Denny's Corp (DENN) 2005 Q1 法說會逐字稿

Good afternoon. My name is Misty and I will be your conference facilitator today. At this time I would like to welcome everyone to the Denny's first-quarter 2005 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Please limit questions to one question and one follow-up. If you have additional questions please come back into queue. Thank you.

Mr. Lewis, you may begin your conference.

Thank you, Misty. Good afternoon, and thank you for joining us for Denny's first-quarter 2005 conference call. With us today from management are Nelson Marchioli, Denny's President and Chief Executive Officer, and Andrew Green, Denny's Chief Financial Officer. We will begin with a business overview from Nelson; Andrew will then provide a financial review of our first-quarter results. After that, management will be available to answer questions.

One calendar note, we will be releasing our sales for the month ended April 27, after market next Thursday, May 5.

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. 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 29, 2004, and in any subsequent quarterly reports on Form 10-Q. With that, I will now turn the call over to Nelson Marchioli, Denny's President and CEO.

Thank you, Alex, and good afternoon, everyone, and thank you for joining our call. I'm pleased to report that Denny's began 2005 the way we ended 2004, with strong sales momentum and more importantly, continued guest count growth. We're certainly proud of our restaurant operators and all of our employees, who have generated these increases despite the comparison against formidable sales results in the first quarter of last year. In fact, the first quarter this year set a Denny's record for same-store sales growth on a two-year cumulative basis. It is clear that Denny's is gaining market share in our segment.

We are also especially proud of our franchise operators, who posted a same-store sales increase of 7.1% in the first quarter, slightly higher than the Company restaurants at 6.3%. The success of our franchisees continues to prove that all of the hard work being done at Denny's is making a significant difference across this great chain.

Franchised restaurants have historically trailed the Company's same-store results. This changed over the last year and continues to the point where we now have a friendly competition between our Company operations staff and our franchise support staff. I know the franchise staff has certainly enjoyed taking the sales lead for the first time during the past year and this past quarter. We expect this competition to continue producing great results for the Denny's brand. We're having fun again at Denny's.

While we have seen strong sales growth over the past six quarters, we believe Denny's has the capacity for continued growth over the next three to five years as we reap the benefits of the additional investments we are making in our business. To achieve our long-term sales goals, we must provide the best Denny's experience on a consistent basis. In order to accomplish this, we will continue to make investments in our food, staff and facilities.

On the food front, our latest media promotion, which began in April, introduced a new offering, Complete Bowl Breakfasts. As the name implies, these items feature two helpings of golden hash browns in a large bowl topped with two eggs and a choice of meats or other toppings. In addition, they are served with two strips of bacon, two sausage links and three fluffy buttermilk pancakes. Each of the three Bowl selections sells for $5.99. This price point is $1 higher than our previous breakfast promotions, yet it still represents an attractive value proposition for our consumers. In fact, we talked to our customers and they told us they appreciate our abundant value strategy and the large portion meals we provide. Each of our featured breakfasts have fit this strategy and warrant a price that is consistent with the value of the meal.

In addition to new menu offerings, our marketing team has delivered another great promotion. Coming up in May, Madagascar Mania will hit Denny's, as we are the exclusive restaurant tie-in with the upcoming animated film, Madagascar, from DreamWorks animation. The creators of Shrek and Shark Tale, this film is sure to be a big hit with kids and their parents this summer. The movie characters will be used in our supporting television advertising, as well as prominently throughout our restaurants and on a special limited-time only menu offering. We are excited about our promotional partnership with this very hot media property.

Another marketing success was the recent featuring of Denny's in two network sitcoms. Two weeks ago, part of the season finale of Less Than Perfect on ABC took place in a Denny's restaurant. If you saw it, I'm sure you were impressed with the amount of air time that the Denny's story received. It included an impromptu wedding as part of the skit.

Then earlier this week, the cast of Yes, Dear on CBS dined out at Denny's. We were particularly pleased with our showing in that sitcom as well. Our strong relationships with the networks allowed Denny's to be featured so prominently on these shows in what is essentially the ultimate product placement.

The success of our marketing efforts is evident in our sales trends. While we are encouraged by our current sales momentum, we will be keeping a close eye on macroeconomic trends. That said, we believe the considerable value Denny's offers its guests may be helping us to gain share. We intend to maintain this value proposition and we expect the consumer to continue responding positively. As always, I genuinely thank you for your interest in Denny's. I will now turn the phone over to Andrew Green, our CFO, who will take you through our financial review.

