Q4 2023 Denny's Corp Earnings Call
Participants
Curt Nichols; VP of IR and Financial; Denny's Corporation
Kelli Valade; President & CEO; Denny's Corporation
Robert Verostek; EVP & CFO; Denny's Corporation
Michael Tamas; Analyst; Oppenheimer & Co. Inc.
Jake Bartlett; Analyst; Truist Securities
Nick Setyan; Analyst; Wedbush Securities Inc.
Presentation
Operator
Greetings. Welcome to the Denny's Corporation fourth quarter 2023 earnings conference call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Curt Nichols, Vice President of Investor Relations and Financial. You may begin.
Curt Nichols
Good afternoon. Thank you for joining us for Denny's fourth quarter 2023 earnings conference call. With me today from management are Kelli Valade, Denny's President and Chief Executive Officer, and Robert Verostek, Denny's Executive Vice President and Chief Financial Officer. Please refer to our website at investor.dennys.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. Kelli will begin today's call with a business update, then Robert will provide a development update and recap of our fourth quarter financial results 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 risks, 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 28, 2022 (sic — 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 Kelli Velade, Denny's President and Chief Executive Officer.
Kelli Valade
Thank you, Curt, and good afternoon, everyone. Thank you for joining us today. We were pleased to close out 2023 with solid domestic systemwide same-restaurant sales of 1.3% in the fourth quarter, reflecting sequential improvement throughout the quarter and because of that improvement in momentum. We delivered system-wide same-restaurant sales growth of positive 3.6% for the full year, which was above the high end of our previously guided range. A satisfying achievement given the operational challenges the industry and do it again in 2023. In fact, Denny's same-restaurant sales outperformed the full-service industry benchmark for both the fourth quarter and for the full year, an impressive statistic for sure. Looking ahead to 2024, we entered the new year with a clear focus on what we know is resonating with our consumers and a laser-like focus on our three strategic areas of focus. These are best in class breakfast with craveable items, an unbeatable value proposition and convenience in the form of unique off-premise options. We spent last summer cascading these new strategies to our franchisees, culminating with a comprehensive unveiling of our new playbook at our annual convention in October by November, we put these strategies in play with bold moves with a new menu, new food innovation and an unbeatable value proposition. The playbook is now working and is providing momentum in this new year first, let's talk about our craveable breakfast items and new menu. According to recent Yelp data, there were nearly 6,000 new restaurant openings with the breakfast and brunch category in 2023. Clearly, there's an enormous demand for breakfast, coupled with consumers wanting breakfast items whenever it suits them. This is obviously our sweet spot. We are America's diner after all and we own breakfast, our November menu launch showcased their practice leadership in a big way as we leaned into our unique ownable equities on their slam platforms, including our new strawberry Stuffed French Toast slam now made with our delicious premium Brio's French toast and guests are clearly loving it given their reaction to this launch as we are selling over 150 total French tours plates per week per restaurant. Additionally, this menu launch was the key activation point in our new playbook and that we've revamped the look and the feel of the menu also and leaned into what's most important to our guests while being focused on ease of execution for our operators, specifically along with new product innovation, we simplified the menu layout while minimizing customizations and the Build Your Own categories on the menu. This not only allowed us to highlight our most popular and most craveable items, but it simplified operations without any impact on the guests for the guest preferences. This new menu also led to margin improvements, given our strategic approach to highlighting our most profitable items and ones we know to be guest favorites.
Finally, the recent menu also incorporated a new pricing model that will help protect our value leadership while better enabling franchisees to make smart pricing decisions that are aligned with regional factors and more localized competitive benchmarking. The new pricing structure and approach will help us minimize traffic erosion when we do take price as we now have a heightened focus on the elasticity of certain menu categories and items at a time when the guest is still extremely sensitive to price increases at the grocery store and in restaurants, this strategy and focus is well timed and will continue to help us with our goal of smart menu smart pricing. Importantly, this improved approach will also be critically important in California as we work to offset the potential impact of AB. 1228, formerly known as defense. This quarter's results were also aided by our approach to leading with value and leveraging our increasingly successful barbell strategy. Our original Grand Slam, starting at the unbeatable price of five 99 was featured nationwide starting in late November with positive results. We believe we brought this compelling offer to the guests at the perfect moment, helping them balance holiday travel and shopping, knowing they could count on Denny's for the best practice out there at an incredibly compelling price guests responded well and quickly as we saw traffic and sales trends increase and we immediately noticed share gains against both family dining and casual dining mix on our value platform remained consistent at 17%. But we grew check with premium offerings, merchandise in restaurants, which is proof positive of our successful barbell strategy where some guests indeed are coming in for our value equity, but others are ordering more premium options. In addition, we remain focused on providing convenience through our off-premise business, and we saw a pickup here on a year-over-year basis. Also specifically, off-premise sales were approximately 20% of total sales, up from 19% in the third quarter. We feel good about the sales mix, considering that many in our industry are actually experiencing sales declines in this channel.
