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Denny's Corporation (NASDAQ:DENN)

Q2 2010 Earnings Call

August 3, 2010 05:00 am ET

Executives

Enrique Mayor-Mora - VP of IR

Debra Smithart-Oglesby - Interim CEO

Mark Wolfinger - EVP, ADO and CFO

Analysts

Michael Gallo - CLK

Sam Yake - BGB Securities

Mark Smith - Feltl & Company

Tony Brenner - Roth Capital Partners

Brain Hunt - Wells Fargo Securities

Presentation

Operator

Good afternoon, my name is Patrick and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2010 Earnings Release Conference Call. (Operator Instructions). I would now like to turn the call over to Vice President of Investor Relations, Mr. Enrique Mayor-Mora you may begin your conference, Sir.

Enrique Mayor-Mora

Thank you, Patrick. Good afternoon and thank you for joining us for Denny’s second 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; and Mark Wolfinger, Denny’s Executive Vice President, Chief Administrative Officer and Chief Financial Officer. Debra will begin today's call with an overview of our business and our strategic initiative. After that Mark will provide a financial review of our second quarter results. I will conclude the call with the review of Denny’s full year guidance. As a reminder, the 10-Q will be filed today.

Before we begin, let me remind you that in accordance with the Safe Harbor provision 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 as any outlook on their 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 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 will be talking to you today about my primary areas of focus as the Interim CEO and the progress we are making against those priorities. Specifically, these include building a world class leadership team, a commitment to driving guest count growth and ultimately sales to solid execution of the Flying J conversion, our re-initiation of a full review of our cost structure, and I will touch in our recent roll out of the facilities refresh program and then lastly we do continue to refranchise company units and pay down our debts.

We are making solid progress building the Denny’s leadership team. Following the departure of our previous CEO we immediately put in place a steering committee to provide leadership to the organization, this mainly consisted of myself, Mark Wolfinger, our Chief Financial and Administrative Officer; and two of our Denny’s franchisees. Each of these franchisees has over 30 years of experience in the restaurant industry and a combined 30 years of direct experience with the Denny’s brand. The contributions of these two large franchisees Bob Langford and Bill Cox have supported our ability to quickly and efficiently execute on our initiative while giving us the continued opportunity to build strong relationships throughout our franchisee community.

Late in July, we hired our new Chief Marketing Officer, Francis Allen. Francis is a marketing and food industry veteran and brings nearly 25 years of restaurant and retail experience to Denny’s, including leadership position that she held with Duncan Brand, Pepsi Cola, Sony Ericsson and Frito Lay. Francis will be responsible for leading brand development, executing marketing strategies and campaigns, advertising new programs and products across the Denny’s brand to drive sales, profitability and value. The Denny’s board of directors also recently announced that Gregg Dedrick had been appointed to our board.

Gregg has held senior executive positions at KFC, Yum brand, Pepsi Cola and Pizza Hut and he brings nearly 30 years of experience and operations and organizational resource planning in franchise based restaurant system. So we’re glad to have him as an addition to our board as well. We remain active in our search for Chief Operating Officer and Chief Executive Officer. We have engaged an international executive search from Spencer Stewart to assist us in completing the CEO's search.

Across the company, we are all committed to driving sales and guest count growth. In the second quarter with the strong support of our franchisee, we launched nationally, the $2 $4 $6 $8 Value Menu and our Skillet limited time offers with attractive value price point starting at $399, $499 and $599. These are our current key offerings to support our everyday affordability value platform. And we’ve been pleased with the results so far. Similar to the results of the $2 $4 $6 $8 cast earlier this year. We are seeing that the national roll out bills gets traffic overtime.

In fact, our guest count performance has improved every month since the national rollout of the program began. From April through June debt counts have improved sequentially from a negative 5.6 to negative 3.5 to negative 2.9 and in July we continued this improving trend with company unit guest counts at a positive 1.8 and sales down 1.7. Now importantly, we’ve seen this improving trend in our key markets across the country including California, Texas and Florida.

