Denny’s Corporation Reports Results For Third Quarter 2020

Oct 27, 2020

SPARTANBURG, S.C., Oct. 27, 2020 (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 third quarter ended September 23, 2020 and provided a business update on the impact of the COVID-19 pandemic on the Company’s operations.

John Miller, Chief Executive Officer, stated, "I am encouraged by our sequential sales improvement over the course of the third quarter, despite the continued disproportionate impact of the COVID-19 pandemic on the full-service restaurant industry. This progress would not have been possible without the continued dedication of all Denny's team members who remain focused on health and safety protocols as they implement innovations, such as enhancements to our Denny's on Demand platform, curbside ordering, and outdoor dining. During the third quarter, we also launched a new streamlined menu consisting of well-known classic dishes and new seasonal items. I am confident that Denny's is well-positioned to effectively navigate through the pandemic while preparing for future growth."

Third Quarter 2020 Highlights

  • Total Operating Revenue was $71.6 million.
  • Domestic system-wide same-store sales** decreased 33.6%.
  • Operating Income was $3.2 million.
  • Franchise Operating Margin* was $19.7 million, or 45.0% of franchise and license revenue, and Company Restaurant Operating Margin* was $0.5 million, or 1.7% of company restaurant sales.
  • Net Income was $6.5 million, or $0.10 per diluted share.
  • Adjusted Net Income* was $0.4 million, or $0.01 per diluted share.
  • Adjusted EBITDA* was $8.0 million.
  • Adjusted Free Cash Flow* was $2.1 million.

Current Trends

Domestic system-wide same-store sales** sequentially improved on a monthly basis during the third quarter ended September 23, 2020, as compared to the equivalent periods during 2019, despite approximately 25% of the domestic system in California being limited to off-premise only sales channels.

Average unit volumes of off-premise sales have increased over 95% since the beginning of the COVID-19 pandemic, supported by temporarily waived delivery fees, curbside service programs, and shareable family meal packs.

In an effort to provide greater transparency due to the COVID-19 pandemic, Denny's is providing the following tables that present monthly results compared to the equivalent fiscal months in 2019:

Domestic System-Wide Same-Store Sales** for 2020 Fiscal Periods:

Q1: (6%) Q2: (57%) Q3: (34%) Q4
Jan Feb Mar Apr May Jun Jul Aug Sep Oct1
3 % 2 % (19 %) (76 %) (65 %) (41 %) (39 %) (35 %) (28 %) (26 %)

1. Preliminary results

Domestic Same-Store Sales** and Domestic Average Units for 2020 Fiscal Periods
(Open Dining Rooms vs Off-Premise Only):

  Q2 Q3 Q4
  Apr May Jun Jul Aug Sep Oct1
Open Dining Rooms (74%) (47%) (33%) (36%) (29%) (24%) (24%)
  2 222 1,087 1,244 1,044 1,127 1,289
               
Off-Premise Only (76%) (69%) (68%) (55%) (47%) (39%) (33%)
  1,060 938 327 237 444 369 207
               
Temporary Closures 480 378 120 47 35 22 19

1. Preliminary results

Average Domestic Capacity Restrictions for Fiscal October 20201:

  Number of Units % of Domestic System
25% Capacity 229 84 %
50-75% Capacity 667
Social Distancing 378
Off-Premise Only 207 14 %
No Restrictions 15 1 %
Temporarily Closed 19 1 %
Total 1,515 100 %

1. Preliminary results

Third Quarter Results

Denny’s total operating revenue was $71.6 million compared to $124.3 million in the prior year quarter. Franchise and license revenue was $43.8 million compared to $60.7 million in the prior year quarter. Company restaurant sales were $27.8 million compared to $63.6 million in the prior year quarter. These changes were primarily due to the impact of the COVID-19 pandemic on sales and the Company's refranchising and development strategy which was substantially complete by the end of 2019.

Franchise Operating Margin* was $19.7 million, or 45.0% of franchise and license revenue, compared to $29.5 million, or 48.7%, in the prior year quarter. This margin decrease was primarily driven by the impact of the COVID-19 pandemic on sales.

