Q2 2023 Denny's Corporation Earnings Call
Okay.
Greetings and welcome to Denny's Corporation second quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Curt Nichols, Vice President Investor Relations.
And financial planning and analysts.
Thank you you may begin.
Good afternoon. Thank you for joining us for Denny's second quarter 2023 earnings Conference call.
With me today from management are Kelly delayed Denise Chief Executive Officer, and Robert for Ross to Denny's Executive Vice President and Chief Financial Officer.
Please refer to our website at Investor Dot Denny's Dot com to find our second quarter earnings press release, along with a reconciliation of any non-GAAP financial measures mentioned on the call today.
This call is being webcast and an archive of the webcast will be available on our website later today.
Kelly will begin today's call with a business update then Robert will provide the development update and recap of our second quarter financial results before commenting on guidance.
After that we will open it up for questions.
Before we begin let me remind you that in accordance with the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
The company knows that certain matters to be discussed by members of management. During this call may constitute forward looking statements management.
Management urges caution in considering its current trends and any outlook on earnings provided during this call.
Such statements are subject to risks uncertainties and other factors that may cause the actual performance of denny's to be materially different from the performance indicated or implied by such statements.
Such risks and factors are set forth in the company's most recent annual report on Form 10-K for the year ended December 28 2022.
And any subsequent forms 8-K and quarterly reports on Form 10-Q.
With that I will now turn the call over to Kelly delayed Denise Chief Executive Officer.
Thank you Curt and good afternoon, everyone. Thank you for joining US today's discussion will focus on our financial results and our progress towards the long term revitalization of the Denny's brand and the growth and expansion in Kiki's practice cafe. After that we'll provide updates to our full year 2023 guidance.
After the market closed we reported Denny system same restaurant sales growth of positive, 3%, reflecting sequential improvement throughout the quarter. Despite a persistently challenging operating environment. We're certainly pleased dizziness.
Total value makes sense second quarter was approximately 16% up slightly from the 15% mix. We saw in the first quarter. We continued to deliver strong value options for our guests at a time when discretionary spending is still strained for many consumers in fact, the return of our signature Super Slam starting at 799 was the highlight of the quarter delivering what our guests truly want a combination of.
Craveable food and unbeatable value off premise sales remained consistent at approximately 19% of total sales for the second quarter highlighting the sustained strength of this ancillary channels as our innovative menu offerings appeal to denny's guess, whether they choose to dine in restaurants or take it home and with 75% of Denny's restaurants, now operating 24 hours, we are not only pre.
And the great progress we have made but also the fact that we have cemented our late night leadership position in the market once again.
I want to focus today on the evolution of our existing strategies into a powerful framework, which will reignite everything that has differentiated our brand for the last 70 years I chose that word focus intentionally it's been our internal rallying cry for the year I've been at the helm of the Denny's brand. It's that laser like focus that has provided a better and deeper understanding of our guests.
And also how danny's can deliver what guests crave.
And that word crave personifies this enhanced strategic focus at Denny's crave stands for creating leading edge solutions with technology and innovation robust new restaurant growth as the franchisor of choice assembling best in class people and teams through culture tools and systems, validating and optimizing the business model to maximize.
Restaurant margins and elevating profitable traffic through the guest experience and uniquely craveable food.
More than a pneumonic device crave is a road map to how we think operate and ultimately how we evolve and improve the total guest experience.
And it's moved towards quantifying these strategies into the Crave framework has been supported wind and steeped in research, we engage with the respective consulting firm to help us identify our strengths and opportunities for improvement, but just as important to make us smarter on who the Denny's guess is and what they want from the Denny's experience and who isn't I guess I could take up this entire call articulate.
Adding all that we've learned but in a nutshell, our updated guests understanding consider demographic psychographic and behavioral data and we now know a lot about who our guest is but also about how often they're frequenting family dining and casual dining restaurants through the research. We are pinpointing two cohorts of gas that present growth opportunities for the Denny's brand. These guests are motor.
Weighted by quality craveable food at a reasonable price delivered in a convenient welcoming atmosphere all things that he's is positioned to deliver.
The research also validated strategic levers that will translate into winning with our guests.
