Denny’s Corporation Reports Results for Fourth Quarter and Full Year 2020

Feb 16, 2021

SPARTANBURG, S.C., Feb. 16, 2021 (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 fourth quarter and full year ended December 30, 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, “While 2020 was a year of unprecedented challenges, Denny's operators diligently protected the health and well-being of our guests and restaurant teams, while embracing innovative solutions like curbside pickup, drive up ordering and outdoor dining in an ever-evolving environment. We have since entered 2021 with confidence in our team's ability to continue navigating near-term headwinds and remain optimistic for the anticipated economic recovery. Our confidence is supported by an increasing distribution of vaccines, fiscal stimulus that should benefit our franchisees and consumers, and our rollout of two new virtual concepts where test results have been favorable and suggest a high degree of incremental transactions.”

Fourth Quarter 2020 Highlights

  • Total Operating Revenue was $80.1 million.
  • Domestic system-wide same-store sales** decreased 32.9%.
  • Opened four franchise restaurants, including one international location.
  • Completed five remodels at franchised restaurants.
  • Operating Loss was $1.1 million.
  • Franchise Operating Margin* was $21.4 million, or 45.2% of franchise and license revenue, and Company Restaurant Operating Margin* was $1.4 million, or 4.3% of company restaurant sales.
  • Net Income was $2.4 million, or $0.04 per diluted share.
  • Adjusted Net Loss* was $3.0 million, or $0.05 per diluted share.
  • Adjusted EBITDA* was $8.0 million.
  • Approximately $2.0 million of Adjusted EBITDA* was attributable to an additional operating week.
  • Cash provided by (used in) operating, investing, and financing activities was $8.5 million, $3.4 million, and ($19.2) million, respectively.
  • Adjusted Free Cash Flow* was $2.1 million.

Full Year 2020 Highlights

  • Total Operating Revenue was $288.6 million.
  • Domestic system-wide same-store sales** decreased 31.4%.
  • Opened 20 franchise restaurants, including 8 international locations.
  • Completed 22 remodels, including 20 at franchised restaurants.
  • Operating Income was $6.7 million.
  • Franchise Operating Margin* was $76.1 million, or 44.6% of franchise and license revenue, and Company Restaurant Operating Margin* was $3.6 million, or 3.0% of company restaurant sales.
  • Net Loss was $5.1 million, or $0.08 per diluted share.
  • Adjusted Net Loss* was $7.2 million, or $0.12 per diluted share.
  • Adjusted EBITDA* was $26.6 million.
  • Cash provided by (used in) operating, investing, and financing activities was ($3.1) million, $4.7 million, and ($1.0) million, respectively.
  • Adjusted Free Cash Flow* was $1.6 million.

Current Trends

Following a consistent level of domestic system-wide same-store sales** performance in October and November, December results were significantly impacted by reinstated stay-at-home orders and additional capacity restrictions. As these restrictions began to ease during January and February, domestic system-wide same-store sales** improved as compared to the equivalent periods in 2019.

Average unit volumes of off-premise sales have more than doubled 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 for 2020 and 2021 compared to the equivalent fiscal months in 2019:

Domestic System-Wide Same-Store Sales** Compared to 2019 Fiscal Periods:

Fiscal Year 2020: (31%)   Fiscal Year
2021: (29%)1
Q1: (6%) Q2: (57%) Q3: (34%) Q4: (33%)  
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec   Jan Feb1
3 % 2 % (19 %) (76 %) (65 %) (41 %) (39 %) (35 %) (28 %) (26 %) (27 %) (41 %)   (31 %) (25 %)
1. Preliminary results through the first two weeks of fiscal February.      

 


Domestic System Same-Store Sales
** Compared to 2019 Fiscal Periods and Domestic Average Units for 2020 and 2021 Fiscal Periods

(Open Dining Rooms vs Closed Dining Rooms):

  Q2 2020 Q3 2020 Q4 2020 Q1 2021  
  Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb1  
Open
Dining Rooms

(74%) (47%) (33%) (36%) (29%) (24%) (24%) (23%) (26%) (15%) (15%)  
2 222 1,087 1,244 1,044 1,127 1,289 1,239 891 927 1,010  
                         
Closed
Dining Rooms

(76%) (69%) (68%) (55%) (47%) (39%) (33%) (42%) (61%) (55%) (42%)  
1,060 938 327 237 444 369 207 256 586 531 444  
                         
Temporary
Closures
480 378 120 47 35 22 19 20 31 46 50  
  1. Preliminary results through the first two weeks of fiscal February.  

