| US

Denny’s posts strong first quarter but struggles to resume 24-hour trading

US 24-hour diner chain Denny’s reports first quarter revenues increased 28% following the relaxation of Covid-19 trading restrictions – but nearly half of locations remain on reduced opening hours as staff shortages bite 

Nearly half of Denny’s locations remain on reduced opening hours as staff shortages take toll | Photo credit: Billy Hathorn CC BY-SA 3.0

Denny’s Corporation, one of the largest franchised full-service restaurant chains in the US, has reported strong first quarter results as it continues its recovery from the pandemic. The South Carolina-headquartered company also announced the acquisition of Florida-based Keke's Breakfast Café, which has around 50 locations.

Denny’s, which began life in the 1950s as Danny’s Donuts before becoming Denny’s Coffee Shops, reported a total operating revenue increase of 28% to $103.1m, with domestic system-wide same-store sales in the US increasing 23.3%, a figure slightly lower than forecast when its full-year results were released for 2021.

However, despite the easing of stay-at-home orders and capacity restrictions, which boosted Denny’s financial outlook in 2021, just 51% of its 1,600+ locations have resumed 24-hour trading, with the company stating that 80% of restaurants operated at least 18 hours as of the end of March.

The US hospitality industry has struggled with severe staff shortages since the pandemic. According to the US Bureau of Labor Statistics around one million workers left the sector in November 2021 representing over 6% of the industry’s total workforce.

Denny’s ended the quarter with $183.8m of total debt outstanding, including $171.5m of borrowing under its credit facility.

The chain opened five franchised restaurants at the start of 2022 and completed nine remodels, including six franchised restaurants.

The company has also signed a definitive agreement to acquire Florida-based Keke's Breakfast Cafe for $82.5m. The transaction is expected to close late in the fiscal second quarter of 2022, giving Denny’s control of the 52 restaurants run by Keke’s, which will continue to operate independently.

Denny’s acquisition will help improve the current rate of return to 24-hour opening hours, which is increasing by only two percentage points a month. Management at Denny’s, which markets itself on being conveniently open around the clock, believe that improved staffing trends will accelerate the pace of hour extensions.

"As consumer sentiment began to improve in April, we were pleased to experience a corresponding sequential improvement in sales trends,” said John Miller, CEO, Denny’s.

"Today we announced the anticipated acquisition of Keke's Breakfast Cafe, which we believe can drive incremental growth that complements the Denny's brand. Keke’s is a high-growth brand that aligns well with our core competency while providing us with an opportunity to participate in the fast-growing A.M. eatery segment. We intend to utilise the proven capabilities of our franchise-focused business model to develop Keke’s across multiple states with the long-term target of becoming the A.M. eatery franchisor of choice," he added.

As of March 2022, Denny’s operated 1,634 franchised, licensed, and company restaurants around the world, including in Canada, Guatemala, El Salvador, Indonesia, and the UK. The company recently announced that Kelli Valade would be taking over as its next chief executive and president, with Valade having left seafood chain Red Lobster in April.

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