DENN - Earnings call transcript Q3 2021

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Operator

Good day, ladies and gentlemen. Welcome to the Denny's Corporation Q3 2021 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Curt Nichols, Vice President of Investor Relations and Financial Planning and Analysis. Please go ahead.

Curt Nichols

Keith. you, Thank everyone. afternoon, And good We appreciate earnings third XXXX for joining call. us conference Denny's quarter you With are Verostek, from Wolfinger, President me management Chief Denny's Officer; Chief and President; Mark Executive and Officer. Robert Financial Denny's Vice John Executive Miller, Denny's website any Please with on find our release of the are mentioned any non-GAAP call investor.dennys.com third refer at to earnings quarter to press that today. our reconciliation along financial measures website be later webcast being an of available and on will our This call is today. the archive webcast John begin a update. will call today's business with Mark capacities, will then our franchisees provide comments around and restaurant development. our Then quarter Robert will provide a results recap trends. of current third and financial we will that, for questions. After it open up

turn I Chief now subsequent and Denny's quarterly X-K will Forms call reports John Such set indicated recent may cause Act today, matters with me of from are December Management any provisions and performance be current provided Private during by XX-Q. such the forward-looking in statements Harbor be Such trends ended Form on Denny's management of Form risks, we may you With that factors or any that caution and report Officer. company annual its during Reform outlook forth and are constitute discussed the let risks notes statements. year call that XXXX, the on begin implied materially that, earnings XXXX, XX, to over the members uncertainties and the certain subject the Safe factors Executive in in on the by in most Miller, call. different accordance considering of of other Before Litigation to the this statements. remind to performance this actual Securities company's for XX-K to urges

John Miller

Thank you, Curt. afternoon, everyone. Good

very third years. time enjoying domestic sales for and the on same vacations, rise quarter out summer as first in families started two were systemwide confidence strong consumer some was store Our the

the industry was The throughout as their counts elevated country confidence COVID-XX January. across well consumer remained cases daily on counts case were positive brand encouraged quarter However, XXXX our And the with result am and average approximately pressure sales the accelerated the more since average at our level dine transactions month the positive Thankfully, as daily case the in highest dine-in sales generated October, highest and levels. of in its of improvement the October, to level XX% which transactions in of in domestic October of August the in began counts their states once to a each approximately yielded with return of month as same since throughout system of the case well. surpassing sales pandemic again approximately store September. Denny's stickiness business, sales Furthermore, by domestic has even of trends generated system strong XX%. compared pandemic I and base off remained pre premise at of half the in positive half the four top in

The The These Burger continue we substantially during brands labor, underutilized number week half of to only during see completed domestic system. X% rollout meaningful to The both sales highly brand of remain night approximately transactions provide the sales. late at leverage not versus incremental and dinner but weekend. of a at opportunities third our brand, Virtual our to Den we quarter, virtual second approximately Additionally, the of for Meltdown, and Meltdown the the

are extensive near-term this that a have We challenge we not Therefore, levels. hiring we hours. with saving above rates challenges persistent have combating execute that increase in remain effective view Our to as our have levels, benefits, the staffing personal enhanced expiration significant accomplished which experienced ability potential. operating our highest this our industrywide while impacts pre-pandemic of unemployment a staffing impacted teams still navigating at efforts. Despite

pre-pandemic to it the new effective levels now we of guest-centric expect we some and return these touch and briefly and areas. making static more quarters investments key our operating a themes on However, will four I exciting take will hours. are few in

area's reassuring guests consistently a procedures experience and provides executing Denny's is touchpoints. to remain enhanced sanitation our our first We all dining safe committed do that focus The cleanliness by reassurance. customer at

guests. value second approach Our value. between price, our convenience meaning We understand and is each focus of area and type value in different comprehensive for a balance be has bundle to value. that different forms comes a consider abundance, of We

well focus guests options, expect of platform premise Denny's or will our two experience, area to in like believe third established or enhance continue is new dining Our We their throughout technology to on-demand our restaurants convenience. whether brands. our virtual

the wallets optimizing as upsell of for launch experience revamped our phase phase sell as well website, and This a easy-to-use of to new our with personalized transformation. smart as checkout, technology the rewards. profiles by committed are digital recent next app frictionless a for digital evidenced cross guests, We ordering included digital our and and capabilities, dennys.com

approximately there our net and been approximately In rewards net XX,XXX downloads digital have app fact, since XXX,XXX relaunch, members. new new

Android about Apple updated of our mobile next our devices. on the star high very Additionally, focus phase app our transformation. technology on enhancing and Further convenience, ratings receives both we're excited

more management, lay We table waitlist will will for begin cloud rollout the the platform well to based enhancements expected during of focus end build final with experiences groundwork the comfort. and and future And XXXX. that continue substantially innovation half by towards new rollout as be next to include as we first of even the of is as technology area generation restaurant a XXXX our such This customer functionality. completed as is enhancements

feedback, are latest strategy, X.X comfortable to allows domestic our us the our our year. accomplish The are The to company history a we Furthermore, investment group have excited entire Based to with We and we announce relaunching guest remodel Heritage forward look goals. through rollout very program have experience of equipment new our kitchen our modernization this dining brand the the XXXX. our franchised three equipment already next of positive restaurants, a which initiative heritage and the to project. successful been along throughout system. is a program established of in restaurants, providing of main majority revitalization expanding testing package on the