Domestic System Same-Store Sales ** Compared to 2019 Fiscal Periods and Domestic Average Units for 2020 and 2021 Fiscal Periods
(24/7 Units vs Limited Hour Units):

  Q2 2020 Q3 2020 Q4 2020 Q1 2021  
  Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb1  
24/7 Units

(68%) (57%) (30%) (31%) (25%) (19%) (18%) (18%) (30%) (20%) (14%)  
185 323 435 458 472 496 516 538 516 519 528  
                         
Limited Hour
Units

(78%) (69%) (47%) (44%) (41%) (34%) (31%) (33%) (49%) (38%) (33%)  
877 837 979 1,023 1,016 1,000 980 957 961 939 926  
                         
Temporary
Closures
480 378 120 47 35 22 19 20 31 46 50  
  1. Preliminary results through the first two weeks of fiscal February.  

Domestic Capacity Restrictions as of February 12, 20211:

% of Domestic System
75% Capacity or Social Distancing 25 %
50% - 66% Capacity 31 %
25% - 33% Capacity 15 %
Off-Premise Only 26 %
No Restrictions 1 %
Temporarily Closed 2 %
Total 100 %
1. Preliminary results.  

Fourth Quarter Results

Denny’s total operating revenue was $80.1 million compared to $113.8 million in the prior year quarter. Franchise and license revenue was $47.2 million compared to $65.0 million in the prior year quarter. Company restaurant sales were $32.9 million compared to $48.8 million in the prior year quarter. These changes were primarily due to the impact of the COVID-19 pandemic on sales and fewer equivalent units, partially offset by an additional operating week.

Franchise Operating Margin* was $21.4 million, or 45.2% of franchise and license revenue, compared to $31.8 million, or 48.9%, in the prior year quarter. This change in margin was primarily due to the impact of the COVID-19 pandemic on sales and fewer equivalent units, partially offset by an additional operating week.

Company Restaurant Operating Margin* was $1.4 million, or 4.3% of company restaurant sales, compared to $8.7 million, or 17.7%, in the prior year quarter. This change in margin was primarily due to the impact of the COVID-19 pandemic on sales and fewer equivalent units, partially offset by approximately $1.0 million of favorable reserve adjustments and tax credits related to the CARES Act and an additional operating week.

Total general and administrative expenses were $20.5 million, compared to $15.4 million in the prior year quarter. This change was primarily due to an increase in share-based compensation expense, partially offset by a $3.1 million improvement in corporate administrative expenses from cost savings initiatives and previous reductions in personnel due to the COVID-19 pandemic including approximately $0.9 million in tax credits related to the CARES Act.

Interest expense, net was $4.6 million, compared to $3.6 million in the prior year quarter, with the increase primarily due to higher interest related to the Company's recent debt amendments and the amortization of dedesignated interest rate swap losses from accumulated other comprehensive loss, net. Denny’s ended the quarter with $225.4 million of total debt outstanding, including $210.0 million of borrowings under its credit facility.

The benefit from income taxes was $0.1 million, compared to a tax provision of $5.1 million in the prior year quarter, reflecting an effective tax rate of 2.7%. Approximately $0.5 million in net cash refunds were received during the quarter.

Net income was $2.4 million, or $0.04 per diluted share, compared to net income of $18.6 million, or $0.31 per diluted share, in the prior year quarter. Adjusted Net Loss* per diluted share was $0.05 compared to Adjusted Net Income* per diluted share of $0.23 in the prior year quarter.

Adjusted Free Cash Flow* and Capital Allocation

Denny’s Adjusted Free Cash Flow* in the quarter was $2.1 million after investing $1.5 million in cash capital expenditures, including maintenance capital.

Business Outlook

Given the dynamic and evolving impact of the COVID-19 pandemic on the Company's operations and uncertainty about the timing and extent of an anticipated recovery, the Company cannot reasonably provide a business outlook for the fiscal year ending December 29, 2021 at this time.