Our guest count on us to deliver a best in class breakfast and unbeatable value proposition and now more than ever convenience in the form of our off premise options and we delivered on value and capability. This quarter I already mentioned the return of our Super Slam offer that delivers on our core equity, but we also brought back after a 10 year hiatus, the popular and highly craveable offer.
We call Bacon Eylea, featuring new Hormel Black label thick cut Bacon. They can early is not only a great example of crave ability at work, but it's also putting our recently installed kitchen equipment to perfect use in short we delivered on these key areas of focus this quarter and are pleased with the results and that focus on food will also have an impact on our menu and its design.
While we are leaning into capability. We're also leaning into simplification craveable food doesn't have to be complicated and there's great work underway that will provide a streamlined menu there will be a huge win for our guests and our operators were also in the process of introducing a new pricing model that will help protect our value leadership as the only denny's Ken This will ensure that we stay aligned with our friend.
<unk> and true to what our guests need from US guests. We're also creating unique engagement with the Denny's brands and we knew we had an opportunity to reinvigorate our rewards experience early in this year, we announced our partnership with Spotify and <unk> with the goal of forging a next generation intelligent customer engagement ecosystem designed to surprise and delight, our guests with personalized offers and experiences.
<unk>.
And we did just that with the launch of a revamped Denny's rewards program in June delivering personalization and introducing gamification into the rewards experience through the introduction of an exclusive denny's rewards challenges every month rewards members will give them an exclusive opportunity to complete challenges and earn additional rewards. The following month and through this increased engagement we're bolster.
Bring knowledge about our guests and their preferences. This one unlock the ability to recognize our guests across the omnichannel guest experience and reward them. Accordingly since the launch on June 22nd we have seen over 200000, new rewards member sign ups, bringing our total to over 6 million loyalty members and growing in time, we expect our data investments to result in addition.
ROI opportunities and be a traffic driver finally, the work we've done to enhance the guest experience is paying off our overall net sentiment for the second quarter was 43% up nearly 600 basis points from the first quarter and outperforming the black box intelligence family dining index handedly by over 1100 basis points.
Also incredibly proud of our four point to Google rating as I mentioned earlier assembling best in class teams is also a key element in our creative strategy and our team members are also creating opportunities for education and career advancement and our new Denny's gain program is poised to do just that.
Again includes four key areas G D Accreditation college credits and certifications life skills and career pathways for high school students.
And he says helping to create opportunities the man that otherwise out of reach for our team members. The game program is a true embodiment of Denny's purpose and I can't wait to see how this program helps to transform lives. We're really pleased with the progress we've made with staffing and reduce turnover rates and we believe our commitment to the game program, we'll continue that positive momentum.
Finally, turning to Kiki's breakfast Cafe, we've mentioned in the past peak is also concluded its own comprehensive research to better understand its core guest well. It makes the brand so special and help us map the path for growth. The results were clear Kiki's is known for its high quality ingredients made from scratch philosophy and providing guests with some of the most generous portions in the <unk>.
History.
With Denise we now have a playbook built on keys that articulate what makes this brand. So special Kiki's new tagline mornings from scratch is one that we believe will separate us from the competition. The hallmarks of this great Little brand are about using the freshest highest quality ingredients made from scratch daily some warnings from scratch is a perfect tagline.
Freshly whipped cream coffee ground in house and dishes, you won't find anywhere else, we're leaning into kinky special sauce to ensure that as we grow we continue to demonstrate a differentiated offering to all of our guests.
Now that we are smarter than ever before on the Kiki's guests, we've begun to make brand decisions and tests elements that are going to support what we believe to be a long runway of growth in Florida and beyond and while it's still early we do know our first kiki's outside of Florida will be located in the greater Nashville, Tennessee market. We're excited to bring the winning kiki's experience to a new set of consumers.
We're also excited to bring the Kiki's concept to the Denny's franchise system, Robert will share details in a moment, but I can tell you the interest among denny's franchisees is indeed growing we've been traveling this past month doing midyear road shows with our Denny's franchisees launching the new strategies that I've just reviewed their excitement for those strategies is obvious.
But while on the road. We also continue to receive new requests and inquiries to learn more about the <unk> opportunity I'm in fact pass on a lot of names to our development team as a result, and we expect to officially sign up a few of our strongest denny's franchisees soon Inc.
