Denny's 3rd-Q profit soars on refranchising efforts

SPARTANBURG S.C. Denny’s Corp. said Tuesday that despite a sales slowdown at its family-dining chain, its third quarter profit more than doubled because of its successful refranchising initiative, which led to lower interest expense from debt reduction, improved restaurant margins from the sale of underperformers, and lower depreciation from asset sales.

For the quarter ended Sept. 24, Denny’s earned $10.6 million, or 11 cents per share, compared with year-ago earnings of $5 million, or 5 cents per share.

Since early 2007, Denny’s has undertaken efforts to sell corporate restaurants to franchisees and to sell owned real estate assets. The company began the refranchising initiative to lower the number of corporate stores and associated operating costs, garner proceeds to reduce its debt burden, and “optimize its restaurant portfolio,” it has said.

The strategy reduces corporate revenues because of the lower corporate store count. In the latest quarter, Denny’s revenues fell to $189.3 million, compared with $241.4 million in the year-ago quarter.

Denny’s, which operates or franchises 1,538 family-dining restaurants, said that during the latest quarter it sold 21 restaurants to six franchisees, bringing the total number of corporate restaurants sold through October to 62, and the number of restaurants sold since the company’s refranchising program began in early 2007 to 192.

Because of its profit improvement so far this year, Denny’s raised its full-year guidance for adjusted income before taxes to about $20 million, a 90-percent increase from 2007.

Its success on the bottom line did not come from positive sales momentum. Denny’s same-store sales fell 2.7 percent at corporate restaurants, the company reported, and fell 6.1 percent at franchised locations. The company said its sales will continue to be challenged this year by the difficult economic environment, and that it expects same-store sales to fall between 1 percent and 2 percent at corporate restaurants and to drop between 4 percent and 5 percent at franchised units.