Thank you, Nelson, and good afternoon. This is Andrew Green. Let me start by reviewing our first-quarter same-store sales results. As Nelson mentioned in his remarks, I am also pleased to report that our strong sales momentum continued through the first quarter, as our Company restaurant same-store sales were up 6.3%. This increase was comprised of a 3.2 percentage higher guest check average, which was derived mostly from pricing and a 3% increase in guest counts.

The month of March and to a lesser degree the first quarter were impacted by the calendar shift in Easter from April of last year into March this year. We, like many brands, have lower sales on Easter weekend but Denny's sales pick up significantly as people are traveling on spring break and other Easter-related travel. We estimate that this timing shift had a positive impact of about 1.5 to 2 percentage points on March sales and about 0.5 point on sales for the entire quarter. Now the month of April and the second quarter will correspondingly be lower by similar amounts.

Now turning to our P&L, sales at Denny's company-owned restaurants increased 5% in the first quarter or $10 million to 218 million. Our strong same-store sales in the quarter offset a 9 unit decline in Company restaurants since the same time last year.

Like many other restaurant companies, we are experiencing some pressure on the cost side of the P&L. We were pleased with our Company restaurant operating margin of 12.4% in the first quarter, which equaled last year's first quarter. The first quarter is our lowest volume quarter of the year, so margins will increase as we move into the higher-volume summer period. In addition, we took a price increase of approximately 1% with our new menu in April. The margin analysis table in our press release summarizes these operating comparisons.

As anticipated, product costs increased modestly in the first quarter, given higher commodity costs and a changing menu mix. For example, our first-quarter $4.99 promotion, Party (ph) Scrambles, sold extremely well and did carry a slightly higher food cost than the French toast promotion we ran this time last year.

Payroll and benefit costs were 42% of sales in the first quarter, a decline of 0.5 percentage points from last year's first quarter but slightly higher than we ran in the fourth quarter. The improvement over last year resulted from lower restaurant-level incentive bonuses this quarter. In terms of labor hours, we had actually added crew-level staffing in our restaurants as we continue to invest in improving our customer's experience.

Most of the remaining cost items were comparable with the prior year with the exception of repair and maintenance costs, which were 0.5 percentage points higher this year. This is due primarily to lower than normal expense in the prior year period. Our planned level of R&M is 2% of Company sales and that's what we did in the first quarter. So, we expect that we will meet our plan through the year.

Franchise and licensing revenue in the first quarter increased $400,000 or 2%. As on the Company side, strong franchise same-store sales, which Nelson mentioned, were offset somewhat by a 28 unit decline in franchise restaurants since last year. In addition to the revenue increase, franchise costs were slightly lower than last year, yielding a $500,000 increase in franchise operating income.

Turning to G&A, our first-quarter expense increased approximately 900,000 from last year, but there are a couple of exceptional items that will flow through this year rather than last year. This quarter and in fact all year, we do have these items. First, stock-based incentive compensation was 2.6 million compared with only 300,000 last year. Partially offsetting this increase was the $2 million of our recapitalization-related transaction costs, which we incurred last year in the first quarter and of course had none in comparison this year.

Operating income in the quarter increased 400,000 compared with the same period last year, reflecting higher sales and consistent margins. Operating income was impacted negatively in the quarter by 2 to 3 million of restructuring charges and exit costs, which were related to restaurant closings and severance expenses. Operating income benefited from 900,000 in gains on the sale of surplus restaurant properties.

Regarding the bottom line, in the first quarter, we moved considerably closer to our goal of net income as we reported a net loss of 1.5 million compared with a net loss of 8.7 million in the first quarter last year. This quarter's net loss was impacted by a $6.3 million decrease in interest expense as a result of our recapitalization last year, which as you'll recall, significantly lowered our borrowing costs.

With regard to our balance sheet, there were no significant changes during the first quarter. At quarter end, our revolver had no outstanding balances and our surplus cash totaled 16.7 million. On April 1, subsequent to quarter end, we made an $8.6 million coupon payment on our 10% Senior Note.

Moving on to capital expenditures, our cash capital spending for the first quarter was approximately 7 million. Nevertheless, we expect our capital spending to ramp up through the year and the full year total should range between 55 and $65 million.

