Denny’s plans to close as many as 90 restaurants this year, about 30 more than previously expected, as it looks to get rid of underperforming locations and return to growth.
It comes amid a chilly start to the year for Denny's, which reported a sudden decline in same-store sales in January and February after finishing 2024 on a strong note. The results sent the company's stock plunging more than 20% through mid-afternoon trading on Wednesday.
The 1,500-unit diner chain said in October that it had earmarked 150 restaurants for closure in 2024 and 2025. It closed 88 of them last year, and will close another 70 to 90 more this year, which would be about 30 more than it had originally planned.
The restaurants that have already closed had average unit volumes of under $1.1 million and had been open for an average of nearly 30 years.
“In any mature brand, when restaurants have been open that long, it is natural that trade areas can shift over time,” CFO Robert Verostek told analysts during an earnings call Wednesday. He said that closing more restaurants would improve franchisee cash flow and allow them to invest in things like remodels.
The company also expects to open between 25 and 40 restaurants this year, split evenly between Denny’s and its smaller sister concept, Keke’s Breakfast Cafe.
It’s all part of Denny’s comeback plans under CEO Kelli Valade, who took the reins in May 2022. The plan includes reaching AUVs of $2.2 million amid an overall revitalization at the 70-year-old chain. But those efforts have hit a snag to start the year.
The chain said at the ICR conference in mid-January that consumers seemed to be stabilizing after years of inflation, and that 2025 was shaping up to be a more normal year. But that trend took a sudden turn for the worse in recent weeks, executives said Wednesday.
Same-store sales declined 0.7% year over year in January and are down about 5% through the first two weeks of February, though they have improved in recent days. Executives said bad weather and ongoing inflation seem to be holding back consumer spending. The Consumer Price Index rose 3% in January, faster than economists expected. “There's just a lot of uncertainty,” Verostek said.
That comes despite a strong finish to 2024 for Denny’s. Same-store sales rose 1.1% year over year in the fourth quarter, its best performance of the year. It credited its $2 $4 $6 $8 value menu and virtual brands for driving growth.
Executives said same-store sales should improve as the year goes on. Nonetheless, they’re taking a conservative outlook, forecasting same-store sales growth of between negative 2% and positive 1% for 2025.
In the meantime, Denny’s is putting its faith in value offerings and its three virtual brands, The Burger Den, The Meltdown and Banda Burrito, which it says drive incremental sales during dinner and late at night.
“Denny's is uniquely positioned to build a sizable virtual brand business, given our labor structure and these transactions overindexing at dinner and late night when we can leverage our labor line to generate incremental profitability for the system,” Valade said.
It also sees promise in remodeled restaurants, which have shown to increase sales by 6.5% in tests. And it’s planning to launch a new loyalty program in the second half of the year along with other digital improvements that it believes will help sales.
“As we grow through this year, we are confident that we will get into that guidance range and move hopefully towards the top end,” Verostek said.
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