Denny’s Corporation Reports Results for Second Quarter 2019

Jul 30, 2019

SPARTANBURG, S.C., July 30, 2019 (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 second quarter ended June 26, 2019.

Second Quarter 2019 Highlights

  • Sold 37 company restaurants to franchisees.
  • Total Operating Revenue was $151.9 million.
  • Domestic system-wide same-store sales** grew 3.8%, including increases of 4.4% at company restaurants and 3.7% at domestic franchised restaurants.
  • Completed 41 remodels, including 40 at franchised restaurants.
  • Operating Income was $46.1 million.
  • Company Restaurant Operating Margin* was $15.6 million, or 16.4% of company restaurant sales, and Franchise Operating Margin* was $27.6 million, or 48.8% of franchise and license revenue.
  • Net Income was $34.2 million, or $0.55 per diluted share.
  • Adjusted Net Income* was $14.3 million, or $0.23 per diluted share.
  • Adjusted EBITDA* was $27.2 million.
  • Adjusted Free Cash Flow* was $6.8 million.
  • Repurchased $29.1 million of common stock.

John Miller, President and Chief Executive Officer, stated, “We are pleased with the growth in system-wide same-store sales**, Operating Margins*, and Adjusted Net Income Per Share*. Based on the successful execution and acceleration of our refranchising and development strategy, we now expect the vast majority of the transactions to be completed by the end of 2019. As a result, we have adjusted our annual business outlook to reflect the accelerated timing of these transactions. We believe this strategy will enable us to further evolve into a franchisor of choice in the industry, providing more focused support services. Upon completion, this strategy is expected to result in a higher quality, more asset-light business model and the creation of additional stakeholder value."

Second Quarter Results

Denny’s total operating revenue was $151.9 million compared to $157.3 million in the prior year quarter. Company restaurant sales were $95.4 million compared to $102.7 million in the prior year quarter primarily due to a reduction in the number of equivalent company restaurants resulting from the Company's refranchising and development strategy. Franchise and license revenue was $56.4 million compared to $54.6 million in the prior year quarter. This change was primarily due to domestic franchise same-store sales** growth of 3.7% and the impact of the Company's refranchising and development strategy.

Company Restaurant Operating Margin* was $15.6 million, or 16.4% of company restaurant sales, compared to $16.2 million, or 15.7%, in the prior year quarter. This margin rate expansion was primarily due to pricing, menu mix, and an enhanced restaurant portfolio related to the Company's refranchising and development strategy, partially offset by increases in minimum wages and commodities.

Franchise Operating Margin* was $27.6 million, or 48.8% of franchise and license revenue, compared to $25.5 million, or 46.8%, in the prior year quarter. This margin rate expansion was primarily due to an increase in royalty revenue, a reduction in other direct costs which was associated with the Company's refranchising and development strategy, and an improved occupancy margin.

Total general and administrative expenses were $18.5 million, compared to $15.6 million in the prior year quarter. This change was primarily due to higher performance based incentive and share-based compensation expenses, partially offset by a $0.6 million reduction in personnel costs. Interest expense, net was $5.4 million in both the current and prior year quarter. Denny’s ended the quarter with $294.1 million of total debt outstanding, including $271.0 million of borrowings under its revolving credit facility.

The provision for income taxes was $6.8 million, reflecting an effective tax rate of 16.5%. During the quarter, the Company recognized a net benefit of 4.8% related to the completion of an Internal Revenue Service audit and 3.6% related to the settlement of share-based compensation. Given the Company's utilization of tax credit carryforwards, approximately $11.6 million in cash taxes was paid during the quarter.

Net income was $34.2 million, or $0.55 per diluted share, compared to $11.6 million, or $0.18 per diluted share, in the prior year quarter. Adjusted Net Income Per Share* was $0.23 compared to $0.18 in the prior year quarter, primarily due to tax provision benefits.

Adjusted Free Cash Flow* and Capital Allocation

Denny’s generated $6.8 million of Adjusted Free Cash Flow* in the quarter after investing $3.7 million in cash capital expenditures, including facilities maintenance, new construction, and remodels.