*   Please refer to the Reconciliation of Net Income (Loss) and Net Cash Provided by (Used in) Operating Activities to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income (Loss) 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 noted prior period. 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 fourth quarter ended December 30, 2020 on its quarterly investor conference call today, Tuesday, February 16, 2021 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 December 30, 2020, Denny’s had 1,650 franchised, licensed, and company restaurants around the world including 146 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) 12/30/20   12/25/19
Assets      
  Current assets      
    Cash and cash equivalents $ 3,892     $ 3,372  
    Investments 2,272     3,649  
    Receivables, net 21,349     27,488  
    Assets held for sale 1,125     1,925  
    Other current assets 20,028     16,299  
      Total current assets 48,666     52,733  
  Property, net 86,154     97,626  
  Financing lease right-of-use assets, net 9,830     11,720  
  Operating lease right-of-use assets, net 139,534     158,550  
  Goodwill 36,884     36,832  
  Intangible assets, net 51,559     53,956  
  Deferred income taxes, net 23,210     14,718  
  Other noncurrent assets, net 35,112     34,252  
      Total assets $ 430,949     $ 460,387  
             
Liabilities      
  Current liabilities      
    Current finance lease liabilities $ 1,839     $ 1,674  
    Current operating lease liabilities 16,856     16,344  
    Accounts payable 12,021     20,256  
    Other current liabilities 46,462     57,307  
      Total current liabilities 77,178     95,581  
  Long-term liabilities      
    Long-term debt 210,000     240,000  
    Noncurrent finance lease liabilities 13,530     14,779  
    Noncurrent operating lease liabilities 137,534     152,750  
    Other 123,153     95,341  
      Total long-term liabilities 484,217     502,870  
      Total liabilities 561,395     598,451  
             
Shareholders' deficit      
    Common stock 640     1,094  
    Paid-in capital 123,833     603,980  
    Deficit (194,514 )   (189,398 )
    Accumulated other comprehensive loss, net of tax (60,405 )   (33,960 )
    Treasury stock     (519,780 )
      Total shareholders' deficit (130,446 )   (138,064 )
      Total liabilities and shareholders' deficit $ 430,949     $ 460,387  
             
Debt Balances
(In thousands) 12/30/20   12/25/19
Credit facility revolver due 2022 $ 210,000     $ 240,000  
Finance lease liabilities 15,369     16,453  
  Total debt $ 225,369     $ 256,453  

 

 
DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
           
      Quarter Ended
(In thousands, except per share amounts) 12/30/20   12/25/19
Revenue:      
  Company restaurant sales $ 32,892     $ 48,803  
  Franchise and license revenue 47,213     65,033  
    Total operating revenue 80,105     113,836  
Costs of company restaurant sales, excluding depreciation and amortization 31,475     40,147  
Costs of franchise and license revenue, excluding depreciation and amortization 25,861     33,261  
General and administrative expenses 20,451     15,359  
Depreciation and amortization 3,909     4,227  
Operating (gains), losses and other charges, net (511 )   (5,721 )
    Total operating costs and expenses, net 81,185     87,273  
Operating income (loss) (1,080 )   26,563  
Interest expense, net 4,645     3,570  
Other nonoperating expense (income), net (8,022 )   (652 )
Income before income taxes 2,297     23,645  
Provision for (benefit from) income taxes (62 )   5,086  
Net income $ 2,359     $ 18,559  
           
           
Basic net income per share $ 0.04     $ 0.32  
Diluted net income per share $ 0.04     $ 0.31  
           
Basic weighted average shares outstanding 64,898     58,406  
Diluted weighted average shares outstanding 65,467     60,343  
           
Comprehensive income $ 3,159     $ 26,506  
       
General and Administrative Expenses Quarter Ended
(In thousands) 12/30/20   12/25/19
Corporate administrative expenses $ 9,833     $ 12,923  
Share-based compensation 5,976     (448 )
Incentive compensation 3,046     2,096  
Deferred compensation valuation adjustments 1,596     788  
  Total general and administrative expenses $ 20,451     $ 15,359  

 