In conclusion, we're smarter than ever before on the Denny's and Kiki's guests. We believe those insights coupled with our crave strategies will translate into a long term winning proposition for each brand and for the business with that I'll turn the call over to Robert.
Thank you Kelly and good afternoon, everyone.
Today, I will provide a development update and review of our second quarter results before discussing our annual guidance.
Starting with development highlights Denny's franchisees opened nine new restaurants during the quarter <unk>.
Including four international locations, while Kiki's opened one franchise cafes during the quarter. We also opened an additional kiki's franchise Cafe in July we are excited to see the development pipeline for this growth concepts start to take shape.
In fact property control has already been secured for nine future franchise and company operated Kiki's locations.
And updated Kiki's franchise disclosure document has been filed and we have recently conducted over a dozen meetings with denny's franchisees, who are interested in the Kiki's brand.
A similar number of meetings with Denny's franchisees are scheduled to take place over the next few weeks as we prepare to accelerate the growth of <unk> over the next several years.
Moving to our second quarter results Denny's domestic system wide same restaurant sales grew 3% in the second quarter compared to 2022, consisting of a 3% increase in both domestic franchise restaurants.
Well as company restaurants.
Denny's domestic system wide restaurant sales growth was primarily driven by pricing of approximately eight 5% net of changes in discounts and product mix.
Approximately half of the pricing for the quarter was carryover from fiscal 2022.
Denny's domestic average weekly sales for Q2 were approximately $38000, including off premise sales of approximately $7000 or 19% of total sales.
This translates to average unit volumes of approximately $1 $9 million.
Franchise and license revenue was $62.0 million compared to $65 $9 million in the prior year quarter.
This change was primarily driven by a $5 2 million decrease in initial and other fees associated with the sale of kitchen equipment in the prior year quarter. These.
These impacts were partially offset by Denny's franchise restaurants same restaurant sales growth. In addition to $1 $7 million of Kiki's breakfast Cafe franchise revenue in the current quarter franchise operating margin was $31 $6 million or 59% of franchise and license revenue.
Compared to $30 6 million or 46, 4% in the prior year quarter.
This favorable change in margin rate compared to the prior year quarter was primarily driven by an approximate 440 basis points impact from the kitchen modernization rollout.
Company restaurant sales of $54 $9 million were up 11, 6%.
This growth was primarily due to $3 $7 million of Kiki's Breakfast Cafe company restaurant sales in the current quarter and benefits from Denny's price increases compared to the prior year quarter.
Company restaurant operating margin was $8 3 million or 15, 1% compared to $4 3 million or eight 8% in the prior year quarter.
This margin change was primarily due to approximately $2 $3 million of unfavorable legal reserve adjustments in the prior year quarter and the improvement in sales performance at company restaurants in the current year quarter, partially offset by labor and commodity inflation.
Commodity inflation continued to improve moderating sequentially from 10% in Q1, 2023% to 1% in Q2 2023.
This quarter saw commodity inflation fall below double digits for the first time in two years.
Additionally, labor inflation was 4% during the second quarter flat with Q1 2023.
G&A expenses for the second quarter totaled $20 2 million <unk>.
Compared to $16 6 million in the prior year quarter.
This change was primarily due to increases in deferred compensation valuation adjustments.
Corporate administration expenses and performance based incentive compensation, partially offset by a reduction in shared based compensation expense.
These results collectively contributed to adjusted EBITDA of $22 $3 million.
The provision for income taxes was $2 $7 million, reflecting an effective income tax rate of 23, 8% for the quarter compared to 25, 3% in the prior year quarter.
Adjusted net income per share was <unk> 14 cents.
We generated adjusted free cash flow of $12 7 million, which represents 57% of our adjusted EBITDA.
Our quarter ended total debt to adjusted EBITDA leverage ratio was three one times.
We had approximately $258 million of total debt outstanding including $247 million borrowed under our credit facility.
During the quarter, we allocated $10 $4 million to share repurchases, continuing our commitment of returning capital to our shareholders.
Since beginning our share repurchase program in late 2010, we have allocated over $669 million to repurchase approximately 64 million shares at an average share price of $10 45.