For us, these channels provide a unique opportunity to leverage operating capacity at dinner and late night to a distinctly new consumer. For these reasons this will continue to be a part of our strategies, which is why we're leaning into testing our third virtual brand with Vanda Burrito and why we're leaning into a test with Franklin junction, a global leader in branded virtual Resto. We should be able to speak to both of these tests in more depth in our upcoming calls, but we continue to be hopeful and encouraged by the results we're seeing so far.
Now I'd like to provide updates to some of our other priorities captured in our creative framework. Here will focus on technology and innovation. First, we're pleased with our recent progress on our new cloud-based POS platform as we are now moving forward with installations in all company restaurants expected to be completed by the second quarter of this year with franchise restaurants to follow this foundation will enable improved kitchen visual systems, or KBS. server handhelds and QR pay, resulting in more consistent operation execution, labor efficiencies and enhanced guest experiences. In addition, our culinary and operations teams are continuing to lean in and explore opportunities to further leverage our ovens and other kitchen equipment to drive menu innovation and kitchen efficiencies. In fact, next quarter, you'll see new exciting products, which will leverage our new ovens as the primary cooking platform. Importantly, we've also seen improvement in our food quality scores year over year, and a high percentage of this improvement can be attributed to our new kitchen equipment. And of course, we have to talk about our people and our guests. We're extremely proud of the progress we have made with our people programs, including the launch of our game program this last year. We're impacting lives and careers by offering education entertainment for all. As a result, we continue to see improvements in staffing and reduced turnover rates at Denny's. In fact, management turnover for 2023 improved 400 basis points compared to 22 and was approximately 400 basis points lower than guest XM. family dining index, formerly Black Box Intelligence.
As for the guest experience, our overall 2023 net sentiment score was 41% compared to 32% for the family dining segment and 23% for the overall restaurant industry. And our Google ratings continue to improve as we recently reached a 4.3 rating. I can't say enough about the progress of both our teams and our guests as we have our Company and franchise operators to thank for taking such great care of our guests. Always their continued commitment to delighting every guest is appreciated and appealing. We also continue to remodel restaurants with our Heritage 2.0 program while testing the next evolution of our prototype, which will lean into our unique diner image with a modern, updated and fresh look early results from the modern diner test are strong with positive marks for a unique brighter, yet warm approach to a modern day sales and traffic results are also promising. We'll have full results from this test to share soon, and we'll begin incorporating the modern diner remodel program into the mix in the back half of the year.
Finally, I want to pivot and talk about the growth and expansion of keys breakfast Cafe. We are thrilled to have opened our first location outside the state of Florida a couple of weeks ago in Henderson, Bill, Tennessee, just outside of Nashville, despite opening during a snowstorm, sales were strong for the first week and continue to be impressive. We also recently held an official grand opening ceremony for the new Café receiving a warm welcome as we were joined by the Henderson bill community, including the mayor, the city chamber and local businesses. With this new location, we debuted a new cafe design, an updated look and feel that was developed through our learnings from last year's brand ethos work. It's a beautiful design, highlighting the things unique to key ease that we know that our guests love morning from scratch of the prominent top line and our unique positioning, which serves to highlight our core differentiators of fresh from scratch cooking daily made with the highest quality ingredients offered in great abundance. We've also now launched a new menu on this location and and all existing keys restaurants menu offers a simplified approach with less items and a focus on what we know Keystone's. In addition, the alcohol program test was a success and a system wide rollout now is underway. This program will become a brand standard and a requirement for all new cafe openings for us. This has been a critical year of building a strong foundation for the brand and integrating Dickies brand into the portfolio at Denny's. We're incredibly pleased with the progress President Dave Schmidt has made as we have built a strong team, cemented a unique position in the A. and breakfast segment and a competitive differentiated path that will allow us to win in new markets this year and beyond. As a reminder, we have a franchise disclosure document in place and 14 signed development agreements for over 100 keys cafes across multiple states. 11 of those were Denny's franchisees and three with TD's existing franchisees. We expect this number to grow and we'll soon be talking about many more. Our approach, Dickies and our early results are in line with our expectations. Our strategic intent and purchasing keys was to compete in this highly fractured, yet steadily growing daytime EDV segment, we have the unique opportunity to leverage our model franchise or approach and our strong network of franchisees in both brands to grow exponentially and capture market share. We are well on our way with the work we have done so far.
Finally, we have been laser-like in our focused approach to understanding what the guests love about keys and the results here also phenomenal Vicki's brand 2023 overall net sentiment of 54% significantly outperformed the family dining index of 31% in addition to significantly outperforming the segment and scores for service, ambiance and intend to return. This tells us we have a winning formula and a brand that guests absolutely love. The future is bright for our small, but mighty keys brands.
In closing, 2023 marked another year of resilience for our dedicated franchisees, our operators and support teams, and we look to build on our achievements in 2024 this past year. We honored our path celebrating our 70 years in the business at Denny's, and we charted a clear path to winning for the next 70 years. We couldn't do this without the strong partnership and collaborative approach with our incredible franchisees and owners, they are the reason we push to deliver our best every day they deserve it. And our guests deserve. It's clear we have the right approach to win in today's environment with committed leaders and partners and a game plan for our two unique incredible brands primed for growth and continued momentum for 2024 and beyond. With that, I'll turn the call over to Robert.