During the quarter, the Company allocated $29.1 million to share repurchases. Between the end of the second quarter and July 29, 2019, the Company allocated an additional $9.4 million to share repurchases resulting in $47.4 million allocated towards share repurchases year to date. As of July 29, 2019, the Company had approximately $81 million remaining in authorized share repurchases under its existing $200 million share repurchase authorization.

Adoption of Topic 842 and Lease Accounting Impact

Effective December 27, 2018, the first day of fiscal 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The new guidance established a right-of-use model (“ROU”) that requires lessees to recognize a ROU asset and a lease liability for all leases with terms greater than 12 months. Denny's elected to apply the modified retrospective transition approach as of the date of initial application without restating comparative period financial statements.

Upon adoption of Topic 842, operating lease liabilities of $101.3 million and ROU assets of $94.1 million related to existing operating leases were recorded. In addition, the Company recorded a cumulative effect adjustment increasing the opening deficit by $0.4 million and deferred tax assets by $0.1 million. The lease liabilities were based on the present value of remaining rental payments under previous leasing standards for existing operating leases primarily related to real estate leases. Exit cost and straight-line lease liabilities that existed at the adoption date were reclassified against the ROU assets upon adoption. The amount recorded to opening deficit represents the initial impairment of ROU assets, net of the deferred tax impact.

Refranchising and Development Strategy

In October 2018, the Company announced a plan to migrate from a 90% franchised business model to one that is between 95% and 97% franchised over a period of 18 months by selling between 90 and 125 total company restaurants with attached development commitments. Based on management's current expectations, the Company now anticipates selling between 115 and 125 total company restaurants with between 70 and 80 attached development commitments. The vast majority of these transactions are now expected to be completed by the end of 2019.

This strategy creates an opportunity for well-capitalized, development-focused franchisees to expand their businesses. In addition to refranchising, the Company plans to upgrade the quality of its real estate portfolio through a series of like-kind exchanges. The use of refranchising proceeds and a moderate increase in leverage are expected to generate more compelling returns for stakeholders, including the return of capital.

During the quarter ended June 26, 2019, 37 company restaurants were sold to franchisees. Additionally, the Company sold three pieces of real estate during the quarter for approximately $3.9 million. The following table summarizes the activity related to the Company's current refranchising and development strategy.

  Quarter Ended
  June 26, 2019   June 27, 2018
  (Dollars in thousands)
Restaurants sold to franchisees 37      
Gains on sales of company restaurants:      
Cash proceeds $ 36,004     $  
Notes receivable 470      
Less: Property sold (9,675 )    
Less: Goodwill (925 )    
Less: Intangibles (1,646 )    
Total gains of sales of company restaurants $ 24,228     $  
       
Real estate parcels sold 3      
Gains on sales of real estate:      
Cash proceeds $ 3,850     $  
Less: Property sold (756 )    
Less: Other assets (6 )    
Total gains on sales of real estate $ 3,088     $  

Gains on the sales of company restaurants and real estate are included as a component of operating (gains), losses and other charges, net. In addition to the proceeds noted in the table above, the Company also received front end fees and other transaction fees of approximately $2.0 million related to company restaurants sold to franchisees during the quarter.

As of June 26, 2019, the Company's assets held for sale balance included 49 company restaurants and one piece of real estate at their carrying amounts of $15.4 million. Included in this total were 22 company restaurants that were subsequently sold in July, resulting in a total of 70 company restaurants sold to franchisees under this strategy.

Business Outlook

The following full year 2019 expectations reflect the current business environment and management's expectations at this time:

