I always find it interesting to see a company report a 1% decline in revenues accompanied by some Wall Street analyst's commentary on the "great" quarter. Seems like an odd combination.
While Denny's (Nasdaq: DENN) had some good news concerning the second quarter to satisfy investors' appetites, including an encouraging 4% rise in same-store sales at franchised units (2.8% at company stores), let's keep in mind that the bar was set low to begin with.
To put it simply, this was a flat quarter: Operating revenue decreased 1% compared to the 2006 second quarter while operating margin remained "basically flat" at 11.6%. Hence, it stands to reason that operating income was also pretty flat.
Since Denny's sold 28 restaurants to franchisees, quarterly net income looks really good at $11.5 million compared to last year's $1.9 million. The good news is that these asset sales, along with sales in the first quarter, enabled the company to pay off $12.5 million in debt.
Simply put, this seems to be one of those companies stuck in a perpetual turnaround story. The last time I associated Denny's with anything exciting was that late night as a college freshman when I drank six cups of coffee and consumed a double chocolate chip, syrup-covered brownie thing for a midnight "snack." But even that thick pile of sugary goodness wouldn't keep me awake through reading about this quarter's results.
Of course, like the aspiring actors working at their Los Angeles locations, Denny's has plans for the future. Officially known as the Franchise Growth Initiative (not as cool-sounding as the menu items), Denny's is selling company-owned restaurants to franchisees. With 49 planned franchisee restaurant openings, plus a few by the company, Denny's looks to increase its total restaurant base by over 3% in the near future. IHOP (NYSE: IHP) doesn't seem particularly worried, as it has apparently mastered breakfast and is looking to tackle lunch and dinner.
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Fool contributor Jason Ramage does not own shares in any company mentioned here. He isn't becoming famous anytime soon on Motley Fool CAPS, as his rating slipped recently to 16,971 out of more than 60,000 community members.
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