Robert Verostek
Thank you, Kelly, and good afternoon, everyone. Today I will provide a development update and a review of our fourth quarter results before discussing our 2024 annual guidance.
Starting with development highlights, our brands opened 32 combined restaurants in 2023 marking the highest number of openings since 2017. Within the quarter, Denny's franchisees opened seven new restaurants, including one international location. This resulted in 28 Denny's restaurant openings for the year, flat with 2022 and consistent with pre-pandemic opening rates. Keys opened to franchise cafes during the quarter, resulting in a total of four cafes for the full year As Kelly noted, we also opened an additional key company Cafe in late January in Henderson build Tennessee marketing, the first Café outside of Florida. This marks the first of several Company cafes as we plan to utilize company capital to develop oversight efficiency in various markets within and outside of Florida. In addition, quays currently has four cafes under construction with several others in permitting and site approval phases.
Moving to our fourth quarter results. Denny's domestic system-wide same restaurant sales grew 1.3% in the fourth quarter compared to 2022 anchored by a 1.5% increase at domestic franchised restaurant. Denny's domestic system-wide same restaurant sales were 3.6% for the full year 2023, exceeding the performance for eight of the nine years prior to the pandemic, Denny's domestic system-wide same restaurant sales growth was primarily driven by pricing of approximately 7.5%, along with a product mix benefit of approximately 0.3%. Denny's domestic average weekly sales for Q4 were approximately $38,000, including off-premises sales of approximately $8,000 or 20% of total sales. As a result, average unit volumes for 2023 were approximately 1.9 million. Franchise and license revenue was $61.3 million compared to $66.5 million in the prior year quarter. This change was primarily driven by a $5.3 million decrease in initial and other fees associated with the sale of kitchen equipment in the prior year quarter. Franchise operating margin was $31.5 million or 51.4% of franchise and license revenue compared to $31.6 million or 47.6% in the prior year quarter. Approximately 430 basis points of this favorable change in margin rate resulted from the completion of our kitchen modernization rollout during 2023, company restaurant sales were $54 million compared to $54.4 million in the prior year quarter company restaurant operating margin was 5.4 million or 10% compared to $6.8 million or 12.6% in the prior year quarter. This margin change was primarily due to 1.8 million in legal costs in the current quarter, partially offset by improvements in product costs compared to the prior year quarter. The $1.8 million in legal cost had an unfavorable 340 basis point impact on the Company restaurant operating margin rate for the current quarter, commodity inflation was in line with our internal expectations at approximately 2% in Q4 2023 compared to 1% deflation experienced in Q2 three 2023. Additionally, labor inflation for Q4 2023 was 3% flat with Q3 2023. G&a expenses for Q4 totaled $19.3 million compared to $17 million in the prior year quarter. These results collectively contributed to adjusted EBITDA of 18.6 million. The provision for income taxes was $1.7 million, reflecting an effective income tax rate of 36.9% for the quarter compared to 20.7% in the prior year quarter. Adjusted net income per share was $0.14. We generated adjusted free cash flow of 7.4 million. Our quarter end total debt to adjusted EBITDA leverage ratio was 3.26 times. We had approximately $266 million of total debt outstanding, including $256 million borrowed under our credit facility. During the quarter, we allocated $16.2 million to share repurchases, continuing our commitment of returning capital to our shareholders at the end of the quarter, we had approximately 100 million remaining under our existing repurchase authorization. Since beginning our share repurchase program in late 2010, we have allocated over $700 million to repurchase approximately 67 million shares at an average share price of $10.39.
Let me now take a few minutes to expand on the business outlook section of our earnings release, we anticipate Denny's domestic system-wide same restaurant sales will be between 0% and 3% compared to 2023. We anticipate opening 40 to 50 restaurants and cafes on a consolidated basis, inclusive of 12 to 16 key openings and the consolidated net decline of 10 to 20 restaurants, we are projecting commodity inflation to be between 0% and 2%. For 2024. We expect labor inflation between 4% and 5% for the year. This labor inflation guidance takes into account the anticipated impact from AB 1228 in California. Our expectations for consolidated total general and administrative expenses are between $83 million and $86 million, including $12 million related to share-based compensation expense, which does not impact adjusted EBITDA. This consolidated range contemplates a full year of G&A for Key's new management team and a fully reloaded incentive plan, which has paid out at approximately 70% over the last four years. Additionally, this range would suggest corporate administrative expenses have grown at a compounded annual rate of 2.5% to 3% from pre-pandemic 2019 before considering the investment in Key's management team who will drive that brand's growth, that compares to a compounded annual growth rate of 4.3% nationally for private industry salaries and wages between 2019 and 2023. As a result, we anticipate consolidated adjusted EBITDA of between $85 million and $89 million.