As stated in our earnings release, based on our first-quarter results and management's expectations for the remainder of the year, we do reiterate our 2005 guidance given previously in February. When and if our guidance changes, we will of course inform the market. That is not likely to occur prior to our second-quarter earnings release, as we would need better clarity going into the higher volume summer months.

Before we go to Q&A, I would like to update the status of our application to be listed on the NASDAQ stock market. We applied for the listing once we became eligible in late March. We are currently waiting for our application to be accepted and to be granted approval for listing and once that approval is granted, we will quickly pick a day to move our listing to the NASDAQ. While we cannot be certain until approval is granted, we are hopeful of a mid May date for relisting.

That wraps up my review of our financials for the first quarter. With that, I will now turn it back to the operator to begin the question-and-answer portion of our program.

(OPERATOR INSTRUCTIONS). Eric Wold with Merriman Curhan Ford.

Good afternoon, guys. First question, maybe talk a little bit about the franchise group out there. I know the number of remodels done have lagged a little bit behind the Company stores. What have you heard from them now that they have seen some good consecutive quarters of same-store sales out of just both groups? And are they getting more enthusiastic about spending the money on the remodel program?

We're confident that they will remodel at least as much as they did last year. And as I recall, that was in excess of 100 units. And we are seeing an energy among the franchisees that, candidly, we haven't seen in a long, long time. The desire to franchise has been absolutely terrific during the first quarter.

Okay, then a follow-up question. Maybe even a larger, overview question. Looking at the good results you guys had in the first quarter, comps and on the operating level compared to the other three main family dining chains out there that all put up pretty poor comps in the first quarter, what do you think in your opinion either Denny's offers the customer base that they do not? Or what are you guys doing as a management team differently to get different results compared to those guys?

Obviously, I don't -- only as a consumer do I have any idea what our competitors might be doing. We, 19 months ago, started with a value and an abundance message and that has worked for us. And we have been focused on the quality of food, consistency, execution and quality. And we will continue to focus on that. It is the basics of our business. We have continued to place our media where it needs to be, when it needs to be and we are driving positive guests. We firmly believe we are not only driving positive traffic but we are taking share.

Stuart Kwan (ph), Zander (ph) Capital.

A few questions. You said the Easter shift was a 50 basis point benefit to the quarter and you would expect that to come out of April?

No, the 50 basis points, yes, was for the first quarter. And it will offset that 50 basis points in the second quarter. For the month of March, we don't have perfect numbers. We're trying to estimate because it really is a matter for us of when spring breaks fall. But we are estimating that March probably benefited in the neighborhood of 1.5 to 2%. So you will see -- that will reverse in April.

Okay, so it's --

So it's 1.5 to 2 on the month, and about 0.5 of a point on the quarter.

Right. And I guess when you say you're expecting that to reverse out in April, is it the 150 to 200 or is it the 50 bips?

No, it's the 150 to 200 for the month. Over the quarter, it's going to wash a lot out and then maybe it's 0.5 of 50 basis points on the quarterly.

For the second quarter?

For the second quarter.

Okay, why do make that up in May and June?

Well, it's just the averaging impact of, if you have 1.5 to 2% in one month when you average it over three months, it only works out to 0.5 point. You know, April is a four-week month and March is a five-week month, so there is some mix there. But in general, that's about where it works out.

Okay. And which commodity food items are you experiencing the cost inflation?

Well, in the first quarter, it was really on some of the meat products, which in the first quarter of last year hadn't yet bumped up. Pork prices in particular started moving up in the March and April timeframe, I think, last year. Our T-bone steaks, were the largest seller T-bones moved up in that same timeframe. So that's why, it was sort of true in the first quarter. I don't know necessarily -- and Nelson, I'm looking at you -- on a run rate basis, I don't know that we have necessarily seen a significant increase over prior quarters. But year over year, because the first quarter of last year was probably I think was the lowest food cost quarter of the year.

I would add that commodity prices are where we thought they would be. In fact, we actually did better than we had planned for the first quarter. It is the way we buy. We don't buy any cheaper or any less or any better than anyone else. But we plan based on margin expectation versus how much something might cost or if a price may go up. So we watch this weekly. That may be something we do differently that others might not to do.

Are pork prices falling currently?

Ham is up, bacon is down and sausage is up as well. So, we are trim, if you will. So we're still in a very volatile situation. Bacon is softening a bit, but I expect that to go away this summer with supermarket promotions and other restaurant operators using bacon as an add-on or as a special promotion based on what I have read in the trade. So, that's my take.