These trends have also allowed us to begin to narrow the performance gap that we’d experienced to the mid-sales segment. Now looking ahead, we will continue to utilize and promote our everyday affordability proposition. Through a refreshed $2 $4 $6 $8 menu that will include new items as well as compelling new LTOs with attractive price flowing.

We will be able to support this positioning, we will utilize [heavier meatier] ways than last year due to the reallocation of funds within our national advertising funds and through the growth of our local marketing cooperatives which now cover 60% of our sales.

We believe that value oriented everyday affordable menu item supported by focused marketing efforts, improved hospitality and execution in our restaurant will continue to drive momentum throughout our system. Furthermore, to support our marketing initiative we will be rolling out a facilities refresh program to our system. The refresh is a scale down version of a full remodel that focuses on elements visible to our guest including interior and exterior paints, new carpets and [booth] refurbishment.

This refresh cost approximately $50,000 per unit versus a full remodel of $250,000. We’ve tested the scope over the past year in several of our markets in partnership with our franchisees and we’ve seeing an approximate 2% lift in guest account in those units with the refresh. As the franchise door, we will lead in this process and anticipate 50 company unit to be refreshed in the back half of this year. Our expectation is that our franchise community will follow in 2011.

Let me discuss now our plan and execution of the Flying J conversion. Immediately after the FTC approved the Pilot-Flying J merger, we announced to our intention to convert 80 Flying J sites this year out a total opportunity of 140. Since our announcement in early July we have converted 16 Flying J site bringing our year-to-date number to 21. These include eight company and 13 franchise side. The unit level sales have definitely met our initial expectations and we will provide an update to this as we continue to roll out the conversion.

Our traditional unit growth continues to benefit from strong franchisee interest in our brand. In the second quarter, our franchisees opened six new traditional units, bringing our year-to-date openings to 12. We’re also pursuing opportunities on university campuses across the country based on initial reads of guests and partner acceptance, we anticipate openings three more campus locations this year in addition to the site that we opened accounts date San Bernardino in the first quarter in partnership with Sodexho.

We believe that the investment being made by our partners and our franchisees in opening new Denny’s restaurant demonstrates the strength and the potential of this brand. In the second quarter, we refranchised nine company units to franchisee. This brings our franchise growth initiative program to-date to a total of 299 units or 58% of our preprogram based of company unit.

We have also garnered commitments for future 100 units through this program. So looking forward, we are committed to continuing to sell targeted company units and obtaining that 90% franchise mix from our current franchise mix of around 85% at the end of second quarter. We’ve taken the proceeds from the sale of units in addition to cash flow generated from operations to continue to pay debt down by $10 million and under our current capital structure, we intend on continuing to reduce our debt.

In addition to executing towards our previously communicated strategic priority, we will also be reinitiating a full review of our cost structure to ensure that the resources are all optimally aligned to achieve our priority. Over the past three years, Denny's has consistently taken a short cancel to its cost structure and we’ve been effective in increasing operating efficiency in decrease operating and G&A cost. In fact, we’ve lowered our G&A on a per unit and percent of sale basis to below the medium of our peers and we’ve delivered improving full margins in part by improving both efficiencies and reducing cost in our unit.

Now that being said, we will approach this review with a similar commitment. I expect that we will take a look at everything from our support center to the four walls of our restaurant focusing on those opportunities to improve both profitability and efficiency for both the company and our franchisees.

At this point in time, we are not yet in a position to communicate our expectation but we do intent on updating in sharing that with you at the appropriate time. I will conclude my comments by stating that we recognized that there has been clear leaders in the industry who have been driving sales despite the challenging economic environment and very limited visibility into the near future. We fully intent on taking the Denny's brand back to its rightful place as the leading family dining restaurant chain in the nation, and we firmly believe that we are taking the right steps to achieve this goal, I will now turn the call over to Mark Wolfinger, Denny’s CFO and CAO.

Mark Wolfinger

Thank you Debra and good evening everyone. Our second quarter performance continue to deliver the benefits of our emerging business model, while also showing attraction to our sales and guest driving initiatives. We continue to open new restaurants and announce the beginning of the Flying J conversions which will result in over 100 new Denny’s units this year.

