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Denny’s eases into refranchising with 10 restaurants sold

Denny’s eases into refranchising with 10 restaurants sold

The company reports 8th consecutive year of positive same-store sales

Denny’s is easing into its refranchising effort with 10 of up to 125 company operated stores sold in December and January.

The Spartanburg, S.C.-based family-dining chain reiterated Thursday its refranchising plan during the company’s fourth-quarter earnings call. Denny’s said refranchising should be complete in 12 to 15 months, resulting in roughly $100 million in pre-tax proceeds.

“As we transition to a more asset-light model, we will remain committed to our revitalization initiatives while continuing to drive same-store sales growth and profitable returns for our shareholders,” CEO John Miller said during a conference call with investors Tuesday.

The company also revealed plans to unload less desirable real estate with an eye towards reinvesting proceeds in the acquisition of higher quality properties.

The refranchising initiative comes as Denny’s delivered its eighth consecutive year of positive systemwide same-store sales. For the quarter ended Dec. 26, 2018, same-store sales were up 1.4 percent, however, that reflected slower growth than a year earlier when same-store sales were up 2.2 percent for the same period.  

Same-store sales increased 2.1 percent at company stores in the quarter and up 1.2 percent at franchise locations in the period.

Miller said off-premise sales, remodeled stores and improved menu offerings are driving sales. At the close of the quarter, off-premise sales accounted for 11 percent of total systemwide sales. That’s up from 7 percent when the company first launched Denny’s on Demand in 2017.

Miller said he’s pleased with delivery because the transactions “continue to be highly incremental.”

Wedbush analyst Nick Setyan cited similar initiatives as critical for the brand going forward.

“We continue to view remodels (90% of system by FYE19), menu innovation, online ordering, third-party delivery, and a customer demographic benefiting from increased employment and wage growth as ongoing drivers of SSS growth,” he wrote in a post conference report. 

Total revenue for the quarter grew 17.7 percent to $159.5 million compared to $135.5 million for the same period a year earlier. Net income for the quarter fell to $11.5 million, or 18 cents per share, compared to $13.1 million, or $0.19 per share, for the same quarter last year.

For the full fiscal year, revenue grew 19.1 percent to $630.2 million, from $529.2 million in the same period a year earlier. Net income was $43.7 million, or 67 cents per share, compared with $39.6 million, or 56 cents per share, in the prior year.

As of the close of the quarter, Denny’s had 1,709 units, including 1,536 franchised locations and 173 company stores.

The company’s goal is to refranchise 90 to 125 company stores over the next 15 months. During the fourth quarter, the company refranchised eight stores in December; in the first quarter, two more stores were sold in January.

Contact Nancy Luna at [email protected] 

Follow her on Twitter: @FastFoodMaven

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