Denny's Posts Upbeat Prelim Results

Denny’s Corporation (DENN - Snapshot Report), engaged in the ownership and operation of a chain of family-style restaurants, recently announced the preliminary same-store sales and unit growth results for the upcoming fourth quarter and fiscal 2011. The same-restaurant sales remained positive benefiting from higher traffic.

For fourth quarter 2011, the company’s system-wide same-restaurant sales (comps) have upped 1.5% on 1.0% upside in company-operated units and 1.7% climb in franchised units. This was a solid improvement compared with the 1.4% decline in overall same-restaurant sales recorded in the year-earlier quarter. This represents the third consecutive quarter of positive same-store sales growth.

For 2011, the Spartanburg, South Carolina-based company has recorded same-store sales growth of 0.8% at company-owned units, which is within management’s guided range of flatto positive 1% and achieved 0.6% growth at franchised units, better than management’s forecast of negative 0.5% to positive 0.5%. Thus, system-wide comps for the fiscal year inched up 0.7%. However, in 2010, the company witnessed a plunge of 3.7% in system-wide comps due to a dip of 3.6% in company-operated units and 3.7% in franchised units.

The preliminary comps results were quite encouraging, particularly when consumer spending remains cautious due to uncertain economic conditions. We believe that Denny's sales and guest-driving initiatives to attract customers are paying off.

Moreover, Denny’s reaffirmed its adjusted EBITDA guidance of $80 million to $83 million and adjusted income before taxes between $36 million and $39 million for 2011.

The company also succeeded in achieving its net unit openings target for 2011. In 2011, Denny’s opened 62 new restaurants, with 54 franchised units and 8 company-owned units. The company also closed 35 restaurants in the same period. During the fourth quarter, Denny’s purchased 17 company-owned units and opened 8 franchised restaurants.

The Zacks Consensus Estimates for fiscal 2011 and 2012 are pegged at 32 cents and 40 cents, respectively. The estimates have not budged in the last 60 days, implying that the analysts expect the company to report in line results.

Denny’s, which competes with Cracker Barrel Old Country Store, Inc (CBRL - Snapshot Report) and DineEquity, Inc (DIN - Snapshot Report), expects to report fourth quarter 2011 results on February 15, 2012.

Denny’s currently retains a Zacks #3 Rank, implying a short-term Hold rating on the stock. Our long-term recommendation for the stock remains Neutral.

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