 
DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
           
      Fiscal Year Ended
(In thousands, except per share amounts) 12/30/20   12/25/19
Revenue:      
  Company restaurant sales $ 118,160     $ 306,377  
  Franchise and license revenue 170,445     235,012  
    Total operating revenue 288,605     541,389  
Costs of company restaurant sales, excluding depreciation and amortization 114,569     258,396  
Costs of franchise and license revenue, excluding depreciation and amortization 94,348     120,326  
General and administrative expenses 55,040     69,018  
Depreciation and amortization 16,161     19,846  
Operating (gains), losses and other charges, net 1,808     (91,180 )
    Total operating costs and expenses, net 281,926     376,406  
Operating income 6,679     164,983  
Interest expense, net 17,965     18,547  
Other nonoperating expense (income), net (4,171 )   (2,763 )
Income (loss) before income taxes (7,115 )   149,199  
Provision for (benefit from) income taxes (1,999 )   31,789  
Net income (loss) $ (5,116 )   $ 117,410  
           
           
Basic net income (loss) per share $ (0.08 )   $ 1.96  
Diluted net income (loss) per share $ (0.08 )   $ 1.90  
           
Basic weighted average shares outstanding 60,812     59,944  
Diluted weighted average shares outstanding 60,812     61,833  
           
Comprehensive income (loss) $ (31,561 )   $ 87,596  
       
General and Administrative Expenses Fiscal Year Ended
(In thousands) 12/30/20   12/25/19
Corporate administrative expenses $ 41,135     $ 50,319  
Share-based compensation 7,948     6,694  
Incentive compensation 4,351     9,425  
Deferred compensation valuation adjustments 1,606     2,580  
  Total general and administrative expenses $ 55,040     $ 69,018  

 

 
DENNY’S CORPORATION
Reconciliation of Net Income (Loss) and Net Cash Provided by (Used in) Operating Activities to Non-GAAP Financial Measures
(Unaudited)

The Company believes that, in addition to GAAP measures, certain non-GAAP financial measures are appropriate indicators to assist in the evaluation of operating performance and liquidity 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 incentive compensation for certain employees. Adjusted EBITDA is also used in the calculation of financial covenant ratios in accordance with the Company’s credit facility. Adjusted Free Cash Flow is also used as a non-GAAP liquidity measure by Management to assess the Company’s ability to generate cash and plan for future operating and capital actions. Management believes that the presentation of Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted Net Income (Loss) Per Share and Adjusted Free Cash Flow provide useful information to investors and analysts about the Company’s operating results, financial condition or cash flows. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income (loss), net income (loss), net cash provided by (used in) operating activities, or other financial performance and liquidity measures prepared in accordance with U.S. generally accepted accounting principles.

  Quarter Ended   Fiscal Year Ended
(In thousands, except per share amounts) 12/30/20   12/25/19   12/30/20   12/25/19
Net income (loss) $ 2,359     $ 18,559     $ (5,116 )   $ 117,410  
Provision for (benefit from) income taxes (62 )   5,086     (1,999 )   31,789  
Operating (gains), losses and other charges, net (511 )   (5,721 )   1,808     (91,180 )
Other nonoperating expense (income), net (8,022 )   (652 )   (4,171 )   (2,763 )
Share-based compensation 5,976     (448 )   7,948     6,694  
Deferred compensation plan valuation adjustments 1,596     788     1,606     2,580  
Interest expense, net 4,645     3,570     17,965     18,547  
Depreciation and amortization 3,909     4,227     16,161     19,846  
Cash payments for restructuring charges and exit costs (575 )   (529 )   (2,981 )   (2,581 )
Cash payments for share-based compensation (1,354 )       (4,578 )   (3,559 )
Adjusted EBITDA $ 7,961     $ 24,880     $ 26,643     $ 96,783  
               
