Denny's Management Discusses Q2 2012 Results - Earnings Call Transcript

Denny's (DENN)

Q2 2012 Earnings Call

July 31, 2012 5:00 pm ET

Executives

Whit Kincaid

John C. Miller - Chief Executive Officer, President and Director

F. Mark Wolfinger - Chief Financial Officer, Chief Administrative Officer, Executive Vice President and Director

Analysts

Will Slabaugh - Stephens Inc., Research Division

Michael W. Gallo - CL King & Associates, Inc.

Anton Brenner - Roth Capital Partners, LLC, Research Division

Mark E. Smith - Feltl and Company, Inc., Research Division

Michael Halen - Sidoti & Company, LLC

Conrad Lyon - B. Riley & Co., LLC, Research Division

Presentation

Operator

Good afternoon. My name is Lacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Denny's Second Quarter 2012 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Whit Kincaid, Senior Director of Investor Relations. Please go ahead, sir.

Whit Kincaid

Thank you, Lacy. Good afternoon, and thank you for joining us for Denny's Second Quarter 2012 Investor Call. This call is being broadcast simultaneously over the Internet. With me today from management are John Miller, Denny's President and Chief Executive Officer; and Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer. John will begin today's call with his introductory comments. After that, Mark will provide a financial review of our second quarter results. I will conclude the call with commentary on Denny's 2012 full year guidance. As a reminder, we will be filing the 10-Q by the due date of August 6.

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 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 most recent annual report on Form 10-K for the year ended December 28, 2011, and in any subsequent quarterly reports on Form 10-Q.

With that, I will now turn the call over to John Miller, Denny's President and CEO.

John C. Miller

Thank you, Whit. Good afternoon, everyone. We are pleased with our second quarter results as we continue down the path of reenergizing Denny's. We achieved our fifth consecutive quarter of system-wide same-store sales increasing while growing our adjusted income before taxes 35% and generating $15 million of free cash flow. It is a testament to the resilience of our 59-year-old brand that we have been able to achieve these results in this challenging economic environment. We are most appreciative to our loyal guests and their guidance and their response in reenergizing Denny's. Our franchise-focused business model provides financial stability and flexibility, while enabling us to generate significant free cash flow that could be used to further strengthen our brand and increase long-term shareholder value. We remain focused on executing against our 3 key objectives implemented to help Denny's become one of the largest American full service restaurant brands in the world.

Our first key objective is the revitalization of Denny's heritage as America's Diner, which provides the promise of everyday value, crave-able cooking of family favorites and indulgent items served in a come-as-you-are friendly and inviting atmosphere. We now have 6, going on 7, quarters under our belt with our America's Diner brand positioning efforts. But this is our compass. We are at the beginning stages of effectively broadening our approach from the more narrowly focused breakfast-all-day platform.

Contributing to our second quarter results was our Build Your Own Pancakes Limited Time Only module, which played off the strength of our Build Your Own Grand Slam platform. It delivered upon our guests' desire for customization, while also offering add-on and upsell opportunities. The module performed well, as we saw higher-than-expected number of customers ordering our signature pancake creation rather than build-their-own creation. We were also pleased to see that our breakfast daypart traffic increased sequentially and was the strongest performing daypart in the quarter.

As we entered the summer season, we brought back our successful Tour of America module, which will run until mid-August. Back by popular demand our the classic diner items like the Philly Cheesesteak Omelette and the Midwestern Meat & Potatoes Sandwich with new additions to the lineup like the Red, White and Blue Pancake Breakfast, Malibu Fish Tacos, Brooklyn Spaghetti & Meatballs, our Southern Slam and the Florida Sunshine Salad. Per check driving add-on sales, we brought back the popular Strawberry Pancake Puppies and introduced the new Red Raspberry Smoothie along with the new and innovative dessert, the Apple Crisp Milk Shake Parfait. Most importantly, we are pleased to report this sequel mixes at a higher level than last year's module.

In conjunction with the launch of our Tour of America Limited Time Only menu, we launched a new core menu during the quarter, which leverages our successful America's Diner positioning. The menu introduces clever references to our heritage as your local diner with what we call diner-ism, along with appropriate iconography bridging days-gone-by to today. One of these is the use of the classic diner bell you hear when your order is up. This iconic symbol is used to identify Denny's guest favorites: items such as Moons Over My Hammy, the Super Bird and the All-American Slam on the menu.

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