As a result at the end of the quarter, we had approximately $133 million remaining under our existing repurchase authorization.
Let me now take a few minutes to expand on the business outlook section of our earnings release.
We anticipate denny's domestic system wide same restaurant sales will be between 3% and 6% compared to 2022.
However, as inflation headwinds are expected to moderate over the balance of the year. We also anticipate pricing could moderate.
Accordingly, our current expectation is to be towards the middle of this range. We anticipate opening 35 to 45 restaurants on a consolidated basis inclusive of eight to 12 Kiki's openings skewing later in the year. This amounts to a consolidated net decline of 15 to 25 restaurants.
We are projecting commodity inflation for 2023 to be between 1% and 3% with roughly 70% of our market basket currently locked.
We expect labor inflation of approximately 4% for the year.
Our expectations for consolidated total general and administrative expenses are between 78 and $80 million, including approximately $12 million related to share based compensation expense, which does not impact adjusted EBITDA.
This consolidated range contemplates a full year of Kiki's G&A.
As a result, we anticipate consolidated adjusted EBITDA of between 86 and $90 million in closing I would like to thank our dedicated franchise partners restaurant operators and support teams who have remained focused on our guests and strategic priorities to ensure both Dennis and Kiki's.
To thrive in the many years to come.
That wraps up our prepared remarks, I will now turn the call over to the operator to begin the Q&A portion of our call.
Thank you, ladies and gentlemen at this time it will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Michael Tamas with Oppenheimer. Please proceed with your question.
Hi, Thanks, good afternoon.
Robert I know you mentioned being at the midpoint of the full year same store sales guidance.
But I think the math implies that you can do around flat comps in the back half of the year and still hit the lower end of the full year guide so other than changes in menu pricing and what are the big driving factors that would put you either at the lower end or the higher end of the full year guidance.
So yeah, Hey, Michael good to hear your voice, so it's really a function of driving traffic right.
Really that's what it is and we're going back strong with our value messaging that had strength within it.
The June month, we accelerated with our same store sales throughout the quarter.
Relying heavily on our value messaging, you'll see us utilize that.
As appropriate as we continue from this point forward so.
In large part it's going to be that value and the traffic driving ability. The <unk> are performing really really well we love. The fact that we're back on with Bacon area, they're mixing quite well, but the traffic driving ability of our value is really kind of will be the driver of where we likely end up in that range.
Thanks.
It's a lot about the research you to learn more about your gas and how that can help inform your strategies to drive the business going forward. So can you provide any.
More details on what some of those changes might be and what the timeline is you believe 20 ought to start to see some of the benefits and yourselves.
Mhm.
Yeah. That's a that's a great question. So we learned a lot and it is absolutely informing decisions that youll see us makes even starting in October I referenced it slightly in terms of streamlining the menu in terms of really leaning into credibility in our offerings. So we learned a lot there basically obviously their value oriented oriented consumers there.
Families. They're they skewed somewhat millennial now we've got a younger guests, even though he's using us late night and their virtual brands. So we got a really broad spectrum, but we're being very laser like in our focus on what that Nucor those cohorts I referred to are wanting from us and again, its really leaning into making sure. They are a value leadership is clear it's ever.
We offer everyday value for the consumer that wants us once that from US again know that that is absolutely. The case and we know we've been a leader in that space for some time, so it's making sure as evidenced as.
As we have as everyone comes out of the pandemic is really making sure that everyday value is very clear.
And that people feel really good about what they've chosen to buy at a denny's. Our barbell strategy is still in effect because as we have seen even as of late we will go on air with something like Super Slam at a great price point great value. But then we've got then still looking at things like Bacon area. Our Bacon obsession platform that is also performing well for us So it's craveable food reasonable.
Price. We also know a lot about these families and how much they can rely on this rely on us for a great off premise a great experience outside of the restaurants, and we can provide that level of convenience for them as well and we still think theres opportunity as others retract and they'll do as much in the area of whether it's a virtual brand or on premise. We think it is a.
Sweet spot for us in our space, just because of late night and the capacity that we do have in our kitchen. So we think there's more to gain there and we'll continue to look at our offerings and off premise to to kind of solidify that.
Thank you.
Thanks, Michael.
Yeah.