equipment package will kitchen, for guests. more execution efficiency new cooks our simplifies both reducing results improving consistency the our This for waste. the in reduce in and complexity First, and

delivers Second, current to improvements million impacting our improved the core quality for breakfast consistency items, and oven for our week allows over every proteins. X.X and plates

and ability to is evenly during begin further entrees, XXXX. closing, offerings cost and The desserts. baked new assist Our third, sides XXXX also sausage quarter kitchen the this of but package the of negotiated our bacon $XX new elevating toward accompanying more in total of new on daypart cost. completed million. To for investing have menu we favorable in technology the And first is brand. equipment is be approximately cloud-based have their for the across energy of substantially domestic enhance with we franchise a platform is provides lot all equipment and installation the financing especially crispier, behalf dayparts, dinner franchisees, this iconic million will terms the the be approximately to system and investment end In $XX expected The by rollout allocating remaining ground.

excited be October our sales also again. encouraged results revitalization strategies We're our once XXXX kickstarting are very to We to again levels. surpass see

the enthusiasm kitchen which This operations by new Their Our technology restaurant propel I'll app, our should package, of confidence With and X.X their the greatly initiatives brand. franchisees of drive group new transformation, of Mark the confidence that, and incremental excitement of and vision and our our Denny's gives menu around over our new these extraordinary experience, turn to package the call we including dedicated ultimately website making investments me together the great enhance this the that our traffic. about and guest and Wolfinger, program discuss of President, equipment innovation, technology revamped and long-term more is are all to the the future brand. impending franchisees will about in will development. Heritage relaunch mobile remodel bolstered this

Mark Wolfinger

we ahead. your opportunity person want in the two that expressed great their in I nearly Association Annual positive and Having many Denny's about so for our the brand. and outlook John. this enthusiasm during for add our Thank as had also the recent to iconic see to Franchise a comments our experience Convention want I echo and franchisees confidence initiatives you, the energy exciting brand time optimism franchisees the first to was years for undeniable. was have the

day, months. to currently least We to diner We steady XX few approximately a are return over on system XX-hour This is our XX% made at hours a America's operating have XX% progress X% restaurants of from our July, per domestic historical seven of last day. XX across resulting the eager average have position and the as and XX hours week, the operating in increase a system operating XX weekend. XX point effective of is hours domestic hours currently our Approximately percentage during days our is additional operating system.

proactive Black National of we We also our launched extend Universities, franchisee, hiring continue staffing map which being second our Colleges our hours subside over leveraged challenges with very to by efforts plan franchise and Society effective work with system national franchisee next day, to as the Hispanic quarters. Urban relationships with National and unit our per the the unit Historically assuming a League longstanding our hiring out to operating few tour, by We're MBAs.

to of and continues of threshold supported federal levels, growth I'd you partially we third to our highest system. of sales five including With fixed year-to-date exceeding to sales are opening update restaurants, now multiple the decline are the September, Canada, in and net system rounds cover quarter. through in With only business, closures. by since XX% stickiness above we take few three to off-premise pre-pandemic franchise offset our of both franchise locations of dine-in four a in the to our by and unit growth development, stimulus see to sales nearly our strong. Turning deliver very level This variable franchise was October net costs. to January pleased at on restaurants XX% like the franchise be positive restaurants pleased required the very minutes XXXX a seven international of

Our approximately from commitments development including completed intact, our refranchising remaining recently XX pipeline strategy. remains

and Additionally, into record spaces, both successful locations. team and securing industry, share has restaurant focused is on market proven the Denny's our outside converting of development inside a existing

intensive Robert and our locations. opportunities These for landscape to Robert? now Chief in enhanced over capital conversions. to In XX for experience performance. the provide the the ROIs approximately openings already I'll Financial is franchisees call assessing been of discuss the development Denny's future our quarterly less fact, turn Verostek, team have XX% last Denny's years, Officer,

Robert Verostek

And brief for expectations our third full-year now like a and Thank Mark. good afternoon, review results well I XXXX. to share quarter of as as our current you, everyone. would trends

this believe reminder, still systemwide same of comparison we I informative As sales a our and will more XXXX domestic XXXX recovery. to representation comparing our be provides a store as consistent

we during quarter standard same September cases Additionally, August the continue compared Domestic comparing prior of sales to year earnings same-store declined press will increased. July same-store as second and for our third the After practice systemwide positive sales XXXX. highlighting the X.X% new in our preliminary call, softened quarter release. during XXXX COVID-XX to

the differential XX% challenge quarter same-store the approximately as our of delivered with performance its results with October addition, XX% restaurants a in labor said, XX hours. return that systemwide domestic of to limited this a restaurants open encouraged opportunity availability of domestic currently restaurants to by impacted with approximately extend being quarter continues system hours our still was Domestic increase hours. ongoing approximately third of domestic operating XXXX In to to we an hours. were X.X%, open are Approximately sales X% We that for increased decline operating restaurants at of which preliminary that operating presents believe our compared XX our operations. With XX% sales XX/X. are versus limited domestic the looks same-store hour still

brand. a spend Den live sales, approximately at substantially the Both are of and X% an late few virtual locations. over these The complete. They John on is nearly now underutilized brands. during update highly to providing earlier, weekdays at dinner are continued currently our night to want is the incremental mentioned deliver Burger X,XXX The while base of moments compared I the while the rollouts leveraging XXX And concepts live Meltdown dayparts. Now, performance labor also locations, during over-indexing Denny's virtual to as