We also refranchised nine company units paid down debt by $10 million, reduced our debt leverage from 3.6 times to 3.2 times and excluding a one time proxy contest related cost incurred this quarter, we grew profitability and free cash flow. As Debra mentioned, we have also started to see an improving trend in system sales and guest count comp within the quarter and into July driven primarily by the roll out of our everyday affordability strategy.

In the second quarter same-store sales at company restaurants decreased 6.2% and decreased 5.9% at our franchise restaurants. Looking at the details for company’s sales performance, we saw a same-store guest count decline of 3.7% in the quarter but this does represent a 1.9 percentage point improvement in trend from the first quarter.

The quarter also saw sequential improvement from month-to-month but carried into July. July posted a positive guest count comp of 1.8% with sales down negative 1.7%. In the second quarter, average guest check decreased by 2.7%, this was driven by our $2 $4 $6 $8 Value Menu and the limited time offering or LTO seasonal Skillet starting at $399. The decline in total company restaurant sales in the second quarter largely reflects the continued impact of our Franchise Growth Initiative or FGI. As sales decreased $20.2 million or 16% due to 37 fewer equivalent company restaurants compared with the same period last year.

Now turning the quarterly operating margin table in our press release. The decrease of 0.5 percentage point in the second quarter for our company operating units was driven by in part by the deleverage driven by negative same-stores sales which was offset by lower restaurant management incentive compensation, lower utility rates, efficiency in gains and labor and the selling of lower margin units through FGI.

Product cost increased by a tenth of a percentage point to 23.35 of sales primarily due to the impact of lower non-ingredient costs and lower commodity cost, partially offset by a higher mix of value priced items. Payroll and benefit cost decreased by four-tenths of a percentage point to 41.2% of sales, primarily due to lower restaurant management incentive compensation as well as efficiency improvements and team labor, partially offset by the deleveraging effect of lower sales and unfavorable worker’s compensation claimed development.

Occupancy expense increased by two-tenths of a percentage points to 6.6% of sales primarily due to the deleveraging effect of lower sales offset by the impact of selling units through FGI. Utility cost increased by two-tenths of a percentage point to 4.2%. Denny's is benefiting from the natural gas and electric rates that have fallen considerably from the levels seen in 2008 and early 2009 as well as from the recognition of $400,000 on losses on natural gas contracts during the prior year quarter.

Repair and maintenance expense decrease a tenth of point to 1.9%. Marketing expenses increased by 0.5% to 4.35% of sales in part due to additional spending related to the Super Bowl and the testing the $2 $4 $6 $8 Value Menu program. These costs are being recognized throughout the year based on sales. Legal settlements increased by a tenth of a point due no cost recognized in the second quarter of the prior year quarter. In summary, the gross profit from our company operations decreased by $3.5 million in a sales decline of $20.2 million.

For the second quarter of 2010, Denny’s reported franchise and license revenue of $29.8 million compared with $30.3 million in the prior year quarter. The $0.5 million decrease in franchise revenue was driven a $600,000 of our decrease and franchise fee revenue and a $200,000 decrease in royalties, partially offset by $200,000 increase in franchise occupancy revenue.

The franchise fee revenue decreased resulted from nine FGI transactions in the second quarter as compared to 22 in the prior year quarter. The decline in royalties was driven by the negative same-store sales offset by an additional 49 equivalent franchise restaurants compared with prior year period.

Franchise operating margin decreased to $1 million to $18.7 million in the second quarter. This decrease was primarily driven by the decrease in revenue in addition to temporary overhead cost associated with converting Flying J sites.

Franchise operating margin as a percent, as a percentage of franchise and license and revenue was 62.6%. A decrease of 2.1 percentage points compared with the same quarter last year. The franchise margin decrease was primarily due to a $600,000 decrease in FGI related franchise fees and temporary overhead cost associated with converting Flying J sites, offset by higher contribution of higher margin royalty revenue generated through FGI. The franchise side of our business contributes 56% of the gross profit which is $4.2 million more than our company restaurants. This income shift continues to allow us to reduce the risk and increased the predictability of our earnings.

