Denny’s Corp. same-store sales increased 0.9 percent in 2016, including 0.5-percent growth in the fourth quarter ended Dec. 28, a result that easily outpaced other dine-in restaurants during a difficult year.
For that, the operator can thank pancakes.
In July, the Spartanburg, S.C.-based family-dining chain upgraded its pancake recipe with fresh buttermilk, real eggs and a hint of vanilla. The result: More than a third of customers now order pancakes.
“The customer response was very positive,” Denny’s CEO John Miller said on the company’s fourth-quarter earnings call. He noted that the percentage of customers ordering pancakes increased from 29 percent before the change to 35 percent through the fourth quarter.
The improved pancake recipe is part of what has quietly been a major upgrade to Denny’s menu. More than a third of menu items have been replaced or improved in the past year, including upgrades to its burgers and shakes, and a shift to fresh vegetables from frozen.
“Evolving our strategy to meet guest expectations for better quality and more craveable products is an important component of our strategy to remain relevant,” Miller said.
Those upgrades have helped Denny’s outperform the dine-in market in recent years. Same-store sales have increased in 14 of the past 15 quarters. And Denny’s expects same-store sales to grow in the 0-percent to 2-percent range in 2017.
Denny’s fourth-quarter net income increased 28.7 percent, to $11.3 million, or 15 cents per share, from $8.8 million, or 11 cents per share the previous year.
Investors cheered the results. Denny’s stock surged 12 percent to an all-time high of $13.80 per share at one point on Thursday.
The company has used a “barbell” strategy to lure customers, using limited-time offers and other high-end products, combined with its value-oriented $2 $4 $6 $8 platform.
Denny’s also said it has used remodels to improve the restaurants’ atmosphere and provide a sales lift. The company said remodels generate mid-single-digit same-store sales once completed. Denny’s plans to have 75 percent of the system in its new image by the end of 2018.
The company also said it is focused on improving service. Miller said the chain’s customer satisfaction scores reached an all-time high in 2016, though ne noted that “opportunities remain in order to reach our full potential.”
Denny’s added 23 new restaurants in the year and now has 1,733 locations. That was the eighth straight year of unit growth. Denny’s opened more new units last year than it had in five years.
The chain is increasingly focused on international locations. Denny’s opened 14 locations outside the U.S., and now has 123 international units, with 80 in the pipeline.
Executives on the call noted that the results last year came despite a difficult year for the industry as a whole and, in particular, for dine-in concepts. Executives don’t foresee a change in that environment anytime soon. Miller expects the challenges to “persist for the foreseeable future.”
“We overcame a number of challenges often cited as contributing to the industry’s softer performance,” Miller said. “These include an increasingly choppy consumer environment, lackluster traffic, a particularly contentious election cycle and the widening spread between restaurant and grocery prices, to name a few.”
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