Despite Restaurant Sales Drop, Denny's Says Corporate Earnings Look Good
Casual dining chain, Denny's Corp, announced that it expects to meet or exceed its $20 million forecast of adjusted income before taxes for 2008. That represents an increase of more than 90% over the prior year. While its bottom line was boostered, its company and franchise same-store sales, a comparison of this year to last year's performance for its established restaurants, were down.
Although the company said its fiscal fourth-quarter same-store sales slipped more for its franchise locations at 7.2% than its company locations at 3.2%, nonetheless, the improvement for the franchisor's 2008 earnings is attributable to growth in its higher-margin franchise business and proactive food cost management, as well as lower depreciation expense from asset sales and lower interest expense from debt reduction.
Nelson Marchioli, President and Chief Executive Officer, stated, "We expect to report continued income growth in the fourth quarter despite the ongoing macroeconomic decline. While driving customer traffic remained difficult, we executed on our strategic initiatives and cost-saving actions in order to protect our operating margins and cash flow.
The Denny's system is now comprised of 80% franchised and licensed restaurants and 20% company restaurants compared with 66% franchised and licensed restaurants and 34% company restaurants prior to the launch of FGI in 2007. In addition to the FGI transactions completed in the fourth quarter, Denny's franchisees opened 12 new restaurants bringing the total number of new Denny's opened across the system in 2008 to 34, which represents a 48% increase in new restaurant development over the prior year.
WRITER'S NOTE: Look how the increased revenues are in part attributed to a shift away from company-owned units and toward "higher margin franchised business."
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