Q1 2025 Denny's Corp Earnings Call
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Speaker Change: Ladies and gentlemen, greetings and welcome to the Denny's Corporation fourth quarter 2025 earnings Conference call.
At this time all participants are in a listen only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Gail Amani Senior director of Investor Relations. Please go ahead.
Gail Amani: Good afternoon. Thank you for joining Denny's first quarter 2025 earnings conference call with me today from management are Kelly Blade, Denny's, Chief Executive Officer, and Robert <unk>, Denny's Executive Vice President and Chief Financial Officer. Please.
Gail Amani: Please refer to our website at Investor Dot Denny's Dot com to find our first quarter earnings press release, along with a reconciliation of any non-GAAP financial measures mentioned on the call today.
Gail Amani: This call is being webcast and archive of the webcast will be available on our website later today.
Speaker Change: Kelly will begin today's call with a business update then Robert will provide a recap of our first quarter financial results and development update before commenting on guidance.
Speaker Change: 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.
Speaker Change: Management urges caution in considering its current trends and any outlook on earnings provided during this call.
Speaker Change: Such statements are subject to risk 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.
Speaker Change: Such risks and factors are set forth in the Companys. Most recent annual report on Form 10-K for the year ended December 25, 2024 and in any subsequent forms 8-K and quarterly reports on Form 10-Q.
Speaker Change: With that I will now turn the call over to Kelly Blade Denny's Chief Executive Officer.
Kelly Blade: Thank you Kayla and good afternoon, everyone and thank you for joining US today's discussion will focus on the continued progress we've made to bring profitable traffic driving initiatives to our flagship Denny's restaurants will also talk about our continued confidence in our growth brand Kiki's breakfast cafe and after that we'll provide updates on our quarterly financial results with that let's get started it's been a challenging start to the.
Kelly Blade: And while we're starting to see some improvements macro pressures persist consumer sentiment remains negative as fear around tariffs and higher price of goods combined with concerns about the job market resulted in consumers pulling back on spending we are now operating in one of the most aggressive value driven environments. We've seen in years guests are stretched inflation pressures remain and ever.
Kelly Blade: Brand is fighting for share of us pushing harder on price and promotion, while trying to win with the guest experience in the first quarter Denny same restaurant sales decreased 3% and we did lose traction compared to the BVI family dining sales index. However, we did sequentially improve in the latter part of the quarter. Despite this improvement we knew we needed to lean even harder into Val.
Kelly Blade: Q and break through the clutter to provide guests with more value options when they need them most and.
Kelly Blade: In collaboration with our franchisees the best deal in America by one Slam get one for a dollar featuring either our original Grand Slam or are all Americans Lam was born this L. T O promotional value versus our everyday value with 2468 has been instrumental in regaining transactions and has driven more lapsed and new customer trial than any other value.
Kelly Blade: Offer and our recent history, nearly 70% of Bogo transactions have come from lapsed or new customers and as a result April same restaurant sales came in approximately flat.
Kelly Blade: We've been very pleased with this promotion and know that it's critical to our guests that really need compelling value offers during this time of uncertainty. We're also providing additional reasons to visit and introduced denny's to new audiences through on trend menu offerings and partnerships. We recently launched slamming sodas then he's take on the pop culture sensation of Dirty Sodas. These sodas are spin on all time class.
Kelly Blade: Six coke sprite and Dr Pepper, with a delicious new twists and better yet they drove incremental beverage incidents of over 100 basis points and guests were enticed to try this new offering. We also teamed up with Nvidia founder and CEO Jensen Huang at their annual GTC Conference in San Jose attended by more than 20000 global developers engineers.
Kelly Blade: Researchers inventors in ICU professionals at that event, we launched the limited time offer and video breakfast bites, which honor and video C. O Jensen Huang and his long standing relationship with them is a collaborative effort with Nvidia social channels successfully amplified brand awareness and introduce that needs to a new audience in a relevant and timely way the integral.
Kelly Blade: Post became danny's top performing content my impressions in the past 16 months with approximately 90% of accounts reached being non followers a strong indicator of extended reach a new audience exposure. We also remain confident in our off premise strategies, which we believe uniquely positioned denny's is a leader in the family dining category, while most are pulling away from off premise growth.
Kelly Blade: We are leaning in because we know there's very little overlap between the dine in and off premise guests as well as the off premise guests is less price sensitive and more resilient during times like these in fact, our off premise sales contributed a 1% improvement in same restaurant sales during Q1, which now represents a 22% mix coming from off premise channels. This was primarily due to a.
Kelly Blade: A launch of our third virtual brand Bonder Brito, but also due to our smart investments in digital which increased traffic to our website improved conversion rates by over 16% and delivered more effective promotions on our third party platforms. Overall, we remain focused on living our values and executing against our strategic initiatives, we're leaning into our strengths as a brand winning in key okay.
Speaker Change: <unk> like breakfast and value and engaging the next generation of brand fans to drive meaningful results for our business I'd like to thank our dedicated denny's franchisees for their continued partnership as we navigate these challenging times and for having the courage to be bold and go deep and value to meet the guests where they are now turning to Kiki's breakfast cafe are small, but mighty brand that has made tremendous.
