Denny's Corporation (DENN)

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Denny’s Corporation (DENN)

Q3 2010 Earnings Call

November 2, 2010 5:00 p.m. ET


Enrique Mayor-Mora - VP of IR

Debra Smithart-Oglesby - Interim CEO

Mark Wolfinger - EVP, ADO and CFO


Michael Gallo – CL King

Mark Smith – Feltl & Company

Sam Yake - BGB Securities



Good afternoon, my name is TaMika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Denny's third quarter 2010 earnings release. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Mr. Enrique Mayor-Mora, Financial Planning and Investor Relations Officer. Mr. Mora, you may begin.

Enrique Mayor-Mora

Thank you, TaMika. Good afternoon, and thank you for joining us for Denny's third quarter 2010 investor conference call. This call is being broadcast simultaneously over the internet.

With me today from management are Debra Smithart-Oglesby, Denny's Interim Chief Executive Officer and Board Chair, who is traveling and calling in from Dallas; and Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer, and Chief Financial Officer, who is here in Spartanburg, South Carolina.

Debra will begin today’s call with an overview of our business and our strategic initiative. After that, Mark will provide the financial review of our third quarter results. I will conclude the call with a review of Denny's full-year guidance.

As a reminder, the 10-Q will be filed by Monday, November 8.

Before we begin, let me remind you that in 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 risk, 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 30, 2009, and in any subsequent quarterly reports on Form 10-Q.

With that, I will now turn the call over to Debra Smithart-Oglesby, Denny's Interim CEO and Board Chair.

Debra Smithart-Oglesby

Thank you Enrique, and good afternoon everyone. I’ll be talking to you today about my areas of focus as the Interim CEO and the progress that we’re making against these priorities.

Now specifically, these include building a world-class leadership team, a commitment to driving guest count growth, the solid execution of the Flying J conversion, the refinancing of Denny's debt to a lower cost credit facility, and the initial findings from our cost structure review. And then additionally, I’ll touch on for a few moments our recent announcement that Denny's is testing a fast-casual café concept.

We continue to make progress in the third quarter in building the Denny's leadership team. As we discussed in our second quarter call, we brought aboard Frances Allen as our new Executive Vice President/Chief Marketing Officer back in July. This past September, we added Robert Rodriguez as an Executive Vice President/Chief Operating Officer. Robert brings 30 years of the industry experience including leadership positions with Dunkin Brands, McDonalds, and Pepsico.

The Denny's Board remains active in its search for a Chief Executive Officer. And we’ve engaged an international executive search firm, Spencer Stewart, to assist us in this search. As soon as the search is complete, Denny's will name its CEO and we expect that will occur by the end of this year.

We also continued in the third quarter to benefit from the active participation of our franchisees. Now, that was including two of our largest franchisees, Bob Langford and Bill Cox, each who have over 30 years of restaurant industry experience.

This partnership has supported our ability to act quickly. And to efficiently execute on the initiatives while giving us continued opportunity to build strong relationships throughout our franchise community as a whole.

Across the company, we have all been committed to driving sales and guest count growth. In the second quarter with the strong support of our franchisees, we launched nationally the 2-4-6-8 Value Menu in combination with limited-time offers at attractive value price points.

Now under this everyday-affordability platform, we’ve seen our guest count performance improve every month since the national rollout of this program. From April through September, our guest counts improved sequentially from a negative 5.6% up to a positive 2.3%. That’s an eight point improvement during this period of time.

And importantly, we continue to see positive progress in key markets across the country, including California, Texas, and Florida. The third quarter saw Denny's exceed the guest count performance of the mid-scale segment.

In the third quarter, we refreshed our 2-4-6-8 Menu, introduced a new build-your-own omelet limited-time offer, and we continued to see the redemption rates from our AARP program increase as well.

We also leveraged heavier media weight this year due to the reallocation of funds within our national advertising fund, and through the growth of our local marketing cooperatives, which now cover about 60% of our sales.

We continue to believe that value-oriented everyday affordable menu items supported by very focus marketing, improved hospitality, and execution at our restaurants will continue to drive this momentum throughout our system.

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