Denny’s Corp. told investors that a new value menu has resulted in improved traffic trends and that it would look to continue building sales with increased advertising and the refurbishment of several of its stores.
Company officials also said Denny's was making headway in its search for a new chief executive to replace Nelson Marchioli, who resigned in June.
Denny's discussed its progress Tuesday after reporting a 41.5-percent slide in second-quarter net income to $5.5 million, or 5 cents per share, compared with $9.3 million, or 9 cents per share, in the same quarter a year ago.
The company cited decreased sales and fewer restaurants sold to franchisees as part of its Franchise Growth Initiative for the dive in the profit. Denny's also said it booked $1.5 million in one-time charges related to a proxy fight, in which a group of dissident shareholders unsuccessfully campaigned to replace three of Denny’s board members.
Revenue for the June 30-ended second quarter fell 16.1 percent, to $135.1 million, Denny's said. Same-store sales decreased 6.2 percent at corporate restaurants and 5.9 percent at franchised units.
On a more positive note, the company said customer traffic, while down 3.7 percent for the latest quarter, had actually increased 1.9 percentage points from the first quarter of 2010, and was the chain’s strongest guest count performance since the first quarter of 2009.
Denny's also highlighted the conversion of several Flying J travel plaza restaurants to Denny's as part of a deal inked earlier this year with Pilot Travel Centers.
“We fully intend on taking the Denny’s brand back to its rightful place as the leading family-dining restaurant chain in the nation, and we firmly believe that we are taking the right steps to achieve this goal,” Smithart-Oglesby said during the call with investors, a transcript of which was provided by SeekingAlpha.com.
Details from the call:
Search for a new CEO and COO
Smithart-Oglesby said the company has engaged international executive search firm Spencer Stuart to assist in the completion of the search for Denny’s new chief executive. She also noted that Denny's was close to selecting a new chief operating officer. Former COO Janis Emplit resigned in December.
"The COO search has been going for a few more months and I believe that we are getting very, very close to being able to announce an individual joining us in that capacity," Smithart-Oglesby said. "We’re very excited about that. So stay tuned. The CEO search, we believe that we’ll be in a position to name our CEO by the fourth quarter.
Results from $2 $4 $6 $8 value menu
Smithart-Oglesby said the company was pleased so far with the results of the value menu, noting that guest counts have improved every month since it was rolled out in April. She said Denny's planned to improve the menu with new food items and support it with additional advertising.
"We believe that value-oriented everyday affordable menu item supported by focused marketing efforts, improved hospitality and execution in our restaurant will continue to drive momentum throughout our system," she said.
Refurbishment of restaurants
Denny's said it will launch a "refresh" program this year to refurbish its restaurants.
“The refresh is a scaled-down version of a full remodel that focuses on elements visible to our guests, including interior and exterior paints, new carpets and [booth] refurbishment," Smithart-Oglesby said.
She said the refresh program costs around $50,000 per unit, compared with $250,000 for a full remodel. The program starts this year with 50 corporate restaurants, the company said, and franchised restaurants are expected to follow next year.
Growth at travel plazas and nontraditional venues
Denny’s said it has completed 21 conversions of Flying J travel plaza restaurants and expects to convert 80 units this year out of a total of 140 planned as part of its agreement with Pilot Flying J.
Denny’s also said it expected to add more units on college campuses as part of an agreement signed earlier this year with Gaithersburg, Md.-based contractor Sodexo USA. The company’s current plans call for three more university campus locations in addition to the site it opened during the first quarter at Cal State San Bernardino University in San Bernardino, Calif.
Spartanburg, S.C.-based Denny's operates or franchises 1,556 family-dining restaurants.
Contact Elissa Elan at [email protected].