SPARTANBURG S.C. A group of Denny’s Corp. shareholders said Tuesday it would nominate three outside executives to the restaurant company’s board of directors in an attempt to turn around what it called a “significant destruction of shareholder value.”
The group of shareholders, represented by Oak Street Capital Management LLC and Dash Acquisitions LLC, collectively owns 6.5 percent of Denny’s common stock, and will nominate Patrick H. Arbor,a director of Macquarie Futures USA Inc., Jonathan Dash, president Dash Acquisitions, and David Makula, founder and managing member of Oak Street Capital Management. A shareholder meeting date has yet to be announced, although they are typically held each year in May. The dissident shareholders said their frustration rests in Denny’s chief executive Nelson Marchioli, a more than 50-percent decline in share price during the past five years, a failure to grow restaurant count — ceding the top family-dining spot to IHOP — and continued declines in guest traffic. “The weaknesses of Denny’s management have forced us to seek changes to the board in the interest of all shareholders,” the group said in a statement. “If the status quo is maintained, we are deeply concerned that the company’s future will mirror its past. “Shareholders cannot afford to allow the board and management to have more time to implement an effective strategy,” the statement continued. “We will not linger on the sidelines at this critical juncture.” Denny’s, which is based in Spartanburg, S.C., and operates or franchises more than 1,550 restaurants, said via e-mail late Tuesday that it is “reviewing the proxy and has no further comment at this time.” The family-dining operator has been struggling against a slowed top line for some time, but has made strides with its bottom line through cost cutting, a refranchising effort and debt reduction. Its 2009 results included net income of $41.6 million, or 42 cents per share, from year-earlier earnings of $12.7 million, or 13 cents per share. Its latest annual revenue fell 20 percent to $608.1 million, mainly on a reduced corporate restaurant count because of refranchising efforts. Denny’s 2009 same-store sales fell 3.7 percent at corporate units and 5.2 percent at franchised locations. For 2010, Denny’s said it expects same-store sales to remain negative. Attempting to drive traffic, Denny’s has looked toward free or lower-priced promotions, including its Grand Slam Giveaway and a new menu test — dubbed Right on the Money — featuring a selection of 15 items priced at $2, $4, $6 and $8. Denny’s began testing it in January in six U.S. markets mostly in the West. The shareholder group, in alengthy press announcement, said it is looking to change leadership to help reverse the negative sales trends, halt sales of corporate restaurants at low prices, restore unit growth, create a pay-for-performance culture, and reduce operating expenses by at least $15 million. The group added that it wanted to “refocus marketing efforts on a consistent value message, not on marketing gimmicks that send the wrong message and attract the wrong customer base.” Joey Terrell, a two-unit Denny’s franchisee in the Chicago area, said he supports CEO Marchioli. “Before Nelson came to the brand, Denny’s had a lot of bad branches out there,” Terrell said. “But when he got there, he went around and pruned some of those branches; he made us stronger, leaner and more customer-friendly. There are always times when someone is dissatisfied with the top executives, but I never think of getting mad at someone for doing something. I get mad if they don’t do anything.” Terrell added that he was pleased with customer response to Denny’s latest Grand Slam Giveaway promotion, saying it has increased his sales since it debuted last year. “I do know that [the promotions] do work,” he said. “It’s very important to let the customers know we want to do something for them, especially in this terrible economy. The intent [behind the campaign] was to get back our lapsed users and I think it basically succeeded. We’ve done them and done well. And [franchisees] at other stores have told me they’ve done well with them, too.” Elissa Elan contributed to this report. Contact Sarah E. Lockyer at [email protected].