Denny's eyes higher food costs, price hikes

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“Given what we have learned on campuses and that venue, we are excited about the future potential of it,” he added. “We do believe that a smaller-footprint Denny’s can assist the brand, especially in penetrating those urban centers the farther east you go, New York, Boston, D.C. and markets like that, where there could be some tremendous upside.”

This year, franchisees will open five Denny’s units on college campuses, which is down from the 10 such openings originally cited in guidance by the franchisor. The chain operates both food court restaurants and fast-casual units on campuses.

Miller said Denny’s is bullish on opening restaurants at colleges, but noted the learning curve in timing new unit development as the company deals with two new franchisee groups: universities and multinational contract foodservice organizations.

“We are very excited about the 11 university units we have opened since the beginning of 2010 and the attractiveness of the Denny’s brand in new distribution points,” Miller said. ”Although we do not expect to open any more university units in 2011, we remain focused on building our pipeline for 2012 and beyond.”

Other highlights from the call:

• Denny’s Corp. repaid another $10 million of term debt in the third quarter, Wolfinger said.

“We’ve reduced debt by $320 million, or 58 percent, since the end of 2005, lowering interest expense by $33 million, when comparing full-year 2005 to the last 12 months,” he said.

• Focus is shifting to franchising.

“The franchise side of our business contributed 59 percent of the gross profit margin in the third quarter, which is $6.5 million more than our company restaurants,” Wolfinger said. “The income shift to a franchise focus business model allows us to increase the predictability of our earnings.”

• At the end of the third quarter, Denny’s Corp. had sold a total of 327 units to franchisees since 2007 as part of its goal of operating just 10 percent of systemwide units. About 87 percent of the system is now operated by franchisees, Miller and Wolfinger said.

Denny’s expects to achieve its desired 10-percent/90-percent ratio by the end of 2012, and plans to sell another 40 to 50 units in the next 15 months.

Contact Alan J. Liddle at alan.liddle@penton.com.
Follow him on Twitter: @AJ_NRN