Finally, I would like to thank our engaged franchisees and results driven brand teams who have remained focused on serving our guests while supporting the transformation of the Denny's brand and the growth of key keys. That wraps up our prepared remarks. I will now turn the call over to the operator to begin the Q&A portion of our call.
Question and Answer Session
Operator
(Operator Instructions) Michael Tamas, Oppenheimer & Company.
Michael Tamas
Hi, thanks. Good afternoon. You provided same-store sales guidance of 0% to 3% for the year. So can you first touch on maybe what level of menu pricing you're anticipating within for 2024? And then can you talk about the cadence, should we see sales build throughout the year or how you want?
Robert Verostek
Yes, hey, Michael, how are you hope you're well, I think with regard to pricing for the year, we are going to roll into some rollover pricing on the year of approximately 2% and there will be additional pricing. We have to pricing windows. We're getting back to our normal normal cadence of the year, which is an April menu print in October, menu print, of which will have two additional or two additional menu of opportunities for pricing within those menu print. So we're rolling over to you have two additional pricing. The April pricing will e will allow us to contemplate a B. 1228 in California so I would expect that window to probably have more pricing than the October window. So I would think that the pricing will be in the range of the 5% to 6% a with that build that I just described there with regard to the cadence, I think you probably get captured it correctly. I think it does somewhat build over the course of the year. We are rolling over the prior year, some pretty strong numbers from Q1 of the prior year. I and we have seen some some impacts from weather. I is we started off January here. So I do believe it will build over the course of the year for Jay, based on some of those items I just mentioned along with our initiatives becoming even further baked as we move throughout the year with regard to menu innovation, value messaging off, Prem off, Prem, with regard to the virtual brand. So I think all of those will continue to mature across the year.
So with regard to pricing, I think that 5% to 6% range. And I do think, as you described, it does build over the course of the year.
Michael Tamas
Thank you. And then, Adam, I think the unit growth guidance suggests you close about 50 to 70 units this year. And can you talk about maybe what led to that decision? Any help on timing or pacing of that throughout the year? And then can you talk about maybe the financial impact maybe or how are we yes.
Robert Verostek
Yeah so is another really good question. So to your point that that the midpoint there would suggest about about 60 closures, right, that 50 to 70 range that you described the reality of that situation is having come through the inflation environment that we had, although it did temper quite a bit in 2023 up the profitability of restaurants that we're at a kind of that breakeven for for a unit, a Denny's restaurant to remain open has really kind of elevated from about $1 million to about $1.2 million in. So we're continuing that used to be that level used to be that million I just referenced that used to be the breakpoint of a closure. So we are continuing to work through some additional closures that a relative as a result of those inflationary pressures. And our goal is, I've said previously is to get back to a more normalized rate, but we wanted to be as we started off the year to be somewhat conservative.
With regard to that, I would you think of these restaurants at to your point with regard to what the EBITDA impact would be. These generally are about 1 million units million restaurant, so at 40 to $50,000 in EBITDA, that is rolling up. So as we build new higher Denny's restaurant openings. So we guided we guided 40 to 50 openings 12 to 16 of those being. And Keith, you would expect us to open somewhere around 30, 30 Denny's, those are almost double the volume nowadays of the closures. So the reality is, is it's somewhat net neutral on the EBITDA between those two, the closing that about half the number of openings that are closing, but the volume of the openings are about double double double that of a closing. And we are at that level of openings. The guidance actually suggests the highest number of Denny's openings since 2017. So we got we have that machine back open and in with the 12 to 16 keys, that's three to four times the level of openings that we have seen out of that brand at any point in its history, really. So we're really excited about what that's starting to produce for us.
Michael Tamas
Thank you.
Robert Verostek
Thanks, Michael.
Operator
Jake Bartlett, Truist Securities.
Jake Bartlett
Great, thanks for taking the question. First, I just wanted to dig into kind of what drove the miss on EBITDA versus your expectations? It looks like your sales was a little bit above. So what was the surprise? What drove that miss, I think at the front versus the midpoint of guidance is about 5% lower. So any help there would be.
Robert Verostek
Yes, that's a really good question, Jake, and hello, good to hear your voice. I ate some of it. It really was a they were in some of our prepared remarks, really kind of revolving around 2.5 to 3 million worth of reserve adjustments that we really didn't have a good line of sight into the more than half of that came from some legal reserves that we had to book into late into the year, 2.5 of those 2.5 of that really set in the Company margin. And if you rightsize for that on the quarter, it would have been between 14.5% to 15% in that 2.5 million would have added a basically another full point to the year in there was about a half million dollars of reserve adjustments related to our captive within the G. and A. section of our P&L also. So again, we really it bothers us. We put out guidance with the full intention of achieving it in the fact that we didn't pay because of these kind of one-time events was truly bothersome to us. But when you adjust for those right-sized for those IE., the margin, particularly on the Company side, are much better. The other some of the other pieces of those one-time charges, 2.5, the largest part was legal we also had some claims development into workers' comp and GL, a general liability and some minor medical that impacted that. So can you just kind of pervasive across the board, nothing really going in our favor this fourth quarter.
