) recently reported third quarter 2012 earnings of 6 cents per
share, missing the Zacks Consensus Estimate of 9 cents and
year-ago quarter earnings of 8 cents per share.
Total revenue declined 11.6% year over year to $120.9 million,
but surpassed the Zacks Consensus Estimate of $119.0 million.
During the quarter, sales at the company-operated restaurants
declined 17.3% year over year to $86.6 million, due to 49 less
operating units as compared to the prior year, as well as muted
growth of same-restaurant sales.
Franchise and license revenue increased 7.3% to $34.4 million,
attributable to an improvement in occupancy and a $0.9 million
increase in royalties, propelled by 60 additional franchised
restaurants in operation at the end of the quarter compared with
the year-ago quarter.
System-wide same-restaurant sales (comps) nudged up 0.4% based on
0.6% growth in franchised units partially offset by a 0.5%
decline in company-operated units. System-wide comps marked the
sixth consecutive quarter of positive comps.
However, the improvement was lower than a 2.0% growth in overall
comps witnessed in the year-earlier quarter. Same-store guest
count fell 2.2% but guest check average inched up 1.8%. While
same-store guest count exhibited a downward trend from the
year-ago level, guest check showed signs of improvement.
Company-operated restaurants' operating margin enhanced 60 basis
points (bps) to 14.7% due to lower utilities, marketing, legal
settlements as well as occupancy and other operating costs.
Franchise operating margin declined 150 bps to 64.9%. Hence,
total operating margin expanded 260 bps to 29.0%.
During the quarter, Denny's closed 9 system-wide units, including
one company-owned and 8 franchised and licensed restaurants. The
company did not open any company-owned unit in the quarter but
unveiled 12 franchised ones. The company also refranchised 5
units in the quarter. At quarter-end, the company had 171
company-owned and 1,516 franchised and licensed restaurants.
Denny's plans to end the year 2012 with 46-48 new restaurants.
Denny's ended the quarter with cash and cash equivalents of $24.1
million and long-term debt of $166.3 million.
The company bought back 2.4 million shares in the third quarter.
For 2012, Denny's slashed its guidance for company-operated
same-store sales growth to the range of flat to 0.5% (prior flat
to 2.0%) and franchise same-store sales to the range of 1-1.5%
(prior 1-3%). Guidance for adjusted income before taxes is
reduced to the range of $45.0-$48.0 million (prior $45.0-$49.0
The franchisor and operator of one of America's largest
full-service restaurant chains also lowered its free cash flow
guidance to the range of $49.0-$52.0 million (prior $51-$55
DENNY'S CORP (DENN): Free Stock Analysis
KONA GRILL INC (KONA): Free Stock Analysis
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We are vigilant about the stock given the company's continued
lower-than-expected results as well as slowdown in key matrices.
Sluggish same-restaurant traffic count and management's cut in
guidance were also matters of concern.
However, we believe, Denny's is still in the transitional stage
and will take some time to stabilize the operation both at
company-owned and franchised units. Continued margin expansion at
company-owned stores amid a value-sensitive business environment
remains another positive factor. To counter the challenging
economy, the company is also actively considering international
Denny's, which competes with the likes of
Kona Grill Inc.
), currently carries a Zacks #4 Rank, which translates into a
short-term 'Sell' rating.