  • Same-store sales** growth at company and domestic franchised restaurants between 1% and 3% (vs. 0% and 2%).
  • 35 to 40 new restaurant openings (vs. 35 to 45), with approximately flat net restaurant growth.
  • Company Restaurant Operating Margin* between 15.0% and 16.5% and Franchise Operating Margin* between 47.0% and 48.5% (vs. 46.5% and 48.0%).
  • Total general and administrative expenses between $71 and $74 million (vs. $66 and $69 million), including approximately $12 million (vs. $8 million) related to share-based compensation and deferred compensation plan valuation adjustments.
  • Adjusted EBITDA* between $93 and $96 million (vs. $95 and $100 million).
  • Net interest expense between $21 and $23 million.
  • Effective income tax rate between 20% and 23% with cash taxes between $23 and $26 million (vs. $13 and $16 million), including between $19 and $22 million related to anticipated gains from refranchising transactions (vs. $9 and $12 million).
  • Cash capital expenditures between $38 and $43 million (vs. $35 and $40 million), including between $23 and $28 million of anticipated real estate acquisitions through like-kind exchanges (vs. $20 and $25 million).
  • Adjusted Free Cash Flow* between $7 and $10 million (vs. $23 and $26 million).
*   Please refer to the Reconciliation of Net Income to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income to Non-GAAP Financial Measures included in the following tables. The Company is not able to reconcile the forward-looking non-GAAP estimates set forth above to their most directly comparable GAAP estimates without unreasonable efforts because it is unable to predict, forecast or determine the probable significance of the items impacting these estimates, including gains, losses and other charges, with a reasonable degree of accuracy. Accordingly, the most directly comparable forward-looking GAAP estimates are not provided.
     
**   Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open the same period in the prior year. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from franchised and licensed restaurants. Accordingly, domestic franchise same-store sales and domestic system-wide same-store sales should be considered as a supplement to, not a substitute for, our results as reported under GAAP.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the second quarter ended June 26, 2019 on its quarterly investor conference call today, Tuesday, July 30, 2019 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 June 26, 2019, Denny’s had 1,702 franchised, licensed, and company restaurants around the world including 137 restaurants in Canada, Puerto Rico, Mexico, the Philippines, New Zealand, Honduras, the United Arab Emirates, Costa Rica, Guam, Guatemala, the United Kingdom, El Salvador, Aruba, and Indonesia. 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 26, 2018 (and in the Company’s subsequent quarterly reports on Form 10-Q).

DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
       
(In thousands) 6/26/19   12/26/18
Assets      
Current assets      
Cash and cash equivalents $ 2,292     $ 5,026  
Investments 3,115     1,709  
Receivables, net 18,628     26,283  
Assets held for sale 15,420     723  
Other current assets 17,962     13,859  
Total current assets 57,417     47,600  
Property, net 97,047     117,251  
Financing lease right-of-use assets, net 16,701     22,753  
Operating lease right-of-use assets 115,338      
Goodwill 37,080     39,781  
Intangible assets, net 55,736     59,067  
Deferred income taxes 20,848     17,333  
Other noncurrent assets 38,569     31,564  
Total assets $ 438,736     $ 335,349  
       
Liabilities      
Current liabilities      
Current finance lease liabilities $ 2,651     $ 3,410  
Current operating lease liabilities 16,999      
Accounts payable 25,237     29,527  
Other current liabilities 53,842     61,790  
Total current liabilities 98,729     94,727  
Long-term liabilities      
Long-term debt 271,000     286,500  
Noncurrent finance lease liabilities 20,470     27,181  
Noncurrent operating lease liabilities 107,368      
Other 83,741     60,286  
Total long-term liabilities 482,579     373,967  
Total liabilities 581,308     468,694  
       
Shareholders' deficit      
Common stock 1,093     1,086  
Paid-in capital 601,902     592,944  
Deficit (257,079 )   (306,414 )
Accumulated other comprehensive loss, net of tax (26,913 )   (4,146 )
Treasury stock (461,575 )   (416,815 )
Total shareholders' deficit (142,572 )   (133,345 )
Total liabilities and shareholders' deficit $ 438,736     $ 335,349  
       
Debt Balances
(In thousands) 6/26/19   12/26/18
Credit facility revolver due 2022 $ 271,000     $ 286,500  
Finance lease liabilities 23,121     30,591  
Total debt $ 294,121     $ 317,091  

