Dive Brief:
- Denny’s shareholder and activist investor JCP Investment Management has acquired 7.8% of the brand’s shares, increasing its stake in the company to over 9%, according to a Tuesday filing with the U.S. Securities and Exchange Commission.
- The investor said it intends to discuss with the board of directors about “opportunities to enhance shareholder value, and believe[s] there is significant opportunity for the Issuer to increase its earnings over the coming years.”
- JCP has been particularly active in targeting casual chains over the past year. Late last year, the investor, along with Jumana Capital Partners, provided $8.3 million to Red Robin to help the chain pay down debt; the brand added two members of the board from JCP and Jumana. JCP also called on Cheesecake Factory to spin off its smaller brands last October.
Dive Insight:
Casual chains have been significant targets for activist investors, beyond overall activist interest in restaurants. Several chains have been struggling to grow traffic and sales this year as consumers pull back on spending, which has made them targets for activists. The Edge Consulting Group began pressuring Dine Brands in August, while Jack in the Box deployed a poison pill in July to keep Birgarli Capital, which owned a 9.9% stake in the chain, from acquiring additional shares.
Denny’s core brand reported domestic same-store sales declines of 1.3% during the second quarter, while sister brand Keke’s saw same-restaurant sales rise 4%. Denny’s has been in the process of closing underperforming restaurants, and 10 such units shuttered during the second quarter, according to an earnings release.
“The surgical and methodical approach, which began in 2023 and will be completed by the end of this year, was specifically designed to optimize and enhance the overall health of the franchise system with the goal of returning to net flat to positive growth by 2026,” CEO Kelli Valade said during the chain’s Q2 earnings call.
Denny’s is also working on other strategies to boost guest engagement, like enhancing its value proposition. It saw an increase in traffic from new and lapsed customers with its Buy-One-Get-One Slam for $1, Valade said. In August, it added 5 Slams for $5 as a limited-time offer through the end of October. Denny’s is also planning to launch a new points-based loyalty program during the last half of 2025 that it hopes will boost guest engagement.
“The Denny’s Board of Directors and leadership team regularly engage with investors to listen to their perspectives on our business and strategy,” Denny’s said in an emailed statement. “Our Board and leadership team are committed to continuing to take actions that are in the best interests of the Company and all shareholders.”
Activists likely see casual chains as versatile, Keith Gottfried, CEO of Gottfried Shareholder Advisory, which helps corporations fend off activist investors, said in an email. These chains have various options available to boost shareholder value, such as moving toward an asset-light model with more franchised-owned locations and international expansion.
Many American chains have performed much better outside the U.S., like Shakey’s Pizza and Kenny Rogers Chicken in Asia, brands that are hard to find stateside. Gottfried added that there is an “enhanced focus on alternative revenue paths like off-site revenue derived from catering and delivery.”