General and Administrative expenses for the first quarter decreased $2.8 million or 17.6% from the same period last year. This decrease resulted from a $1.9 million decrease in share based compensation and a $2.6 million reduction in incentive and deferred compensation partially offset by $1.5 million in cost related to our recent proxy contest. The decrease in share based compensation resulted primarily from the change in our stock price during the quarter. Depreciation and amortization expense declined by $700,000 compared with the prior year period, primarily as a result the sale of restaurants over the past year.

Operating gains, losses and other charges on a net basis which reflect restructuring charges, exit costs, impairment charges in gains or losses on the sale of assets decreased $3.6 million in the quarter. The decrease was primarily as a result at a $2.2 million decrease in gains on sale of company restaurants and real estate and $1.8 million increase in restructuring exit cost which includes an $800,000 for the departure of our Chief Executive Officer.

We have received notice at our former CEO is elected to arbitrate the amount. We estimate that the arbitration which will take place by late September could result in payments ranging from $800,000 to $3.2 million.

Operating income for the second quarter decreased to $4.5 million in the prior year period to $12.9 million despite a $20.8 million decrease in total operating revenue attributable primarily the sale of company restaurants and negative same-store sales. The lower operating income interest expense for the second quarter decreased $1.7 million or 20.9% to $6.5 million as a result of the termination of our interest rate swap and a $51.4 million reduction in debt from the prior year period.

Other non-operating expense increased by $1.3 million in the second quarter primarily due to the recognition of $700,000 in losses on the assets on our deferred compensation plan. Because of the significant impact to our P&L from non-operating, non-recurring and non-cash items, we give earnings guidance based on our internal profitability measure, adjusted income before taxes. We believe this measure best reflects the ongoing earnings for our business.

Our adjusted income before taxes in the second quarter was $6.2 million, a decrease of $1.1 million over the prior year period, excluding the $1.5 million of proxy related cost, adjusted income before tax has increased by $400,000.

We are pleased that we are able to generate adjusted income growth despite the difficult sales environment. We believe this success is a direct result of our FGI program, our debt reduction efforts and our cost containment activities. Moving on to capital expenditures, our cash capital spending year-to-date to the second quarter was $6.3 million, a decrease of $1.6 million compared with the prior year period. Facilities and remodeling expenditures have decreased as we’ve reduced our company restaurant portfolio.

We reduced our outstanding debt by $10 million in the second quarter. We will continue to balance our debt reduction goals and our commitments to maintain ample liquidity cushion, our cash balance combined with access to our credit facility at the end of second quarter provided us with ample liquidity of approximately $72 million. Given the challenging environment, we are very pleased to have reduced our debt by $287 million or 52% since mid-2006.

This has driven our debt leverage ratio to 3.21 times as compared to 5.18 times at the beginning of 2006. Our aggressive debt reduction efforts during the last few years have placed us in a position to actively review the refinancing opportunities in the marketplace. As a reminder, our debt maturities are in late 2011 and 2012 and the call premium on our bond steps down to par is October. That wraps up my review of our second quarter results, I will turn the call over to Enrique he will speak to you about the full year guidance.

Enrique Mayor-Mora

Thank you, Mark and good afternoon everyone. Based on year-to -date results and management's expectations at this time Denny's is reaffirming the majority of its financial guidance for the full year 2010 has announced in the fourth quarter 2009 earnings release on February 17 of this year.

The two key exceptions to our previous guidance are first, restaurant unit development which is being increased to reflect anticipated Flying J conversion and university campus opening. And second, cash capital which is being updated to reflect the conversion of certain Flying J units at company operated sites.

Same-store sales are expected to be within our previous range yet at the lower end of the company range of negative 4% to negative 2%and franchise range of negative 5% to negative 3%. In both cases, this represents an expectation that the positive change in trend we experience within the second quarter and then in July will continue in the back half of 2010.

Incorporating Flying J into our new unit development takes our total development to a 111 units up from 41. This will represent the most new Denny’s units built in a year since 2000. 80 of the units are anticipated to be Flying J conversion. For the company, we expect that there will be a total of 11 new builds, 10 Flying J sites, one of which four opened in the first quarter and one traditional unit in Hawaii.