Jake Bartlett
Got it, got it. All makes sense. And my other question was about traffic and your expectations in 24, given given the guidance for same-store sales and the pricing that you talked about a pretty pretty negative traffic. So I guess I'm wondering what is driving that is the are you are you seeing trade-up out of the category. I know at some point you're talking about can trade down and trade out and kind of being maybe a net neutral for that. But what are you seeing with the consumer, what do you think you're seeing this pressure on traffic and on you, what can you do that? It either is there and I know you're working on some some innovation on the lower end of the menu. What's your confidence that you can that you can kind of credit really move the needle here with the traffic?
Robert Verostek
Yes. So another really good question, Jake. So when we look at it, we're in we pay attention to what's happening in the general economy. We're seeing it as somewhat a distant, not there's not a lot of confidence into what we're seeing in the 2024. So we are our guidance in to your point on the guest traffic side is really a reflection of that. As you're aware, our consumer set is half of our consumer has an income base of less than $50,000. So again, we're just being conservative there. We are really bullish about everything that we have into the hopper. We have new. We've come to the original Grand Slam that five, 90, 97, 99 messaging that we launched into in mid off in mid-November, really trained it changed trends in a very material way. We have concept new value concepts in various levels of testing. We have multiple virtual brands in various levels of testing. So in large part, we are being conservative because the rhetoric in the environment is there, but bullish about the other things that we have done well, yet Yes, Jake, I think, hi, it's great to hear your voice as well.
Kelli Valade
And just just to echo what Robert said and just piggyback, it really is about just watching the predictions from economists just watching those that we track and those that are putting out those reports and just tell us whether it's inflation and the recent reports that just came out or just that a lot went into thinking about it and being optimistic yet just realistic. I would also call out our value mix has been ticking up, and we've seen that just in January alone. So we feel like we're probably projecting it the right way of looking at it the right way and yet we are still optimistic.
Lastly, I would tell you in both in the fourth quarter of last year and in January, we can tell that we are stealing share both on sales and traffic against our competitive benchmarks, which are both benchmark for family dining and casual dining. So, you know, is there a trade down from casual? Perhaps is there a trade-off from us? Perhaps we also see evidence that people in fact are still I'm anxious enough to maybe visit less often. But again, for us, we can see what we're doing against the competitive set.
The last thing I'll say relative to this, Jake, is that our value mix, while ticking up and an indicator perhaps of indeed where people are being cautious, our GCA is still up and we continue to just be really excited about and encouraged by our barbell strategy in that those that Robert called out less than 50,000, may be the ones definitely coming in sensing that we do have great value at this unbeatable pricing. Great Food are also though there are also people coming in and then upgrading to our amazing new products like the strawberry French toast, Stuffed French Toast just continues to just sell incredibly well. So I feel like we're balanced and we've thought a lot about it, and we're really still pretty optimistic about the things we have in the hopper, as you heard from Robert.
Jake Bartlett
Great. I appreciate all. Thank you so much.
Kelli Valade
Thanks, Dave.
Robert Verostek
Thank you.
Operator
Nick Setyan, Wedbush.
Nick Setyan
Thank you. I just want to first clarify the pricing commentary. The did I understand correctly that Q1 pricing is 2%?
Yes.
Sorry, Nick, no, I am sorry if I misled you were we have we're rolling off 2% in pricing in the quarter. The pricing a Y that we will see throughout the year is in that 5% to 6% range. I a and it will be that will be fairly steady across the year, maybe a little bit tick higher in April as we take into account pricing related to AB. 1228. I apologize if I misled with my remarks, but no, no, the pricing in Q1 will be more in line with the 5% to 6% that I referenced it.
Operator
Okay. And Q4 sounds like it was in the mid fives percent range. Just to kind of get to that 7.5% for the year. Is that correct?
So we so we're working. The math of it is, is that we actually layered in additional pricing with a November print. So while we're rolling off various pieces of that over the as we move into Q1, I the actual pricing effect in the quarter in Q three and Q4 2023 was more in the 7.5% range. So be that that's the best number you should think about. So the 1.3, which would suggest about a six point traffic declined about a 6.3 traffic decline?
Yes, about that. It is again, it's not perfectly perfect math in that when you're dealing with same-store sales up. So would you say in that six, 6% range.
Yes, appreciate you. Give me the opportunity to clarify those remarks.
Operator
Not very helpful. Thank you. And then just on the G&A guidance, it does sound like you're pretty much assuming sort of a full payout across the board. And so it's one when it's all said and done, it seems like G&A may not be as high as as far as the full year guidance implies. I mean, hopefully it is and everything across the top line and margins are great. But if not, it sounds like G&A is actually going to be a little bit lower.
Robert Verostek
Is that a fair understanding of how you're guiding G&A given the last four years?
Mickey, it would represent 70%, but I like your more bullish claim that we're going to hit all of our guidance and actually pay out that level. And everybody will be we'll be excited to do that. But yes, the 83 to $86 million range does include a 100%, not 100% short-term incentive compensation assumption.