But, overall, I would add, Nelson, as I look out over the year, because we have taken a lot of positions, we're feeling pretty comfortable with where our food cost is running right now versus our expectations.

I think we have mentioned before, we are locked, as Andrew essentially said, we're locked on about 75%. We have negotiated it out for the balance of the year as many operators do. So there's about 20% of the product that at this particular time, we think it's a good idea to ride the market until we see an opportunity based on our forecasting. So, commodities are certainly something we have to manage but we feel pretty good about where we are.

Last question on occupancy, on a gross dollar basis from 13.1 million from 12.5 last year. Just wondering what the increase was, considering there was less Company-owned stores?

A lot of our leases, like other companies, actually go up as sales go up because there's a percentage of rent calculation. I think that would be the majority of it. I would have to do some more research. I think that would be the primary driver. There's been no dramatic shift.

Okay, so there's nothing onetime in terms of the closing costs in that number?

No, closing costs fall down in the restructuring line.

Tony Reiner with Harbert.

Congratulations again.

I hope you keep saying that every call.

I don't know how to respond to that, but thank you. So I missed a couple of things on the call. Firstly, the listing date is sometime next week; is that right?

No, we have our application into NASDAQ and it's when they finish reviewing the application. So --

So if (ph) the 30 calendar days is up next week, when -- the earliest it can be is --?

Tony, it doesn't work like that. There was 90 days to qualify and then you send it in for application and they let you know. When they let us know, we'll let you know.

What I said earlier and you may have missed it was, I am hopeful that by mid-May.

Mid-May, okay fine, that's consistent.

It's what I'm hoping, but I can't commit on that that (indiscernible). There is no firm date that they are committed to.

Right, okay. So that's the timeframe. Secondly, any new developments as far as the benefit program and the bonus program? I don't know if we talked about that at all?

No. The benefit program, you mean like health benefits?

Yes, because I remember we altered them a little bit recently, right?

Yes, we altered our benefits significantly at the end of '03 for 2004. And one of the real improvements on the payroll benefits line, you know, in '04 compared to '03 was in fact that significant change, which really was a onetime thing. We tweaked the benefits for '05 but not substantially different. So that health benefits improvement that I realized in '04 will not occur again in '05. As far as incentive compensation, the only thing that I did mention in my remarks was that restaurant-level bonuses were substantively lower this first quarter than the first quarter of last year. And that was a key driver of the lower payroll and benefit line. In fact, other companies -- a couple of states went up on minimum wage January 1. They're not our largest states, but we do have restaurants in Illinois and New York and those are the two that went up. So, there is a little pressure on the wage side but not extraordinary.

Got you. And then as far as our kind of forecast of the 2 to 3% same stores, I know we said that, you know, last quarter. It's just you know, err on the side of conservativeness, again, I guess, right?

Yes, as I said last quarter, the summer months really are our big months. So, we are going to keep that guidance in place at least until we get into summer and see how those are going.

Well, then we'll I guess keep along the way, but I appreciate it. Thanks very much.

Joe Maguire (ph) with Penn (ph) Capital.

I was just wondering, did the price increase of 1% completely offset the increase in commodity costs? Or is there some excess built into that for future commodity costs going through the summer?

You know, I don't -- it's not quite that exacting. I think that they're certainly adequate there, but I don't look at it just as a one line item thing. Part of the 1% we took, we took because the minimum wage is going up in Florida in May. So, I wouldn't tie it directly to commodities per se. As Nelson said, really, while our commodities were up a little bit from last year, we were very much on plan and what we thought was going to happen in fact slightly below. So, we're pretty comfortable on that commodity chart (ph).

Dean Haskell, JMP Securities.

Thank you, good afternoon, gentlemen. My first question is on pricing. The 1% pricing that you have taken in April, is there any additional pricing that we should calculate going forward?

We have not determined that. We will typically do another menu later in the year and we will see where we stand at that point and where the costs are at that point. So, that really is just not determined yet.

Is that menu change in September?

Last year, we did it in October, I believe.

Okay, and did you raise prices in October of last year?

We did.

By how much?

2%

2%. Okay. And then you'll probably do it again in October of this year?

Well we'll do a new menu. The pricing decisions haven't been made yet.

Okay. And my follow-up question is, when is the Company remodel schedule for units in '05?

We're going to do 80 units, is our target for this year.