We are expecting franchisees and licensees to open 100 total units this year, 70 Flying J sites and 76 traditional Denny's and four university sites. Adjusted EBITDA is expected to be at the lower end of the original guidance of $71 million to $75 million. This guidance excludes any restructure cost related to the departure of the former CEO.

Adjusted income before taxes, our internal profitability metric is also expected at the lower end of our original guidance of $23 million to $28 million. As a reminder, this guidance includes the $2 million of proxy related cost we incurred in the first half of this year.

Cash interest expense is expected to be $24 million from our original guidance. Cash capital guidance is being raised from the $17 million to $21 million to reflect the Flying J conversions. On average, the Flying J conversions are expected to cost $565,000 per unit approximately 60% less than the traditional new builds. The cost of the 50 facility’s refreshes that were discussed earlier will be offset by fewer full remodels.

That concludes management’s prepared comments for this call and I will turn the call back over to Patrick for the question-and-answer session.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line Michael Gallo from CLK.

Michael Gallo - CLK

Just wanted to dive into the guidance outlook a little bit adjusted income before tax as I guess if I back out the $2 million of call one time proxy calls would be closer to the middle of the range I want to understand that if there is any other anticipated cost in the back half of the year that you expected that might be more one time in nature to what kind of contribution you expect from Flying J in the back half of the year which I would think it will incremental like guidance in three, what kind of cost you expect for Flying J for preopening which I presume what will occur next year once we get through the initial opening of the company restaurant. Thank you.

Enrique Mayor-Mora

I think in terms of one time cost that would impact the back half of the year that would impact adjusted income. I can't tell you we have a view into those are this point in time. So the guidance withstand. I think in terms of the cost associated with Flying J I think the way to think about it Michael is that for all the units that we are going to roll out this year given the preopening cost and the investment on the company and franchise side to make sure we execute this roll out effectively. We expect about a $1 million roughly in contribution from the Flying J this year and as we provide in our earlier conversations it does get much more accretive flowing into 2011 and beyond, but because of the timing of the rollout this year and because of the level of investment that we have both in the company and franchise site to make sure we execute it pretty much a million dollars we would expect this year flow through the bottom line.

Michael Gallo - CLK

Just could you give us just a breakout of how much that preopening and investment cost would be relative for what the ongoing profit contribution would be. Is it possible to get that granularity out at this point?

Enrique Mayor-Mora

The Flying J on average to the preopening would cost about $200,000. When I include the preopening but then I also include any new unit has certain ramp up efficiencies. If I clue those two things you really looking at about $200,000 per unit.

Operator

And your next question comes from the line of Sam Yake

Sam Yake - BGB Securities

I was wondering do you have any data on what percent of customers in the quarter were ordering of the $2 $4 $6 $8 menu.

Enrique Mayor-Mora

Yes, sure. Yes, we had but the incidence rate was about 15%. And so ranging between %15 to 18% incidents rate which is a little higher than what we saw in the test. But certainly is a reflection of how well it's being received by our guest. It is the highest mixing offering if you will on the menu at the current point in time.

Sam Yake - BGB Securities

And how are the margins run on the items on the menu, are they about consistent with the other items.

Enrique Mayor-Mora

We going into the Value Menu, going into everyday affordability, we are very careful in engineering the items on the $2 $4 $6 $8 Value Menu or we did not know. We just take items that where on the existing menu and take down the price. Therefore impacting margins, so we are very careful in creating new plates but not only stimulate demand but then also protect us on the margin standpoint.

Operator

(Operator Instructions). Our next question is from the line of Mark Smith.

Mark Smith - Feltl & Company

Just a quick follow-up on the $2 $4 $6 $8 on the opt and can you tell us about what the average check might be running on those tickets or I guess I’m looking for how much the decline in price during the quarter might be do to that promotion?

Enrique Mayor-Mora

Most of the decline in the quarter just about three points was due to the $2 $4 $6 $8 Value Menu. There is also a component due to limited time offers starting a $399 that we talked about the earlier. Most of that decline in check is due to $2 $4 $6 $8 Value Menu and again you can see in our product cost we were careful in a value engineering those products as well as to protect our margin.

