Denny's aims to add new units, continue momentum

Denny’s Corp. will build on the momentum of its repositioning efforts by opening more units and continuing to use a modified “barbell” strategy based on value-priced items and premium LTOs, executives said Wednesday during a call with analysts.

The 1,685-unit family-dining chain will also continue to implement a three-pronged marketing strategy that led to a rebound in same-store sales for fiscal 2011, said president and chief executive John Miller.

“We now have four, going on five quarters under our belt with our America’s Diner/Always Open brand positioning efforts,” Miller said. “With this as a strong foundation and framework, we believe we are at the beginning stages of effectively broadening our consumer base to guests craving their diner favorites, versus the historical, more narrowly focused, breakfast all-day platform.”

He added, “Our success is being achieved through consistent brand execution and leveraging our three primary marketing strategies: delivering every day affordability; creating compelling limited-time only product offerings; and driving sales beyond breakfast.”

Denny’s Corp. reported Wednesday increased net income for the fourth quarter and year ended Dec. 28 [3], although much of the gain was related to tax and impairment charges.

Full-year same-store sales and traffic were up at both company and franchised restaurants in 2011, “the first time all of our same-store metrics have been positive since 2004,” Miller said.

The company plans to continue its America’s Diner positioning, grow the Denny’s brand through traditional and nontraditional venues both domestically and internationally, and increase earnings and free cash flow through the franchise-focused business model Denny’s Corp. has embraced in recent years, including refranchising.

“This enables us to continue to improve a steady track record of strengthening our balance sheet, supporting franchise growth and returning value to our shareholders,” through debt repayment and a stock share purchasing program, Miller said.

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Executives also discussed:

• Denny’s has planned five new marketing modules for 2012, including a campaign that began last month promoting more of the healthful Fit Fare menu items introduced last year and limited-time Sizzlin’ Skillet meal offers, such as a Chicken Loaded Potato Skillet. Among the new items are Slow-Cooked Pot Roast, a Bacon Lovers BLT, Fit Fare Veggie Skillet, and new dishes added to the $2 $4 $6 $8 menu, including a $6 Chicken Spinach Salad and a $4 Skillet Cookie a la Mode, Miller said.

• Commodity inflation is expected to run between 3 percent and 5 percent in 2012, compared with inflation of slightly more than 5 percent last year, Denny’s officials said. They noted that to help offset some of those higher costs this year, the chain increased prices by less than 1 percent in January when it adjusted its core menu, just as it did last June.

• Denny’s opened 62 new restaurants in 2011 and 203 during the past two years, netting 27 and 134 locations, after closures, in 2011 and since 2009, respectively. Of the 45 to 50 new restaurants the chain expects to add in 2012, all but one will be franchised. The chain expects to net at least 10 new locations after closures.

• The chain “continues to be excited” about its relationship with travel center operator Pilot Flying J, which through a conversion program in recent years added 123 restaurants to the Denny’s system. Denny’s anticipates continued travel center development through either new Pilot and Flying J openings, potential future Pilot Flying J acquisitions, or new franchised growth through conversion of restaurants in mom-and-pop travel centers.

• Denny’s will leverage its growing nontraditional site development program through partnerships with franchisees on military bases and in airports, among other sites, Miller said. The chain has opened 11 restaurants on college campuses since 2010, either working directly with schools or through contractors Aramark and Sodexo.

• Although the Denny’s brand is 60 years old, Miller said, “we believe there remains substantial opportunity to grow our traditional, domestic footprint.” About 50 percent of the chain’s domestic system is concentrated in just four states: California, Texas, Florida and Arizona. A recently initiated $100 million program with outside lenders to fund development of new franchised restaurants in underpenetrated geographic markets, along with the chain’s own reduced fees and royalties incentives for multi-unit development, should help the chain attract new franchisees, while encouraging existing franchisees to grow the brand, Miller said.

• The company expects to sell another 35 to 40 company units to franchisees in 2012 from its current stock of about 206 locations to achieve its stated goal of having company restaurants represent about 10 percent of the system total.

Contact Alan J. Liddle at [email protected] [4].
Follow him on Twitter: @AJ_NRN [5]