Company Restaurant Operating Margin* was $0.5 million, or 1.7% of company restaurant sales, compared to $9.3 million, or 14.6%, in the prior year quarter. This margin decrease was primarily due to the impact of the COVID-19 pandemic on sales, as well as fewer equivalent units through the Company's refranchising and development strategy, partially offset by approximately $1.5 million of favorable reserve adjustments and tax credits related to the CARES Act.

Total general and administrative expenses were $13.7 million, compared to $16.4 million in the prior year quarter. This change was primarily due to cost savings initiatives and previous reductions in personnel due to the COVID-19 pandemic as well as approximately $0.8 million in tax credits related to the CARES Act.

Interest expense, net was $4.4 million, compared to $4.2 million in the prior year quarter, with the increase primarily due to the amortization of dedesignated interest rate swap losses from accumulated other comprehensive loss, net. Denny’s ended the quarter with $245.8 million of total debt outstanding, including $230.0 million of borrowings under its credit facility.

The provision for income taxes was $0.8 million, compared to $15.3 million in the prior year quarter, reflecting an effective tax rate of 11.2%. This decrease was primarily due to the significant gains in the prior year quarter from the Company's refranchising and development strategy. Approximately $0.3 million in cash taxes were paid during the quarter.

Net income was $6.5 million, or $0.10 per diluted share, compared to net income of $49.1 million, or $0.80 per diluted share, in the prior year quarter. Adjusted Net Income* per diluted share was $0.01 compared to Adjusted Net Income* per diluted share of $0.18 in the prior year quarter.

Adjusted Free Cash Flow* and Capital Allocation

Denny’s Adjusted Free Cash Flow* in the quarter after investing $1.0 million in cash capital expenditures, including maintenance capital, was $2.1 million.

Business Outlook

Based on third quarter results and management's expectation that the current business conditions will not materially decline, the Company is providing full year 2020 (53 operating weeks) guidance for the fiscal year ending December 30, 2020.

  • Domestic system-wide same-store sales** between 70% and 75% of prior year.
  • Total general and administrative expenses between $51 and $54 million, including approximately $7 million related to share-based compensation expense.
  • Adjusted EBITDA* of at least $28 million.
  • Cash tax refunds between $5 and $7 million.
  • Cash capital expenditures between $6 and $8 million.
  • Adjusted Free Cash Flow* of at least $10 million.

*   Please refer to the Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income to Non-GAAP Financial Measures included in the following tables.

**  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 non-consolidated 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, the Company's results as reported under GAAP.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the third quarter ended September 23, 2020 on its quarterly investor conference call today, Tuesday, October 27, 2020 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.

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 September 23, 2020, Denny’s had 1,664 franchised, licensed, and company restaurants around the world including 145 restaurants in Canada, Puerto Rico, Mexico, the Philippines, New Zealand, Honduras, the United Arab Emirates, Costa Rica, Guam, Guatemala, El Salvador, Indonesia, and the United Kingdom. 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.

Cautionary Language Regarding Forward-Looking Statements

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 management's 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”, "will", 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: the rapidly evolving COVID-19 pandemic and related containment measures, including the potential for further operational disruption from government mandates affecting restaurants; economic, public health, social and political conditions that impact consumer confidence and spending with respect to social unrest and the COVID-19 pandemic; competitive pressures from within the restaurant industry; the level of success of the Company’s operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses 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 25, 2019 (and in the Company’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K).

 

DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
             
(In thousands) 9/23/20   12/25/19
Assets      
  Current assets      
    Cash and cash equivalents $ 11,217     $ 3,372  
    Investments 2,266     3,649  
    Receivables, net 20,637     27,488  
    Assets held for sale 3,206     1,925  
    Other current assets 19,855     16,299  
      Total current assets 57,181     52,733  
  Property, net 89,466     97,626  
  Financing lease right-of-use assets, net 10,284     11,720  
  Operating lease right-of-use assets, net 145,302     158,550  
  Goodwill 36,884     36,832  
  Intangible assets, net 52,100     53,956  
  Deferred income taxes, net 27,047     14,718  
  Other noncurrent assets, net 32,533     34,252  
      Total assets $ 450,797     $ 460,387  
             