Speaker Change: This progress Kiki's continues to delight, our guests and as we've taken the brand beyond Florida, we're seeing incredibly strong sentiment, including a 4.8 Google rating. This positive sentiment for the brand is driving sales and contributed to keep these first quarter same restaurant sales increasing by three 9%. In addition, Kiki significantly outperformed the BVI family diner.
Speaker Change: Index in Florida by nearly 400 basis points highlights for the quarter contributing to the positive sales momentum include off premise growth new compelling offers and marketing initiatives. Additionally, our strong focus on operations remains core to the Kiki's business model. Another area of focus for <unk> is development, we opened three new cafes during the quarter, including our first.
Speaker Change: Cafe in Georgia, and just in the last few weeks. We've opened another three cafes, one of which is company owned we're just starting to unlock the growth opportunities for keys and I want to thank our teams and franchisees for their commitment and enthusiasm as we aim to become one of the largest competitors in the fastest growing daytime eatery segment.
Speaker Change: In closing, we continue to focus on executing our strategic initiatives across both brands and winning with our guests while being nimble facing challenges head on and many of our guests where they are we are a value leader and we know how to leverage that strength to drive profitable traffic and support our guests' needs. We are hopeful that the environment will continue to stabilize and improve and we are confident in our sales levers.
Speaker Change: These include a continued focus on value and off premise or expanding remodel programs and new digital enhancements such as an improved digital guest experience and our new loyalty CRM platform set to launch in the back half of the year, we have a lot to look forward to and I'm incredibly proud of our teams our franchise partners and all of those leading these amazing brands executing.
Speaker Change: Our strategies and taking great care of our guests every single day.
Robert: I'll now turn the call over to Robert <unk>, Denny's, Chief Financial Officer to discuss our Q1 financial results. Thank you and good afternoon everyone.
Speaker Change: As Kelly mentioned it it's been a challenging start to the year.
Speaker Change: <unk> reported Q1 domestic systemwide same restaurant sales of negative 3%.
Speaker Change: Of our top four states, California, and Florida were the strongest in fact in California, We outperformed BPI family dining sales for the fifth consecutive quarter. This is a great accomplishment considering over 25% of our domestic restaurants are located there.
Speaker Change: I'm, an income perspective, all cohorts experienced a pullback during the quarter given the sharp decline in consumer sentiment, but that was more pronounced in households of less than $50000.
Speaker Change: All income cohorts started to rebound in April with those above $60000 turning positive again.
Speaker Change: Domestic franchise restaurants delivered same restaurant sales of negative three 2% while company same restaurant sales were negative <unk>, 9%. This variation was primarily due to our company restaurants concentration in markets, such as California, Las Vegas, Miami, and Orlando that outperformed the system average.
Speaker Change: In addition to this our company restaurants had been early adopters to our remodel program and technology investments as well as having higher guest satisfaction scores.
Speaker Change: Dennis had similar pricing to the previous quarter or approximately 5%, which was all carryover pricing <unk>.
Speaker Change: Additionally, the average guest check increase by 2% due to items in the $2 and four dollar value categories shifting from entrees to add ons. This categorization change results in a higher check but does not represent an actual price increase.
Speaker Change: This will continue to be the case until we roll over the relaunch of 2468 beginning in late August of this year.
Speaker Change: Denny's off premises sales remained strong during the first quarter benefiting same restaurant sales by 1% and represented approximately 22% of total sales.
Speaker Change: Value incidence increase sequentially to approximately 20% during the first quarter with continued strong performance in the six and $10 categories.
Speaker Change: Beginning in fiscal April we launched a limited time only by one slam get one for a dollar deal.
Speaker Change: While it is still early we are very encouraged by the performance of this new offer and even though it is a deeper discount it is garnering enough traffic to be at or marginally above profit neutral.
Speaker Change: This result, coupled with what Kelly mentioned earlier that nearly 70% of bogo transactions are from lapsed or new guest is a winning combination and evidence that our message is resonating denny's.
Speaker Change: Denny's opened six franchise restaurants during the quarter and closed 14 franchise restaurants with average unit volumes of approximately $1 million.
Speaker Change: This is consistent with our previously communicated strategy to close underperforming restaurants and returned to pre pandemic growth of flat to slightly positive in future years also during the quarter Denny's completed six remodels, including five company restaurants.
Speaker Change: These remodels coupled with our 2020 for progress and earlier testing brings our company fleet to more than 50% remodeled under the new image.
Speaker Change: Now moving to keys.
Speaker Change: Kiki's delivered system wide same restaurant sales of positive three 9% for the quarter and outperformed the BVI family dining index in Florida for the third consecutive quarter.
Speaker Change: Similar to the previous quarter same restaurant sales performance was softer at company cafes compared to franchise illustrating the law of small numbers.
Speaker Change: There were only 12 company cafes included in the company comp base for Kiki's any one outsized impact good or bad can significantly swing numbers, which is exactly what happened in Q1.
Speaker Change: T keys average check increased approximately six 5% during the first quarter, driven by pricing and favorable menu trades higher beverage incidents and off premises growth.
Speaker Change: <unk> opened three new cafes during the quarter two of which were company owned. Additionally, one of our original Kiki's franchisees took their first step outside of Florida and expanded into our seventh state Georgia.
Speaker Change: Thus far in the second quarter, we have opened an additional three new cafes, one of which was company owned.
