Denny’s Corporation Reports Results for First Quarter 2017

May 2, 2017

SPARTANBURG, S.C., May 02, 2017 (GLOBE NEWSWIRE) -- Denny’s Corporation (NASDAQ:DENN), franchisor and operator of one of America's largest franchised full-service restaurant chains, today reported results for its first quarter ended March 29, 2017.

First Quarter 2017 Highlights Compared to First Quarter 2016

  • Domestic system-wide same-store sales were down 1.1%, including decreases of 1.6% at company restaurants and 1.1% at domestic franchised restaurants.
  • Opened eight system restaurants including three international franchised locations.
  • Completed 71 remodels at franchised restaurants.
  • Company restaurant operating margin was $15.9 million compared to $16.3 million and franchise operating margin was $24.4 million compared to $24.3 million.
  • Net Income was $8.4 million, or $0.11 per diluted share, compared to $10.0 million, or $0.13 per diluted share.
  • Adjusted Net Income* was $8.8 million versus $9.5 million, while Adjusted Net Income per Share*  was $0.12 in both periods.
  • Adjusted EBITDA* was $19.8 million compared to $22.5 million.
  • Generated $9.4 million of Free Cash Flow*, after cash capital expenditures of $6.8 million.
  • Allocated $12.3 million towards share repurchases.

John Miller, President and Chief Executive Officer, stated, “Our highly franchised business model continued to generate operating revenue growth and strong Free Cash Flow* as we work to further differentiate Denny's as a relevant and compelling brand.  Despite the influence of industry competitive pressures and holiday shifts, the Company outperformed key industry benchmarks during the first quarter, and we have been encouraged by our sales performance in April.  We continue to successfully execute our brand revitalization strategy which delivers an enhanced guest experience across food, service, and atmosphere.  Moving forward, despite an uncertain industry outlook, Denny’s remains committed to further elevating the guest experience, consistently growing sales, and expanding the brand across the globe, leading to value creation for all franchisees and shareholders.”

First Quarter Results

Denny’s total operating revenue grew 2.6% to $127.9 million primarily due to an increase in company restaurant sales.  Company restaurant sales grew 3.8% to $93.8 million due to a greater number of company restaurants compared to the prior year quarter, partially offset by a reduction in same-store sales.  Franchise and licensing revenue was $34.1 million compared to $34.3 million in the prior year quarter as an increase in royalty revenue was offset by a decrease in occupancy revenue due to scheduled lease terminations.

Company restaurant operating margin was $15.9 million, or 17.0% of company restaurant sales, compared to $16.3 million, or 18.0%, in the prior year quarter.  Franchise operating margin was $24.4 million, or 71.4% of franchise and licensing revenue, compared to $24.3 million, or 70.8%, in the prior year quarter.

Total general and administrative expenses were $17.5 million compared to $16.9 million in the prior year quarter.  Interest expense was $3.5 million versus $2.8 million in the prior year quarter.  Denny’s ended the quarter with $257.8 million of total debt outstanding, including $230.0 million of borrowings under its revolving credit facility.  The provision for income taxes was $4.7 million, reflecting an effective tax rate of 36.2%.  Due to the use of net operating loss and tax credit carryforwards, the Company paid $0.4 million in cash taxes during the quarter.

Denny's Net Income was $8.4 million, or $0.11 per diluted share, compared to $10.0 million, or $0.13 per diluted share, in the prior year quarter.  Adjusted Net Income per Share* was $0.12 in both periods.

Free Cash Flow* and Capital Allocation

Denny’s generated $9.4 million of Free Cash Flow* in the quarter after investing $6.8 million in cash capital expenditures, including the purchase of real estate associated with relocating a high-performing company restaurant due to the impending loss of property control and the acquisition of three franchised restaurants.

During the quarter, the Company allocated $12.3 million to share repurchases.  As of March 29, 2017, the Company had approximately $67 million remaining in authorized share repurchases.

Business Outlook

Despite a challenging first quarter sales performance, the following full year 2017 estimates remain unchanged and are based on management’s expectations at this time.

  • Same-store sales growth at company and domestic franchised restaurants between 0% and 2% .
  • 45 to 50 new restaurant openings, with net restaurant growth of 10 to 20 restaurants.
  • Total operating revenue between $523 and $532 million including franchise and licensing revenue between $140 and $142 million.
  • Company restaurant margin between 17.5% and 18% and franchise restaurant margin between 71% and 71.5%.
  • Total general and administrative expenses between $68 and $71 million.
  • Adjusted EBITDA* between $101 and $103 million.
  • Depreciation and amortization expense between $23 and $24 million.
  • Net interest expense between $12.5 and $13 million.
  • Effective income tax rate between 35% and 37% with cash taxes between $7 and $9 million.
  • Cash capital expenditures between $22 and $24 million.
  • Free Cash Flow* between $58 and $60 million.

