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01/11 16:21
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed outlook. Strong performance in Kiki's sales and a successful promotional strategy are positives, but declining margins and increased costs, particularly in operating and product expenses, are concerning. The company plans to close underperforming restaurants to enhance cash flow, which might be beneficial long-term but signals current operational challenges. The Q&A section reveals cautious optimism but also highlights management's reluctance to provide clear guidance on certain issues. Given these factors, the stock price is likely to remain stable, resulting in a neutral sentiment rating.
Same Restaurant Sales Denny’s reported Q1 domestic system wide same restaurant sales of negative 3%, a decrease compared to the previous year. This decline was attributed to macro pressures and negative consumer sentiment.
Domestic Franchise Same Restaurant Sales Domestic franchise restaurants delivered same restaurant sales of negative 3.2%, while company same restaurant sales were negative 0.9%. This variation was due to company restaurants being concentrated in stronger markets.
Average Guest Check The average guest check increased by 2% due to items in the $2 and $4 value categories shifting from entrees to add ons, which resulted in a higher check without an actual price increase.
Off Premise Sales Contribution Denny’s off premises sales contributed a 1% improvement in same restaurant sales during Q1, representing approximately 22% of total sales, primarily due to the launch of the third virtual brand, Bondo Burrito.
Total Operating Revenue Total operating revenue was $111,600,000 compared to $110,000,000 for the prior year quarter, driven by additional Kiki’s equivalent units and higher local advertising co-op contributions.
Adjusted Franchise Operating Margin Adjusted franchise operating margin was $29,400,000 or 50.9% of franchise and license revenue, down from $30,300,000 or 52.5% for the prior year quarter, primarily due to fewer equivalent units and softer same restaurant sales.
Adjusted Company Restaurant Operating Margin Adjusted company restaurant operating margin was $4,900,000 or 9.1% of company restaurant sales, down from $6,800,000 or 13% for the prior year quarter, impacted by higher product costs and incremental investments in marketing.
General and Administrative Expenses General and administrative expenses of $20,000,000 were $1,200,000 lower than the prior year quarter, primarily due to lower deferred compensation valuation adjustments and incentive compensation.
Adjusted EBITDA Adjusted EBITDA was $16,800,000, reflecting the impact of the challenging environment and operational inefficiencies.
Effective Income Tax Rate The effective income tax rate was 47.4% compared to 24.6% for the prior year quarter, primarily due to discrete items relating to share-based compensation.
Adjusted Net Income per Share Adjusted net income per share was $0.08 in the current year quarter.
Total Debt Total debt outstanding was approximately $276,000,000, including approximately $266,000,000 borrowed under the current credit facility.
Kiki's Same Restaurant Sales Kiki’s delivered system wide same restaurant sales of positive 3.9% for the quarter, outperforming the BBI Family Dining Index in Florida for the third consecutive quarter.
Kiki's Average Check Kiki’s average check increased approximately 6.5% during the first quarter, driven by pricing, favorable menu trades, higher beverage incidents, and off premises growth.
New Cafe Openings Denny’s opened six franchise restaurants during the quarter and closed 14 franchise restaurants, with average unit volumes of approximately $1,000,000.
Egg Cost Impact Egg costs impacted the adjusted company margin by approximately $500,000 or nearly 100 basis points, with prices being approximately double compared to previous periods.
New Product Launch: Denny's launched 'Slam N’ Soda', a new beverage offering that has driven incremental beverage incidents of over 100 basis points.
Collaborative Product Launch: Denny's introduced 'NVIDIA Breakfast Bites' at the GTC conference, enhancing brand awareness and reaching a new audience.
Market Expansion: Kiki's Breakfast Cafe opened three new cafes during the quarter, including its first location in Georgia, and has plans for additional openings.
Franchise Growth: Denny's opened six franchise restaurants and closed 14 underperforming locations, maintaining a focus on strategic growth.
Operational Efficiency: Denny's off-premise sales contributed a 1% improvement in same restaurant sales during Q1, representing 22% of total sales.
Remodel Program: Denny's completed six remodels, bringing over 50% of its company fleet under the new image.
Promotional Strategy: Denny's introduced a 'Buy One Slam, Get One For $1' promotion, which has been effective in driving traffic and attracting new customers.
Focus on Value: Denny's is leaning into value offerings to navigate a challenging economic environment, with a focus on everyday value and promotional strategies.
Consumer Sentiment: Negative consumer sentiment due to fears around tariffs, higher prices of goods, and job market concerns, leading to reduced consumer spending.