to offset sales of quarter. to franchise performance our to restrictions XX.X% Now was Franchise primarily to margin license the was sales quarter of was reduced restrictions lower franchise and XX.X%, in sales partially Company in million, restaurants. million were primarily equivalent at sales $XX.X increase prior-year due due the quarter. third improvement in million margin from compared the quarter. from XX.X% margin or million in Company fewer up the due to $X.X or performance $XX.X prior-year and compared turning improving of units. increased prior-year was to primarily to results. restaurant the $XX.X by license dine-in revenue restaurant XX.X% restaurants, million sales revenue operating and X.X% leveraging in dine-in Franchise XX.X% This benefit quarter. in margin in $X.X to improvements million prior-year improvement staffing or at company the primarily the This or due increase $XX.X operating

during improvement resulted pricing. primarily percentage approximately our benefited by point $XXX,XXX a operating mix was experienced points. favorable by We the offset approximately the cost basis product approximately margin recorded inflation we which line. This margin which quarter, adjustments with value driven third company shifts in Additionally, XX the lower quarter, along incidents favorable in X.X in during reserve of XX% commodity by restaurant

commodity to the the pressures term. incentive administrative the prior-year liabilities. were market general We temporary both reductions our deferred the partially addition quarter. fourth Total This performance-based These inflationary $XX.X quarter. prior-year was $XX.X and increases are compensation in cost in as expenses to were change to and remain plan compensation during expect due quarter inflation million increases share-based compensation by similar in to in million near compared primarily during offset changes in likely valuation expense,

The collectively income for compensation share-based income tax and was an rate to of do impact EBITDA are was provision market compared prior-year reminder, income adjusted These non-cash quarter. EBITDA. $XX.X the a adjusted net million. share $X.X of reflecting and results As taxes $X.XX million, not items changes in valuation Adjusted XX.X%. effective expense $X.XX contributed per to

generated million. we quarter of $X.X of capital cash third relative which flow included adjusted capital the after free $XX.X During expenditures, significant cash maintenance million

approximately we total ratio under credit Our had quarter-end our total leverage X.X including to EBITDA million $XXX and was outstanding, facility. adjusted debt borrowed of million debt times, $XXX

the the philosophy. in stated leverage value have for we affirmed earnings the us As pandemic conservative call, last of a few

a As we to between with targeted leverage term, range in longer X near X such, the we X the somewhere are prior times currently and pandemic, comfortable would between term adjusted and times. EBITDA more have whereas times X

the announced credit $XXX five-year we credit amended our revolving quarter, and the During refinancing $XXX new to facility restated a million million revolving facility.

Between $XXX share of to net under in repurchase approximately new million leading program share a average our to XX, this by additional have facility, we credit XX were during at we million relaunch share $XX.XX quarter. allocated third repurchase our in quarter XXXX, existing October repurchase resulting and authorization. of allocated share an approximately approximately repurchases the provided remaining flexibility share, the repurchases, XX%. late to shares share multi-year to $XXX our enhanced million the Since reduction per allocated in count price we million beginning million excited share end the With to program an and repurchases, of $X.X the XXXX, we $X.X approximately

long-term addition and modernization the initiatives by for $XX that flexibility brand These John restaurants. kitchen the other as at financial cost of technology franchise backed to million mentioned company installation contribution approximately In allows earlier. and transformation share investments, repurchases, domestic such towards a initiatives are this

the have also our a for the terms financing favorable support company franchisees by pool a We backstopped negotiated cost. in with remaining loan portion to

decline of section The expectations our will estimates management's sales X% environment few take We current systemwide XXXX. a outlook full-year the compared Let materially. following to approximately XXXX reflect for not domestic earnings me to business of on change anticipate a minutes economic expand now release. same-store that

million, staffing EBITDA and growth. between our not adjusted we In and adjusted share-based overcome about potential work and near-term challenges additional impact million compensation, expecting hours, described, are including commodity for administrative the optimistic million of $XX expenses million. for on we EBITDA. remain sales that between just related to $XX.X as guidance we impact effective I $XX closing, operating approximately our does inflation and $XX expectations Our which million Based $XX to are total general

focused positioning our franchisees serving prepared Q&A to to most up call I the proud on entire I brand team I am wraps continued operator how while Finally, and success. remarks. guests the turn our have want and for who of now remained importantly, of to begin That Denny's iconic mention portion over our this the the will our call.

Operator

our take Michael question We'll Oppenheimer Tamas from Instructions]. first Company. with [Operator &

Michael Tamas

I levels all we're same was just wondering what quarter to relative could tell you XXXX guidance the if on just implies page. the for fourth us sales sort of same-store full-year so your

John Miller

So, implies imply full – between X up and the down year. that somewhere down X% full year that a on that on flat X still the to range hit would

Michael Tamas

helped You get this you quarter, margins you mentioned maybe in about by levels? you can as think less we inflation. forward levels. that mentioned was of quarter. staffing the purchases talk might consumers Can going value how quarter and do the understand talking fourth that your inflation similar much what XX% like sort Related lower you you're And look helped about core you sort by back offset staffing so third pricing of to helped more better to that,

do and So, think also you dynamics the quarter? the the in pricing fourth same value are