Speaker Change: This brings our total year to date kiki's openings to six including three company and three franchised openings.
Speaker Change: In addition to the six year to date Kiki's openings. We currently have seven new cafes under construction and three in permitting giving us clear visibility into our implied guidance range of 12 to 20 openings for Kiki's.
Speaker Change: As previously shared during the quarter, we exited two underperforming kiki's franchisees, who collectively owned 11 cafes.
Speaker Change: As a result, we strategically acquired five of these cafes with the intention of keeping three to maximize overstate efficiencies in the Orlando market and Refranchising to in the near term.
Speaker Change: The remaining six out of the 11 locations closed however, we expect threats reopened under new franchise ownership in the second quarter and we look forward to seeing those cafes thrive again.
Speaker Change: Now moving onto our first quarter financial details.
Speaker Change: Total operating revenue was $111 $6 million compared to $110 billion for the prior year quarter. This change was primarily driven by additional kiki's equivalent units and higher local advertising co op contributions for the current quarter, partially offset by Dennis having fewer equivalent units and softer.
Speaker Change: Same restaurant sales.
Speaker Change: Adjusted franchise operating margin was $29 $4 million or 59% of franchise and license revenue compared to $33 million or 52, 5% for the prior year quarter.
Speaker Change: This margin change was primarily due to denny's, having fewer equivalent units and softer same restaurant sales.
Speaker Change: Adjusted Company restaurant operating margin was $4 9 million or nine 1% of company restaurant sales compared to $6 8 million or 13.0% for the prior year Court.
Speaker Change: This margin change was primarily due to higher product cost incremental investments in marketing compared to the prior year quarter and inherent inefficiencies in the new cafe openings that will subside over time.
Speaker Change: I want to take a minute to expand upon two of these items one is product cost commodities.
Speaker Change: Commodities at Denny's were approximately 5% during the first quarter and heavily impacted by eggs.
Speaker Change: Shortly after our last earnings call the cost of eggs increased anywhere from three to four times, what we had been pain, which is what prompted some of our restaurant locations to temporarily add a surcharge to meals that included eggs.
Speaker Change: The pricing decision was made market by market and restaurant by restaurant due to the regional impacts of the egg shortage.
Speaker Change: Thankfully guests recognize the need for this surcharge as egg shelves at grocery stores, where bear and we did not see an impact to our guest sentiment scores as a result.
Speaker Change: In fact, our net sentiment scores increased over eight points during Q1 to 60, which far surpass the family dining net sentiment of 48.
Speaker Change: The adjusted company margin was impacted by approximately a half million dollars or nearly 100 basis points related to eggs, but keep in mind. This represents only a partial quarter of the impact.
While egg costs have moderated we are still paying approximately double compared to the previous periods pending no additional outbreaks of the avian flu, we expect egg prices to further moderate through the summer and into the fall.
Speaker Change: As such we expect the surcharges will be removed from all or substantially all restaurants by the end of May. We know this is the right decision for the guest especially given the current uncertain environment.
Speaker Change: Now the second topic I want to expand upon Kiki's, New Cafe performance.
Speaker Change: During the quarter, we had five new cafes or approximately 25% of the Kiki's Company fleet open less than 90 days on average.
Speaker Change: There are inherent inefficiencies when we open a new cafe until we mature into our ultimate margin expectations.
Speaker Change: We estimate these new cafe operational and oversight inefficiencies impacted the overall adjusted company margin in the first quarter by approximately 70 basis points.
Speaker Change: Now moving on to the rest of our financial results.
Speaker Change: General and administrative expenses of $20 million were $1 $2 million lower than the prior year quarter.
Speaker Change: This improvement was primarily due to lower deferred compensation valuation adjustments and incentive compensation.
Speaker Change: Additionally, corporate administrative expenses were approximately flat compared to the prior year quarter and a normal year. This would naturally increase due to inflationary pressures along with the continued necessary investments to grow Kiki's. However, we have been very focused on controlling G&A spending which offset these pressures.
Speaker Change: These results collectively contributed to adjusted EBITDA of $16 $8 million.
Speaker Change: The effective income tax rate was 47, 4% compared to 24, 6% for the prior year quarter.
Speaker Change: This change in rate was primarily due to discrete items relating to share based compensation in the current year quarter.
Speaker Change: Adjusted net income per share was <unk> <unk> in the current year quarter and our quarter ended total debt leverage ratio was approximately three nine times.
Speaker Change: We had approximately $276 million of total debt outstanding including approximately $266 million.
Speaker Change: Borrowed under our current credit facility.
Speaker Change: Let me now discuss our business outlook for 2025.
Speaker Change: At the beginning of the year has been choppy consumer sentiment has been shaken and this is reflected in our first quarter results. We are seeing some positive indications thus far in the second quarter and still have confidence that we are back half sales drivers, including continued focus on value more tailwind from our digital enhancements.
Speaker Change: Additional remodels and a new loyalty program that will provide positive benefit. However, we know consumers are still finding their footing assessing their spending power and making necessary adjustments with that backdrop. We believe we will be in the lower half of our same restaurant sales guidance range for the year of negative 2%.
Speaker Change: <unk> to positive 1%.
Speaker Change: As mentioned earlier, we have line of sight into hitting our openings guidance for the year. So that range is still appropriate.