Operator
Okay. And then on the on the franchise margin, can we just talk about sort of the trajectory on the franchise margin in 24? And then just how many company-owned keys you guys are thinking of within that guidance in 24?
Yes.
Let me start with the second part of first. I'll give a curve in a chance to to help me out with the with the margin question on the franchise. But with regard to the key companies that 12 to 16, I would tell you that in the current year in 2020 for that, those will likely be 40% to 50% Company openings as we build the pipeline with additional key franchisee development and in some some great strength within the Denny's franchise development related to the development agreements that we announced on the last call, those 14 agreements for 100 additional CapEx commitment. So in the current year, as we build out operational efficiency in places like Tennessee in Jacksonville, you will see us invest more into the into company, our company operated cafes. So the 12 to 16 would likely be 40% to 50% from 40 40% to 50% for company cafe openings with regard to the margin, I if you would, what I'm being shown is that it will be very, very similar to 2023. So approximately 51% in the changes, as you note in the remarks is we have this odd ramp of revenue recognition standard that impacted the prior year where we were having to recognize the kitchen equipment that we were installing for franchisees as revenue with a complete contract offset into the expense, which depressed margins by four to five franchise margins by four to five percentage points. So we don't have that same type of impact within the 2023 results. So you shouldn't see you shouldn't expect or anticipate another four to five percentage point growth?
It'll it'll be very similar at that low 50s percent range, 50, 51 range.
Operator
So Got it. Okay. Thank you very much.
Robert Verostek
Thanks, Nick.
Thank you.
Operator
Our next question comes from the line of Todd Brooks with Benchmark Company. Please proceed with your question.
Hey, good evening, everyone.
Operator
Thank you for taking my questions on eight.
I want to follow up on.
Operator
Hey, good to talk to you both.
One follow-up to Jack's question, actually, Cai, I think when you were answering some that value mix has ticked up in January, I know it was stable Q4 versus Q3. Can you share with us how much it has ticked up just to maybe dimensionalize or so on?
Kelli Valade
Yes, absolutely, Todd. On a couple of points. We've seen it go up a couple of points. It's a recent trend change. But again, we're still seeing that shekels, reiterate that and we're still seeing people coming in and ordering some of these great new products around innovation. So the value messaging we know is working to get them in the door. We'll refresh that messaging this quarter and some but it's picked up a couple of points as of late. And again, probably evidence to what most are saying about how people are feeling. But for us, again, still confident in the strategy on barbell.
Curt Nichols
And that is really working for us.
Operator
And if I think back historically, this is run in the low to mid-20s before hasn't. So we're not back to maybe historical peaks for where values mixed out?
Kelli Valade
I think that's correct, Robert is nodding his head as well.
Yes, Todd, we during the height of 2-4-6-8 launch, it was in the 23, 24, 25% range in as long as a week. The barbell strategy is effective, as Kelly is alluding to. We're not afraid of driving that value instance, right?
Kelli Valade
And this is all these are this is not just the original Grand Slam and the one that we're talking about as of late, although that has been incredibly successful as we've talked about, this is other things that are messaged in the restaurant that we would classify our Everyday Value Slam or Super Slam. We kind of capture those all in that kind of value incidence bucket for us the original grand slams, the one that has upticked as of late.
Yes, that's helpful.
Curt Nichols
Thanks.
Operator
And I wanted to give a little bit on Q2. So at the end of Q. three, you updated us on the 14 agreements, 100 units, and I think today's commentary was 14 agreements, 100 plus units. Are we actively selling agreements now? Are we digesting the exploit the explosion that we had agreements in Q three. I'm just curious, I felt there was more momentum maybe to continue off the franchisee convention and the signings that you saw there sooner if we could talk about.
Kelli Valade
Yes, yes, I think that's fair, Todd. And you know, what we're seeing is obviously, there's a lot of excitement about it and there's also been a lot of and I think we mentioned this and talked about it quite a bit. There's a tremendous amount of excitement still and there's momentum and there's a lot of conversations about them, Nashville, you know, it's that new prototype. It's the new design, is that all those things are in play and then we still have levers to pull in terms of just continuing to drive that momentum. But a lot of folks really excited a lot of things that are in play with the new menu cocktails in Elgin, successful Tennessee opening. We're really encouraged by what we saw there. So there's quite a few that are lined up as of right now. As you know, the ones that we've talked about and then we literally had people waiting to come to that opening and said, hey, let's get this thing open. Let's do a great job opening it. We got that ceremony. We did the ceremonial grand opening ribbon-cutting with everyone in the community that we could get on so that we could get this name out there and it's been really successful, but we also have franchisees waiting to go. They're lining up to go there and be introduced on be our development team and those people are coming in as we speak. So we expect that momentum to continue. There's really no pause other than to say, hey, let's get this thing out of Florida and see see how it can our can perform fast for us and we do also have four cafes under construction.
Operator
And then again, these openings next year are pretty accelerated rate, as Robert already talked about and are the four or the 40% of growth this year that's anticipated to be Company stores. Are you seeding other states for proof of concept? Are you looking to get that kind of operational efficiency in the Tennessee market as a corporate market, again, goods regarding Robertson?