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
       
  Quarter Ended
(In thousands, except per share amounts) 6/26/19   6/27/18
Revenue:      
Company restaurant sales $ 95,447     $ 102,741  
Franchise and license revenue 56,437     54,593  
Total operating revenue 151,884     157,334  
Costs of company restaurant sales, excluding depreciation and amortization 79,830     86,575  
Costs of franchise and license revenue, excluding depreciation and amortization 28,871     29,049  
General and administrative expenses 18,453     15,597  
Depreciation and amortization 5,048     6,691  
Operating (gains), losses and other charges, net (26,433 )   462  
Total operating costs and expenses, net 105,769     138,374  
Operating income 46,115     18,960  
Interest expense, net 5,382     5,385  
Other nonoperating income, net (273 )   (629 )
Income before income taxes 41,006     14,204  
Provision for income taxes 6,767     2,578  
Net income $ 34,239     $ 11,626  
       
       
Basic net income per share $ 0.57     $ 0.18  
Diluted net income per share $ 0.55     $ 0.18  
       
Basic weighted average shares outstanding 60,290     63,644  
Diluted weighted average shares outstanding 62,082     66,128  
       
Comprehensive income $ 23,625     $ 15,016  
       
General and Administrative Expenses Quarter Ended
(In thousands) 6/26/19   6/27/18
General and administrative expenses $ 12,436     $ 13,010  
Share-based compensation 2,713     1,211  
Incentive compensation 2,919     1,126  
Deferred compensation valuation adjustments 385     250  
Total general and administrative expenses $ 18,453     $ 15,597  

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
       
  Two Quarters Ended
(In thousands, except per share amounts) 6/26/19   6/27/18
Revenue:      
Company restaurant sales $ 193,992     $ 203,934  
Franchise and license revenue 109,303     108,673  
Total operating revenue 303,295     312,607  
Costs of company restaurant sales 163,943     173,433  
Costs of franchise and license revenue 55,929     57,605  
General and administrative expenses 37,264     32,157  
Depreciation and amortization 11,281     13,205  
Operating (gains), losses and other charges, net (35,368 )   822  
Total operating costs and expenses, net 233,049     277,222  
Operating income 70,246     35,385  
Interest expense, net 10,789     10,010  
Other nonoperating income net (1,696 )   (417 )
Income before income taxes 61,153     25,792  
Provision for income taxes 11,424     4,407  
Net income $ 49,729     $ 21,385  
       
       
Basic net income per share $ 0.82     $ 0.33  
Diluted net income per share $ 0.79     $ 0.32  
       
Basic weighted average shares outstanding 60,970     64,038  
Diluted weighted average shares outstanding 62,937     66,552  
       
Comprehensive income $ 26,962     $ 21,684  
       
General and Administrative Expenses Two Quarters Ended
(In thousands) 6/26/19   6/27/18
General and administrative expenses $ 25,305     $ 26,473  
Share-based compensation 4,966     2,561  
Incentive compensation 5,457     3,093  
Deferred compensation valuation adjustments 1,536     30  
Total general and administrative expenses $ 37,264     $ 32,157  

 

DENNY’S CORPORATION
Reconciliation of Net Income to Non-GAAP Financial 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 EBITDA, Adjusted Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share 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. We define Adjusted Free Cash Flow for a given period as Adjusted EBITDA less the cash portion of interest expense net of interest income, capital expenditures, and cash taxes. Management believes that the presentation of Adjusted Free Cash Flow provides useful information to investors because it represents a liquidity measure used to evaluate, among other things, operating effectiveness and is used in 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   Two Quarters Ended
(In thousands, except per share amounts) 6/26/19   6/27/18   6/26/19   6/27/18
Net income $ 34,239     $ 11,626     $ 49,729     $ 21,385  
Provision for income taxes 6,767     2,578     11,424     4,407  
Operating (gains), losses and other charges, net (26,433 )   462     (35,368 )   822  
Other nonoperating (income) expense, net (273 )   (629 )   (1,696 )   (417 )
Share-based compensation 2,713     1,211     4,966     2,561  
Deferred compensation plan valuation adjustments 385     250     1,536     30  
Interest expense, net 5,382     5,385     10,789     10,010  
Depreciation and amortization 5,048     6,691     11,281     13,205  
Cash payments for restructuring charges and exit costs (629 )   (375 )   (1,380 )   (565 )
Cash payments for share-based compensation         (3,531 )   (1,913 )
Adjusted EBITDA $ 27,199     $ 27,199     $ 47,750     $ 49,525  
               
