Denny's Corporation (DENN)

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Denny’s Corporation (DENN)

Q4 2008 Earnings Call

February 18, 2009 5:00 pm ET


Nelson Marchioli - President and CEO

Mark Wolfinger - Chief Financial Officer

Alex Lewis - Vice President of Investor Relations and Treasurer


Michael Gallo - C.L. King & Associates

Reza Vahab-Zadeh - Barclays Capital

Brian Hunt - Wachovia Capital

Mark Smith - Feltl & Company

Den Kashaba - KSS Capital Partners



Good afternoon. My name is TK, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Denny’s fourth quarter and year end 2008 earnings release conference call. (Operator Instructions). Thank you, Mr. Lewis, you may begin your conference, sir.

Alex Lewis

Thank you, TK. Good afternoon and thank you for joining us for Denny’s fourth quarter and full year 2008 investor conference call. This call is being broadcast simultaneously over the internet and will be available for replay on our investor relation website later tonight.

With me today from management are Nelson Marchioli, Denny’s President and Chief Executive Officer, and Mark Wolfinger, Denny’s Executive Vice President, Chief Administrative Officer, and Chief Financial Officer. We’re going to shuffle our lineup this quarter and have Nelson lead off with an overview of our business and an update of the most popular topic these days, our terrific Super Bowl event. Mark will follow Nelson with a financial review of our fourth quarter results. After that, I will walk through our 2009 guidance and some of the underlying assumptions. After our prepared remarks, management will be available to answer questions.

Before we begin, let me remind you that accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements.

Management urges caution in considering its current trends and any outlook on earnings provided on this call. Such statements are subject to risks, uncertainties, and other factors that may cause the actual performance of Denny’s to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company’s annual report on form 10-K for the year ended December 26, 2007, and in any subsequent quarterly reports on form 10-Q.

With that, I’ll now turn the call over to Nelson Marchioli, Denny’s President and CEO.

Nelson Marchioli

Thank you, Alex, and good afternoon everyone.

Let me start by saying I’m pleased with the adjusted income growth we’ve generated in 2008, despite the considerable economic challenges facing our industry and our country.

The successful execution of our strategic initiatives over the past few years led by our considerable debt reduction, along with the significant shift in our business model, to a franchise focused operation, has increased our operating margins and earnings power, lowered both our business and financial risks and contributed to a renewed restaurant development pipeline.

This transformation is clearly evident in our results. We remain committed to building on the success we have already achieved and optimizing Denny’s business model and will continue to utilize our FGI program to promote growth across the Denny system.

While those efforts continue, we also recognize the critical need to improve our guest traffic trends. Over the past few years, we’ve been able to raise average guest check through proactive menu management and drive intermittent traffic increases through selective discounting; however, we have not been as successful as we had hoped in attracting and retaining light or lapse users that have drifted away from Denny’s over the years.

In 2008, our marketing programs pursued guest traffic growth along two paths – products and value. In terms of products, we began the rollout of our new product pipeline, including a brand new late night menu, our new sizzling skillet line of breakfast and dinner entrees, check builders like our pancake puppies, and of course the handheld version of our grand slam, the grand slamwich.

Our second marketing tactic in 2008 was the promotion of proven Denny’s favorites, particularly those with a strong component. In particular, we let our customers take control of their breakfast with our $5.99 build-your-own grand slam offer. We also responded to the growing economic pressures with our $4.00 weekday express slam.

We launched two other successful initiatives last year, whose benefits we expect to continue going forward. The first was Denny’s all-nighter, which was directed at our primary late night demographic 18 to 24-year-olds. Through aggressive public relations, targeted marketing and a staggered rollout of new late night only products, we moved late night from our most challenged day part before the all-nighter launch to our best performer thereafter.

We also launched our first comprehensive to-go initiative. Without considerable advertising support, we have seen our take-out mix of total sales increase this year from less than 3.5% of sales before the launch to approximately 5% at yearend. We now incorporate to-go into our new product development and operational design to ensure we continue to execute it in a quality manner.

While we have generated incremental benefits from these programs, our real challenge is driving sustained traffic growth. This became even more difficult for full service restaurants as a whole as economic conditions continue to deteriorate. We were as concerned about the economic shock to our customer base and thought a strong value message had a chance to break through for us. Therefore, we made an incremental investment in television advertising over the Thanksgiving holiday and again from Christmas to New Year’s.

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