Off-Premise Dining Helps Denny's Bounce Back
Following a first quarter of lower than expected same-store sales, Denny’s bounced back with the launch of its off-premise dining platforms.
Same-store sales rose 2.6 percent in the second quarter, while the brand’s revenue grew 7.3 percent to $133.4 million primarily due to the sales increases.
The casual dining brand is still in the early stages of its mobile ordering platform, though it bumped up off-premise sales by 1 percent in the quarter. Developed with digital ordering provider Olo, the platform allows users to order and pay for to-go orders through Denny’s mobile app and website 24/7. In select markets, guests can also choose delivery via Olo’s Dispatch network. With “Denny’s on Demand,” customers can also order through social media channels.
President and CEO John Miller said in a conference call that Denny’s is experiencing positive impacts from its brand revitalization and remodeling initiatives, which are anticipated to reach 75 percent of the entire portfolio by the end of the year.
Miller says the brand expects long-term growth in sales due to the platform and as franchisees complete redevelopment. Ninety percent of Denny’s units are franchised.
“Our highly franchised business model, coupled with our efforts to further differentiate Denny’s as a relevant and compelling brand, continues to generate strong cash flows which support ongoing investments in Denny’s brand revitalization and company restaurants, and the return of capital to our shareholders,” Miller said in a statement. “As we continue to successfully execute our brand revitalization strategy, we remain committed to further elevating the guest experience, consistently growing same-store sales, and expanding our global reach, leading to value creation for all franchisees and shareholders.”
Company restaurant sales grew 10.3 percent in the quarter to $98.4 million due to new restaurants and same-store sales growth. Denny’s plans to open 45 to 50 restaurants throughout 2017.
Franchise and licensing revenue was $35.0 million compared to $35.1 million in the prior year quarter as an increase in royalty revenue was offset by a decrease in occupancy revenue due to scheduled lease terminations and a decrease in initial fees.
Company restaurant operating margin was $16.7 million, or 16.9 percent of company restaurant sales, compared to $16.4 million, or 18.4 percent, in the prior year quarter, driven by increases in product costs, workers' compensation expense, and minimum wages, and was partially offset by higher sales.
Franchise operating margin was $24.8 million, or 70.7 percent of franchise and licensing revenue, compared to $24.3 million, or 69.4 percent, in the prior year quarter, driven by higher royalty revenue and an improved occupancy margin.