Cash interest expense, net (5,122 )   (5,106 )   (10,270 )   (9,451 )
Cash paid for income taxes, net (11,625 )   (1,072 )   (11,992 )   (1,495 )
Cash paid for capital expenditures (3,668 )   (7,362 )   (11,483 )   (19,928 )
Adjusted Free Cash Flow $ 6,784     $ 13,659     $ 14,005     $ 18,651  
               
  Quarter Ended   Two Quarters Ended
(In thousands, except per share amounts) 6/26/19   6/27/18   6/26/19   6/27/18
Net income $ 34,239     $ 11,626     $ 49,729     $ 21,385  
Gains on sales of assets and other, net (26,839 )   (27 )   (36,314 )   (64 )
Impairment charges     81         118  
Tax effect (1) 6,935     (9 )   9,384     (9 )
Adjusted Net Income $ 14,335     $ 11,671     $ 22,799     $ 21,430  
               
Diluted weighted average shares outstanding 62,082     66,128     62,937     66,552  
               
Diluted Net Income Per Share $ 0.55     $ 0.18     $ 0.79     $ 0.32  
Adjustments Per Share $ (0.32 )   $     $ (0.43 )   $  
Adjusted Net Income Per Share $ 0.23     $ 0.18     $ 0.36     $ 0.32  

 

(1 ) Tax adjustments for the gains on sales of assets and other, net for the three and six months ended June 26, 2019 are calculated using an effective rate of 25.8%. Tax adjustments for the three and six months ended June 27, 2018 are calculated using the Company's year-to-date effective tax rate of 17.1%.

 

DENNY’S CORPORATION
Reconciliation of Operating Income to Non-GAAP Financial 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 restaurant-level operating efficiency and performance of ongoing restaurant-level operations. The Company uses Total Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin internally as performance measures for planning purposes, including the preparation of annual operating budgets, and these three non-GAAP measures are used to evaluate operating effectiveness.

We define Total Operating Margin as operating income excluding the following three items: general and administrative expenses, depreciation and amortization, and operating (gains), losses and other charges, net. We present Total Operating Margin as a percent of total operating revenue. We exclude general and administrative expenses, which includes primarily non-restaurant-level costs associated with support of company and franchised restaurants and other activities at our corporate office. We exclude depreciation and amortization expense, substantially all of which is related to company restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlays for the restaurants. We exclude special items, included within operating (gains), losses and other charges, net, to provide investors with a clearer perspective of the Company’s ongoing operating performance and a more relevant comparison to prior period results.

Total Operating Margin is the total of Company Restaurant Operating Margin and Franchise Operating Margin. We define Company Restaurant Operating Margin as company restaurant sales less costs of company restaurant sales (which include product costs, company restaurant level payroll and benefits, occupancy costs, and other operating costs including utilities, repairs and maintenance, marketing and other expenses) and present it as a percent of company restaurant sales. We define Franchise Operating Margin as franchise and license revenue (which includes franchise royalties and other non-food and beverage revenue streams such as initial franchise fees and occupancy revenue) less costs of franchise and license revenue and present it as a percent of franchise and license revenue.

These non-GAAP financial measures provide a meaningful comparison between periods and enable investors to focus on the performance of restaurant-level operations by excluding revenues and costs unrelated to food and beverage sales in addition to corporate general and administrative expense, depreciation and amortization, and other gains and charges. 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. Total Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin do not accrue directly to the benefit of shareholders because of the aforementioned excluded costs, and are not indicative of the overall results for the Company.