Our next question comes from the line of Todd Brooks with the Benchmark Company. Please proceed with your question.
Hey, Thanks for taking my questions first if we can spend a little time on <unk>.
<unk> it sounds like a lot of progress made during the quarter.
Positive initial discussions with existing franchisees FTP.
Filed and putting a brand ethos worked in understanding what the brand is.
Complete.
He keeps kind of take us through the next.
24 months for how the Kiki's opportunity unlocks for Denny's in euros.
Sure.
So Tom this is that's a great question. So there's a lot that you'll see us now unlocked because we wanted to really spend the right amount of time integrate building the team right small, but mighty team getting.
Getting that team getting some synergies with that team and then really leaning into how do we be the best version of this brand and what this brand stands for and I articulated that a little bit in the script, but it is about the fresh high quality ingredients abundance mornings for scratch new tagline. So we've learned a ton about that and you'll just see us execute against that.
In terms of a new menu in terms of different offerings that we will do in terms of potentially a prototype and design that will take outside of Florida.
And then unlocking that potential really what the denny's franchisees, both Robert and I spoke to that but it is we.
C a great amount of opportunity some of our strongest any franchisees one that will continue to grow in that any system that also see the opportunity with our Kiki's breakfast cafe and they just see it as.
A different opportunity it's a that the demographics are different for that brand. So we know we've got something really special and we can talk to our franchisees about growth without any growth within the <unk> brand, but we're positioning the team to be ready to handle that growth and youll start to see that really pick up the back half of the year.
And our sites the big Limiter on growth over the next couple of years or maybe.
Maybe the readiness of the key keeps team and their franchise support systems too.
Really start to accelerate the growth with existing partners.
Hey, Todd This is Robert So you know, we're putting that team in place right now we do have the trainers the HR support to ensure that we can get people and personnel on staff and trained we have development teams that are working that right now.
And if you think about it at the midpoint of our guidance say the eight to 12 is about tenants about a doubling of the greater the rate of growth.
<unk> brand has been able to achieve.
Over the last few years, so we've already accelerated that and I really just think it's the continuing of the unlock the acceleration of the kiki's franchisees openings within Florida.
Is getting development commitments I think you'll likely hear from us speak to that in the coming the near quarters with regard to the number of commitments that we are garnering.
From our Denny's franchisees and then that's just establish thing that pipeline to accelerate to 24 and beyond.
Clearly invested in this brand because we saw the potential of it.
We bought it to grow it so we need to clearly accelerate beyond what you're what we've guided to today and all of the as Kelly just described all of those pieces are coming together nicely and we are very excited about what this opportunity holds.
Okay, great. Thanks, Steve.
Thanks Todd.
Okay.
Our next question comes from the line of Nick <unk> with Wedbush. Please proceed with your question.
Nick Your line is live.
Thank you.
As we look at the 24 and have some incremental visibility on AGA.
Now in terms of openings in Florida, the damage Brown.
We think that we.
I have a flattish sort of net openings number next year.
<unk> been looking for a decline.
The number of stores.
Right.
Yes. So this is this is Robert again, good to hear your voice also so when you look at the Denny's brand.
There is.
It really is tied to profitability right the rebounding of profitability post the pandemic.
And the margins within those restaurants that really dictates the rate of closures and what I can tell you.
Is that.
As we progress through the year and you've seen the Denny's corporate company margins improve our insight to that through our data visibility data visibility tool lumen suggest that our franchisees are experiencing the same thing.
So I would tell you that with these inflationary pressures continuing to abate both on the commodity side.
And the labor inflation side, believing that that will continue.
I believe margins will improve.
Within the our franchise system, which will take pressure off of the closings that youre seeing I think the number of openings are but we are getting back to being consistent.
What we have experienced in prior years that 2% rate of growth, we just need to tamp down.
We need to tamp down those closure. So we are cautiously optimistic that given if these trends continue.
That we can move back to that net that kind of that net neutral place that we had been for quite some time slightly flat to slightly growing as we as we progress, but again it'll be seen we.
We need to grow traffic, we need to expand margins things that we're doing currently that needs to continue and it will end.
We are cautiously optimistic that that'll drive closures lower.
Very helpful and then speaking of.
