Denny's Continues Shift to Franchises

SPARTANBURG, SC-Denny’s Corp. is continuing its plan to increase its percentage of franchise-owned units, which should result in new-restaurant growth, executives said at the company’s first quarter conference call.

During the quarter, the company opened 11 new restaurants (10 franchised and one company-owned), and sold 30 units to franchisees. Overall, the company has sold 239 restaurants to franchisees since the 2007 launch of its Franchise Growth Initiative. The high-margin income generated as a franchisor now exceeds the income contribution of company-owned restaurants, noted Nelson Marchioli, president and chief executive officer.

“We expect the mix to continue to a more heavily franchised system,” said F. Mark Wolfinger, executive vice president, chief administrative officer and CFO. These franchisees then open additional restaurants, he noted.

Denny’s ended the quarter with a system mix of 82% franchised and licensed restaurants and 18% company restaurants, compared with 66% franchised and licensed restaurants and 34% company restaurants before the FGI program.

For the first quarter of 2009, Denny’s reported total operating revenue, including company restaurant sales and franchise revenue, of $165.8 million compared with $196 million in the prior year quarter. Same-store sales decreased 1.4% at franchised units and increased 0.3% at company units. The company reported earnings of $4.3 million up from $4.1 million in the prior year quarter.

Denny’s consists of 286 company-owned units and 1,260 franchised and licensed units in the United States, Canada, Costa Rica, Guam, Mexico, New Zealand and Puerto Rico.