Systemwide, same-store sales sequentially improved in the first quarter: January, –31 percent; February, –25 percent; March, –9 percent. Overall, comps slid 20 percent versus 2019. California, which holds 25 percent of Denny’s U.S. footprint, dragged comps by roughly 6 percentage points in Q1. However, the results were heavily weighted toward January and February prior to the easing of restrictions.
In April, comps were down just 2 percent. More than 80 percent of domestic franchise restaurants exceeded the 70 percent of 2019 sales threshold required to cover both fixed and variable costs. Also, more than 40 percent of the domestic system generated positive sales. An average of only 15 stores had closed dining rooms in April, compared to an average of 228 locations in March. As of April 30, nearly 40 percent of stores have capacity of 75 percent or utilizing social distancing, and 22 percent have no restrictions at all.
The sales should continue to trend nicely. California plans to reopen its economy in-mid June. Even now, many counties are boosting capacity, including Los Angeles County, which can now serve 50 percent.
Other than stimulus checks and the ease of dine-in restrictions, a big reason for the improvement has been the rollout of Denny’s two new virtual brands, The Burger Den and The Meltdown.
Denny’s substantially completed its rollout of The Burger Den in April. More than 1,100 locations are live with the virtual concept, with an average check that’s similar to Denny’s off-premises transactions. The Burger Den, considered highly incremental, is generating $900 in average weekly sales per restaurant. Its margins are in the range of mid 20 percent to low 30 percent.
Seventy percent of The Burger Den’s transactions occurred during the dinner and late-night dayparts, compared to 35 percent for Denny’s. Additionally, 75 percent of The Burger Den’s transactions happened during the weekday compared to 65 percent for Denny’s.
As for The Meltdown, more than half of domestic locations will launch the virtual concept in Q2. The brand is currently in more than 175 locations, and another 175 are expected to launch this week.
According to Miller, one of the primary objectives of the virtual brands is to unlock traffic potential across all dayparts.
“When and how fast we get there is just hard to guide from where we stand right here post-pandemic at the end of Q1. But I would like to be able to continue to provide more color on that very question,” Miller said. “ … Once we get our momentum toward these things, much like we did over the last several years on breakfast and lunch, I think we can really unlock some power in this brand.”
Denny’s ended Q1 with 1,649 stores systemwide—1,584 franchises and 65 company-run stores. Franchisees opened three stores, including two international locations. Operators also closed four units.
The chain’s total operating revenue was $80.6 million compared to $96.7 million in the prior year quarter. Net income was $23.2 million, or $0.35 per diluted share, compared to net income of $9.0 million, or $0.16 per diluted share, in the prior year.