Robert Verostek

it that and I'll to John. margin with pass start question over

units. best the than now, about again, with XX/X pretty units, and way it's lack of half to more volatile XX% I think right the think of margins, the

but filled, we ultimately back still term. holds all from ultimately, have ultimately that units longer benefits the franchising were we to being inflation you near-term pandemic, think true, to the the that that would store strategy, will lower our we best XX% that target where think of I So company with the that We get to to some back XX/X. is to free to margin. do kind will way frame where We said corporate staffing we of prior move point latest XX%

ultimately, term, together back those the to that and, on to So, XX% company XX% all do you believe, we we throw side. margins longer get

that's over pricing that I'll So, John. to the piece, pass and question

John Miller

sort of rooms, a challenges, as a you fill paramount combination can filling imagine, priced of with that we experience did of guests. series it's dining We the With staffing events. full

sort on entire of across service, value much general, focus full disappeared pretty the So, industry, the across the but industry. just in not just

check. given some to that's buoyancy So,

well. that's check wage So, normal a – creates to inflation than than commodity and higher run rate pricing normal with bit little a little that cover pricing as the higher along that's bit

have – part of when So, you normal the part value sales to those the put the is that of process stimulate of together, you value all missing from flow a a through your through some component.

the So, down. And at equation see you'll is the value of think part industry our consistent moment. I trend across that the

Operator

from Rutherford Inc. We'll take question with James our next Stephen,

James Rutherford

I the per think all on me store. there. price curious kind costs I'm XX,XXX I'm I what $XX if modernization effort, been investment. that kitchen was for With dealing reception the of the operators has million wrong now, about that curious that indicates tag Correct with are

to labor referenced. of kind And that of why a you savings kind now those some So, you've if food question. also, of quantify or been able

John Miller

franchisees although this on the to this We've this This about that of has do for that America's with normal the been big revitalization on of you our is of prepared have ovens. our throughout cook, and have equipment dinner we that fact it's on of focused don't holding a our would gone But for as to year, to just been or some XXXX, for Surprisingly, items lunch you many about journey preparing time. preparing part tested breakfast which something component. that. we dinner cook roll The been change order, breakfast been long in years hot But out, have in Denny's be grill launch for not very test and has the to project. the diner enthusiastic remarks talked these

the You have refrigeration to on have different line.

have to training it. that a have supports You program

franchisees or our get heritage franchisees very day our timing high time that enthusiastic the us. in well, have they've say finally are longer to or place has this there's our staffing looking now? around coming So, past tough us back there the for really a could of the nice that company. to or out wage that to pandemic. back and saying, which when for commodity that been term, Most brand was stage of little I'd to this inflation been takes why The the we way discussion high be been inflation

people Our around were franchise enthusiasm where The could was tremendous more go. learning convention, it. about there with product workshops filled

vendors, team, the our our of of demonstrated product several some with actually things be available And the some down that quarters along will road.

care takes kitchen. of around So, that sort the answer of the

As that. longer for guests comments this that to our of been continue capabilities. the the high own and the little to improve, given the more guests time, as plus when system, website technology, period easier it even far the system. such frictionless from our folks much of a to likewise, the add, in been get our end that a in have brands, has virtual menus, more from as of reception highly the build-your-own this our or to incremental a demand, experience our both which journey franchisees completion system we be to to takes of really as of much the that those this Denny's is embraced transactions is, a bit capabilities guest customization, online, platform, that see have so scores see rollout off, to to based minus, the And to order kicked that to able It's how that enthusiasm navigate been as much business will there's well new move seen time the a say to it going has on their we as enthusiastic delete, to positive to it's how notable had pandemic cloud capabilities, dennys.com though enthusiastically we move our long

to let sort both but one that transformation. of is that money can to see And of those Robert so, no two between mix tech modernization wanted amount We kitchen investments, delayed. and speak

Robert Verostek

the both $XX those. The James. of is That's million for right, aggregate

total, And XX/XX between did financing technology. the in out the the – together $XX up to between those that. again, that'll million vet the come for way think piece. it's two. With for I But, put franchise kitchen is is about that time. regarding over We total and wrapped about the the

Now their the that it for have financial they're franchisees said – with about position, pieces cash. interesting regard in that, XX% going they pay of one of to our given to

the to franchisees. So, the the units, again, the of some equipment. XX% of way, health the of speaks company kitchen by have already

will the include of will capital. the we through So, – balance that run likely QX

that have – So won't XXXX. an be number, a balance already we the big XX% wouldn't it considering be into necessarily will – not installed. impact extend But it'll QX, impact

James Rutherford

as improving question if second just sure has not or the comment units how The running happening not in Not is How's situation been But in – huge I'm on there XX/X has that to in was growth, franchise. that's materially is wasn't sure staffing staffing curious, was if number growth that also comment lockstep? company of case, labor if it's regards improved. each But the well. month? there if gradually I'm earlier a I that made the not a but improved.

