its strategic closure plan.
• Operating income decreased for the full year 2024.
• The company anticipates commodity and labor inflation in 2025.
• The company expects Denny's domestic system-wide same-restaurant sales to be between (2.0%) and 1.0% for 2025.
• Keke's Q4 domestic system-wide same-restaurant sales were impacted by ~110bps related to hurricanes.

Risks

• Consumer sentiment affected by macroeconomic factors could impact performance.
• Commodity and labor inflation could negatively impact profitability.
• The company's ability to achieve its 2025 outlook is subject to various economic and operational factors.
• The company's success depends on its ability to integrate and derive benefits from the Keke's acquisition.
• The company faces competitive pressures from within the restaurant industry.
• The company's ability to maintain adequate levels of liquidity for its cash needs is a risk.
• Health concerns arising from food-related pandemics, outbreaks of flu viruses or other diseases could impact performance.
• Political environment and geopolitical events (including acts of war and terrorism) could impact performance.

Future Outlook

The company expects Denny's domestic system-wide same-restaurant sales to be between (2.0%) and 1.0% for 2025. Consolidated restaurant openings are projected to be 25 to 40, with closures between 70 and 90. Commodity inflation is expected to be between 2.0% and 4.0%, and labor inflation between 2.5% and 3.5%. Total general and administrative expenses are projected between $80 million and $85 million. Adjusted EBITDA is expected to be between $80 million and $85 million. Share repurchases are planned between $15 million and $25 million.

Management Comments

• Kelli Valade, Chief Executive Officer, stated, 'We are proud of our progress through 2024, culminating in strong performances from both Denny's and Keke's, which outperformed their respective BBI Family Dining indices in the fourth quarter.'
• Kelli Valade noted that the company has made significant progress in enhancing the health of the Denny's brand by accelerating closures of lower-volume restaurants and completing remodels.
• Kelli Valade mentioned the record number of Keke's cafe openings and expansion into new states.
• Kelli Valade acknowledged the work still to be done within the brands, particularly navigating near-term consumer sentiment affected by macroeconomic factors.
• Kelli Valade stated that the company is well-positioned to deliver shareholder value through actions to maintain its position as a value leader, invest in its brands, reduce costs, and drive traffic.

Industry Context

The announcement reflects the ongoing challenges and strategic shifts within the full-service restaurant industry, including managing costs, adapting to changing consumer preferences, and optimizing restaurant portfolios. The focus on value menus, off-premises sales, and strategic closures aligns with industry trends aimed at improving profitability and competitiveness.

Comparison to Industry Standards

• The report mentions outperforming the BBI Family Dining indices, suggesting a relative strength compared to peers in that segment.
• The company's focus on franchise operations is common in the restaurant industry, with companies like McDonald's and Restaurant Brands International (QSR) also relying heavily on franchising.
• The remodel program and its targeted sales lift are similar to initiatives undertaken by other restaurant chains to refresh their brand image and improve customer experience.
• The company's debt leverage target of 2.5x 3.5x is within the typical range for publicly traded restaurant companies.

Stakeholder Impact

• Shareholders may experience mixed results due to decreased revenue but potential for increased value through strategic initiatives and share repurchases.
• Employees may be affected by restaurant closures and potential restructuring efforts.
• Franchisees may benefit from the company's focus on brand health and support for profitable growth.
• Customers may experience improved restaurant quality and value offerings.

Next Steps

• The company will continue to execute its strategy to enhance brand health, drive traffic, and reduce costs.
• The company plans to open and close restaurants in 2025 as part of its portfolio optimization strategy.
• The company will continue to invest in remodels and technology to improve the customer experience.
• The company expects to refinance its existing credit facility prior to August 2025.
• The company will conduct meetings with members of the investment community during February, March and April 2025.

Key Dates

Keywords

Denny's, Keke's, restaurants, same-restaurant sales, franchise, operating revenue, EBITDA, remodels, closures, expansion