SPARTANBURG S.C. Denny’s Corp. will begin converting at least 140 Flying J Travel Centers to Denny’s restaurants this year, a move that one analyst said could bring the restaurant company an additional $38 million in revenue by 2011.
The deal was struck with Pilot Travel Centers, which is in the process of merging with Flying J, an Ogden, Utah-based travel center operator and diesel fuel retail distributor that filed for Chapter 11 bankruptcy protection in February. Pilot named Denny’s its full-service restaurant operator of choice for its 300-plus rest-stop plazas in the United States.
Spartanburg-based Denny’s, which operates or franchises more than 1,500 restaurants, currently operates locations at seven Pilot travel centers and has already converted four Flying J restaurants.
Nelson Marchioli, chief executive of Denny’s, said the partnership with Pilot would expand the family-dining brand and provide increased opportunities for the chain’s franchisees.
“Based on the success of our seven existing Pilot locations and four Flying J conversions, we expect this agreement will truly add long-term value for the company, its shareholders and franchisees,” Marchioli said.
Denny’s said it plans to begin converting the additional Flying J locations in the second quarter of 2010 and expects to complete the project by year-end. The conversions, which the company said would cost $525,000 each, are expected to increase Denny’s systemwide sales by between 7 percent and 8 percent, it said.
The family-dining company has struggled against a downturn in sales for some time — 2009 same-store sales fell 3.7 percent at corporate units and 5.2 percent at franchised units — as well as reduced corporate revenue from the sale of corporate locations to franchisees.
Securities analyst Stephen Anderson at MKM Partners said the deal with Pilot will help, but not enough.
“We argue this is an important story for Denny’s because the company’s existing truck stop-based units tend to have higher average unit volumes than the $1.42 million company-wide average,” he said in a research note Wednesday. “We estimate the Flying J deal will add $38 million in incremental revenue and [4 cents] in incremental earnings per share by 2011. However, we do not think this single catalyst is enough to change Denny’s lackluster fundamental outlook.”
Also plaguing Denny’s is recent pressure from an investor group to shake up the company’s board of directors and oust CEO Marchioli. Earlier this month a group of Denny’s shareholders said it would nominate three outside executives to the restaurant company’s board during Denny’s annual meeting in an attempt to turn around what it called a “significant destruction of shareholder value.”
Contact Elissa Elan at [email protected].