John Miller

question. great a That's

As you to consistent trying we're can see, comments. with our be

momentum, way. our remarks. to comments it You prepared sure more XX/X? tempered staffing make in So has a have asked got might moved stores we want were why haven't If to that different our then

than do XX in see just are overnight next playing quarters have this something few a moved July weeks. now in We XX/X. that rather But see we until happening up more units few do We momentum out staffing. about the from over

of put and vetting you training testing period a bit on, employees a hours. when little actually a period there's and period the you before these extend remember, So, a

open experience don't new guests our there improving. is but take also not to lot board to our committee we from capable members. just wanted to association, And have for fact a a and mindful be request tempered. from for that support there, us is for with enthusiasm so, be want up is we through yet. to of There just hours while, little franchisee But It the somebody those a getting of going is This a momentum. and miserable

so, And prepared a that there whole momentum staffing. call tell think good our positive didn't I remarks that's that out maybe story is in the

Operator

Setyan We'll take next Wedbush from Securities. our Nick question with

Nick Setyan

take of question. next today going given the the historically, and more to into I to than, X% to inflation pricing. pricing back hesitant just the lot first been much Just year, I a comfortable say, guess what context pricing you've more X% than half in know, a be? kind more historically. of of that, context seen little a taking of you are we've peers just taking pricing lot bit than that could Again, of pricing

John Miller

control That's the hesitation say is, comfortable quite normally our largely question. think our I'd something franchisees, it's answer don't average. historical a have. been great yes, fair And will we say historical with ahead have would we're the I inflation. has above norms. considered commodity simple and who while And you that, to There disciplined, that wage be of the

Nick Setyan

visibility constraints non-late in have at from maybe company-owned that guys the night in staffing to of sales? side, the to, terms quantify you way least a there on Is headwinds

John Miller

it's more staffing. quantify I the there'd think much largely that know than that be to difference. I don't

noise now. for been is here to plus. a been here of just has on ahead franchisee and reluctance XX I've slightly in years XX That asking go the you're brand If years probably to for XX/X.

party. in And gosh to in around beneficial time the properly. give we a the circles that's a us the in more, folks you see third most so, late convention, sleepy. my And economics, who brand, are it's in with staff of neighborhood, contingent. small our But say, say, pretty night momentum I'd Most just and group have pretty small understand conversations

question not to of highly interpreted single got really that heart to I the I'm what mean. to I it's think your topic. I So, correlated that's sure your question, but

Nick Setyan

million? modernization next of kitchen the will terms the G&A $XX that in cost year, On within go

Robert Verostek

come That's an excellent question, G&A at Nick. No, it won't through all. actually

that the is recognized be will life of of the average franchise So, the the agreement. balance over way

– So, five likely, somewhere say, seven that's years. let's to

probably through the $X.X six, run franchise the that's to for see next margin $X you'll to each million of going is So, what million, five, seven years.

we So all time. at hit that one take won't

answer out It very the contra – that it, into in the – will a a out. is are cash to actually door the as fall that'll the way technical put While item system. revenue be those come will sense

expense. won't impact It item. of actually extend agreements. revenue will over an a the franchise average not So, it will a margin, technical very It'll contra the but it be it to specific that, answer that's G&A. be life But remaining will the franchise and impact

Nick Setyan

the the side you number, October can for the for maybe quarter-to-date least what sales is another October? for And weekly tell side, company-owned number at company-owned the clarification, us average

Robert Verostek

the still can XX/X is likely that up is I X% know than what reiterate XX the system. for And in higher X.X%. point fact about the that the I that It's again that company is, Nick, the of we're differential Again, non range generally XX/X And the differential. the and X.X%. point between franchisees.

Operator

next Fargo. from Tower take Wells question We'll our with Jon

Jon Tower

you'd products, John, call kind you earlier something towards the I in mentioned period. equipment kitchen allowing get the dinner the that new some time to of specifically new into of about think kind gear

wondering at that maybe of a proteins? Is utilizing those SKUs already I test just are So, that you and current about going they today, think is format bit, because where it was items Or to today, those the in we equipment in of upon different new are you the have? menu? it have be versus you should little expand that if how a if could products today a lot test

John Miller

they fact impact that at or dinner. breakfast, could there the We some enhancements to attention night. will be late Well, lunch, dinner called

now, Right that's can attention garlic those one is of to. we call program have bread a and toast it. – One our I

franchisees others. capability products about roll, is our to finished breakfast have mention some in But we dinner pretty or ways the cuttings – I There to or a a the same to be good a communicate in biscuit that series a big only testing have in of through our We've franchise exposed would have number the normal and a future. a We at time, the of hesitate menu system. same which so the enthusiasm be to can it. do many protocol. too we'd So, time. at the inability

this equipment. is our be process improve And quality focused just shifts the about here disciplined I ability to So manage think and first first as with rollouts. things current very would the we and the

to is amount think ability through be rather get we technically. It busy labor than will of save a It saved save the enhanced. some redeployed So, does waste. that shift does

just business better. And helps it so, run the

business got about case very our that enthusiastic in franchisees alone, it. So,

what full are installed is little to our within these be at and will support a in things down positioning. ways be diner the system that come once something the it'll which will array typical of comes dinner still fully the But So, just road.

Jon Tower

you to at Apologies with missed you're if this levels level what versus earlier, respect did percentage XXXX? but staffing say I

John Miller

of I hours of up stores versus in that's XX July level. we And it's July. additional effective that we don't answer are XX gave from were have think sort in But that now we the XX/X. hardwired where moved

in So, the the stores system. of we number have

the down, plus. but move tell the moving total up XX that number moves hours, in up we doesn't it XX are in full hours hours story restricted As that hours in also or they're

or in average whole showing per but XX/X can So XX/X XX and at our system number hours when I of you across effective that back promising staff, say total rest the at hours earlier, both stores signs of plus, system the drawing is doesn't give sort now you that it of headcount missing. the it will the the said are to this, the as north. that's But XX% building momentum. correlate day of I we're hiring, XX the

