Denny’s Corporation (NASDAQ:DENN) is one of America’s largest family-style (served by a waiter/waitress) restaurant chains. Denny's diners are open 24 hours a day, 7 days a week, and they are known for offering large portions at low prices. With 1,471 restaurants in the United States, however, over-expansion is becoming an issue for the company, and in 2007 Denny's focused on downsizing and shifting its focus from a restaurant operator to a franchising corporation. The company closed 127 of its company-owned stores (a 24% decrease) in 2007 while signing agreements to increase its number of franchised stores by 12%. ^[1]. The company used the proceeds from these asset sales to pay down approximately $100 million of its outstanding debt.^[2].

In 2008, in a U.S. economic slowdown that has curtailed consumer spending, Denny's restaurants have stayed busy - in the first quarter of '08 Denny's revenues increased while other casual & upscale restaurants struggled. While Denny's low price, high quantity menu makes it attractive in times of lean spending, it also puts pressure on its restaurants' operating margins, so the company must minimize costs at every opportunity.

Denny’s food purchase agreements with numerous vendors limit its exposure to commodity price increases relative to others in the industry, and most of its employees are paid minimum wage. In 2007 Denny’s labor costs increased 3% as a percentage of sales (3% increase), but changes in federal and state minimum wage legislation that set in during the summer of 2009 will create a 26% increase in the cost of Denny's labor. The company will have to change its cost structure in order to maintain its operating margins after these increases take effect.^[3].

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