Mark Smith - Feltl & Company

And then on the $2 $4 $6 $8, can you talk about the opting from your franchisees? And are you seeing them actively doing that promotion or maybe off that out a bit?

Debra Smithart-Oglesby

I think when we did the test work and then when we rolled nationally 95% of the franchise community was singed on to the program.

Mark Wolfinger

And if you recall, this is Mark. When we tested it starting late December, early January we had about 300 restaurants to participate in that test, which obviously included quite a few franchise restaurants in that testing process.

Debra Smithart-Oglesby

Mark, they were very involved in the entire process, the development is in menu items, the consideration of how we are going to be promoted. So they worked on it from all of the inception up to the testing they were heavily involved and then they will allowed Langford who is on our leadership team was a big part of working with the franchise community to make certain that everything worked as well as it had in the test period.

Mark Smith - Feltl & Company

It sounds like it’s got a passing grade from your franchisees thus far?

Debra Smithart-Oglesby

Yes, yes.

Mark Smith - Feltl & Company

Okay. Just one follow-up question. Can you give any insight on timing among the CEO and COO?

Debra Smithart-Oglesby

The COO search has been going for a few more months and I believe that we are getting very, very close to being able to announce an individual joining us in that capacity. We’re very excited about that. So stay tuned. The CEO search, we believe that we’ll be in a position to name our CEO by the fourth quarter.

Operator

(Operator Instructions). We do have a follow-up question from Sam Yake from BGB Securities. Sam, your line is open.

Sam Yake - BGB Securities

I just had a quick question on the leverage ratio. You have done a great job of paying down debt and I'm glad to see that you said you’re 3.2 times on leverage ratio now. I'm just wondering if you could may be tell us on what level at the leverage ratio would you be comfortable with? When you get to that point that you might start doing shareholder friendly thing?

Mark Wolfinger

Sam, its Mark. I would tell you that we still have certain limitations within our existing debt agreements on what we can do from a stockholder standpoint but as I mentioned in my comments, I mean, part of the strategy on debt reduction was not simply the deleveraging situation which obviously we’re very aggressively focused on that trying to get into the (inaudible) which we have been successful at. But also to set us up for the next refinancing the next capital structure event in which we are target on making sure we do have stockholder friendly actions within the next structure. And as I mentioned, our debt comes due in 2011 and 2012 our bonds go to par on October 1 of this year. So subject to what the markets look like in the next 6 to 12 months we are hopeful that we can move aggressively on our capital structure.

Operator

(Operators Instructions). Our next question is a follow-up question from the line of Mark Smith.

Mark Smith - Feltl & Company

Just one quick follow-up where do you stand right now on your contracts under commodities?

Enrique Mayor-Mora

Yes. We are locked into about 65%, we are still locked into about 65% of our commodities at this point.

Mark Smith - Feltl & Company

I guess primarily on the proteins, where do you stand?

Enrique Mayor-Mora

Yes, primarily on the proteins we were not locked into pork, hamburger and cheese, that’s were we would have some exposure to the market, as well as from the local [procure] standpoint certainly.

Mark Smith - Feltl & Company

Okay. Is there something that you are looking at it, primarily on the pork and hamburger?

Enrique Mayor-Mora

And while we are accessing whether or not it’s a good time to lock in and that’s where we stand currently.

Mark Smith - Feltl & Company

Okay and most of the 65% that your are locked to those through the end of the year?

Enrique Mayor-Mora

That is absolutely through the end of the year.

Operator

(Operators Instructions). Our next question comes from the line of Tony Brenner from Roth Capital Partners.

Tony Brenner - Roth Capital Partners

Your operating focus clearly as on bolstering guest counts to $2 $4 $6 $8 promotion was in the works since I believe before the beginning of the year has beginning to gain some attraction, I am wondering with a new management committee in place what are the their strategies might you employ to bolster gets cancelled perhaps to that without reducing petty profits at the same time. Whether it’s looking at other depots or other types of promotions or menu additions or what’s on your mind as you are running the company?

Debra Smithart-Oglesby

Well, in addition to $2 $4 $6 $8 which we did have going into the system earlier, we rolled the Skillet promotion limited time offers within the last few weeks. We have a number; we have a refresh coming on $2 $4 $6 $8 as we go into next month or so. We also have new core menu that will rolled into the system. We are looking at regional menus in different parts of the country to really play to the local market.