Competitive Pressures: Operating in an aggressive value-driven environment with brands competing heavily on price and promotions.
Same Restaurant Sales: Denny's same restaurant sales decreased by 3% in Q1, indicating a loss of traction compared to competitors.
Inflation Pressures: Inflation remains a challenge, particularly affecting lower-income consumers, with commodity costs rising significantly, especially for eggs.
Supply Chain Challenges: Egg prices increased significantly due to shortages, leading to temporary surcharges in some locations.
New Cafe Performance: Inefficiencies in new cafe openings impacted overall margins, with new cafes taking time to reach optimal performance.
Franchisee Closures: Expected closures of 70 to 90 restaurants, with ongoing monitoring of underperforming locations.
Economic Environment: Choppy economic conditions affecting consumer behavior and spending, with uncertainty about future trends.
Tariff Exposure: Potential impacts from tariffs on remodels and new builds, affecting overall costs and consumer sentiment.
Labor Inflation: Ongoing labor inflation expected to be between 2.5% to 3.5%, impacting operational costs.
Promotional Initiatives: Denny's introduced the 'Buy One Slam, Get One For $1' promotion, which has been instrumental in regaining transactions and attracting new customers, with nearly 70% of BOGO transactions coming from lapsed or new customers.
Menu Innovation: Launched 'Slam N’ Soda' and 'NVIDIA Breakfast Bites' to drive incremental beverage incidents and brand awareness.
Off-Premise Strategy: Denny's is focusing on off-premise sales, which contributed a 1% improvement in same restaurant sales during Q1, representing 22% of total sales.
Kiki's Breakfast Cafe Growth: Kiki's opened three new cafes in Q1 and has a total of six openings year-to-date, with plans for 12 to 20 openings for the year.
Remodel Program: Denny's is continuing its remodel program, with over 50% of the company fleet remodeled under the new image.
Same Restaurant Sales Guidance: Denny's expects to be in the lower half of the same restaurant sales guidance range for the year of negative 2% to positive 1%.
Closure Guidance: Expecting between 70 and 90 closures for the year, including normal lease expirations.
Commodity Cost Guidance: Increasing commodities expectations to between 35% due to egg price fluctuations.
Labor Inflation Guidance: Maintaining labor inflation guidance of 2.5% to 3.5%.
Adjusted EBITDA Guidance: Likely to be at the lower end of the adjusted EBITDA guidance range of $80 million to $85 million.
Share Repurchase Guidance: Expecting to be at the lower end of the share repurchase guidance range of $15 million to $25 million.
Share Repurchase Guidance: Denny's expects to be at the lower end of their share repurchase guidance range of $15 million to $25 million for the year due to uncertainty in the current environment.
Shareholder Return Strategy: Denny's has historically been a highly cash-generative business and has returned a significant amount of cash to shareholders through a successful share repurchase program, which remains critical to maximizing shareholder value.
The earnings call presents a mixed picture: positive developments like promotions and increased AUV are offset by challenges such as declining margins and volatile same-store sales. The Q&A reveals management's optimism about future strategies, but also highlights macroeconomic pressures and vague responses on key metrics. Given the absence of strong catalysts and a cautious guidance outlook, the stock price is likely to remain stable in the near term, leading to a neutral sentiment.
The earnings call summary presents a mixed picture. Basic financial performance shows slight revenue growth but declining margins, resulting in a neutral rating. Product development and market strategy appear positive, with successful value strategies and market share gains. However, guidance is weak, with only flat to slightly negative sales expectations for 2025. Expenses are managed well, but financial health is concerning with high debt and declining margins. Shareholder returns are positive due to the repurchase plan. Overall, the sentiment is neutral, with no strong catalysts for significant stock price movement.
The earnings call presents a mixed outlook. Strong performance in Kiki's sales and a successful promotional strategy are positives, but declining margins and increased costs, particularly in operating and product expenses, are concerning. The company plans to close underperforming restaurants to enhance cash flow, which might be beneficial long-term but signals current operational challenges. The Q&A section reveals cautious optimism but also highlights management's reluctance to provide clear guidance on certain issues. Given these factors, the stock price is likely to remain stable, resulting in a neutral sentiment rating.
The earnings call reflects mixed signals: positive adjusted EBITDA growth, increased average guest check, and a share repurchase plan are offset by declining revenues, restaurant closures, and economic uncertainties. Management's vague responses in the Q&A add to investor concerns. Despite optimistic guidance, the lack of clarity on macro factors and franchise issues tempers enthusiasm, likely resulting in a neutral stock price movement.
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