Denny’s Corporation (DENN)’s second-quarter 2010 earnings of 5 cents per share came below the Zacks Consensus Estimate of 7 cents and the prior-year quarter’s earnings of 9 cents.

Total revenue declined 13.3% year over year to $135.1 million. Sales at company-operated restaurants plunged 16.1% from the year-earlier quarter to $105.3 million mainly due to the sale of some company-owned restaurants to franchisees under the Franchise Growth Initiative (FGI) program.
 
Franchise and license revenue inched down 1.7% to $29.8 million due to a decline in revenues from franchise fees and royalties by a respective $0.6 million and $0.2 million, partially offset by a $0.2 million rise in franchise occupancy revenue.  The drop in royalty revenue was on account of negative same-store sales, offset somewhat by the addition of 49 franchise restaurants.

 Same-store sales fell 6.2% at company-operated units and 5.9% at franchised units. Same-store guest counts were down 3.7% but were sequentially stronger in each month of the quarter indicating Denny’s strongest guest count performance since the first quarter of 2009. The traffic turned positive in July at 1.8%. The improvement in guest count can be attributed to the company’s value menu, which was well accepted by consumers.

Company-operated restaurants’ operating margin dropped 50 basis points (bps) to 13.8%, while franchise operating margin fell even deeper by 210 bps to 62.6%. Margins were hurt by higher overhead costs and lower franchise revenue. 
 
Store Update

During the quarter, Denny’s franchisees opened seven new restaurants, closed ten restaurants and purchased nine company units. 
 
Financial Position

 Denny’s ended the second quarter with cash and cash equivalents of $21.7 million and shareholders’ deficit of $112.9 million.
  
Outlook 

For fiscal 2010, Denny’s expects its company-operated same-store sales to be at the lower end of its pervious guidance of negative 4% to negative 2% and franchise same-store sales to be at the lower end of the previous guidance range of negative 5% to negative 3%.
 
Denny’s plans to open 11 new company units compared with the previous guidance of 6 units while new franchise units are expected to rise to 100 from the earlier projection of 35.
 
 

 
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