Denny's: Value Strategy Tackles The Decline Of Family Dining

Industry Overview - The Family Dining segment is experiencing a significant decline, with a cumulative traffic loss of approximately 20.6% since 2019, the worst among restaurant categories [2][3] - In Q2 2024, Family Dining showed the worst outlook for both sales and traffic compared to other segments [2] - The decline in traffic is attributed to changing consumer habits favoring convenience and speed, leading to a preference for limited-service restaurants [2][3] Company Performance: Denny's - Denny's has closed approximately 25 units in Q1 2024 and 15 units in Q2 2024, resulting in a net decrease of 39 units over the first half of the year [4][5] - Comparable sales for Denny's in Q2 2024 were reported at -0.6%, with a 4.6% decline in traffic and a 4% increase in average check due to a 5% price increase [6] - Denny's has adjusted its fiscal 2024 comparable sales forecast to a range of -1% to 1%, indicating ongoing challenges in sales performance [6] Strategic Initiatives - Denny's is focusing on value promotions, dedicating nearly 20% of its mix to value offerings, but has struggled to rekindle traffic [7] - The company is reintroducing a '$2, $4, $6, $8, $10 Value Menu' aimed at increasing average check sizes while attempting to attract price-sensitive customers [7] - Denny's is also expanding its digital brands, including Banda Burrito, to capture delivery and takeout orders, particularly in California [7][8] Competitive Landscape - Other family dining restaurants, such as Cracker Barrel and IHOP, are implementing various strategies to combat declining traffic, including menu overhauls and diversification of offerings [7] - Despite some family restaurants managing to outperform the Black Box Family Dining Index, Denny's continues to face challenges in attracting traffic from limited-service restaurants [9] Financial Valuation - Denny's is considered close to its fair value, with a projected price of $7.73, indicating a potential upside of 25% from current levels [10] - The company maintains a 'Hold' rating due to its restructuring efforts and the overall decline in the family dining segment [11]