Liabilities      
  Current liabilities      
    Current finance lease liabilities $ 1,963     $ 1,674  
    Current operating lease liabilities 18,253     16,344  
    Accounts payable 10,898     20,256  
    Other current liabilities 41,346     57,307  
      Total current liabilities 72,460     95,581  
  Long-term liabilities      
    Long-term debt 230,000     240,000  
    Noncurrent finance lease liabilities 13,805     14,779  
    Noncurrent operating lease liabilities 142,110     152,750  
    Other 130,793     95,341  
      Total long-term liabilities 516,708     502,870  
      Total liabilities 589,168     598,451  
             
Shareholders' deficit      
    Common stock 1,178     1,094  
    Paid-in capital 672,502     603,980  
    Deficit (196,873 )   (189,398 )
    Accumulated other comprehensive loss, net of tax (61,205 )   (33,960 )
    Treasury stock (553,973 )   (519,780 )
      Total shareholders' deficit (138,371 )   (138,064 )
      Total liabilities and shareholders' deficit $ 450,797     $ 460,387  
             
Debt Balances
(In thousands) 9/23/20   12/25/19
Credit facility revolver due 2022 $ 230,000     $ 240,000  
Finance lease liabilities 15,768     16,453  
  Total debt $ 245,768     $ 256,453  

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
           
      Quarter Ended
(In thousands, except per share amounts) 9/23/20   9/25/19
Revenue:      
  Company restaurant sales $ 27,849     $ 63,582  
  Franchise and license revenue 43,795     60,676  
    Total operating revenue 71,644     124,258  
Costs of company restaurant sales, excluding depreciation and amortization 27,370     54,306  
Costs of franchise and license revenue, excluding depreciation and amortization 24,073     31,136  
General and administrative expenses 13,694     16,395  
Depreciation and amortization 4,048     4,338  
Operating (gains), losses and other charges, net (781 )   (50,091 )
    Total operating costs and expenses, net 68,404     56,084  
Operating income 3,240     68,174  
Interest expense, net 4,422     4,188  
Other nonoperating expense (income), net (8,477 )   (415 )
Income before income taxes 7,295     64,401  
Provision for income taxes 818     15,279  
Net income $ 6,477     $ 49,122  
           
           
Basic net income per share $ 0.10     $ 0.83  
Diluted net income per share $ 0.10     $ 0.80  
           
Basic weighted average shares outstanding 63,793     59,430  
Diluted weighted average shares outstanding 64,027     61,189  
           
Comprehensive income $ 7,489     $ 34,128  
       
General and Administrative Expenses Quarter Ended
(In thousands) 9/23/20   9/25/19
Corporate administrative expenses $ 9,820     $ 12,091  
Share-based compensation 1,998     2,176  
Incentive compensation 1,290     1,872  
Deferred compensation valuation adjustments 586     256  
  Total general and administrative expenses $ 13,694     $ 16,395  

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
           
      Three Quarters Ended
(In thousands, except per share amounts) 9/23/20   9/25/19
Revenue:      
  Company restaurant sales $ 85,268     $ 257,574  
  Franchise and license revenue 123,232     169,979  
    Total operating revenue 208,500     427,553  
Costs of company restaurant sales, excluding depreciation and amortization 83,094     218,249  
Costs of franchise and license revenue, excluding depreciation and amortization 68,487     87,065  
General and administrative expenses 34,589     53,659  
Depreciation and amortization 12,252     15,619  
Operating (gains), losses and other charges, net 2,319     (85,459 )
    Total operating costs and expenses, net 200,741     289,133  
Operating income 7,759     138,420  
Interest expense, net 13,320     14,977  
Other nonoperating expense (income), net 3,851     (2,111 )
Income (loss) before income taxes (9,412 )   125,554  
Provision for (benefit from) income taxes (1,937 )   26,703  
Net income (loss) $ (7,475 )   $ 98,851  
           
           
Basic net income (loss) per share $ (0.13 )   $ 1.64  
Diluted net income (loss) per share $ (0.13 )   $ 1.58  
           
Basic weighted average shares outstanding 59,350     60,457  
Diluted weighted average shares outstanding 59,350     62,370  
           
Comprehensive income (loss) $ (34,720 )   $ 61,090  
       
General and Administrative Expenses Three Quarters Ended
(In thousands) 9/23/20   9/25/19
Corporate administrative expenses $ 31,302     $ 37,396  
Share-based compensation 1,972     7,142  
Incentive compensation 1,305     7,329  
Deferred compensation valuation adjustments 10     1,792  
  Total general and administrative expenses $ 34,589     $ 53,659  

 

DENNY’S CORPORATION
Reconciliation of Net Income (Loss) 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 (Loss) and Adjusted Net Income (Loss) 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 the Company's credit facility for the computation of its debt covenant ratios. The Company defines 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 (loss) or other financial performance and liquidity measures prepared in accordance with U.S. generally accepted accounting principles.