Traffic in.
Less than that.
Sequentially the quarter improve.
Assuming you exited in June above, 3% and then I think the rest of the year the guidance implies about a 30%.
For the second half for us to get to the midpoint of your full year guidance. So is it reasonable to assume that July is off.
The better than 30%.
Yeah, I think Thats very fair Nick did you say that July is better than where the full quarter ended it did it's slightly lower than where June was though so to be very transparent, it's not sequential improvement into July but it is an improvement on the full year on the full quarter on the full Q2.
Two quarters. So it is above 3% in July just slightly below June .
Yeah.
And then just last question for me is around pricing I think you said David.
All in average check.
I interpret that correctly.
Reminds of framing out the price versus mix.
For the quarter.
Sure So the price was.
Where I believe rating just slightly north of eight eight between eight and eight 5%.
The mix was just very fractional within there a couple of tenths lower.
It actually the mix was a couple of tenths lower bringing bringing that down slightly we do.
Was price taken in both January March and June June was by far the lowest that we've seen in any of our pricing cycle. So we were very pleased with that we believe again, if you think about the value comments I made earlier in the Q&A.
We believe that the lower the price that we can take that will add to that that whole value positioning we do roll off a point and a half and carryover pricing in Q3. There is another round of pricing in mid mid Q4, so until we know what that is it's hard to say.
To say, what the rollover pricing roll off will be there, but in Q3, we roll off a point and a half and June saw the lowest amount of pricing that we've seen in quite some time.
Okay.
Thank you very much.
Thanks, Nick.
Our next question comes from the line of Eric Gonzalez with Keybanc. Please proceed with your question.
Hey, thanks.
Comment on your same store sales performance by day part lately. It seems like it's been an area of strength for some of your peers are staffing has become incrementally less challenging. So I'm wondering if you've seen an uptick in constant competition during the overnight hours and did you see any risk that that that same store sales gap between the 24 hour and the non 24 hour locations could narrow as more competitors come back online during those overnight.
Yes.
Oh, Hey, Hey, Eric Robert We are really really pleased with what we've been able to accomplish with regard to our 24 hour operations. They are still in the ones that are turning it on still and we have new restaurants coming back online with 24 hour.
Every single week that outperformance to.
To the to the balance of our system seems to be holding.
So with regard I'm looking at a chart here.
It looks like that.
Late night is still frankly, one of our strongest day parts when I when I look at when you look at it over the course of the total week. So we think it's a strength of ours. If you look at the full service space, we are unequivocally the leader.
In late night opportunity and when you look outside of the full service space, whether that be <unk> or <unk>.
Fast casual we rival what they are able to accomplish in that space.
Really pleased we continue to work. It every single week trying to to drive back we do have some that some restaurants, where we have allowed them to remain closed for.
For a few days of the week with some economic upside to us in a in a slight royalty tweak.
So whether we get them opened $20 seven or whether we get the financial benefit.
Drive to that every week and again, it's a strength of ours and frankly it is one of the best performing day part for Us Doug.
I think Eric also if I would add to that I think part of your question was do we see that.
Not the only one is trying to do this and there is more and more evidence every day of that and quick service you can see taglines on commercials for.
For bigger brands that are out there talking about open late night. So we know everybody is trying to do that it's also why we feel really good about what we've reported and really good about the progress because we don't know how.
How much more there is to gain there.
Still strong for us as Robert just said, but it's also not the tailwind it was even six months ago.
Got it and then just related to this conversation.
The staffing environment it seems like things have loosened up so.
As a backdrop, how can you accelerate the $20 seven adoption what would you say the current limit our governor has on that store expansion as we speak as we sit here today.
Yeah, Eric It's fair and it's still I'd say wobbling right, it's better it's absolutely better wage growth moderated of course, but do you still see certain with certain states.
To me one of them there are still challenges from a staffing perspective from a wage compression perspective.
And so I think it's still tough travel centers. So some of some of the restaurants that have challenges are one either.
In a travel center or in locations, where tourism is just off so it's just a bit wobbly and we're just trying to again, we've said this before but it would be the best partners to our franchisees and again also we've looked at some amendments to contracts to get us in a more homes than we otherwise would be and it's still showing a bit of patients for those to get it right take care of the guests.