Yes. So just to Todd, we're really excited by what we're seeing in Tennessee. We already have another corporate cafe under construction in Tennessee. Right now. We have another corporate Cafe in Jacksonville under construction right now. And you will see us move into Texas City, Texas as the next corporate area report development so we will be in places other than Florida and Tennessee this year.
Operator
Okay, great. And then just a couple to wrap up on Q2's on and I'll get back in queue. Can you speak to since the program was successful, can you speak to maybe alcohol incidence or lift in check what you saw in the tests that we should think about for AUVs for the concept.
And then the second one, just with the new on the new prototype opening in Tennessee, which looks great from the pictures I've seen online thoughts on is there is there are pointing to the franchisees existing in Florida want to go back and rework their units in the new prototype? Or is this really a go forward type of prototype for keys things.
Kelli Valade
It's a lot in there, Todd, and really great questions. So first to take the take the maybe the last thing that you mentioned in terms of going back in Florida. There are a lot of franchisees really excited about. It's a beautiful buildings, a beautiful design really leaned into what Keith is known for and what's special about it with an updated really bright fresh look. So I'm glad you got to see that on pictures. Don't totally do adjustments. It really is a stunning building that franchisees will go back there's conversations with a lot of them in Florida to go back and look at paint colors, look at some of the things that they could pull forward. There's really not been a comprehensive remodel program for the keys brand up until now. So they are excited about the things that we can pull forward and having those conversations for sure, in terms of the alcohol programs really encouraged by what we're seeing. It's a really simplified approach with most of the sangria and five to 5% to 7% of mix is really what we're seeing there higher on the weekends. This is obviously expected, but really in line with what we thought that that would do for us. So it's not been rolled out system-wide in fact that Tennessee location did not yet opened with. It's one of those things where we're excited about the potential this has this is a brand where it doesn't have a honeymoon curve that like other brands I'm used to. It doesn't have a honeymoon curve where decreases actually grows over time. And we're actually not talking about it just yet because we know it's got the potential, and we've already seen that starting to grow. And again, we didn't open with the cocktails or the alcohol program. We didn't open with some of the other things that we know we can pull and that will help it to continue to grow for us. So we are excited about what that can do for the key system in terms of rolling that alcohol program as well as even the remodels and what that could do for the Florida market.
Operator
Okay. Thanks, Kevin.
Kelli Valade
You're welcome.
Operator
Thank you. Our next question comes from the line of Jon Tower with Citi. Please proceed with your question.
And great. Thanks for taking the questions. And maybe if we could start off on the unit closures and specifically, I'm just trying to maybe you can help us ring-fence how many The stores are potentially at risk of closure, I think And Robert, you mentioned earlier that your profitability breakevens are close to 1.2 million now at Denny's. And I'm just curious if you could maybe give us some idea of like what percentage of the system might be at or near those levels. And and yes, maybe that was Dr. Malone.
Yes, John. So I happy to tried to provide some additional color to that. We with regard to We assess our kind of our the Denny's system with regard to kind of Quintiles in our low, I can tell you that our lowest Quintiles in aggregate is actually above the $1.2 million. So it's only a subset of that lowest Quintiles that we are really dealing with on the other.
The other piece that makes this a little bit harder to predict is that it's made up of there's many franchisees that have restaurants within there and they all have different motivations, right? So they if it's covering the lease cost, but not necessarily profitable. It may be a restaurant that remains open even in that scenario. So it is hard to say of that subset of units of that subset of Quintiles.
How many are likely to close near it over time right day and elongated timeframe. I you may be looking at half that Quintiles. But right now, what we're comfortable doing is to guide one year at a time with what we know and really, really watch closely, particularly as we move across this year and with all the initiatives that we have in place to hopefully to grow out of it. I can tell you that of these quintiles of the three of the four of them actually grew volume over the course of the pandemic. That the only one that did not was that lowest Quintiles. So if we if we can get that moving also, it may put less of those at risk. Again, another reason why we're just trying to give that one year, look right now is to book as opposed to looking out much further than that. A lot of lot of nuances that go into to predicting how many of those will actually close in the in the near term.
Operator
Thank you. And I guess on the flip side of that, it sounds encouraging with the new store openings on the dental side and the gross numbers reaching 2017 levels. So I'm just curious, maybe you can give us a little bit color on where these stores are they more infill? Are they new markets or the new franchisees existing franchisees? Are they effectively relocations of existing stores? Just curious if you could provide some color.
Yes, happy to do that also generally not offsets not closed at Denny's opened this dining. So they're not they're not generally offset 90% of the restaurants that closed are what we were just talking about these very, very low volume units. So it's not that we're not offsetting because of a property control issue. So not offset every year. We have new franchisees somewhere in the neighborhood of, let's say, four to six new franchisees. So there that there, though there will always be some new franchisee development. But generally, the vast majority of these openings would be infill restaurants from existing franchisees so that I think that's probably the best way to look at it with now 13 142 franchise domestic restaurants, another 65 company. We're fairly penetrated into most markets. You can go find some particularly if you look east of the Mississippi that we could potentially build out. But in general, these are infills into existing markets where we know the Denny's has a lot of strength.