  Quarter Ended   Three Quarters Ended
(In thousands, except per share amounts) 9/23/20   9/25/19   9/23/20   9/25/19
Net income (loss) $ 6,477       $ 49,122       $ (7,475 )     $ 98,851    
Provision for (benefit from) income taxes 818       15,279       (1,937 )     26,703    
Operating (gains), losses and other charges, net (781 )     (50,091 )     2,319       (85,459 )  
Other nonoperating expense (income), net (8,477 )     (415 )     3,851       (2,111 )  
Share-based compensation 1,998       2,176       1,972       7,142    
Deferred compensation plan valuation adjustments 586       256       10       1,792    
Interest expense, net 4,422       4,188       13,320       14,977    
Depreciation and amortization 4,048       4,338       12,252       15,619    
Cash payments for restructuring charges and exit costs (1,032 )     (672 )     (2,406 )     (2,052 )  
Cash payments for share-based compensation (13 )     (28 )     (3,224 )     (3,559 )  
Adjusted EBITDA $ 8,046       $ 24,153       $ 18,682       $ 71,903    
               
Cash interest expense, net (1) (4,698 )     (3,949 )     (13,135 )     (14,219 )  
Cash paid for income taxes, net (268 )     (5,861 )     (545 )     (17,853 )  
Cash paid for capital expenditures (1,000 )     (10,619 )     (5,476 )     (22,102 )  
Adjusted Free Cash Flow $ 2,080       $ 3,724       $ (474 )     $ 17,729    
               
  Quarter Ended   Three Quarters Ended
(In thousands, except per share amounts) 9/23/20   9/25/19   9/23/20   9/25/19
Net income (loss) $ 6,477       $ 49,122       $ (7,475 )     $ 98,851    
(Gains) losses on interest rate swap derivatives (7,281 )           4,185          
(Gains) losses on sales of assets and other, net (1,202 )     (51,183 )     (2,260 )     (87,497 )  
Impairment charges 338             2,519          
Tax effect (2) 2,093       13,226       (1,142 )     22,610    
Adjusted Net Income (Loss) $ 425       $ 11,165       $ (4,173 )     $ 33,964    
               
Diluted weighted average shares outstanding 64,027       61,189       59,350       62,370    
               
Diluted Net Income (Loss) Per Share $ 0.10       $ 0.80       $ (0.13 )     $ 1.58    
Adjustments Per Share $ (0.09 )     $ (0.62 )     $ 0.06       $ (1.04 )  
Adjusted Net Income (Loss) Per Share $ 0.01       $ 0.18       $ (0.07 )     $ 0.54    

 

(1 ) Includes cash interest expense, net and cash payments of approximately $0.6 million and $1.1 million for dedesignated interest rate swap derivatives for the quarter and year-to-date periods ended September 23, 2020.
(2 ) Tax adjustments are calculated using an effective tax rate of 25.7% for the quarter and year-to-date periods ended September 23, 2020. Tax adjustments for the gains on sales of assets and other, net for the quarter and year-to-date periods ended September 25, 2019 are calculated using an effective tax rate of 25.8%.

 

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.

The Company defines 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. Total Operating Margin is presented as a percent of total operating revenue. The Company excludes general and administrative expenses, which include primarily non-restaurant-level costs associated with support of company and franchised restaurants and other activities at their corporate office. The Company excludes 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. The Company excludes special items, included within operating (gains), losses and other charges, net, to provide investors with a clearer perspective of its 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. The Company defines 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 presents it as a percent of company restaurant sales. The Company defines 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, advertising revenue and occupancy revenue) less costs of franchise and license revenue and presents 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 operating (gains), losses and other charges, net. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income (loss) 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 items, and are not indicative of the overall results for the Company.