Alright, but really we want to be able to take care of the guests. So when our partners at this point I'm, saying, it's still a bit choppy for me.
We're wanting to be as flexible as we possibly can.
Thank you.
Thanks, Eric.
Okay.
Our next question comes from the line of Jake Bartlett with Truest. Please proceed with your question.
Great. Thank you for taking the question.
Mine was on the commentary on check and the lowering of the same store sales guidance. So it sounds like.
Menu pricing.
Not as many moving pieces there so it seems like the what might be lowered as your expectation that there's going to be more.
Maybe some negative menu mix or some increase in discounting that's enabled by the lower.
Commodity costs. So just any commentary around is that the case that the outlook in the back half of yours kind of lower despite the fact that you think youre going to push value more which is going to limit the check growth.
Yes, Jake it really good follow up there, we do actually see slowing price, that's our kind of our commentary to our franchisees.
No surprise I think BVI just came out with this past week that the lower the price the better the better to the traffic is it really that simple. So we continue to guide and have frequent conversations with our franchisees about that correlation.
Again, we don't dictate it but we can clearly point out correlations between pricing and traffic. So we do see it slowing frankly and again its in line with the slowing commodity inflation and the slower labor inflation you compare you also wrapping their additional value.
And you see that that that could have to your point a mixed consequence, and we are very.
Very confident that we can drive traffic.
Similarly to what we did in June that.
Armed quite well for us and why we believe in the Super Slam and our value positioning.
Okay.
I guess, how would you frame the momentum in the business right now I know, we try to look back versus 2019 that gets a little tough and helps comps are measured over the years, but when you say that just the overall kind of demand environment is softening a little bit I think if I look at average weekly.
Sales versus 19, it did grow a little bit slower, but not by much but how would you view how do you characterize it.
The overall demand environment right now.
Yes, I think it's a great question Jade, we're talk a lot about that and we're watching and listening for accused about whether the consumer is truly being still being resilient, which everything would point to saying, yes. At the same time, you think about inflation, we know who our consumer is and so at the lower income levels right, because we have such a kind of.
Wider array of guests that we have in our restaurants lower income levels are still going to be impacted we're still feel that more than others, even gas prices as of the last couple of weeks, so well not seeing as much talk about recession and good news there youre still saying reasons to just be cautious right just to be cautious the amount of value off.
The amount of.
Not necessarily discounting, but the amount of conversations out there around trying to capture more share of wallet. The deals are everywhere right, So which would suggest everyone now understands maybe theres a little relief in some places. So we can not only afford to do that but we got to come off of some of the some of the price. So it's really just the demand seems to be there.
We're not seeing a managed check down we're still seeing them be resilient and yet we're still mindful of the.
Kind of experience, we have to deliver at the price point that we have to deliver that.
Great and then last question is on the $24 seven one pointed at this point we are thinking about mid mid 2022. When you think about your target of 90% I think there was an earlier early target now we're at 75% of the system offering 24 seven so.
What is your level of confidence that you can get to the 90%.
Is that.
Six months.
A year out I mean the patients.
So pretty dramatically versus what we've seen is left six weeks very very little progress there. So.
What gets it going is 90% still the right target.
Mhm, Yeah, Jake So this is Robert.
Again, I think it goes back to the realization that we are clearly a leader in this space and trying to put that out there that we are in that the 75% is clearly a win we want to continue winning ideally.
We will continue to drive back towards that 90% I did acknowledge that we have now begun with some amendments in it.
Majority of the cases, but it does.
Add to that percentage that to make us whole on the royalty.
Even if the restaurants are only opened three nights a week as opposed to seven so we keep working that.
Every single week, but again trying not to play frankly put ourselves in a box that we've put ourselves in earlier it just as we continue to make progress.
But you want to take credit for being a leader in this space.
Right I appreciate it.
Thanks, Craig Thank you Jake.
As a reminder, it is star one to ask your question.
Our next question comes from Todd Brooks from the Benchmark Company. Please proceed with your question.
Hey, Thanks for a couple of follow ups here Kelly you talked about one of the.
The learnings out of the work.
<unk> be some menu simplification in the future are there any details on how broad those efforts would be or any strategic directions youre trying to take the menu and that you can share with us at this point.
