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Denny's 2Q profit up despite falling sales

SPARTANBURG S.C. Denny's Corp. continued to battle falling sales in the second quarter as rising unemployment and reduced consumer confidence took a toll on customer traffic at its namesake family-dining brand.

For the quarter ended July 1, Denny's reported net income of $9.3 million, or 9 cents a share, compared with profit of $3.1 million, or 3 cents a share, a year ago, when the company booked $6.4 million more in restructuring charges.

Latest quarter revenue fell 18.1 percent to $155.8 million, Denny's reported. Company officials attributed the drop in revenue to soft sales and 97 fewer company-owned restaurants.

Second-quarter same-store sales decreased 2.7 percent at company stores, which reflected a 4.9-percent decline in guest counts partly offset by a 2.3-percent higher average check, Denny's reported. Same-store sales declined 4.7 percent at franchised locations.

“I am pleased that Denny’s continues to deliver growth and profits despite the increased and ongoing pressures on same-store sales in the restaurant industry due to the challenging consumer environment,” Nelson Marchioli, Denny’s president and chief executive, said Tuesday in a conference call with investors.

Mark Wolfinger, Denny’s chief financial officer, said cited decreased consumer confidence and rising unemployment as the main reasons for the drop off in customer traffic. He noted that 41 percent of the chain’s restaurants are located in areas hardest hit by the recession: Arizona, California and Florida.

Denny's focused much of its value efforts in the second quarter on breakfast with an Everyday Value Slam for $3.99 in June and a Grand Slamwich giveaway in April. Marchioli said the promotion, in which customers purchased the sandwich and received another free for a guest, "helped produce the strongest comp-sales track we’ve had in four years.”

Marchioli said Denny's also continued to offer more diversified menu items, including new entrees, salad and beverages, that appeal to additional day parts besides breakfast. He added that the chain remains “proactive on offering healthier choices to guests, including reduced sodium items." Denny's is currently facing alawsuit from the Center for Science in the Public Interest, which accuses the company of perpetrating fraud for not disclosing the amount of salt in its menu items. The case is pending.

In the second quarter, Denny’s sold 22 restaurants as part of its Franchise Growth Initiative program. Currently 83 percent of Denny’s stores are franchisee owned and operated. During the quarter, franchisees opened 10 new stores and closed 11.

At the end of the quarter, Denny's operated or franchised 1,544 locations.

For fiscal 2009, Denny's reaffirmed earlier guidance that called for a continuation of negative same-store sales trends, including declines ranging between 1 percent and 3 percent at company stores and 3 percent and 5 percent at franchised restaurants. Adjusted income before taxes is expected to range between $15 million and $20 million in 2009, compared with $23.2 million last year.

Contact Elissa Elan at [email protected].

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