Forget same-store sales, operating margins, EBITDA. The two numbers Denny’s cares about most right now are 24 and 7.
The chain that calls itself America’s diner has carved out a niche as the largest full-service brand with restaurants open around the clock. But that has only been partially true for the past couple of years as Denny’s cut hours amid the pandemic and the ensuing staffing crunch that critically shrunk its workforce.
A year ago, only 35% of Denny’s were open 24/7. The chain has been clawing back hours month after month, and by the end of January, 50% of its 1,640 U.S. restaurants had resumed all-hours service.
The prospect of operating at full strength holds a lot of promise for the chain. Denny’s that are open 24/7 have been outperforming those with limited hours by about 20 percentage points, executives said on an earnings call Tuesday. And even though half of its restaurants are still hobbled, the chain in the fourth quarter resembled its healthier, pre-pandemic self: Same-store sales for the period ended Dec. 29 were up 0.7% compared to 2019.
But the return to 24/7 has been slow. Since August, the number of 24/7 Denny’s has increased by about 2 percentage points a month. And executives don’t know when that rate might accelerate.
Denny’s U.S. operating hours
Source: Denny’s
“I would like to say that we could move beyond this 2% trend that we've experienced for the last six to eight months, but it's just probably too early to quote that,” CFO Robert Verostek told analysts.
The big question is staffing. Stores with limited hours are operating at about 80% of pre-pandemic staffing levels, while 24/7 restaurants are at or above those levels. Restaurants with longer hours need more workers, and those workers typically need to be more experienced.
Staffing trends are improving dramatically, CEO John Miller said. Applications are flowing in and GM positions at its 65 company-owned stores are full. But some franchisees are essentially rebuilding their teams from the ground up.
“Some were just so much further behind other franchisees where they nearly fully shut down or cranked it down to almost nothing,” Miller told analysts. “And so while they are rebuilding their staff, they're still struggling to get all the way to right their current daytime ships.”
The CEO dismissed questions about whether some franchisees actually prefer the limited hours because it’s less of an operational lift.
“We've not had anybody dig their heels in and say, ‘This is not for me. I'm not doing it,’” Miller said. “We just don't see evidence that that's the long-term effect.”
Denny’s has other reasons to feel good about its underlying business. Operating margins at corporate restaurants were strong at 14.8% even amid higher costs for labor and commodities. They would have been nearly 18% but for $1.4 million in legal and medical reserve expenses.
Executives chalked the margins up in part to a better menu mix. It prioritized top-performing items with favorable food costs as well as those that are easier to prepare, while also maintaining value offers like its $2 $4 $6 $8 menu. It also raised prices 2%. Those moves seem to have worked.
“There’s really more mix toward double cheeseburgers and chicken-fried steaks and the kinds of things that we're pleased to see people try,” Miller said, as opposed to the lower-check breakfast items Denny’s tends to be known for.
“The one silver lining [of the pandemic] is that we’re getting high trial and adoption … for items that we wanted to start to get more credibility around,” he said.
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