Net cash provided by (used in) operating activities $ 8,473     $ 11,301     $ (3,137 )   $ 43,327  
Capital expenditures (1,486 )   (1,329 )   (6,962 )   (13,975 )
Acquisition of restaurants and real estate     (1,864 )       (11,320 )
Cash payments for restructuring charges and exit costs (575 )   (529 )   (2,981 )   (2,581 )
Cash payments for share-based compensation (1,354 )       (4,578 )   (3,559 )
Deferred compensation plan valuation adjustments 1,596     788     1,606     2,580  
Other nonoperating expense (income), net (8,022 )   (652 )   (4,171 )   (2,763 )
Gains on investments 6     1     123     180  
Gains (losses) on early extinguishment of debt and leases (181 )   (153 )   (224 )   4  
Amortization of deferred financing costs (285 )   (152 )   (876 )   (608 )
Gains (losses) on interest rate swap derivatives, net 6,349         2,164      
Interest expense, net 4,645     3,570     17,965     18,547  
Cash interest expense, net (1) (4,912 )   (3,332 )   (18,047 )   (17,551 )
Deferred income tax expense (6,486 )   (6,411 )   (3,981 )   (16,005 )
Decrease in tax valuation allowance 3,041     2,935     3,041     2,935  
Provision for (benefit from) income taxes (62 )   5,086     (1,999 )   31,789  
Income taxes received (paid), net 539     (6,294 )   (6 )   (24,147 )
Changes in operating assets and liabilities 816     9,096     23,691     22,937  
Adjusted Free Cash Flow $ 2,102     $ 12,061     $ 1,628     $ 29,790  
                   

 

(1)  Includes cash interest expense, net and cash payments of approximately $0.8 million and $1.9 million for dedesignated interest rate swap derivatives for the quarter and year ended December 30, 2020, respectively.

 

 
DENNY’S CORPORATION
Reconciliation of Net Income (Loss) and Net Cash Provided by (Used in) Operating Activities to Non-GAAP Financial Measures
(Unaudited)
      Quarter Ended   Fiscal Year Ended
(In thousands, except per share amounts) 12/30/20   12/25/19   12/30/20   12/25/19
Adjusted EBITDA $ 7,961     $ 24,880     $ 26,643     $ 96,783  
Cash interest expense, net (1) (4,912 )   (3,332 )   (18,047 )   (17,551 )
Cash received (paid) for income taxes, net 539     (6,294 )   (6 )   (24,147 )
Cash paid for capital expenditures (1,486 )   (3,193 )   (6,962 )   (25,295 )
Adjusted Free Cash Flow $ 2,102     $ 12,061     $ 1,628     $ 29,790  
               
  Quarter Ended   Fiscal Year Ended
(In thousands, except per share amounts) 12/30/20   12/25/19   12/30/20   12/25/19
Net income (loss) $ 2,359     $ 18,559     $ (5,116 )   $ 117,410  
(Gains) losses on interest rate swap derivatives, net (6,349 )       (2,164 )    
(Gains) losses on sales of assets and other, net (2,418 )   (6,111 )   (4,678 )   (93,608 )
Impairment charges 1,564         4,083      
Tax effect (2) 1,848     1,571     706     24,057  
Adjusted Net Income (Loss) $ (2,996 )   $ 14,019     $ (7,169 )   $ 47,859  
               
Diluted weighted average shares outstanding 64,898     60,343     60,812     61,833  
               
Diluted Net Income (Loss) Per Share $ 0.04     $ 0.31     $ (0.08 )   $ 1.90  
Adjustments Per Share $ (0.09 )   $ (0.08 )   $ (0.04 )   $ (1.13 )
Adjusted Net Income (Loss) Per Share $ (0.05 )   $ 0.23     $ (0.12 )   $ 0.77  
                   

 

(1)  Includes cash interest expense, net and cash payments of approximately $0.8 million and $1.9 million for dedesignated interest rate swap derivatives for the quarter and year ended December 30, 2020, respectively.
(2)  Tax adjustments for the quarter ended December 30, 2020 reflect an effective tax rate of 25.7%. Tax adjustments for the year ended December 30, 2020 are calculated using an effective tax rate of 25.6%. Tax adjustments for the gains on sales of assets and other, net for the quarter and year ended December 25, 2019 are calculated using an effective tax rate of 25.7%.

 

 
DENNY’S CORPORATION
Reconciliation of Operating 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 restaurant-level operating efficiency and performance of ongoing restaurant-level operations. The Company uses Restaurant-level 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 Restaurant-level Operating Margin as operating income (loss) excluding the following three items: general and administrative expenses, depreciation and amortization, and operating (gains), losses and other charges, net. Restaurant-level 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.