Is there a quarterly breakout?

No, I don't really have that, Dean. Typically, probably more second half of the year. I mean we are doing some now. I don't want to mislead you. But our capital tends to ramp as the year goes.

Right. How many were done in the first quarter?

A handful; I don't have the number. But just a handful.

Okay.

Typically in the summer, (inaudible) we won't do as many.

Jeff Kobalars (ph), Citigroup.

Hi, you mentioned that you were expecting the food costs to be up in the first quarter. And can you say, for your guidance for the year, this year 2005, what were you expecting for food costs versus '04?

We really haven't given guidance at that level of detail and I don't have anything in front of me. So I would rather not give guidance on food cost numbers.

Even though you are 75% locked in for the year?

No, because it also varies depending on mix as well at (ph) that remaining 25%.

Okay. Can you comment about same-store sales by day part in the first quarter, something about how breakfast did versus lunch and dinner and late-night?

You know, what we saw last year was that breakfast did strong, because that's what we are promoting and we expect it. The other three day parts have been slightly positive as well. But there's no doubt that breakfast is still the key driver.

And then this Madagascar promotion. What is your responsibility and can you describe a little bit more about how it is going to play out? How long will it be? Will you advertise on TV for this promotion?

Yes, we will advertise on TV for the promotion. As I recall, the movie premiers on the 27th and it goes for five weeks.

From late May through late June, I think it is.

I think that's what it is.

And as Nelson mentioned earlier, some of the characters are actually going to be in the commercial. It's going to be very neat. And we will have in-store pieces. Things for the kids, and it will be a nice promotion. But it's not a long promotion; it's really sort of our pre-peak summer promotion.

Do you have to buy any types of whatever you give to the kids? Is that part of a bit of a risk of how much you might buy of this product?

There are some masks and some finger puppets which are made out of paper and there's nothing substantive. Back in the old days where we used to buy toys like the fast food people do. But no, we're not doing that.

They're all self liquidating.

Right, no inventory risk. Thank you very much.

Douglas Pratt with Wells Capital Management.

My question has been answered.

Eric Wold with Merriman Curhan Ford.

I hate to beat the menu pricing thing continuously but you want to give a sense on the Florida menu price increase coming in May. What are your thoughts on the impact of that wage price increase alone to the cost structure? Does the 1% -- how much does that offset? And then can you take specific menu prices in the Florida market alone, or is that 1% nationwide only?

That's a good question, Eric. The 1% is the nationwide. We have the ability to take prices because we have about ten different menu codes across the country. So we have the ability to take more in specific markets by just changing their menu code in those markets. And in fact that is what we are doing in the state of Florida. So essentially, that 1% is not specifically covering the Florida minimum wage because we are actually taking a bit more in the state of Florida to cover the minimum wage.

The thing about minimum wage is a lot of our people make more than minimum wage. The cooks and all (ph) are well over minimum wage. It is primarily the servers, where you will take the minimum wage.

But what we find, Eric, everyone goes up on their prices. We have been through this now for seven or eight years. And we do not find that it has a substantive impact either way. Typically everyone takes it. The people of Florida, where they've earned (ph) the minimum wage, essentially ended up voting in a price increase for themselves and it tends to happen across the board, is what we find.

Chris Pike, UBS.

Good quarter. Question for you. I'm just trying to understand a little bit better the payroll and benefit lines in terms of what we should be expecting for '05. I mean is 42% a good run rate number as a percentage of Company sales?

Well, Chris, I'm sorry I'm going to answer like I answered the food cost question, which is, I don't want to give you guidance, percentage wise for the balance of the year. I think we're -- we have been running at about this level for a couple quarters now. So I do think we're in the right range. But I don't want to give you any specific numbers.

I guess in terms of drilling down then, the restaurant bonus you said helped to offset increases in labor. Why were restaurant bonuses I guess lower in this quarter given how good sales were? Is there some change in compensation payment?

No, I mean there's always a sales component as well as profit component as well as customer guest complaint component. There's other components than just sales to the plant. And frankly we have a pretty aggressive plan for ourselves this year. So, whereas last year, frankly, was one of the first quarters that we just sort of blew the roof off and people made a lot (ph) of bonus (ph) and that was good. But it was probably a little extraordinary last year.

If you could quantify the labor price increase -- or labor cost increase. And what percentage would you say impacted that margin? And I mean I guess in terms of the offset for the compensation for the restaurant managers, I'm trying to get a sense of how much of an offset were those two items?

