Denny’s Corporation Reports Results for Third Quarter 2021

Nov 2, 2021

SPARTANBURG, S.C., Nov. 02, 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 third quarter ended September 29, 2021 and provided a business update on the Company’s operations.

John Miller, Chief Executive Officer, stated, "Our third quarter domestic system-wide same-store sales** were impacted due to increasing COVID-19 case counts during the period, however we are encouraged to see sales returning in October as cases have improved. Additionally, we gained great momentum through the launch of our revamped Dennys.com website and Denny's mobile app, our multicultural recruitment tour and the successful refinancing of our credit facility. Looking ahead, we are excited about initiating the next phase of our technology transformation with the rollout out of a new restaurant technology platform, in addition to beginning our new kitchen modernization initiative that will propel our menu innovation."

Third Quarter 2021 Highlights

  • Total operating revenue increased 44.9% to $103.8 million, primarily due to the COVID-19 recovery as compared to the prior year quarter.
  • Domestic system-wide same-store sales** decreased 0.1% compared to the equivalent fiscal period in 2019, including a 0.3% decrease at domestic franchised restaurants and a 1.9% increase at company restaurants.
  • Domestic system-wide same-store sales** increased 50.2% compared to the equivalent fiscal period in 2020.
  • Opened seven franchised restaurants, including four international locations.
  • Operating income was $17.7 million compared to $3.2 million in the prior year quarter.
  • Franchise Operating Margin* was $29.9 million, or 52.1% of franchise and license revenue, and Company Restaurant Operating Margin* was $7.9 million, or 17.0% of company restaurant sales.
  • Net income was $12.3 million, or $0.19 per diluted share.
  • Adjusted Net Income* was $10.5 million, or $0.16 per share.
  • Adjusted EBITDA* was $24.4 million compared to $8.0 million in the prior year quarter.
  • Cash provided by (used in) operating, investing, and financing activities was $19.9 million, ($1.9) million, and ($18.6) million, respectively.
  • Adjusted Free Cash Flow* was $14.3 million compared to $2.1 million in the prior year quarter.
  • Provided guidance for full year 2021.

Current Trends

As COVID-19 cases subsided in fiscal October, domestic system-wide same-store sales** returned to pre-pandemic levels. However, labor availability continues to impact the Company's effective operating hours with approximately 45% of domestic restaurants currently open 24/7. Off-premise sales have remained strong at approximately 23% of total sales, compared to the pre-pandemic trend of 12%, supported by our two new virtual brands, The Burger Den and The Meltdown.

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 2021 compared to the equivalent fiscal periods in 2019:

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

  Domestic System-Wide Same-Store Sales**
  System Year-to-Date October 2021 1: (6%)
  Jan Feb Mar Apr May Jun Jul Aug Sep Oct 1
System (31%) (25%) (9%) (2%) (3%) 1% 3% (2%) (1%) 1%
                     
24/7 Units (20%) (16%) 2% 11% 11% 14% 15% 9% 9% 10%
Limited Hour Units (38%) (32%) (16%) (11%) (12%) (8%) (7%) (10%) (10%) (9%)
  1. October results are preliminary. 

        

  Domestic Average Units
  Jan Feb Mar Apr May Jun Jul Aug Sep Oct 1
System 1,504 1,501 1,501 1,499 1,498 1,497 1,495 1,493 1,495 1,494
                     
24/7 Units 519 532 569 566 561 566 576 590 626 665
Limited Hour Units 939 928 912 920 926 920 909 894 861 822
                     
Temporary Closures 46 41 20 13 11 11 10 9 8 7
  1. October results are preliminary.


Third Quarter Results

Denny’s total operating revenue increased 44.9% to $103.8 million compared to $71.6 million in the prior year quarter. Franchise and license revenue was $57.3 million compared to $43.8 million in the prior year quarter. Company restaurant sales were $46.5 million compared to $27.8 million in the prior year quarter. These changes were primarily due to dine-in restrictions related to the COVID-19 pandemic in the prior year quarter.

Franchise Operating Margin* was $29.9 million, or 52.1% of franchise and license revenue, compared to $19.7 million, or 45.0%, in the prior year quarter. This margin increase was primarily due to the improvement in sales performance at franchised restaurants, partially offset by fewer equivalent units.