Restaurant-level 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 (loss), net income (loss) or other financial performance measures prepared in accordance with U.S. generally accepted accounting principles. Restaurant-level 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   Fiscal Year Ended
(In thousands) 12/30/20   12/25/19   12/30/20   12/25/19
Operating income (loss) $ (1,080 )     $ 26,563       $ 6,679     $ 164,983    
General and administrative expenses 20,451       15,359       55,040     69,018    
Depreciation and amortization 3,909       4,227       16,161     19,846    
Operating (gains), losses and other charges, net (511 )     (5,721 )     1,808     (91,180 )  
 Restaurant-level Operating Margin $ 22,769       $ 40,428       $ 79,688     $ 162,667    
               
Restaurant-level Operating Margin consists of:              
Company Restaurant Operating Margin (1) $ 1,417       $ 8,656       $ 3,591     $ 47,981    
Franchise Operating Margin (2) 21,352       31,772       76,097     114,686    
 Restaurant-level Operating Margin $ 22,769       $ 40,428       $ 79,688     $ 162,667    

 

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

 

 
DENNY’S CORPORATION
Operating Margins
(Unaudited)
             
        Quarter Ended
(In thousands) 12/30/20   12/25/19
Company restaurant operations: (1)          
  Company restaurant sales $ 32,892     100.0%   $ 48,803     100.0%
  Costs of company restaurant sales:          
    Product costs 8,275     25.2%   11,849     24.3%
    Payroll and benefits 14,614     44.4%   18,331     37.6%
    Occupancy 2,712     8.2%   3,030     6.2%
    Other operating costs:          
      Utilities 1,333     4.1%   1,443     3.0%
      Repairs and maintenance 680     2.1%   1,050     2.2%
      Marketing 1,133     3.4%   1,838     3.8%
      Other direct costs 2,728     8.3%   2,606     5.3%
  Total costs of company restaurant sales $ 31,475     95.7%   $ 40,147     82.3%
  Company restaurant operating margin (non-GAAP) (2) $ 1,417     4.3%   $ 8,656     17.7%
                 
Franchise operations: (3)          
  Franchise and license revenue:          
  Royalties $ 19,039     40.3%   $ 29,071     44.7%
  Advertising revenue 15,060     31.9%   21,562     33.2%
  Initial and other fees 2,399     5.1%   2,291     3.5%
  Occupancy revenue 10,715     22.7%   12,109     18.6%
  Total franchise and license revenue $ 47,213     100.0%   $ 65,033     100.0%
                 
  Costs of franchise and license revenue:          
  Advertising costs $ 15,060     31.9%   $ 21,561     33.2%
  Occupancy costs 6,636     14.1%   7,788     12.0%
  Other direct costs 4,165     8.8%   3,912     6.0%
  Total costs of franchise and license revenue $ 25,861     54.8%   $ 33,261     51.1%
  Franchise operating margin (non-GAAP) (2) $ 21,352     45.2%   $ 31,772     48.9%
                 
Total operating revenue (4) $ 80,105     100.0%   $ 113,836     100.0%
Total costs of operating revenue (4) 57,336     71.6%   73,408     64.5%
Restaurant-level operating margin (non-GAAP) (4)(2) $ 22,769     28.4%   $ 40,428     35.5%
                 
Other operating expenses: (4)(2)          
  General and administrative expenses $ 20,451     25.5%   $ 15,359     13.5%
  Depreciation and amortization 3,909     4.9%   4,227     3.7%
  Operating (gains), losses and other charges, net (511 )   (0.6)%   (5,721 )   (5.0)%
  Total other operating expenses $ 23,849     29.8%   $ 13,865     12.2%
                 
Operating income (loss) (4) $ (1,080 )   (1.3)%   $ 26,563     23.3%
                 
(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 (loss), 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)
             