Yeah, Great Great question, and one I, probably won't share an awful lot here just as we start to really invest in.
And activate that Youll see changes to our October menu and then even more changes to our March menu I will tell you. We do an awful what I can say, we do an awful lot of customization and so while we still we know our guests want craveable food. We know we have breakfast, obviously breakfast leadership almost everyday part breakfast is the <unk>.
Food that is ordered so we're going to really lean into craveable food and our innovation lean into craveable food.
At a great price point, as we've talked about and a great value, but youll also see us simplify our round, where we really where we can and where we don't get credit for it. So again, we've got a lot of customization and build your own categories, where people can just choose from numbers and lots of.
Yeah.
Lots of different items to add too much burgers Grand slams, even and we want to lean into the core equities and <unk> place, where we can so that's kind of one example, but youll.
There'll be others that will add over time to the strategy of just simplifying operations, where we can and.
And strengthening our execution.
Okay, Great and a final one and I'll hop back.
We talked about the <unk> opportunity accelerating but I forgot to mention.
As you guys are assessing the opportunity and how you want to prove the concept out of.
The Florida market thoughts on maybe company owned openings over the next couple of years any changes to the thinking there to to really kind of kick start the development efforts.
With franchise partners proving the concept out in non Florida markets. Thank you, yes, that's a really interesting question Todd.
Just the right size for the current year first.
We'll have company openings.
Within that guidance range of eight to 12, probably in the two to four range with regard to that Youll see us.
Deploy our capital we called out Nashville, now that was very deliberate.
In the commentary today, so our dollars will be deployed in Nashville first I think you will continue to see US opening company restaurants with the with key keys for the next few years, we need to get some synergies some efficiencies in these markets.
<unk> them out oversight efficiency as is typically six plus restaurants, so we will do that in Nashville.
I would see it is probably disproportionate to what you are typically what we typically say for the denim side, but likely in line with with regard to kind of that overall $85 15 that currently exist within the <unk> portfolio could skew.
A few percentage points either side of that but youll see us open keys for the for the next few years certainly.
Okay, great. Thanks, Robert.
Thanks.
Our next question comes from the line of Michael Tamas with Oppenheimer. Please proceed with your question.
Hi, Thanks for the follow up Robert I, just wanted to double check did I hear correctly that.
The second quarter commodity inflation was 1%.
Yes, yes, it was one 1% Michael 10% in Q1, 1% in Q2, the new guide on the commodity range.
Is $1 three mid point of that is around too so.
If you do the math that puts us a flattish likely on the balance of the year. So a really good place.
<unk>, where we were just a year ago at this point. So yes, you did hear correctly perfect that was a great segue to the next part which was how youre thinking about menu pricing. I think you said you were going to take another one another round of increases in the fourth quarter.
How are you thinking about that that magnitude now the commodities are no longer up.
Double digits.
Yes, I think.
Michael we are trying to be as judicious as possible frankly, I think it's part of it the <unk>.
Again wrapping all of the kind of Q&A.
At various points throughout this call. It does but we believe pricing we would like to see it lower that will be our guide we anticipate that the franchisees will likely follow given the abatement in the inflationary environment. So I think what you will see is that we will rollover and roll off pricing.
I mentioned in Q3, we roll off a point and a half of pricing in Q4, I am hoping we roll off more pricing than we actually add so right and the other the other important thing to note as part of the strategy as part of the research and then part of our action items.
That were carrying forward and taking to our road shows this mid year timeframe is about our new pricing model, a new pricing strategy. So we're being very very calculated and very specific and then really just talking to our and aligning with our franchise system to talk about the impact of pricing to talk about what our guests do need from us, but then we've got a new approach.
That we're rolling out as we speak in terms of how to really look at all the sensitivities all the costs in certain markets and then come up with the appropriate.
<unk>, holding holding and keeping at a minimum wherever we can.
Thanks very much.
Thanks, Michael.
There are no further questions in the queue I'd like to hand, it back to Curt Nichols for closing remarks.
I'd like to thank you all for joining us on today's call and we look forward to our next earnings conference call in late October during which we will discuss our third quarter 2023 results.
Thank you and have a great evening.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.