Financing

After shutting 60 namesake units, Denny's readies Keke's for expansion

A Keke's unit was opened for the first time outside of Florida, to encouraging results, the company said. It sports a new look and menu, as well as alcoholic beverages.
Denny's little sister, Keke's, is being prepped for expansion. | Photo: Shutterstock

Inflation cost Denny’s about 60 restaurants last year.

The five dozen restaurants were forced to close as soaring costs pushed the financial viability of those stores beyond their sales volumes, CFO Robert Verostek explained to financial analysts during the diner chain’s analysis of fourth-quarter financial results.

“Having come through the inflation environment that we had, the level for a Denny’s to stay open has elevated from about $1 million to about $1.2 million,” Verostek explained. “These are about million-dollar restaurants.”

He noted that about 30 Denny’s units are likely to open this year and new stores typically generate double the sales volumes of older branches, meaning last year’s deletions from the system should be offset.

But, he said, “We are continuing to work through some additional closures," with a goal of getting back to “a more normalized rate” of closings.

The company ended Q4 with 1,573 Denny’s restaurants.

During the conference call with analysts, Denny’s management revealed the company is diligently preparing for a rollout of Keke’s, the breakfast-and-lunch concept it acquired for $82.5 million in 2022. To test the young concept’s acceptance outside of its home base of Florida, Denny’s opened a store in Hendersonville, Tenn. The unit sports a new look and menu, and the acceptance has been remarkable, said CEO Kelli Valade.

She indicated that the first Keke’s outside of the Sunshine State is not one of the units that has added alcohol on a test basis. Within those stores, adult drinks generate 5% to 7% of sales, Valade said.

“We are well on our way,” she commented, noting that 14 agreements have been signed to develop additional Keke’s cafes. Four units, all company-operated are currently under construction.

For the first time, Denny’s included selected metrics for Keke’s in its report of quarterly results. The 56 units open for all of Q4 generated average sales for the full fiscal year of about $1.8 million, with the tally slightly higher for the 48 franchised stores.

Franchised Denny’s restaurant also averaged about $1.8 million in sales for fiscal 2023. Corporate stores posted mean sales of $3.1 million.

Same-store sales for Keke’s slipped 3.1%, while comps for Denny’s rose 1.3%.

Factored into Denny’s comps, according to Verostek, was a price increase of approximately 7.5%, an indication that traffic continued to slide during the quarter.

Valade said the company’s namesake brand nevertheless benefitted from a menu introduced late in 2023. The additions included a Strawberry Stuffed French Toast Slam, an extension of the chain’s signature Slam breakfast line.

A typical unit is selling about 150 orders of the dish per week, according to Valade.

Overall, the company posted Q4 net income of $2.9 million, a decline of 77.3%, on revenues of $115.4 million, down 4.5%.

Verostek noted that 2023 results reflected a number of extraordinary factors, including $1.8 million in legal fees for matters the executives did not disclose.

 

 

 

 

 

 

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