Denny's May Sell Sites

These were some of the topics that officials of Spartanburg, NC-based Denny's discussed with financial analysts last week at the eighth annual ICR XChange Conference here. Nelson Marchioli, president and CEO, and CFO Mark Wolfinger outlined some of the company's plans and answered questions from analysts.

One of the goals as Denny's grows will be to reduce its approximately $550 million in debt, Wolfinger said. Among the steps that the company may initiate to help trim the debt are the possible refranchising of company-owned restaurants to franchisees who might be interested in purchasing them. Anther is the potential sale of real estate.

Wolfinger explained that Denny's operates 440 restaurant sites where it owns both the building and the land. About two-thirds of those 440 are company-owned restaurants and the rest are franchised operations.

The most recent real estate assessments of those sites, about three and a half years ago, showed that the properties were worth an average of about $1 million each. In view of rising real estate values throughout the country, the sites would likely be worth more today.

If Denny's sells, it would initially target sales of restaurants that are operated by franchisees and would offer to sell first to those franchisees, but the goal would be to sell for the highest price possible, Wolfinger said. Marchioli, in answer to questions from analysts, said that each store would be evaluated on a store-by-store basis to determine if it should be sold. "There is not going to be a flat rule here that we are going to go out and sell all of our real estate. In some places it doesn't make sense to sell."

Denny's did not provide specifics on the number of stores it expects to open, but Marchioli said that the emphasis in new store openings would be on franchise growth. The chain operates 543 company-owned units and 1,035 franchised and licensed units, with a reputation primarily as a place for breakfast.

"You're going to hear us talk a lot more about dinner this year as we focus on some of our other day parts," Marchioli said. "We're not taking our eye off of breakfast, but we realize that we have the capacity to do more business, particularly at the dinner hour." He said that the chain will launch national advertising this year to promote dinner at Denny's, but the majority of its advertising "will still be directed toward breakfast, which is our bread and butter."

Marchioli noted that the company has posted nine consecutive quarters of positive same store sales, which he called "particularly remarkable after the many years of negative sales and negative customer counts" at the chain. He said that a recapitalization of the company in 2004 has improved the prospects for expansion and for growth both in the number of stores and the average sales per store.

In expanding, the chain will look for quality sites because success depends on "who you approve to expand and where you allow them to expand," the Denny's CEO said. Wolfinger noted that the company has spent about $175 million in the past four years on remodeling and deferred maintenance of existing stores, with plans to redo about 100 more stores to complete the remodeling program.