  Quarter Ended   Two Quarters Ended
(In thousands) 6/26/19   6/27/18   6/26/19   6/27/18
Operating income $ 46,115     $ 18,960     $ 70,246     $ 35,385  
General and administrative expenses 18,453     15,597     37,264     32,157  
Depreciation and amortization 5,048     6,691     11,281     13,205  
Operating (gains), losses and other charges, net (26,433 )   462     (35,368 )   822  
Total Operating Margin $ 43,183     $ 41,710     $ 83,423     $ 81,569  
               
Total Operating Margin consists of:              
Company Restaurant Operating Margin (1) $ 15,617     $ 16,166     $ 30,049     $ 30,501  
Franchise Operating Margin (2) 27,566     25,544     53,374     51,068  
Total Operating Margin $ 43,183     $ 41,710     $ 83,423     $ 81,569  

 

(1 ) Company Restaurant Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of franchise and license revenue; less franchise and license revenue.
(2 ) Franchise Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of company restaurant sales; less company restaurant sales.

 

DENNY’S CORPORATION
Operating Margins
(Unaudited)
       
  Quarter Ended
(In thousands) 6/26/19   6/27/18
Company restaurant operations: (1)          
Company restaurant sales $ 95,447   100.0 %   $ 102,741   100.0 %
Costs of company restaurant sales:          
Product costs 23,363   24.5 %   25,054   24.4 %
Payroll and benefits 36,866   38.6 %   41,065   40.0 %
Occupancy 5,498   5.8 %   5,435   5.3 %
Other operating costs:          
Utilities 3,106   3.3 %   3,359   3.3 %
Repairs and maintenance 2,080   2.2 %   1,887   1.8 %
Marketing 3,239   3.4 %   3,711   3.6 %
Other 5,678   5.9 %   6,064   5.9 %
Total costs of company restaurant sales $ 79,830   83.6 %   $ 86,575   84.3 %
Company restaurant operating margin (non-GAAP) (2) $ 15,617   16.4 %   $ 16,166   15.7 %
           
Franchise operations: (3)          
Franchise and license revenue:          
Royalties $ 26,672   47.3 %   $ 25,192   46.1 %
Advertising revenue 19,884   35.2 %   19,530   35.8 %
Initial and other fees 1,755   3.1 %   1,810   3.3 %
Occupancy revenue 8,126   14.4 %   8,061   14.8 %
Total franchise and license revenue $ 56,437   100.0 %   $ 54,593   100.0 %
           
Costs of franchise and license revenue:          
Advertising costs $ 19,884   35.2 %   $ 19,530   35.8 %
Occupancy costs 5,512   9.8 %   5,645   10.3 %
Other direct costs 3,475   6.2 %   3,874   7.1 %
Total costs of franchise and license revenue $ 28,871   51.2 %   $ 29,049   53.2 %
Franchise operating margin (non-GAAP) (2) $ 27,566   48.8 %   $ 25,544   46.8 %
           
Total operating revenue (4) $ 151,884   100.0 %   $ 157,334   100.0 %
Total costs of operating revenue (4) 108,701   71.6 %   115,624   73.5 %
Total operating margin (non-GAAP) (4)(2) $ 43,183   28.4 %   $ 41,710   26.5 %
           
Other operating expenses: (4)(2)          
General and administrative expenses $ 18,453   12.1 %   $ 15,597   9.9 %
Depreciation and amortization 5,048   3.3 %   6,691   4.3 %
Operating (gains), losses and other charges, net (26,433 ) (17.4 )%   462   0.3 %
Total other operating (income) expenses $ (2,932 ) (1.9 )%   $ 22,750   14.5 %
           
Operating income (4) $ 46,115   30.4 %   $ 18,960   12.1 %
           

 

(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
Operating Margins
(Unaudited)
       
  Two Quarters Ended
(In thousands) 6/26/19   6/27/18
Company restaurant operations: (1)          
Company restaurant sales $ 193,992   100.0 %   $ 203,934   100.0 %
Costs of company restaurant sales:          
Product costs 47,268   24.4 %   49,989   24.5 %
Payroll and benefits 76,698   39.5 %   82,291   40.4 %
Occupancy 11,282   5.8 %   11,082   5.4 %
Other operating costs:          
Utilities 6,478   3.3 %   6,764   3.3 %
Repairs and maintenance 3,968   2.0 %   3,777   1.9 %
Marketing 6,946   3.6 %   7,476   3.7 %
Other 11,303   5.8 %   12,054   5.9 %
Total costs of company restaurant sales $ 163,943   84.5 %   $ 173,433   85.0 %
Company restaurant operating margin (non-GAAP) (2) $ 30,049   15.5 %   $ 30,501   15.0 %
           
