Denny's Corporation

Greetings and welcome to the Denny's Corporation fourth quarter 2024 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kayla Mundy, Senior Director of Investor Relations. Thank you. You may begin.

Good morning. Thank you for joining us for Denny's fourth quarter 2024 earnings conference call. With me today from management are Kelly Valade, Denny's chief executive officer, and Robert Barostek, Denny's executive vice president and chief financial officer. Please refer to our website at investor.denny's.com to find our fourth quarter earnings press release, along with the reconciliation of any non-GAAP financial measures mentioned on the call today. This call is being webcast and an archive of the webcast will be available on our website later today. Kelly will begin today's call with a business update, then Robert will provide a recap of our fourth quarter financial results and a development update before commenting on guidance. After that, we will open it up for questions. Before we begin, let me remind you that in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, The company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends and any outlook on earnings provided during this call. Such statements are subject to risk, uncertainties, and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10-K for the year ended December 27th, 2023, and in any subsequent Forms 8-K and quarterly reports on Form 10-Q. With that, I will now turn the call over to Kelly Vallee, Denny's Chief Executive Officer.

Thank you, Kayla. Good morning, everyone, and thank you for joining us. Today's discussion will focus on the continued progress we've made to execute profitable traffic driving initiatives at our flagship Denny's restaurants. We'll also discuss our continued confidence in our growth brand, Kiki's Breakfast Cafe. After that, we'll review our fourth quarter financial results and full year 2025 guidance expectations. With that, let's get started. The fourth quarter marked our strongest quarter of 2024 for both brands. Specifically, Denny's maintained positive quarter-over-quarter same-restaurant sales at positive 1.1%, while Kiki's generated same-restaurant sales of positive 3%. Additionally, we are very pleased that Denny's outperformed the BVI Family Dining Sales Index for the fourth consecutive quarter as we continue to steal share from our peer set. Kiki's also outperformed the BVI Family Dining Sales Index in Florida for the second consecutive quarter. Overall, both brands benefited in the back half of the year from consumer stabilization as optimism rose and spending normalized. While we are a bit disappointed that trends have since softened to start 2025, our continued focus on executing our strategic initiatives and winning with our guests will serve us well in restoring momentum. I want to express my gratitude to our teams and our franchisees for their continued dedication, focus, and execution. For Denny's, several of our key initiatives in 2024 have been in the works for quite some time. We saw those initiatives come to fruition in the back half of the year, including launching our 2468 Value Play, expanding our virtual brand, Banda Burrito, and enhancing our digital presence and guest experience. We launched our 2468 Value Play in August, which was engineered as a consumer-friendly, traffic-driving platform that's also profitable for our franchisees and our system. This brand differentiator was an instant hit and continues to perform well because our guests recognize and appreciate the great value we are providing to them. We continue to believe strongly in our off-premise strategies and are leaning into our three virtual brands, the Burger Den, the Meltdown, and Banda Burrito, which we nationally expanded in the back half of the year and was a significant contributor in Denny's same restaurant sales growth. Denny's is uniquely positioned to build a sizable virtual brand business given our labor structure and these transactions over-indexing at dinner and late night when we can leverage our labor line to generate incremental profitability for the system. Plus, we see less than 1% overlap between guests that use our virtual brands and those that are in our dining rooms. So these brands are delivering incremental sales volumes and margins. Our investments in digital enhancements are also working. Things like improving the digital guest experience, optimizing our email creative, and improving search engine optimization led to increased website traffic and conversion rates. Additionally, we reignited our Diner 2.0 remodel program, completing six remodels during the fourth quarter, bringing the total to 23 during 2024. The program was tested prior to the pandemic and has been tweaked to meet how guest expectations have since evolved. In tests, we saw a 6.5% lift in traffic in remodeled restaurants. This program is a catalyst to increasing same-restaurant sales, generating incremental traffic, and driving profitability to our system, and is a key component of achieving our long-term goal of 2.2 million system AUVs for the Denny's brand. And so, we are living our values and executing our strategic initiatives, leaning into our brand strengths, winning in key occasions like breakfast with a renewed value emphasis and engaging the next generation of fans to drive meaningful results for our business. I'd also like to say that we extend our heartfelt thoughts and prayers to the Southern California community in the wake of the devastating wildfires. We deployed our mobile relief diner to the area and served nearly 5,800 meals in addition to donating food and non-food items to those affected. Additionally, we offered a free original Grand Slam and coffee to all uniformed first responders as a small token of our gratitude to those that have worked tirelessly to support the fire and recovery efforts. Denny's is America's diner. We are at the center of our communities, feeding people's bodies, minds, and souls, and providing comfort in ways only a diner can. Now, let's talk about the Kiki's brand and how we're building momentum and unlocking its growth potential. Like Denny's, Kiki's had several initiatives in the final testing stages during the first half of 2024, and now we're starting to see those results. These included the beverage program rollout, incremental marketing investments, and the expansion of their off-premise business. And while we're pleased with same restaurant sales of positive 3%, it's important to note that this would have been 4.1% positive absent the impact of Hurricane Helene and Milton in Florida, as many of our cafes were in the path of these back-to-back hurricanes. A big focus area for Kiki's is development, and 2024 was a record-breaking year for growth. Robert will talk more about the specifics, but we are incredibly encouraged by this momentum. We also now have over 140 development commitments as we work towards the goal of becoming one of the largest competitors in the fast-growing daytime eatery segment. That growth will come under our new design, which has received incredible guest feedback in three company test cafes. We're targeting a 6% to 8% sales lift that we are confident can be delivered. Now let's turn to 2025 and what we've seen in the first six weeks of the year. As we sat at the ICR conference a few weeks ago, there was a feeling of consumer stabilization and normalcy. However, since then, we've observed evolving consumer sentiment driven by macro events. As a result, over the last few weeks in particular, we've seen a decline in system-wide same-restaurant sales. Robert will speak in greater detail about how this impacts our 2025 guidance, which is intentionally conservative. We believe this is a temporary shift in consumer behavior, and we remain confident in our strategies and the long-term fundamentals of being America's diner. We are a great value leader, and we know how to leverage that strength to drive traffic and support our guests' needs. We have many sales levers at our disposal, including a full year of renewed focus on value, a full year of Vonda Burrito, an ongoing and expanding remodel program driving a 6.5% sales lift, and new digital enhancements, including an improved digital guest experience and a new loyalty CRM program set to launch in the back half of the year. In closing, we continue to be proud of all the progress we've made. While there is some near-term choppiness, we are confident that the steps we are taking will enable us to continue to meet the guests where they are and create shareholder value. We have a lot to look forward to, and I'm incredibly proud of our teams, our franchise partners, and all those leading these amazing brands, executing our strategies, and taking great care of our guests every single day. I'll now turn the call over to Robert, Denny's CFO, for further comments on the quarter performance and on our 2025 guidance.