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Denny’s expects to hit refranchising goal by year’s end

Target will leave about 3% to 4% of system company-owned

With the sale of 56 company-owned restaurants in the third quarter ended Sept. 25, Denny’s Corp. expects to complete its year-old refranchising program by the end of 2019, executives said Tuesday.

“We have continued to make progress with our refranchising transactions,” said John Miller, Denny’s CEO and president on a third-quarter earnings call, “and we expect it to be substantially complete with the sale of restaurants by the end of this year.” The company has closed on the sales of on additional six restaurants in the fourth quarter.

The Spartanburg, S.C.-based family dining chain began the refranchising effort last October, when about 90% of its restaurants were franchised, and expects to the total restaurants to be between 115 and 125 at the end of the year, leaving the system about 96% to 97% franchised. Denny’s had 1,706 restaurants as of Sept. 25.

Mark Wolfinger, Denny’s chief financial officer, said the sales come with attached development commitments for 70 to 80 restaurants.

“While the sale of restaurants is expected to be substantially complete by the end of the year,” Miller said, “the concurrent effort to upgrade the quality of our real estate portfolio through a series of like-kind exchanges is still expected to extend into 2020.”

Denny’s also continued to broaden its off-premise sales in the quarter, Miller said.

“Expanding the off-premise strategy enables us to reach younger guests and increase our brand awareness,” he said. “These off-premise sales represented approximately 11% of total sales at company and franchised restaurants during the third quarter, which is up from approximately 7% at the launch of Denny's On Demand in mid-2017.”

Miller said about 88% of the domestic Denny’s units now have at least one delivery partner.

“These transactions continue to be incremental and deliver total margin rates from the low teens to upper-20s percent after considering product cost, labor cost and the delivery fee,” he said.

For the third quarter, Denny’s net income rose 354.6% to $49.1 million, or 80 cents a share, from $10.8 million, or 16 cents a share, in the same period last year. Revenues fell 21.4% to $124.3 million from $158 million in the same quarter last year.

Domestic systemwide same-store sales were up 1.1% in the quarter, including an increase of 1.2% at domestic franchised restaurants and a decrease of 0.2% at company restaurants.

As of Sept. 25, Denny’s had 1,706 franchised, licensed and company restaurants around the world including 140 restaurants outside the United States.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

TAGS: Franchising
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