        Fiscal Year Ended
(In thousands) 12/30/20   12/25/19
Company restaurant operations: (1)          
  Company restaurant sales $ 118,160   100.0%   $ 306,377     100.0%
  Costs of company restaurant sales:          
    Product costs 29,816   25.2%   74,720     24.4%
    Payroll and benefits 51,684   43.7%   118,806     38.8%
    Occupancy 11,241   9.5%   18,613     6.1%
    Other operating costs:          
      Utilities 5,148   4.4%   10,359     3.4%
      Repairs and maintenance 2,608   2.2%   6,792     2.2%
      Marketing 3,904   3.3%   11,195     3.7%
      Other direct costs 10,168   8.6%   17,911     5.8%
  Total costs of company restaurant sales $ 114,569   97.0%   $ 258,396     84.3%
  Company restaurant operating margin (non-GAAP) (2) $ 3,591   3.0%   $ 47,981     15.7%
                 
Franchise operations: (3)          
  Franchise and license revenue:          
  Royalties $ 67,501   39.6%   $ 108,813     46.3%
  Advertising revenue 53,745   31.5%   81,144     34.5%
  Initial and other fees 7,332   4.3%   6,541     2.8%
  Occupancy revenue 41,867   24.6%   38,514     16.4%
  Total franchise and license revenue $ 170,445   100.0%   $ 235,012     100.0%
                 
  Costs of franchise and license revenue:          
  Advertising costs $ 53,745   31.5%   $ 81,144     34.5%
  Occupancy costs 26,732   15.7%   25,806     11.0%
  Other direct costs 13,871   8.1%   13,376     5.7%
  Total costs of franchise and license revenue $ 94,348   55.4%   $ 120,326     51.2%
  Franchise operating margin (non-GAAP) (2) $ 76,097   44.6%   $ 114,686     48.8%
                 
Total operating revenue (4) $ 288,605   100.0%   $ 541,389     100.0%
Total costs of operating revenue (4) 208,917   72.4%   378,722     70.0%
Restaurant-level operating margin (non-GAAP) (4)(2) $ 79,688   27.6%   $ 162,667     30.0%
                 
Other operating expenses: (4)(2)          
  General and administrative expenses $ 55,040   19.1%   $ 69,018     12.7%
  Depreciation and amortization 16,161   5.6%   19,846     3.7%
  Operating (gains), losses and other charges, net 1,808   0.6%   (91,180 )   (16.8)%
  Total other operating expenses $ 73,009   25.3%   $ (2,316 )   (0.4)%
                 
Operating income (4) $ 6,679   2.3%   $ 164,983     30.5%
                 
(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 (loss), 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   Fiscal Year Ended
(increase (decrease) vs. prior year) 12/30/20   12/25/19   12/30/20   12/25/19
  Company Restaurants (34.9)%   0.5%   (36.7)%   1.9%
  Domestic Franchised Restaurants (32.8)%   1.8%   (30.9)%   2.0%
  Domestic System-wide Restaurants (32.9)%   1.7%   (31.4)%   2.0%
                   
Average Unit Sales Quarter Ended   Fiscal Year Ended
(In thousands) 12/30/20   12/25/19   12/30/20   12/25/19
  Company Restaurants $ 499   $ 695   $ 1,812   $ 2,477
  Franchised Restaurants $ 314   $ 427   $ 1,181   $ 1,669
                   
          Franchised        
Restaurant Unit Activity Company   & Licensed   Total    
Ending Units September 23, 2020 66   1,598   1,664    
  Units Opened   4   4    
  Units Closed (1)   (17)   (18)    
    Net Change (1)   (13)   (14)    
Ending Units December 30, 2020 65   1,585   1,650    
                   
Equivalent Units              
  Fourth Quarter 2020 66   1,594   1,660    
  Fourth Quarter 2019 70   1,634   1,704    
    Net Change (4)   (40)   (44)    
                   
          Franchised        
Restaurant Unit Activity Company   & Licensed   Total    
Ending Units December 25, 2019 68   1,635   1,703    
  Units Opened   20   20    
  Units Closed (3)   (70)   (73)    
    Net Change (3)   (50)   (53)    
Ending Units December 30, 2020 65   1,585   1,650    
                   
Equivalent Units              
  Year-to-Date 2020 65   1,614   1,679    
  Year-to-Date 2019 124   1,578   1,702    
    Net Change (59)   36   (23)    
                   
(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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