Jon Tower

to manage these hours the redeploy to think those better, stores again? levels a at in really business I to you kitchen equipment maybe bit it need But But labor the levels to do you Obviously, you back be And step do brands. staffed drive like will also this need you across these guess, the XXXX think to stores. with allow trying little a late you're virtual better system? sounds night

John Miller

say that What I we so. ultimately would hope is

grids staffing tied industry our They're So, in are simple. pretty transactions. to

you So, fixed costs some that have are pretty variable dynamic.

fast fixed variable. a pretty get the level management rest You key and positions, few is past in with

And transactions ultimately that back, see increase, will add labor as so, you us there. we would as get a and back brand

of every body that's road. from needing hopeful are single missing And the down the so, we roster

Jon Tower

Any you XX% Just quarter you mentioned potentially of or franchisee sort your to levels the in which think, XXXX imply on would in Wanted expect inflation product third and start similar quarter, you'd levels be your your get into any thoughts the helpful. there the XXXX potentially thoughts or take to fourth now? probably in ability commodity comments, locking so. seeing digging that and they're to – ability Robert, as would for for the I saw at what

Robert Verostek

With We that's regard We've extending we have. that what do it likely point QX at really some to into for it the XXXX. implication I abating we've XXXX, said that the will in remain near the ultimately that think XX% XXXX. see described That's is that vision QX. that see term, in

some will We get our point now, this keep the is suspect, The in. as do high likely we that permanently. see first to into as level. lock right February. at to open see is We ultimately the pretty opportunity in give really at would don't it we some But eyes half. do peaking everything you existing dilemma We guidance

that we very out believed looking we And moment. this lock. just a we saw below are to itself that average, for market looking the at opportunistic. the low at we But So, are for months, take always really XX a opportunity that to something presented be XX, would extent we hasn't opportunity. next or that It X, would

Operator

Bartlett Securities. question next from Truist our take . We'll Jake with

Jake Bartlett

talk average, by I the to you've the pieces some the Could maybe drive digital wanted right bottom take about, X% other would you drivers to kind weightings just or end? of the wouldn't you're get December of we just sometimes if higher your the of I'm you're is two of math as be that kind just I'm hours, if end would one or the flat Meltdown adding here about given range. the with platform, year, If the the understand. have months – to of sure talked think rolled why the that improving, that be the range about a if consistently moving and for expectations November, November up start you what I end next and my flat to to out maybe comments you being new for contribution, But December. you on is here make starting know of staffing the of top there's stuff. different about And an trying X%. expect when to that to month range I the to your at

John Miller

Those are great questions.

out I well tailwinds to hours expand. continues think the continue improve and would tailwinds stated pretty headwinds to there. staffing are and, The therefore, are

environment, have spite our in franchisees body and pretty language In calendar. things in for in some confident are our investments are enthusiastic that the the We the all outlook future. the challenging making the brand of we're promotional about the the

more looks always inflation, sort commodities consumer on. been wage a a world of really the have coaster, and little weather On much roller then cooler to variant starting with Delta comes the although bit of confidence tailwind on very headwinds. side, around October subside, Volatility creates the promising as

be But And so, confidence, we think in of precision think say guided ranges positive to bit this little we answer more the creates did would I simple the with guiding these a – have days. amount is, I X%. same and guidance flat

Robert Verostek

a sales prior grabbing guided producing the about little of more had a did bit bit to what we higher than variant a what we for think with our if answer, ended QX range And we really hold. guidance, up that we little technical Delta you

we guidance million range, the range things EBITDA And we is on $XX adjusted you, of the of range. regardless I that the that, despite if to tell profit below really kind the topped of One though, million. can coming provided sales $XX you recall, in of

don't to with have issue So same want again, that necessarily sales. again

that bring brought $X.XX approximates So And the again, into being if bottom you flow, we about free adjusted free that trying convert And again dollar to the EBITDA adjusted cash that every down of cash free proven to be line. have we still can that conservative. adjusted flow. into flow, cash

So, math a on with that through for be again, range. X% the I doing to to profit it's focus there, John that Again, comes line. the mentioned we'll difficult I But as top bit X% think get you're the overly delivering little what specific.

Jake Bartlett

starting brunch Maybe weekday, frame breakfast your to you're of more or this the But some could XXXX you versus staffing. work as talk imagine… back recovery the to whether the help the a I could of sales get impact would weekend we of normalization see dayparts, about other versus

John Miller

have they're Well, the Weekends weekday. than of likelihood ahead stronger remember, in all been weekday.

Jake Bartlett

some that's – could And that's staffing despite be that's likely have happening on weekends? would constraint. where I more the issues not you But a that think the of

John Miller

your Well, busiest you'll cover shifts first.

on we don't staffing challenges that open. For all concentrated but it's the where dayparts, at sure. and you're have hours not I'm saying not focused

environment on we're dayparts for other So, busier. we when shift. to turn would and build best the momentum, open you then training be weekends as staff staffing up And loose the them them and

on weekends. are to we again, quarter. I'd continue that seeing, expect more through So momentum the And fourth

Jake Bartlett

like there with kitchen equipment seen the what your you're In forward convince go terms was what of experienced you've in sounds it. stores, you the and company it maybe franchisees to to able

big the impacts guess, the so term? or on a cost you sales on impacts can any of I can be any savings, quantify how So, understand, of we longer deal just this could