Franchise operations: (3)          
Franchise and license revenue:          
Royalties $ 51,912   47.5 %   $ 50,357   46.3 %
Advertising revenue 38,826   35.5 %   38,840   35.7 %
Initial and other fees 2,894   2.6 %   3,227   3.0 %
Occupancy revenue 15,671   14.3 %   16,249   15.0 %
Total franchise and license revenue $ 109,303   100.0 %   $ 108,673   100.0 %
           
Costs of franchise and license revenue:          
Advertising costs $ 38,826   35.5 %   $ 38,840   35.7 %
Occupancy costs 10,761   9.8 %   11,474   10.6 %
Other direct costs 6,342   5.8 %   7,291   6.7 %
Total costs of franchise and license revenue $ 55,929   51.2 %   $ 57,605   53.0 %
Franchise operating margin (non-GAAP) (2) $ 53,374   48.8 %   $ 51,068   47.0 %
           
Total operating revenue (4) $ 303,295   100.0 %   $ 312,607   100.0 %
Total costs of operating revenue (4) 219,872   72.5 %   231,038   73.9 %
Total operating margin (non-GAAP) (4)(2) $ 83,423   27.5 %   $ 81,569   26.1 %
           
Other operating expenses: (4)(2)          
General and administrative expenses $ 37,264   12.3 %   $ 32,157   10.3 %
Depreciation and amortization 11,281   3.7 %   13,205   4.2 %
Operating gains, losses and other charges, net (35,368 ) (11.7 )%   822   0.3 %
Total other operating expenses $ 13,177   4.3 %   $ 46,184   14.8 %
           
Operating income (4) $ 70,246   23.2 %   $ 35,385   11.3 %
           

 

(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)
               
Changes in Same-Store Sales (1) Quarter Ended   Two Quarters Ended
(increase vs. prior year) 6/26/19   6/27/18   6/26/19   6/27/18
Company Restaurants 4.4 %   (0.1 )%   2.9 %   1.5 %
Domestic Franchised Restaurants 3.7 %   (0.8 )%   2.5 %   0.2 %
Domestic System-wide Restaurants 3.8 %   (0.7 )%   2.5 %   0.4 %
               
Average Unit Sales Quarter Ended   Two Quarters Ended
(In thousands) 6/26/19   6/27/18   6/26/19   6/27/18
Company Restaurants $ 612     $ 570     $ 1,193     $ 1,135  
Franchised Restaurants $ 419     $ 402     $ 821     $ 798  
               
      Franchised        
Restaurant Unit Activity Company    & Licensed   Total    
Ending Units March 27, 2019 170     1,535     1,705      
Units Opened     6     6      
Units Refranchised (37 )   37          
Units Closed     (9 )   (9 )    
Net Change (37 )   34     (3 )    
Ending Units June 26, 2019 133     1,569     1,702      
               
Equivalent Units              
Second Quarter 2019 156     1,543     1,699      
Second Quarter 2018 180     1,543     1,723      
Net Change (24 )       (24 )    
               
      Franchised        
Restaurant Unit Activity Company    & Licensed   Total    
Ending Units December 26, 2018 173     1,536     1,709      
Units Opened     8     8      
Units Refranchised (40 )   40          
Units Closed     (15 )   (15 )    
Net Change (40 )   33     (7 )    
Ending Units June 26, 2019 133     1,569     1,702      
               
Equivalent Units              
Year-to-Date 2019 163     1,539     1,702      
Year-to-Date 2018 179     1,543     1,722      
Net Change (16 )   (4 )   (20 )    
               

 

(1)   Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open the same period in the prior year. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from franchised and licensed restaurants. Accordingly, domestic franchise same-store sales and domestic system-wide same-store sales should be considered as a supplement to, not a substitute for, our results as reported under GAAP.
Investor Contact:
Curt Nichols
877-784-7167

Media Contact:
Hadas Streit, Allison+Partners
646-428-0629

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Source: Denny's Corporation

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