Speaker Change: With regard to closures as we previously shared we expect between 70 and 90 closures, which includes some attrition related to normal lease expirations and we still believe this range is appropriate.
Speaker Change: However, given this price shift we experienced with eggs. After our last earnings call, we are increasing our commodities expectations to between 3% and 5%.
Speaker Change: We still believe the labor inflation guidance of two 5% to three 5% is appropriate.
Speaker Change: Additionally, our G&A guidance of $80 million to $85 million is still intact and as a reminder includes approximately $1 million related to the 50 <unk> week based.
Speaker Change: Based on pointing to the lower half of our sales guidance range and higher commodities, we will likely be at the lower end of both our adjusted EBITDA guidance range of $80 million to $85 million and our share repurchase guidance range of 15 million to $25 million.
Speaker Change: Given the uncertainty in today's environment, we are being very thoughtful and reviewing all capital investments to ensure we are delivering the highest returns we.
Speaker Change: We have historically been a highly cash generative business and returned a significant amount of cash to shareholders through our successful share repurchase program and we believe this strategy remains critical to maximizing shareholder value.
Speaker Change: In closing I would like to thank our teams and franchisees for their continued dedication and support for both Dennis and Kiki's.
Speaker Change: We will remain focused on delivering a best in class guest experience and advancing our strategic initiatives to ensure sustainable growth on both topline and bottomline.
Speaker Change: I will now turn the call over to the operator to begin the Q&A portion of our call.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, even though I'll begin the question and answer session.
Speaker Change: I would like to ask a question. Please press star and one on the telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: Yes.
Speaker Change: The first question comes from the line of Michael Tamas from Oppenheimer and company. Please go ahead.
Michael Tamas: Hi, Thanks, you talked about your April same store sales, improving that's flattish and you introduced some new compelling value via smelter.
Speaker Change: T O.
Speaker Change: Can you talk about how that strategy shaping the way youre thinking about the rest of the year and do you believe you'll need to lean into that form of discounting and value even more to sustain the momentum.
Speaker Change: Hi, Michael This is Kelly and thank you for that question. So the way we're looking at it is we feel good 2468 is our everyday value strategy. We will continue to refine and look at that and making sure that in these kind of volatile times I think that that.
Speaker Change: Certain involuntary or the big words, right now, but for US we we could sense that we needed a breakthrough with something a bit different right just being able to speak to that lower income consumer that we all know was most affected by what is happening.
Speaker Change: And in doing so and doing our research and working with our franchisees, we're really pretty excited about what we came up with the buy one get one with the all American in the original Grand Slam. So for the time being we're actually we're pleased with those results and we will continue to refine our everyday value strategy. So as I think about this one is promotional valley.
Speaker Change: And then we still have our everyday value strategy. We know is important and that consistency being able to count on us for that is the way, we'll look at the balance of the year, we're not done though I would tell you we're still looking at.
Speaker Change: Again are we are we really meeting guests where they are today, it's not always about discounting, but it is about making sure that what we're talking about is breaking through and are watching what other competitors are doing also.
Speaker Change: Thanks for that and then you talked about I think donating some market share during the first quarter relative to your peer group and then you talked about getting a little bit back.
Speaker Change: As we got into April here, so can you.
Speaker Change: Towards the end of the quarter excuse me can you talk about maybe April like Azure trends improved or is that something that you were seeing across the peer group as well or do you think it's what you just talked about what some of those value offers that was allowing you to sort of get back to outperforming yep.
Speaker Change: Yeah, Michael Yeah. Thank you yeah teasing that out that's exactly what we saw so we turned that offer on late March.
Speaker Change: And then started to almost in a pretty quickly see the change in the trend against our competitors and that was what led us to that we could see the trail the trail along with all the other noise as soon as we're able to kind of dissect that all the other external factors. We then kind of pointed to we need something has got to breakthrough a little differently given what our competitors were doing.
Speaker Change: And bill family dining and casual dining so yeah, we saw that flip when we introduced this promotional value.
Speaker Change: And so all cohorts improve all income cohorts improved when we went on air and went live with this offer so for the time, Danielle you'll see us continuing down that path and pretty excited with the transactions, we've seen and just what the overall has become true with this promotion.
Speaker Change: Awesome. Thank you.
Speaker Change: Hum.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Jake Bartlett.
Speaker Change: From <unk> Securities. Please go ahead.
Speaker Change: Great. Thanks for taking the question.
Speaker Change: The first was about the macro environment and your expectations.
Speaker Change: In the in the outlook section of the person. So I think it's the same as when it said less and less.
Speaker Change: Last quarter as well, but.
Speaker Change: Can you expect recent shifts in consumer sentiment to be to moderate over time and I think that remains a big question. Whether this is a good run rate for where the consumer is or whether it will moderate. So I guess one is just to understand what your guidance is based on.
Speaker Change: It looks like it's based on the pullback in the consumer moderating throughout 'twenty, five, but also whether youre seeing signs of that.
Speaker Change: And whether that's within various consumer cohorts that you're exposed to and maybe more specifically around.
Speaker Change: The Hispanic consumer in what you and I think there were some some pressure some acute pressure maybe maybe that's easing maybe that's why you feel confident that there's some some of this pressure might be more temporary.
Speaker Change: And then I have some more.
Speaker Change: Sure.