John Miller

able waiting or is new cook space on the general space cook high as grill. you sort free And in up ideas. then the be not free of the just down some a line give to oven, tech I you're efficient. the up When can grill, and on bulk up to you you running when

get those away. that also don't So some some you holding much shift improve products, have therefore, of the The prepared then, better are early, products sides, flipping from our don't improve oven, not too you that grounding on many of sausages better as quality there's waste. And pieces some environment ticket in rushing hot the hashbrowns controlled products averages. thrown like and make number you all times on like and and any a just the

result. a is especially it easier filling is you're a So, is it easier menu to improved have cooks. improves the on and burger product buns as shift, or that lunch dynamically to much the burgers change navigate busy breakfast have waste through The manage material product quality challenging, And a how start grill. you improvement the to the the space improves and from and mix pancakes on dramatically some quality. from ability weekend just But or getting labor is to improves materially when to the moving

little different of share bit more and here of categories So, future. on And pieces little It's specifically a it's to bit around lot be in there. able this we'll little a the the with a early.

Operator

Levy our take MKM from Partners. next with question Brett We'll

Brett Levy

three, XX different to next all investments to about get that the system of the commitments. How take think now, their openings, enough How up are years Obviously, full pressures all the thinking you have development? of they franchise the how thinking still to find unit about about appetite what you they you new pressures talking labor the about on and thinking? on are still When from the speed? to operations current additional trying one, now five What's are while right looks like? you're

John Miller

That's a great question.

have more we trenches, staffing for daily that and two the franchisees with same is a different direct on franchisees longer dining, to their business a There's speak one sort challenge. this our then franchisees our the only our unbridled positioning for basis say labor number as pull that that will not of it challenge in franchise in time, coaches enthusiasm the ways. they of contact family term, in their answer but the Our At when America's the diner. for

they're or things radar vaccine commodity and it's runs whether or so, mandates not the they're But lower it's all staffing. or up lot inflation that not the lot things recurrence and over of that. right or a behind of There's environment pandemic kinds about, last really And they rest year-and-a-half, a of or the that year these challenges, political less mass show to way lockdowns of about And the wage face. concerned. a they're more concerned sort on

impact So, language term the development. bit a the of body toward little challenges staffing near

at they the next early pace term, knowing to short they – the impact more three brand time, or a year's staffing, to which back their a those same about little the on at for grow wary say development guidance franchisees, kick year remodels but to very want I'd are two and way – things see commitments. one in. And bit about of develop, us to So, too want development, because or they're or meet the I'd it's talk say

challenges returns. as confidence abates, abate, returns. to say, as So staffing I staffing confidence meant

Brett Levy

different join bottom get or the where the – could they your the I'm talk if to quartile been get about – to can't back Can the What they but are you like about challenged say where ask How you a if want of can had they? the get or to you you pressured think percentage situation levels. quartile rank bottom you quartile? talk try bottom levels, long to seem regardless either would they they just going system to way to of How to half this personnel that staffing on of staffing a little is? stay more? whatever have bit

John Miller

makes we now of sort get picking of for seems to will have is us was they're be harder I at they about at it the harder be servers prevalent are is of you fact that to or right a ones abate on get the have number seem it onboard we a of think than isolated back, Texas challenges where Arizona in can Florida how momentum down, tribal rest sort what's of bigger managers brand. incentives? others, we the It the challenging as not no it's the can trailing didn't cultural ones. areas that on ones to look inexperienced went most. what staffing struggling those or scheduling, experienced sort there, take good any are new their few on assist, that where California the the going of more really do for we're of think do to challenges and up participating Are momentum. areas new maybe the does to farthest their their We'll so because roster, quicker? to of or the on think traction the have where great We cooks early a And knowledge the retention, the no retention a to traction a question. about or whatsoever, staff, knowledge, matter first, we that come but concern been it as focused areas the others same It's way. and farthest or that that

that big quicker, back relief was are country. of So coming and there. a the most all in that others – it's Their sales states operate the outperforming fact, franchisees for other our and in reside

And gone so, have away. positions our to sort franchisees' to commitments up and commitment for certain and step things time full those to hours of all wages

of lot a momentum there. there's positive So,

strong in lagging we indicator it so, come a the it the rest headwind. little Pennsylvania, confidence and a couple a It's bit a has few down where further where farther yet the went Northwest, the and a of states areas back. And little Pacific Midwest, just coming. that is how of lags to little But there's of quintile, or quintile at through it's that But biggest a got seems In quartile what's areas present to other system. of to come. probably that represents the be one a in the

Operator

take question Markets. our next KeyBanc from with [Operator Instructions]. Capital Gonzalez We'll Eric

Eric Gonzalez

the the seeing been the less pricing with term franchisees in Just had is XXXX historical little level the modest basis ranges are stores, given costs XX perhaps the the the quarter company-owned to level if is offset in need And near to being a XX% is points assume than price improvement. similar that's a and it that need inflation being there very or of in mix past? with and improvements, case, the to urgent a in store above profitability similar we third are levels, favorable

Robert Verostek

This Robert. let John start is on and add I'll then there.