* Adjusted Net Income excludes gains on sales of assets, and other.  The forward looking non-GAAP estimates set forth above are provided only on a non-GAAP basis.  The Company is not able to reconcile these forward-looking non-GAAP estimates to their most directly comparable GAAP estimates without unreasonable efforts because it is unable to predict or forecast the items impacting these estimates with a reasonable degree of accuracy.  The Company is unable to determine the probable significance of the unavailable information.  Please refer to the historical reconciliation of Net Income to Adjusted Income Before Taxes, Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA, and Free Cash Flow included in the following tables.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the first quarter ended March 29, 2017 on its quarterly investor conference call today, Tuesday, May 2, 2017 at 4:30 p.m. Eastern Time.  Interested parties are invited to listen to a live broadcast of the conference call accessible through the investor relations section of Denny’s website at investor.dennys.com.  A replay of the call may be accessed at the same location later in the day and will remain available for 30 days.

About Denny’s

Denny's Corporation is the franchisor and operator of one of America's largest franchised full-service restaurant chains, based on the number of restaurants.  As of March 29, 2017, Denny’s had 1,731 franchised, licensed, and company restaurants around the world with combined sales of $2.8 billion including 126 restaurants in Canada, Puerto Rico, Mexico, New Zealand, Honduras, Costa Rica, Dominican Republic, the United Arab Emirates, Guam, the Philippines, Curaçao, El Salvador, and Trinidad and Tobago.  For further information on Denny's, including news releases, links to SEC filings, and other financial information, please visit the Denny's investor relations website at investor.dennys.com.

The Company urges caution in considering its current trends and any outlook on earnings disclosed in this press release.  In addition, certain matters discussed in this release may constitute forward-looking statements.  These forward-looking statements, which reflect its best judgment based on factors currently known, are intended to speak only as of the date such statements are made and involve risks, uncertainties, and other factors that may cause the actual performance of Denny’s Corporation, its subsidiaries, and underlying restaurants to be materially different from the performance indicated or implied by such statements.  Words such as “expect”, “anticipate”, “believe”, “intend”, “plan”, “hope”, and variations of such words and similar expressions are intended to identify such forward-looking statements.  Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.  Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others:  competitive pressures from within the restaurant industry; the level of success of our operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses, such as avian flu, or other diseases; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy (including with regard to energy costs), particularly at the retail level; political environment (including acts of war and terrorism); and other factors from time to time set forth in the Company’s SEC reports and other filings, including but not limited to the discussion in Management’s Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 28, 2016 (and in the Company’s subsequent quarterly reports on Form 10-Q).

 
DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
       
(In thousands)3/29/17 12/28/16
Assets   
 Current assets   
  Cash and cash equivalents$1,740  $2,592 
  Receivables18,738  19,841 
  Assets held for sale1,754  1,020 
  Other current assets9,365  12,454 
   Total current assets31,597  35,907 
 Property, net133,141  133,102 
 Goodwill35,607  35,233 
 Intangible assets, net54,703  54,493 
 Deferred income taxes23,845  17,683 
 Other noncurrent assets29,266  29,733 
   Total assets$308,159  $306,151 
       
Liabilities   
 Current liabilities   
  Current maturities of capital lease obligations$3,319  $3,285 
  Accounts payable21,030  25,289 
  Other current liabilities52,719  64,796 
   Total current liabilities77,068  93,370 
 Long-term liabilities   
  Long-term debt, less current maturities230,000  218,500 
  Capital lease obligations, less current maturities24,481  23,806 
  Other41,292  41,587 
   Total long-term liabilities295,773  283,893 
   Total liabilities372,841  377,263 
       
Shareholders' deficit   
  Common stock1,075  1,071 
  Paid-in capital587,369  577,951 
  Deficit(366,050) (382,843)
  Accumulated other comprehensive loss, net of tax(2,016) (1,407)
  Treasury stock(285,060) (265,884)
   Total shareholders' deficit(64,682) (71,112)
   Total liabilities and shareholders' deficit$308,159  $306,151 
       