Speaker Change: Jason Good to hear your voice and thank you for that question.
Speaker Change: Yes, it is a pretty choppy environment right now.
Speaker Change: And we as Kelly just answered Michael's question, we were very pleased with how we responded with our promotional value there the bogo and how that really helped change of trend.
Speaker Change: In the month of April So I think what youre seeing from us is.
Speaker Change: He's a very cautious tone I think early on in the in the <unk>.
Speaker Change: In the quarter.
Speaker Change: It was.
Speaker Change: Worse to be candid at January at the end of January started off very very.
Speaker Change: Poorly and that precipitated through February I think people I think we've found a little bit of a footing here for the moment.
Speaker Change: But as you can see any any rhetoric in the macro environment can be can really created that at any point in time and thats really the re.
Speaker Change: The reason why we've kind of couched as it is it is a moderate we also have within that moderation other of our sales drivers really kind of building through the back half of the year also so the CRM loyalty.
Speaker Change: Program that launch of that program is a back half program. Our remodels will be will be concentrated as we get back into that cycle. The number of them that we will complete this year will be backend loaded.
Speaker Change: And with regard to the cohorts, we spoke to the it really was the more pronounced in our lower end consumer in the all while all cohorts did rebound.
Speaker Change: Here into April it was the ones that were 60000 and above that really saw the biggest benefit there. So again all of that taking into.
Speaker Change: Iteration, what we have on the table. The fact that we do believe we found a little bit of a footing knowing that at any moment that that that broker we pulled out from underneath us with with some commentary.
Speaker Change: We're feeling.
Speaker Change: Feeling pretty balanced with regard to how we position that guidance.
Speaker Change: Okay.
Speaker Change: Another question or a follow up question you think about the.
Speaker Change: The bogo offer.
Speaker Change: Obviously effective driving sales I think you mentioned that it was.
Speaker Change: Maybe barely breakeven.
Speaker Change: I guess the question is whether what the franchisee appetite is for promotions like that and whether they're going to have an appetite to continue to do that this year or this is kind of more of a more of a onetime thing that kind of jumpstart. Some some traction from some traffic or were something that you think that we're going to be seeing more.
Speaker Change: Throughout the year.
Kelly Blade: Yeah, Jay Thank you for the question as Kelley, Yeah. So look I think I'd look at this one as promotional value that we pull through again in partnership. This idea was born from great insights that we got from our guests about what could breakthrough in this moment and so that's the confidence and the idea came from that and from the many conversations with our franchise the franchise.
Speaker Change: He is about transactions so transactions have improved.
Speaker Change: And so for this thing to continue we absolutely are keeping an eye on it and making sure there's always going to meet with a great <unk>.
Speaker Change: <unk> offer to this extent theres always we're watching check, but we are still pleased with the overall results that we're seeing from yes, a more assertive aggressive offer for us.
Speaker Change: But we absolutely are watching and seeing the transaction. So that's really all I can say at this point about our.
Speaker Change: Our.
Speaker Change: Our balanced approach to kind of April and beyond given that we've got this now in our back pocket and again, we pulled it through because we could see that given the choppy environment and the competitor activity around value, we needed to come out with something a bit stronger and like a lot like others.
Speaker Change: One was what we pulled through and it doesn't appear to be working so I think youll see us this could be something that we pulse in from time to time.
Speaker Change: But also everyday value is still we still have our sights set on making sure we've got strong everyday value.
Speaker Change: This one pulling it through as a promotion.
Speaker Change: Great.
Speaker Change: Yes.
Speaker Change: Additionally, Jacobs with regard to that Kelly and I speak very very often with our franchisees.
Kelly Blade: The common sentiment is that they are pleased with this logo and the traffic driving ability of this bogo restaurants with people in them are just they're livelier and it gives us the chance to make more money.
Speaker Change: Yeah.
Speaker Change: I appreciate it.
Speaker Change: Thanks Jake.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Todd Brooks from Benchmark Company. Please go ahead.
Todd Brooks: Hey, Thanks for taking my questions.
Speaker Change: Robert I was wondering can you talk about <unk>.
Speaker Change: Forward outlook for menu pricing I'm guessing we're lapping some.
Speaker Change: Price increases in the California market relative to.
Speaker Change: The wage pressure we saw there last year just wondering if we can look towards kind.
Speaker Change: Kind of if theres any waterfall to menu pricing going forward from the 5% that you talked about.
Speaker Change: In the first quarter and then just thoughts on.
Speaker Change: How we should be thinking about mix with.
With the $1 Bogo running.
Speaker Change: Running this quarter, whereas we're just trying to get those two components of same store sales.
Speaker Change: Yeah, Doug good to hear your voice and really good question there with regards to pricing, let me address that one first so in in 2025.
Speaker Change: We will have approximately three percentage points of rollover pricing coming in from 2024, just based on the timing of the <unk>.
Speaker Change: Pricing was taken in 2024, we do have a pricing window coming up here in may.
Speaker Change: Roughly 2% in pricing will be kind of the system average with regards to that so.
Speaker Change: So if you look at the effective pricing that that will garner.
Speaker Change: It'll be one to one 5% somewhere in that range, we do have another opportunity there will be another.
Speaker Change: Menu print in the fall.
Speaker Change: But at this point.