We have a significant emphasis on regional and local marketing programs that are rolling at the same period of time. So from now to the back end of the year there will be refresh of existing items, new items that will be rolling on a limited time offer a number of new and much more focused and directed local and regional marketing programs, all of these are lined up from now through the back in to the year.

Operator

(Operator Instructions). You’re next question comes from the line of Brian Hunt from Wells Fargo Securities.

Brain Hunt - Wells Fargo Securities

I was wondering if you talk about the average volumes that at your prime locations and all of those are meeting your expectations so far?

Mark Wolfinger

I would say as Debra I think mentioned her comments we were very satisfied with what we have seen thus far in the openings. Again, in our view just a great strategic partnerships that developed. I would say on average of what we have seen is close to our national system average when it comes to volumes and again that range is obviously when you open a new store you go through some form of a honeymoon period in the learning curve but on average they sort of met what our system averages are, and again that would be from a franchise standpoint you would be using the $1.5 million to $1.4 million range and on the company side up in the $1.8 million range but again those are early numbers with obviously just a few operating weeks in several of these locations.

Brain Hunt - Wells Fargo Securities

Forgive me if I am asking something that was already discussed. Did you discussed part sales where you saw majority of the weakness during the quarter and as well as when you look at sales was there any regional significant region no differences?

Enrique Mayor-Mora

Yes, certainly we did not talk about that we can't certainly. So we have seen that the $2 $4 $6 $8 Value Menu what's interesting is could actually benefited all of the day parts. So we have seen movement in everyday part which really speaks to the consumer acceptance at all points of time of the day. Along with similar incident rates across everyday part, they are really not materially different at all. I think the day parts that continue to underperform would be actually breakfast has been challenging, I think for the past several quarters I think there has a lot to do with the economy and employment.

We’ve seen especially relative strong performance at lunch and at dinner. Geographically as you mentioned in the call that California, Florida, Texas are starting to improve their trend from where they had been last year and really in the first quarter of this year. So we are seeing an improvement in those key states. Still not where we needed to be. Still not what we expected to be, but certainly an improvement in trend.

Brain Hunt - Wells Fargo Securities

And then lastly the [John Crook] had retired, I was wondering if you can talk about the response to that so far it definitely was out of vain relative to the $2 $4 $6 $8 is value as your communicating. Little bit more (inaudible).

Debra Smithart-Oglesby

It has been in our social media if you will have little bit more of an edge to it from the humor perspective. We are finding that we are getting a very positive response for that. That particular relationship came out of a lot of customers inside works that we did about what was important to our heavy users and that connection to become Americana in Baseball and in little more of a male [skew] in sports oriented.

We asked our customers from insight world because they thought we are good spokespersons for the brand and across social media is that, his name came up on a number of occasions. So we were very fortunate that we also happened to be restaurant that he particularly likes to use, so it's great partnership for us.

Brain Hunt - Wells Fargo Securities

And lastly did you give any guidance on the number of franchise openings you anticipate for the year at this point in time?

Enrique Mayor-Mora

Yes, we did, and we expect 100 franchise openings for the year.

Brain Hunt - Wells Fargo Securities

Is that a net number?

Enrique Mayor-Mora

That is a gross number.

Brain Hunt - Wells Fargo Securities

You have a estimate on what the net number might be?

Enrique Mayor-Mora

On the closure, I think we have to think about the closure as if you look historically we’ve closed anywhere in the past several years between 26 and 30 units and I would expect to be there this year as well.

Operator

(Operator Instructions). And at this time there are no further questions in queue. I would now like to turn the call back over to your Vice President of Investor Relations Enrique Mayor-Mora.

Enrique Mayor-Mora

Well, thank you, Patrick. I’d like to thank everyone for participating on the call today. And we will see you next quarter. Thank you have a great evening.

Operator

And this does conclude today’s conference call. Thank you for your participation. You may now disconnect.

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Source: Denny's Corporation Q2 2010 Earnings Call Transcript

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