  Quarter Ended   Three Quarters Ended
(In thousands) 9/23/20   9/25/19   9/23/20   9/25/19
Operating income $ 3,240        $ 68,174        $ 7,759      $ 138,420     
General and administrative expenses 13,694        16,395        34,589      53,659     
Depreciation and amortization 4,048        4,338        12,252      15,619     
Operating (gains), losses and other charges, net (781 )     (50,091 )     2,319      (85,459 )  
  Total Operating Margin $ 20,201        $ 38,816        $ 56,919      $ 122,239     
               
Total Operating Margin consists of:              
 Company Restaurant Operating Margin (1) $ 479        $ 9,276        $ 2,174      $ 39,325     
 Franchise Operating Margin (2) 19,722        29,540        54,745      82,914     
  Total Operating Margin $ 20,201        $ 38,816        $ 56,919      $ 122,239     

 

(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) 9/23/20   9/25/19
Company restaurant operations: (1)          
  Company restaurant sales $ 27,849   100.0 %   $ 63,582   100.0 %
  Costs of company restaurant sales:          
    Product costs 7,106   25.5 %   15,603   24.5 %
    Payroll and benefits 11,925   42.8 %   23,777   37.4 %
    Occupancy 2,638   9.5 %   4,301   6.8 %
    Other operating costs:          
      Utilities 1,281   4.6 %   2,438   3.8 %
      Repairs and maintenance 711   2.6 %   1,774   2.8 %
      Marketing 1,045   3.8 %   2,411   3.8 %
      Other direct costs 2,664   9.6 %   4,002   6.3 %
  Total costs of company restaurant sales $ 27,370   98.3 %   $ 54,306   85.4 %
  Company restaurant operating margin (non-GAAP) (2) $ 479   1.7 %   $ 9,276   14.6 %
                 
Franchise operations: (3)          
  Franchise and license revenue:          
  Royalties $ 17,896   40.9 %   $ 27,830   45.9 %
  Advertising revenue 13,927   31.8 %   20,756   34.2 %
  Initial and other fees 1,890   4.3 %   1,356   2.2 %
  Occupancy revenue 10,082   23.0 %   10,734   17.7 %
  Total franchise and license revenue $ 43,795   100.0 %   $ 60,676   100.0 %
                 
  Costs of franchise and license revenue:          
  Advertising costs $ 13,927   31.8 %   $ 20,757   34.2 %
  Occupancy costs 6,858   15.7 %   7,257   12.0 %
  Other direct costs 3,288   7.5 %   3,122   5.1 %
  Total costs of franchise and license revenue $ 24,073   55.0 %   $ 31,136   51.3 %
  Franchise operating margin (non-GAAP) (2) $ 19,722   45.0 %   $ 29,540   48.7 %
                 
Total operating revenue (4) $ 71,644   100.0 %   $ 124,258   100.0 %
Total costs of operating revenue (4) 51,443   71.8 %   85,442   68.8 %
Total operating margin (non-GAAP) (4)(2) $ 20,201   28.2 %   $ 38,816   31.2 %
                 
Other operating expenses: (4)(2)          
  General and administrative expenses $ 13,694   19.1 %   $ 16,395   13.2 %
  Depreciation and amortization 4,048   5.7 %   4,338   3.5 %
  Operating (gains), losses and other charges, net (781 ) (1.1 )%   (50,091 ) (40.3 )%
  Total other operating expenses $ 16,961   23.7 %   $ (29,358 ) (23.6 )%
                 
Operating income (4) $ 3,240   4.5 %   $ 68,174   54.9 %
                 
(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 (loss) 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)
             
        Three Quarters Ended
(In thousands) 9/23/20   9/25/19
Company restaurant operations: (1)          
  Company restaurant sales $ 85,268   100.0 %   $ 257,574     100.0 %
  Costs of company restaurant sales:          
    Product costs 21,541   25.3 %   62,871     24.4 %
    Payroll and benefits 37,070   43.5 %   100,475     39.0 %
    Occupancy 8,529   10.0 %   15,583     6.0 %
    Other operating costs:          
      Utilities 3,815   4.5 %   8,916     3.5 %
      Repairs and maintenance 1,928   2.3 %   5,742     2.2 %
      Marketing 2,771   3.2 %   9,357     3.6 %
      Other direct costs 7,440   8.7 %   15,305     5.9 %
  Total costs of company restaurant sales $ 83,094   97.5 %   $ 218,249     84.7 %
  Company restaurant operating margin (non-GAAP) (2) $ 2,174   2.5 %   $ 39,325     15.3 %
                 