Speaker Change: Again.
Speaker Change: Kind of the answer that I gave J code kind of in this.
Speaker Change: What will we need to do to react to the environment and figure out what that needs. It.
Speaker Change: Depending on what that looks like side I don't know, if we will actually take pricing and if so how much that will look like so right now it looks like there will be four to four 5% of pricing into 2025 made up of the rollover, which is about as twice as impactful is that what we will take in the current year with regard to pricing.
Speaker Change: The second question was with regard to mix and how the bogo.
Speaker Change: Implants that so so the mix of the Bogo.
Speaker Change: Is.
Speaker Change: I think it's roughly in the 5% range I will check that.
Todd Brooks: And generally what's happening Todd to breakeven on this again my thumbs at kind of waving my thumb in the air with regard to this you need about twice as much traffic as you will lose in check to have that be a pretty good profitable transaction.
Todd Brooks: And and we are good we are clearly at.
Todd Brooks: At or above that right now again my commentary, but the franchisees are are pleased to date with what they've seen from that.
Todd Brooks: So with regard to the mix.
Todd Brooks: Okay.
Todd Brooks: <unk>.
Todd Brooks: Validated and it's about 4%, so 4% to 5% on that Bogo.
Todd Brooks: And with regard to the check impact there.
Todd Brooks: I would say is.
Todd Brooks: I think we're seeing.
Todd Brooks: Uh huh.
Todd Brooks: Trying to do the math in my head there because I know the statistic.
Todd Brooks: My guess is causing about a 30 cent.
Todd Brooks: The impact there. So overall, if that's mixing 4% to 5% on 30 cents, a penny or two so.
Todd Brooks: Again.
Todd Brooks: Axel.
Todd Brooks: In the two to mix from that alone and I know I'm, giving you a lot of numbers I apologize to that Kayla can clean this up but likely less than a half a point.
Todd Brooks: Mixed impact from the from this one value promotion side 30 o'clock, there, but again, we're just working from the numbers that I had seen previously.
Todd Brooks: Okay. That's helpful. Thanks, Robert.
Todd Brooks: The second question I have and I'll jump back in afterwards, just wanted to get a sense and you painted.
Todd Brooks: A picture of some of the good stuff that you are seeing out of <unk>, but just wondering on some of the things that maybe <unk>.
Todd Brooks: Investors are looking for whether it's refranchising, maybe in the Tennessee market.
Todd Brooks: Our momentum with more denny's franchisees coming to the brand how much or are those type of touchstones being.
Todd Brooks: Maybe delayed or muddied by the current environment, we're in how do we gauge that.
Todd Brooks: The seed and feed and kind of.
Todd Brooks: Re repurposing that cash for more corporate openings is going to be unlocked as you expected.
Todd Brooks: Yes.
Todd Brooks: That's really it.
Todd Brooks: Saiful question, given the environment that we're in.
Todd Brooks: So let me, let me try to break that down a little bit.
Todd Brooks: I would say that that we are pleased with the progress of the of the of the pace of the new openings already six we detailed three in Q1 three so far in April seven under construction III and permitting so we're really really pleased with regard to that.
Todd Brooks: I would tell you that given the current economic environment, what we detailed in the Investor Day was basically the 18 to 24 months.
Todd Brooks: <unk> of that of the capital from the point of the build to when we would eventually get that back out I think potentially on previous conversations and previous conferences or calls such as this I would would've liked to have hope that we could have accelerated that more quickly.
Todd Brooks: I begin to question that frankly in this current economic environment I think it will still.
Todd Brooks: It's probably back to.
Todd Brooks: The Investor Day, 18 to 24 months and my optimism potentially getting out of.
Todd Brooks: Like say Nashville, or Dallas may be tempered.
Todd Brooks: Given this that being said we do have.
Todd Brooks: Packages out with regard to.
Todd Brooks: With regard to.
Todd Brooks: Kiki's cafes that we will re franchise in the current year for instance, several of the Neal Solomon.
Todd Brooks: Phase that we took on.
Todd Brooks: Could be it could be it could be part of that transaction.
Todd Brooks: So so we are moving it moving forward with Refranchising, even though some of the <unk> feed markets may take that original 18 to 24 months.
Todd Brooks: With regard to all of our capital deployment that question one of the things.
Todd Brooks: Mentioned this within the prepared remarks is really.
Todd Brooks: Re looking at all of our capital.
Todd Brooks: <unk> whether that be.
Todd Brooks: The feed and feed cafes, or remodels and ensuring that anything that we spend in this current year is working as hard as possible for us there are benefits to the seed and feed we will there is a benefit to building out markets more quickly, but it does utilize cash.
Todd Brooks: That could otherwise be used for the successful share repurchase program that I detailed so we are looking at all of that.
Todd Brooks: And working diligently to to get to as much free cash as we can to deploy against share repurchases.
Speaker Change: Okay, and just the appetite for the Denny's franchisees with growing with Kiki says that building is that on hold just given the environment. What are you what are you seeing as far as pipeline build.
Todd Brooks: Hey, John This is Kelly.
Todd Brooks: It's on hold I would say there is still a lot of conversations and Theres still some looking at a market like Dallas and watching to see the sales trajectory and the sales are growing and there is many brand new units in Dallas for example.