With a percent (ph), so the difference.

Well the restaurant manager bonuses was about a 1% difference. So, (multiple speakers) there is your answer sort of. We have 1% less in management bonuses.

Stuart Kwan with Zander Capital.

Just a quick question on the -- how much do the costs for the movie tie-in promotion?

I don't have that information here in front of us.

Was it significant or --?

It was part of our normal ad fund budget. So, it would have come out of the ad fund, which franchise income contributes to and I don't have those numbers in front of me.

But it's not great. (multiple speakers). It's not additive. It comes straight out of the 3% or so the Company of franchisees contribute.

Dean Haskell, JMP Securities.

Yes, gentlemen, the labor cost, payroll and benefits, 42% -- what is included in that number?

Well there's quite a bit included. There's hourly labor, so your crew. And then there's your manager labor. Then you have bonuses, which is for management as well. You'll have your health insurance and other benefit programs. Payroll taxes and workers' compensation.

Anybody outside of the four walls included in that payroll number, please? Regional, area managers, etc.?

No.

So that is only four-wall labor?

That's four-wall labor, including benefits, workers' comp, payroll taxes.

Right. Is there any way we can continue to drive that number lower through some sort of efficiency rather than -- of course we all love better sales, but as far as --

Well it's interesting you ask that question. Because we were looking at the numbers this morning in preparation for this call and when I looked back to two years ago and in the first quarter, that number was 44.4%. So we have taken it down a couple of points. I would be hesitant to tell you that there is a lot more in there (multiple speakers). Workers' comp are things that you are always working on to get lower. But we're also committed to staffing the restaurants well. We are really driving some customer counts down now and we got to make sure we take care of the customers when they come in.

The long-term gain here in our mind is, drive the customer counts, get the average unit volumes up. We have capacity in our restaurants. And we know over the next couple of years, there's no reason we can't keep driving traffic, taking share but that means you have got to take care of the customers when they come in the door. So probably the best way to drive that number down is to get the sales number up so that it just does a mathematical function that goes down.

Right, right. What would you say would have been the low watermark in terms of payroll and benefit costs over the last 10 to 15 years?

Oh boy, I don't know. I know in the four years or so that Nelson and I have been at this, we are about optimized right now. But I don't know going back before this.

Sorry to belabor this point.

That's okay, no problem.

Gabriel Lowenberg (ph) with Falco (ph) Capital.

(technical difficulty) the presentations I believe --

Gabriel, we can't hear you. Can you speak up a little bit?

Thank you. During one of the presentations you made, I believe that you guys quoted some number like during the late 1980s or late 1990s, you did so many checks per week or whatever and that's why you believe that there is a lot of opportunity ahead because you are way below that number currently?

What we said was that if you go back 15 years, our guest counts were in excess of 5,000 guests per store per week. And obviously, we're not there now and that's why we truly believe that our facility and our brand is more than capable of doing more.

Where are you now?

We ended last year -- I want to say it was like 4300 give or take a little bit. I don't have the number in front of me. And I think, Nelson, they actually peaked at close to 5500.

Yes, I recall that; it was 5500 if you go back.

There is plenty of capacity. We know that -- and that's why we are so focused on the customer count number. Over the long run, that is going to drive the most profitability.

There is opportunity within the four walls.

Thank you. Just one follow-up. Given that you are so close to GAAP EPS, can you just take us through the fully diluted calculation on GAAP shares outstanding?

We think -- we will know that number when we get there. So until then, we know how many shares we have outstanding, but we won't have that calculation until we get there.

And just to clarify, when I add back the restructuring charges and the stock-based compensation, I am coming up with 28.5 million of EBITDA compared to the 27 million last year excluding. Do I have that correct?

That is in the ballpark of our covenant calculation, yes.

I think that's it. Thank you very much.

At this time, there are no further questions. Mr. Lewis, are there any closing remarks, sir?

No, just thank you for joining us and we will see you again next quarter.

Thank you for participating in today's Denny's first-quarter 2005 earnings conference call. (technical difficulty) through 11.59 PM Eastern standard time on Thursday, May 5, 2005. The conference ID number for the replay is 573-8623. Again, the conference ID number for the replay is 573-8623. The number to dial for the replay is 1-706-645-9291. Again, the number to dial for the replay is 1-706-645-9291.