Got it.
Operator
And then just kind of thinking about California a little bit more and the detail of the do you have any specific plans to address value in that market given obviously that the changes in pricing structure across the industry coming in April? Are there any explicit plans you might have to attack the value messaging, whether it's on no one building brand awareness with incremental marketing. Obviously, you've got a lot of innovation in the pipeline when it comes to product, but I'm just curious how you plan on handling on that market specifically in April forward.
Kelli Valade
Great. Great question and lots of conversations that we have, we're working very closely with the California franchisees. In fact, we call it our situation room where we come to them and we partner with them both in them sharing. And I'm kind of ideas that they might have many of them have other brands. Many of them have QSR brands actually. So while we're not in that same situation, of course, being a full-service brand and we're being very mindful of that. So what I can tell you is the value messaging there. So we've got a price point of five, 99 in many markets, but in California, seven 99 that's competitive for there that's been working there fairly well. It's actually been working really well there also on. So we'll continue with that messaging.
The other thing that we have done. We are reimplementing reinstituting the co-op program. And so we'll continue to spend at the local level. We'll spend more at the local level working in partnership with them. So we'll do things unique to the market wherever possible. We're doing our match again for that co-op program. So we're bringing that back after several years of not doing that. And we know that will help strengthen the market. And then finally, really, really looking to strengthen the top line for them in as many ways as possible.
Looking at I've mentioned this before, but looking at the virtual brands, the things we're testing and off-premise. So not only helping them with analytics and metrics to understand the effectiveness of their off-premise channels today, but also potentially bringing those virtual brands to them first and bringing those to enable as much revenue that we could possibly help them drive. So that's really the focus for us is it's almost a triage approach with them. And at the same time, making sure just we're available to have the conversation.
Operator
So we're staying really close to it by saying the questions of course.
Yes.
Robert Verostek
Thanks, John and Ketan.
Thank you.
Operator
Our next question comes from the line of actually grown is the only drug with Piper Sandler. Please proceed with your question.
Kelli Valade
Hi, good afternoon. It's great to hear about all the momentum with key eats development.
Curt Nichols
But just on the franchise comp result for the quarter, could you speak to what is behind the softness there is specific to like the Florida consumer or is there a primary driver you'd point us out?
Yes. So that's a really good question. A Florida remains a week and you must have been looking at some of the MITT. that we prepared. Florida is by far the weakest state that we had. I think there's actually some good strength throughout the Midwest. When you look at New York, Pennsylvania, Ohio, Indiana, Illinois strength there, but the Florida is still trails off quite significantly with regard to that. And the reality is if you look at the pace of our same-store sales across the quarter, i. e October was weaker than November and November was weaker than December and December actually showed some some some significant strength as we got deep into our value messaging, the five 99, 70 99 original Grand Slam messaging. So again, we were with regard to two that we were pretty pleased on the way we finished out the year.
Great.
Curt Nichols
Thanks for that.
Kelli Valade
My second question is on 24 seven. Now that we're in 2024, I'm just hoping you could give us an update on what percent of the store base is back to 24 seven, and we are locations are further return to 24 seven.
Curt Nichols
This year?
Yes.
Again, really good question. That's really stabilized. When we've looked at it, it grew through about the July August timeframe. We had a pretty conservative IT concerted effort to get back the as many as we could to 24 seven. It's kind of leveled off at about the 75% level.
I and the other piece to note, though, is even if you're not a 24 seven, the vast are already over 20 hours.
Robert Verostek
So I think we've stabilized.
I don't think I don't think you'll see material growth from here nor do I think you'll see a material slide from here. I think this is somewhat of the new norm.
Kelli Valade
And I think the other reality has hit our e-banking.
Yes, no, no, that's okay. So I was only going to add to what Robert mentioned in terms of just we just came off the last question on the FAST Act or a B. 1228 and the impact there in California. So we're just always mindful of the profitability of our franchisees. The health of those franchisees that we talked about, it's about driving top line, it's about just showing them every opportunity, but also just being the best partner possible. We still though, given the percentage, not only of those that are 24, seven at 75% and holding on, but also the amount of hours that we are open on that as a full-service brand that used, we are back strong and as strong as many other players that used to be 24 seven and haven't gotten even close to 75% back. So we feel good about it. And yet, you know, given the pressures in some of the states like California. We're just mindful of that. Thanks.
Operator
Well, thank you. We have reached the end of the question-and-answer session, and I'll turn the call back over to Curt Nichols for closing.
Curt Nichols
I'd like to thank everyone for joining us on today's call, and we look forward to our next earnings conference call in the spring. When we will discuss our first quarter 2024 results. Thank you all, and have a great evening.
Operator
Thank you. And this concludes today's conference and you may disconnect your lines. Thank you for your participation.
Yes.
