Denny's 3Q net drops nearly 20%
Editor's Note: A previous version of this story has been updated to include the correct number of restaurants opened and closed during the thrid quarter.
Denny’s Corp. reported Tuesday a 19.2-percent decline in profit for the third quarter, citing impairment expenses and reduced corporate revenue.
The Spartanburg, S.C.-based family-dining company said net income fell 19.2 percent to $8 million, or 8 cents per share, for the quarter ended Sept. 28, compared with $9.9 million, or 10 cents a share, in the same quarter last year. It booked $2.2 million in impairment expenses in the latest quarter, related to underperforming units.
Third quarter corporate revenue fell 2.3 percent to $136.7 million. Denny’s said it booked reduced franchise revenue on comparisons to the same quarter a year ago, when a 42-unit conversion deal with Flying J. Travel Centers boosted revenue significantly. That reduction was partially offset by new units and increased same-store sales.
Systemwide same-store sales rose 0.9 percent, with a 0.8-percent increase at franchised units and 1.1-percent gain at company-operated locations. Same-store guest counts at company restaurants decreased 0.2 percent, it said, noting that two-year same-store guest counts remained a positive 2.1 percent.
During the quarter, the company opened two new restaurants, closed one and refranchised three to end the period with 223 locations, while franchisees and licensees added a net two units to end with 1,454 restaurants, for a total of 1,677 units systemwide. A year earlier the system ended the quarter with 1,612 restaurants in all, including 232 company and 1.380 franchised locations.
“Denny’s generated positive same-store sales and positive two-year same-store guest counts in the face of a very challenging consumer and inflationary economic environment,” John Miller, president and chief executive, said in a written earnings release. “This is a testament to the success of our positioning as America’s favorite diner, emphasizing everyday affordability with attractive limited time only products.”
Company restaurant operating margin, as a percentage of company restaurant sales, was 14.1 percent, a decrease of 0.8 percentage points compared with the prior year quarter. Denny’s cited higher product and labor costs, among other factors.
For the nine months ended Sept. 28, the company reported a 1-percent increase in net income to $20.2 million, or 20 cents per share, compared with $20 million, or 20 cents, a year earlier. Revenue fell 1 percent to $408.3 million.
Denny’s said it now anticipates full-year same-store sales for company units to be between 0.0 percent, or flat, and 1.0 percent, and same-store sales for franchise units to be between -0.5 percent and 0.5 percent. It also expects between 60 and 62 new unit openings for 2011, including 23 Flying J conversions, five university units, three international units. It will not be opening new Denny’s Fast Casual test units.
Denny’s previously had forecast full-year same-store sales of from negative 1 percent to positive 1 percent for both company and franchised locations, and said it would add a total of 70 to 75 restaurants.