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Denny's 1Q profit up, sales fall

SPARTANBURG, S.C. Ahead of its annual meeting next week where Denny’s Corp. will face off against a dissident shareholder group looking for board seats, the company reported a 6.5-percent jump in profit for the first quarter and continued sluggish sales.

The parent to the Denny's family-dining chain booked earnings of $4.6 million, or 5 cents per share, for the March-ended first quarter, compared with profit of $4.3 million, or 4 cents a share, in the same quarter a year ago.

Latest-quarter revenue fell 17 percent to $137.6 million, which Denny's attributed to the sale of corporate stores to franchisees, as well as a 6.1-percent decline in systemwide same-store sales.

Denny's noted that same-store sales, while down from a year ago, showed improvement from the last six months of 2009. The latest result also was hurt by severe winter weather in January and February, the company said.

Looking forward, Nelson Marchioli, Denny's president and chief executive, said the company expected to see benefits from an agreement signed in the first quarter to open Denny's restaurants in up to 140 Flying J Travel Centers. Denny's also said it was rolling out systemwide the $2-$4-$6-$8 value menu, which tested well among consumers in certain markets.

"While [the value menu] wasn’t in place long enough to impact first quarter same-store sales, it resonated with consumers in the test markets and based on those strong results we have rolled it out systemwide in the second quarter," Marchioli said. "The entire Denny’s system is very excited about this program and its potential impact on our future sales growth."

Denny's said 10 restaurants opened in the first quarter, including four in Flying J Travel Centers and one express unit at California State University in San Bernardino, which it opened in partnership with contract feeder Sodexo. Spartanburg, S.C.-based Denny's ended the quarter with 237 corporate restaurants and 1,322 franchised locations.

The shareholder group looking to secure three board seats and turn around what it has called Denny’s under performance commented Tuesday on the company’s latest earnings results.

“The board and management have yet to demonstrate that they can effectively turn around the negative comparable sales and guest traffic trends that they themselves have created,” the shareholder group, which has dubbed itself The Committee to Enhance Denny’s, said in a statement. “If these trends are allowed to continue, shareholders are at risk of significant restaurant closures in the near future.”

The shareholder group, led by investors Dash Acquisitions and Oak Street Management, has charged the company with poor management and ineffective marketing tactics. Denny's has fired back, calling the group's board nominees inexperienced and out to serve their own agenda.


Contact Molly Gise at [email protected].

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