Debt Balances
(In thousands)3/29/17 12/28/16
Credit facility revolver due 2020$230,000  $218,500 
Capital leases27,800  27,091 
 Total debt$257,800  $245,591 
         

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
      
   Quarter Ended
(In thousands, except per share amounts)3/29/17 3/30/16
Revenue:   
 Company restaurant sales$93,779  $90,386 
 Franchise and license revenue34,131  34,256 
  Total operating revenue127,910  124,642 
Costs of company restaurant sales77,835  74,111 
Costs of franchise and license revenue9,746  10,003 
General and administrative expenses17,509  16,927 
Depreciation and amortization5,736  5,493 
Operating (gains), losses and other charges, net783  (125)
  Total operating costs and expenses, net111,609  106,409 
Operating income16,301  18,233 
Interest expense, net3,541  2,774 
Other nonoperating (income) expense, net(357) 27 
Net income before income taxes13,117  15,432 
Provision for income taxes4,744  5,478 
Net income$8,373  $9,954 
      
      
Basic net income per share$0.12  $0.13 
Diluted net income per share$0.11  $0.13 
      
Basic weighted average shares outstanding71,004  77,060 
Diluted weighted average shares outstanding73,241  78,877 
      
Comprehensive income$7,764  $5,274 
    
General and Administrative ExpensesQuarter Ended
(In thousands)3/29/2017 3/30/2016
Share-based compensation$1,973  $1,948 
Other general and administrative expenses15,536  14,979 
 Total general and administrative expenses$17,509  $16,927 
         


DENNY’S CORPORATION

Reconciliation of Net (Loss) Income to Non-GAAP Operating Measures
(Unaudited)

The Company believes that, in addition to GAAP measures, certain other non-GAAP financial measures are appropriate indicators to assist in the evaluation of operating performance on a period-to-period basis.  The Company uses Adjusted Income Before Taxes, Adjusted EBITDA, Free Cash Flow and Adjusted Net Income internally as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes, including bonuses for certain employees.  Adjusted EBITDA is also used to evaluate the ability to service debt because the excluded charges do not have an impact on prospective debt servicing capability and these adjustments are contemplated in our credit facility for the computation of our debt covenant ratios. Free Cash Flow, defined as Adjusted EBITDA less cash portion of interest expense net of interest income, capital expenditures, and cash taxes, is used to evaluate operating effectiveness and decisions regarding the allocation of resources.  However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income or other financial performance measures prepared in accordance with U.S. generally accepted accounting principles.

 Quarter Ended
(In thousands, except per share amounts)3/29/17 3/30/16
Net income$8,373  $9,954 
Provision for income taxes4,744  5,478 
Operating (gains), losses and other charges, net783  (125)
Other nonoperating (income) expense, net(357) 27 
Share-based compensation1,973  1,948 
Adjusted Income Before Taxes$15,516  $17,282 
    
Interest expense, net3,541  2,774 
Depreciation and amortization5,736  5,493 
Cash payments for restructuring charges and exit costs(1,029) (494)
Cash payments for share-based compensation(3,932) (2,529)
Adjusted EBITDA$19,832  $22,526 
    
Cash interest expense, net(3,264) (2,518)
Cash paid for income taxes, net(395) (311)
Cash paid for capital expenditures(6,817) (5,307)
Free Cash Flow$9,356  $14,390 
    
 Quarter Ended
(In thousands, except per share amounts)3/29/17 3/30/16
Net income$8,373  $9,954 
Losses (gains) on sales of assets and other, net684  (644)
Tax effect (1)(248) 229 
Adjusted Net Income$8,809  $9,539 
    
Diluted weighted average shares outstanding73,241  78,877 
    
Adjusted Net Income Per Share$0.12  $0.12 
        
(1) Tax adjustment for the three months ended March 29, 2017 are calculated using the Company's year-to-date effective tax rate of 36.2%. Tax adjustments for the three months ended March 30, 2016 are calculated using the Company's year-to-date effective tax rate of 35.5%.