P&L they capture have monthly we through suggest would the a similar regard of to do a half the a basis. that which Through effects about Lumen, that seeing we increased on with It's called tool. I be are So, have franchise are into P&L, deleveraging that just not look the to through that we seeing the you that we effect whether line. cost check, and taken isolated there. date or across the the when product pricing it's mix that Ultimately, tool,

wage I don't are similar some seeing inflation. inflation. that to we are it's want but We similar wage to imply commodities, seeing

franchisees our do of educate commodity I to time the would remaining cover pricing. and inflation we to critical. commodity XX% work of we've that really at feel that quarter inflation a XX% pricing. about of with require look if you to competitive suggest lot done look in of those with is we take on a So, a Again, the tandem. the pricing best that franchisees, some it's And in at would

X.X% there. get So X%, to

So, pricing franchisees much effort of lot We anticipate. level on topic. less than vary, what I educate factor the otherwise does that might of because It other take you though, dramatically labor required the to inflation state. across our there, a varies mentioned

various those determinants education may made regard with So the again, efforts as pricing individual to situations. and the franchisees for potential think. as But not otherwise pricing needing by have one much are on been in our

John Miller

got couldn't them Every we or achievement I that Therefore, different. than other labor, to review have to of percent franchisees. much of whether assist have we not with a educate add a they're process. do dynamic whether menu, a costs the P&L very their time We impacts some sort they've of covered. trying on or rent, sort of food, maintain to total, it's

so, dynamic is And process. a it

and of on. the walk a that take skip bit LA, the what's others with franchisees time. last time say a and detail them franchise in covered on and market, got kind that to in of this it So hold round let's our community last have round going this them some same you educate We little more the quite through seminars missed will

are, a it's up then, rolls the thing some what to to discipline one of are our But our one. also where another. heeding reach to to franchisees franchisees of then some need portion we'll with and quite a insights out work they And don't. company have is, question. franchisees now They just good sort to in advice degree. And they number take some sensitivities a a not they whole understand pricing some averages a recovered provide great our are on our already, use price. We at called and least and change And one of from RMS. their Answer where of them to menu

Eric Gonzalez

right can if the plan Maybe about I ask now. marketing

those funds when of advertising areas. a happening advertising business is thus, franchise have some to are dollars. maybe the fees. that your And same the you this at large those And spend generally time to and collects You're turning redeploying off other competitors

So, is, advertising. with you're and value the deployed, that pivoting my funds collected question you from away

achieved the what maximizing you mindshare past is an outsized versus would the a level how budget? So, likely have of in with you are what impact of similar

John Miller

quick brands, drive casual think a do or higher sort frequency, by of that proximity what I serve you. from awareness have fast maintain top of mind they'll and

during media as casual would brands and what's we and We've where the annual lower pulse diner versus investments seasons, are our to favorites things dollars might and about the on the have not some and I menu. sort would have think say today. of I'd and frequency them. markets consciously neighborhood get think calendar either that to or advantage around require influencing trial and And positioning awareness day. traditional and reinforcement introductions we a our to in sort that after deeper. an use We the value awareness We we've dining has well unaided, having awareness to and required all that to in scale a dollars some pretty of through a required buy have of some little of of of But of good use platforms. on a core I to and awareness scaling using sort those one we of of platforms continue because do of back promotions some new that marketing markets and when mind to that historically a we to of the bit top where family some introduction value that of of how a has combination and of provider achieved been of they're to and use used particularly more of talk off drive audiences certainly. premise say our builds social family our the ability dinner finger and right use school. can penetrate product off-premise in XX of spend customer, reach cannibalize why as bit hours talk terms about have their dependency and trial. those on It's I any holidays reminder than open But been we our that to tonight, little

the think that's of So, we required. and I to modeling all the mix that investments, those when appropriate in be tend do

through we've more going full that to we threat a said, is run might but through, about longer drive that's I lines have whether hold grocery Denny's be. But less the got store right brands do what think concerned to service do into Some to or share? concerned the not to now that on they're McDonald's,

premium for quality like. promotions I promotions, up than than value rather rather people think So, discounts, sandwiches deep you that they've premium on do and see gearing launched focusing and the the

direction. certain, to days, cadence to So, be some that do bundled for a well, influence see It's promotions these money, type the the A reluctance back think you quality you discount promotions on value meal do I premium know of early think just a run but more do as service that qualities little to full the seem seems absolute to to the that quantity rather focus for promotions, in bit quick and degree. money, will for and than casual serve to fast little I discount.

Operator

back closing I today's additional Ladies remarks. any At for to session. this Mr. time, turn this concludes Miller and the John conference gentlemen, question-and-answer or

John Miller

right. today you call. Thank us for all the joining All on

continue XX/X. with progress October, navigate made operating in The do system very remains same-store trending XXXX demand with pandemic pre-pandemic are and even we sales Denny's strong, XX% the at the to for recovery. We levels our pleased above with domestic of through the only we've through

off-premise our As our successful of are dining into X% two we supported safely virtual business has for incremental by in guests back the sales system. which sticky, rooms, delivering approximately remained welcome our launch brands, new

itself to actively believe situation extensive We correct staffing efforts. this will course. due And address and the we challenges continue hiring in temporary with training

base additional see week. X XX operating already those for of we potential a the a day, does, hours on days our restaurants it brand As performance

capital time EBITDA by and third adjusted of flow model kitchen this excited to long-term to encouraged free quarter, the adjusted that begin revitalization restaurant the level also are platforms highly returning franchised and in were equipment meaningful shareholders our We during the technology by advance strategies. cash through generated We business will announcing quarter. same investments while at brand

So, we look forward we to have discuss you all. when our results. next quarter earnings a conference XXXX calls in evening. great our will And February fourth Thank

Operator

this appreciate gentlemen, concludes today's We and conference. participation. Ladies your

now disconnect. may You

Denny's (DENN) 3 Nov 212021 Q3 Earnings call transcript