Todd Brooks: Theres outside interest outside of we've always said it's S. Denny's to your point Denny's franchisees Kiki's and then new and we've actually had interesting conversations and new conversations as it relates so they're there.
Todd Brooks: There are still very.
Todd Brooks: Interested parties on the denim side going from one state to even new states with the <unk> brand.
Speaker Change: Okay, great. Thanks to you both.
Todd Brooks: Thanks, guys.
Speaker Change: Thank you. The next question comes from the line of Jon Tower from Citi. Please go ahead.
Jon Tower: Great. Thanks for taking the questions.
Speaker Change: Maybe just on the AG surcharge.
Jon Tower: Can you quantify how much that might have helped save.
Speaker Change: Same store sales in the period.
Speaker Change: Yes, John It was actually very very little believe it or not.
Speaker Change: With regard to.
Speaker Change: The royalty impact was less than $100000.
Speaker Change: So it was it was very limited with regard to that if you recall and we've made this point that it was only in selected restaurants. It was a small subset and it was really driven.
Speaker Change: By franchisees, who were in markets, where they felt compelled.
Speaker Change: To take that where the egg prices like we're running away more quickly than potentially the averages across the U S. So we.
Speaker Change: <unk> worked with our franchisees and were in routine communication with them to help facilitate that to make sure that we were beating them real time data with regard to with egg prices were what that was from a variance from normal.
But again, it kind of benchmarking working backwards it was less than $100000 worth of royalties.
Speaker Change: Got it. Thank you maybe just go into the buy one get one again, a buy one get one for a buck.
Speaker Change: It seems like it's turned the test the traffic in a positive direction, which is great to hear.
Speaker Change: You are paying for it a little bit on the margin side.
Speaker Change: So I'm just curious what are you working with franchisees at the store level to kind of mitigate that impact or drive some check growth youre getting people in the door, maybe you can get them back again, but the next time they come in like we have a plan for them too.
Speaker Change: And on the drink because we're featuring it on the menu of different manner like what's happening at the store level now.
Speaker Change: Yes, absolutely so at the store level.
Speaker Change: Increased if not our continued focus on the barbell strategy in the merchandising strategy and restaurant, we launched our Slammin. So does that take on Dirty. So does this quarter and will continue to find new ways to innovate so innovation and just having great items to merchandize in the restaurant and great incentives for our employees to do.
Speaker Change: Do that again the transactions are far outweighing any loss in check that anyone would expect with an offer like this so we're what we're watching that very carefully to your point, but also we've got off premise is up and we've been doing significant amount of work to drive.
Speaker Change: So that's a part of it is still call. It a day part, but we were almost at 20 I think 22%. This this quarter and that's been growing and Thats better Seo optimization, that's better digital enhancements overall, we've been thoughtful about those digital enhancements, even things like the video breakfast by its drove off premise.
Speaker Change: Incidents to that item, we're considering that actually for the core menu. So just innovation of course, but then also just doing everything we possibly can to make sure.
We're keeping check as well as coal as we can.
Speaker Change: In addition, lots of work on menu simplification and enhancements working in partnership with our operations brand Advisory Council getting the best thinking together to just think about how to lower.
Speaker Change: Food cost how to just get even better.
Speaker Change: That our waste better and better scheduling all those things are in play with.
Speaker Change: New new tools being tested right now that should launch later on this year and then working the supply chain to lower cost. Our franchisees are very active in those conversations with US we welcome that and we appreciate their approach to that with US. So all of those things are in play along with loyalty program in the back half of the year seeing things still on track to continue down a path of bringing new.
Speaker Change: In bringing a younger cohort and we saw that we were able to do that with the Nvidia work and and.
Speaker Change: The ideas that we brought forth there. So all those things together will help us with the in restaurant experience and then also when transactions transactions being the way they are and the movement. We've seen so far you've got the labor there to leverage that and were pushing to really just make the most of what happens in that in restaurant experience as well.
Speaker Change: Great. Thank you and then just.
Speaker Change: You've ring fenced I think roughly 70 to 90 store closures for the year just curious.
Speaker Change: The current environment doesn't improve.
Speaker Change: Can you just maybe help us think about how many more if there are more franchisees kind of on the cost for potentially.
Speaker Change: Needed to close stores beyond this year or beyond that 70 to 90.
Speaker Change: Yeah. It's a great question look we talk about it a lot here, we are very confident in the strategy that we've had for the last year and a half and we're confident in our ability to really be mindful of and watching those quintiles working to rehabilitate the ones we can rehabilitate.
Speaker Change: It's a it's a weekly conversation and we don't see any reason at this point to not think that will be behind that tranche and behind this.
Speaker Change: This amount that we've stated we're going to close right on track really if you just think of it in a ratable sense. We're on track in the first quarter and we don't expect that.
Speaker Change: Because of the environment to expand and be any difference. There is no indication for us that says that we won't be have this behind us and again the prediction and the conversations we've always had been flat to potentially slightly positive net growth for denny's.
Speaker Change: We're still confident in that.
Speaker Change: Great and then just last from me, obviously Theres no bad news about tariffs et cetera.
Speaker Change: They are going through a remodel cycle and obviously building with Keith could.
Speaker Change: Can you just walk through any exposure you might have.
Speaker Change: With either Remodels or.
Speaker Change: New builds.