 

DENNY’S CORPORATION
Operating Margins
(Unaudited)
       
    Quarter Ended
(In thousands)3/29/17 3/30/16
Company restaurant operations: (1)     
 Company restaurant sales$93,779 100.0% $90,386 100.0%
 Costs of company restaurant sales:         
  Product costs23,133 24.7% 22,653 25.1%
  Payroll and benefits37,397 39.9% 34,461 38.1%
  Occupancy4,734 5.0% 4,800 5.3%
  Other operating costs:         
   Utilities3,053 3.3% 2,951 3.3%
   Repairs and maintenance1,663 1.8% 1,602 1.8%
   Marketing3,621 3.9% 3,242 3.6%
   Other4,234 4.5% 4,402 4.9%
 Total costs of company restaurant sales$77,835 83.0% $74,111 82.0%
 Company restaurant operating margin (2)$15,944 17.0% $16,275 18.0%
             
Franchise operations: (3)         
 Franchise and license revenue:         
 Royalties$24,544 71.9% $24,144 70.5%
 Initial fees484 1.4% 526 1.5%
 Occupancy revenue9,103 26.7% 9,586 28.0%
 Total franchise and license revenue$34,131 100.0% $34,256 100.0%
             
 Costs of franchise and license revenue:         
 Occupancy costs$6,506 19.1% $7,063 20.6%
 Other direct costs3,240 9.5% 2,940 8.6%
 Total costs of franchise and license revenue$9,746 28.6% $10,003 29.2%
 Franchise operating margin (2)$24,385 71.4% $24,253 70.8%
             
Total operating revenue (4)$127,910 100.0% $124,642 100.0%
Total costs of operating revenue (4)87,581 68.5% 84,114 67.5%
Total operating margin (4)(2)$40,329 31.5% $40,528 32.5%
             
Other operating expenses: (4)(2)         
 General and administrative expenses$17,509 13.7% $16,927 13.6%
 Depreciation and amortization5,736 4.5% 5,493 4.4%
 Operating (gains), losses and other charges, net783 0.6% (125)(0.1)%
 Total other operating expenses$24,028 18.8% $22,295 17.9%
             
Operating income (4)$16,301 12.7% $18,233 14.6%
         
(1)As a percentage of company restaurant sales.
(2)Other operating expenses such as general and administrative expenses and depreciation and amortization relate to both company and franchise operations and are not allocated to costs of company restaurant sales and costs of franchise and license revenue.  As such, operating margin is considered a non-GAAP financial measure.  Operating margins should be considered as a supplement to, not as a substitute for, operating income, net income or other financial measures prepared in accordance with U.S. generally accepted accounting principles.
(3)As a percentage of franchise and license revenue.
(4)As a percentage of total operating revenue.

 

DENNY’S CORPORATION
Statistical Data
(Unaudited)
        
Same-Store SalesQuarter Ended  
(increase vs. prior year)3/29/17 3/30/16  
 Company Restaurants(1.6)% 3.5%  
 Domestic Franchised Restaurants(1.1)% 2.3%  
 Domestic System-wide Restaurants(1.1)% 2.5%  
 System-wide Restaurants(1.1)% 2.1%  
        
Average Unit SalesQuarter Ended  
(In thousands)3/29/17 3/30/16  
 Company Restaurants$553  $554   
 Franchised Restaurants$385  $388   
        
     Franchised  
Restaurant Unit ActivityCompany & Licensed Total
Ending Units December 28, 2016169  1,564  1,733 
 Units Opened  8  8 
 Units Reacquired3  (3)  
 Units Refranchised     
 Units Closed  (10) (10)
  Net Change3  (5) (2)
Ending Units March 29, 2017172  1,559  1,731 
        
Equivalent Units     
 Year-to-Date 2017170  1,561  1,731 
 Year-to-Date 2016163  1,548  1,711 
  Net Change7  13  20 
           

 

Investor Contact:
Curt Nichols
877-784-7167

Media Contact:
Jessica Liddell, ICR
203-682-8208

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Source: Denny's Corporation
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NON-GAAP INFORMATION

In addition to disclosing results determined in accordance with GAAP, DENN may also disclose certain non-GAAP and pro forma non-GAAP results of operations, including certain ratios, operational and miscellaneous data, as well as net income, diluted earnings per share, operating expenses, and operating income that make certain adjustments or exclude certain charges and gains that are outlined in the schedules included in this website. Management believes that this non-GAAP and pro forma non-GAAP information provides investors with additional information to assess DENN operating performance by making certain adjustments or excluding costs or gains and assists investors in comparing our operating performance to prior periods. Management uses this non-GAAP and pro forma non-GAAP information, along with GAAP information, in evaluating its historical operating performance. DENN and Virtua also take no responsibility for third party pricing data provided for informational purposes and certain ratio results formulated from the provided third party pricing data. The non-GAAP information is not prepared in accordance with GAAP and may not be comparable to non-GAAP information used by other companies. The non-GAAP information should not be viewed as a substitute for, or superior to, other data prepared in accordance with GAAP.

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