Franchise operations: (3)          
  Franchise and license revenue:          
  Royalties $ 48,462   39.3 %   $ 79,742     46.9 %
  Advertising revenue 38,685   31.4 %   59,582     35.1 %
  Initial and other fees 4,933   4.0 %   4,250     2.5 %
  Occupancy revenue 31,152   25.3 %   26,405     15.5 %
  Total franchise and license revenue $ 123,232   100.0 %   $ 169,979     100.0 %
                 
  Costs of franchise and license revenue:          
  Advertising costs $ 38,685   31.4 %   $ 59,583     35.1 %
  Occupancy costs 20,096   16.3 %   18,018     10.6 %
  Other direct costs 9,706   7.9 %   9,464     5.6 %
  Total costs of franchise and license revenue $ 68,487   55.6 %   $ 87,065     51.2 %
  Franchise operating margin (non-GAAP) (2) $ 54,745   44.4 %   $ 82,914     48.8 %
                 
Total operating revenue (4) $ 208,500   100.0 %   $ 427,553     100.0 %
Total costs of operating revenue (4) 151,581   72.7 %   305,314     71.4 %
Total operating margin (non-GAAP) (4)(2) $ 56,919   27.3 %   $ 122,239     28.6 %
                 
Other operating expenses: (4)(2)          
  General and administrative expenses $ 34,589   16.6 %   $ 53,659     12.6 %
  Depreciation and amortization 12,252   5.9 %   15,619     3.7 %
  Operating (gains), losses and other charges, net 2,319   1.1 %   (85,459 )   (20.0 )%
  Total other operating expenses $ 49,160   23.6 %   $ (16,181 )   (3.8 )%
                 
Operating income (4) $ 7,759   3.7 %   $ 138,420     32.4 %
                 
(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 margin should be considered as a supplement to, not as a substitute for, operating income, net income (loss) 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   Three Quarters Ended
(increase (decrease) vs. prior year) 9/23/20   9/25/19   9/23/20   9/25/19
  Company Restaurants (40.2 )%   (0.2 )%   (37.4 )%   2.1 %
  Domestic Franchised Restaurants (33.1 )%   1.2 %   (30.1 )%   2.0 %
  Domestic System-wide Restaurants (33.6 )%   1.1 %   (30.7 )%   2.1 %
                   
Average Unit Sales Quarter Ended   Three Quarters Ended
(In thousands) 9/23/20   9/25/19   9/23/20   9/25/19
  Company Restaurants $ 423     $ 640     $ 1,313     $ 1,820  
  Franchised Restaurants $ 282     $ 421     $ 868     $ 1,242  
                   
          Franchised        
Restaurant Unit Activity Company   & Licensed   Total    
Ending Units June 24, 2020 67     1,616     1,683      
  Units Opened     5     5      
  Units Closed (1 )   (23 )   (24 )    
    Net Change (1 )   (18 )   (19 )    
Ending Units September 23, 2020 66     1,598     1,664      
                   
Equivalent Units              
  Third Quarter 2020 66     1,608     1,674      
  Third Quarter 2019 99     1,603     1,702      
    Net Change (33 )   5     (28 )    
                   
          Franchised        
Restaurant Unit Activity Company   & Licensed   Total    
Ending Units December 25, 2019 68     1,635     1,703      
  Units Opened     16     16      
  Units Closed (2 )   (53 )   (55 )    
    Net Change (2 )   (37 )   (39 )    
Ending Units September 23, 2020 66     1,598     1,664      
                   
Equivalent Units              
  Year-to-Date 2020 65     1,620     1,685      
  Year-to-Date 2019 141     1,560     1,701      
    Net Change (76 )   60     (16 )    
                   
(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 non-consolidated 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, the Company's 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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