Speaker Change: Yes, John this is Robert with regard to that.
Speaker Change: I think it is still yes.
Speaker Change: Yet to be fully known to us I think the bigger tariff impact is the one that we were frankly talking about with regard to that.
Speaker Change: The early Q1 results and how the lower end consumer reacts to to the tariffs I think we will have the ability to optimize our spend throughout remodels.
Speaker Change: Throughout any kiki's cafes, newbuild and in fact, we consistently are looking at how to.
Speaker Change: Right size the costing of those so those are the even if prices went up we would we would make sure that the components that that we are investing into where the ones that we're working hardest. So so to me I think the tariff impact is how the overall impacts of macro economic environment.
Speaker Change: <unk>, what that does to to our lower end consumer that we relied quite a bit upon.
Speaker Change: Got it thanks for taking my questions.
Speaker Change: Thanks, John.
Speaker Change: Thank you. The next question comes from the line of Eric Gonzalez from Keybanc capital markets. Please go ahead.
Speaker Change: Hi, Thanks, and good evening in the prepared remarks, there was a comment about.
Speaker Change: The inefficiencies of maybe opening new Kiki's impacted the company largely by 70 bps.
Speaker Change: Is that that seems like it's a recurring cost. So I'm. Just wondering is there anything that can be done to to mitigate the impact of these inefficiencies.
Eric Gonzalez: Yes, Eric.
Eric Gonzalez: What we've seen is these these inefficiencies.
Eric Gonzalez: Really are a function of time it takes us.
Eric Gonzalez: The first six months to really get them moving towards efficiency and then the next six months to 12 months to get them towards an optimize efficiency and the reality is is it just a really small base right now so we've opened.
Eric Gonzalez: Six in the first part of year three of those are company cafes, so that represents 15% to 20% and until that base expands it will be a recurring theme or until we begin to.
Eric Gonzalez: Refranchising used to receiving fee, but again the goal is in the first six months to get them to the point that they are making money in the next six months to get them.
Eric Gonzalez: They are kind of working at a more mature level and ultimately profitable moving towards that that upper teens margin.
Eric Gonzalez: But it is similarly to the same store sales that we referenced.
Eric Gonzalez: With regard to how one poor performing restaurant could impact that same store sales on a company basis very similar here with the company margins also.
Speaker Change: Got it and then maybe just sticking with the company margin theme I think you said eggs were a 100 basis points.
Eric Gonzalez: It's a partial quarter.
Eric Gonzalez: And I think you also said youre paying three to four times the price, but maybe now youre paying two times the price. So can you quantify what the margin impact could be for the second quarter for mix.
Eric Gonzalez: Yes, so I think the way to look at that Eric is going back to the three to two 5%.
Eric Gonzalez: 3% to 5% commodity inflation that we've talked about and it really ultimately depends on the price we saw in the in in recent weeks here that I think it declined more quickly than we might have expected. If that continues then the impact will be less.
Eric Gonzalez: If you look at the full market basket, though that percent increase on the market basket.
Eric Gonzalez: Translate into probably 25 basis points on the P&L.
Eric Gonzalez: A half million Bucks over the course of the year. So I think I think what Youll see is that again as long as the avian flu continues to.
Eric Gonzalez: To kind of.
Eric Gonzalez: Tamped down that.
Eric Gonzalez: Youll see that the biggest impact was in Q1, probably followed by Q2.
Eric Gonzalez: And then we'll probably marginalize that through the balance of the year. So I think I think we've seen probably the worst of it dependent upon whether this thing tamps down resurges and what that does to prices.
Eric Gonzalez: Got it thank you.
Eric Gonzalez: Yeah.
Eric Gonzalez: Thank you.
Brian Mullan: The next question comes from the line of Brian Mullan from Piper Sandler. Please go ahead.
Sam: Hi, This is Sam on for Ryan. Thank you for taking the question.
Brian Mullan: Related to the last one.
Brian Mullan: Question on the expansion of our company margins in franchise margins on the last call you talked about having pretty high confidence in your ability to expand.
Brian Mullan: Despite some of the February softness you're seeing at the time I wanted to circle back on this now that we're through April and ask if your level of confidence is the same or if it's changed at all.
Brian Mullan: Thanks.
Allison: Hey, Allison Yeah, that's a fair question.
Allison: So if you take a step back.
Allison: For a moment and.
Allison: And revisit what we said about kind of a mid teens ultimate margins for Denny's and an upper teens margin for mature kiki's cafes, I still have the same level of confidence that we will ultimately achieve those I think what the start of this year has done.
Allison: With regard to.
Allison: The macroeconomic environment and the volatility and uncertainty that has been interjected I think what we've done is interjected the timing of that and how quickly we can get there, but it hasnt changed my perspective that we will ultimately get there so more still at this point, we introduced and.
Allison: A layer of timing due to the uncertainty and volatility.
Speaker Change: Thank you.
Allison: Thank you.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as there are no further questions I would now hand, the conference over to Kayla money for the closing comments Taylor.
Kayla Money: Thank you and thank you everyone for joining today, we look forward to our next conference call in early August when we will discuss our second quarter results. Thank you and have a great evening.
Speaker Change: Thank you the conference of Denny's Corporation has now concluded. Thank you for your participation you may now disconnect your lines.
Kayla Money: Okay.