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Denny's is nearing completion of its systemwide kitchen modernization program and expects to deploy it in a March menu refresh.

Denny’s kitchen remodels foreshadow menu refresh

Core-item overhaul expected in March as modernization program nears completion

Denny’s Corp. is nearing the completion of its kitchen modernization program, with the new equipment in 98% of its units, and preparing to deploy it in a menu refresh next month, executives said Monday.

The Spartanburg, S.C.-based family-dining brand, which celebrating its 70 anniversary this year, expects to rollout the core-menu refresh in March, said Kelli Valade, Denny’s CEO, on a fourth-quarter earnings call.

Fewer than 25 restaurants remain in the kitchen modernization initiative, she said, and the March menu refresh will also use the new platform in its Diner Deals offerings, which debuted September as customers began eying economic uncertainties.

“We experienced notable improvements in guest sentiment scores around value generally and affordability in particular,” Valade said, adding that the Diner Deal sales mix in the fourth quarter was just over 14%, similar to the third quarter.

“We'll continue to evolve this platform, including our upcoming menu refresh next month, reaffirming our everyday value promise for our guests,” Valade said. “Our barbell strategy is working as guest check average has remained strong.”

Executives said further details about the menu refresh would be released in March. Denny’s two virtual brands, Burger Den and Melt Down, continued to help drive off-premises sales, Valade added.

“While some have noted declines in off-premises, our off-premises business and our virtual brands remain consistently strong at approximately 21% of total sales,” she said. “We believe this will remain a strength, particularly with our growing mix of younger guests and an overweighting of our transaction from our virtual brands occurring at dinner and late night.”

Robert Verostek, Denny’s chief financial officer, said Denny’s expects commodity inflation for the year to be between 4% and 6%, easing from 2022 rates, and the company took a 2% price increase at the start of 2023.

“We will remain thoughtful about our pricing strategies within our customary two to three annual pricing windows,” he added.

Verostek said the company plans to add eight to 12 new Keke’s Breakfast Café units in the year ahead, testing the 54-unit daytime breakfast concept outside of its home state of Florida. Denny’s completed its $82.5 million Keke’s Inc. acquisition last July.

“We do want from a corporate perspective to get to utilize our capital to get it outside of the state of Florida,” Verostek said on the call. “We're really still bullish upon the Keke’s franchisees within Florida.” He added that the company was in no rush to file franchise-disclosure documents in other states until it had proven the concept outside the brand’s home state.

Meanwhile, Denny’s continues to press for a return to 24/7 operations, Valade said, and the company has offered franchisees incentives to return to pre-pandemic hours.

“The modest incentive we offered to motivate our franchisees to accelerate their path back to 24/7 is indeed working,” Valade said. “Currently approximately 67% of the domestic system is open 24/7, which represents a 14 percentage point improvement since mid-year 2022. This also includes approximately 4 percentage points, or roughly 12 to 15 restaurants per week, opening at late night in just the last four weeks.”

For the fourth quarter ended Dec. 28, Denny’s net income was $12.8 million, or 22 cents a share, compared to $43.5 million, or 67 cents a share, in the same period last year. Operating revenue was up 12.3% in the quarter, to $120.8 million, from $107.6 million in the prior-year period.

Ahead of the presentation, Denny’s in January released fourth-quarter same-store sales, saying they grew 2% from the same period last year, including a 1.7% increase at domestic franchised restaurants and a 6% increase at company restaurants.

As of Dec. 28, Denny’s had 1,656 restaurants, 1,582 of those franchised and licensed and 74 company operated. The Denny’s brand had 1,602 restaurants, 1,536 of those franchised. The Keke’s brand had 54 restaurants, all in Florida, with 46 of those franchised.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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