Company Restaurant Operating Margin* was $7.9 million, or 17.0% of company restaurant sales, compared to $0.5 million, or 1.7%, in the prior year quarter. This margin increase was primarily due to improvements in sales performance and the leveraging benefit of lower staffing at company restaurants.

Total general and administrative expenses were $16.5 million, compared to $13.7 million in the prior year quarter. This change was primarily due to increases in both performance-based incentive compensation and share-based compensation expense in addition to temporary cost reductions during the prior year quarter. These increases were partially offset by market valuation changes in the Company's deferred compensation plan liabilities compared to the prior year quarter.

The provision for income taxes was $4.1 million, compared to $0.8 million in the prior year quarter, reflecting an effective tax rate of 25.0%. Approximately $3.7 million in cash taxes were paid during the quarter.

Net income was $12.3 million, or $0.19 per diluted share, compared to $6.5 million, or $0.10 per diluted share, in the prior year quarter. Adjusted Net Income* per share was $0.16 compared to $0.01 in the prior year quarter.

Denny’s ended the quarter with $184.8 million of total debt outstanding, including $170.0 million of borrowings under its credit facility.

Adjusted Free Cash Flow* and Capital Allocation

Denny’s generated $14.3 million of Adjusted Free Cash Flow* after investing $2.2 million in cash capital expenditures, including maintenance capital.

In August 2021, the Company announced it had refinanced its amended and restated $350 million revolving credit facility to a new five-year $400 million credit facility. With the enhanced flexibility provided by the new credit facility, the Company relaunched its multi-year share repurchase program and allocated $6.6 million to share repurchases during the quarter.

Between the end of the third quarter and October 29, 2021, the Company allocated an additional $6.8 million to share repurchases resulting in approximately $235 million remaining under its existing repurchase authorization.

Technology Transformation and Kitchen Modernization Initiatives

Recently, the Company announced the next phase of its technology transformation, which included a revamped Dennys.com website and Denny's mobile app, bringing a more personalized and seamless digital experience with smart upsell and cross-sell capabilities. In addition, the Company intends to initiate the rollout of a new cloud-based restaurant technology platform throughout the domestic system which will allow for enhancements such as waitlist and table management, as well as lay the foundation for future technology initiatives to further enhance the guest experience. The rollout is expected to begin during the first half of 2022 and be substantially completed by the end of 2023.

The Company intends to upgrade and improve its kitchen equipment throughout the domestic system. The rollout is expected to begin during the first quarter of 2022 and be substantially completed by the end of 2022. This investment is expected to yield long-term benefits through menu enhancements across all dayparts but especially the dinner daypart with new comfort food offerings. The new equipment is also expected to provide immediate benefits through increased kitchen efficiency and productivity while also reducing food waste.

The total estimated domestic franchise investment for both the cloud-based restaurant technology platform and the kitchen equipment package is approximately $65 million. To assist franchisees, the Company has committed to investing approximately $10 million towards the cost and installation and has also negotiated favorable financing terms on behalf of its franchisees for the remaining cost.

Business Outlook

The following full year 2021 estimates reflect management's expectations that the current economic environment will not change materially:

  • Domestic system-wide same-store sales** decline of approximately 5% compared to 2019.
  • Total general and administrative expenses between $67 million and $69 million, including approximately $13.5 million related to share-based compensation.
  • Adjusted EBITDA* between $84 million and $86 million.

*   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. 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 during the comparable periods noted. 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 29, 2021 on its quarterly investor conference call today, Tuesday, November 2, 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 September 29, 2021, Denny’s had 1,647 franchised, licensed, and company restaurants around the world including 153 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 30, 2020 (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) 9/29/21   12/30/20
Assets      
Current assets      
Cash and cash equivalents $ 10,203       $ 3,892    
Investments 2,082       2,272    
Receivables, net 16,903       21,349    
Inventories 1,230       1,181    
Assets held for sale 1,627       1,125    
Prepaid and other current assets 14,550       18,847    
Total current assets 46,595       48,666    
Property, net 81,897       86,154    
Financing lease right-of-use assets, net 9,403       9,830    
Operating lease right-of-use assets, net 131,616       139,534    
Goodwill 36,884       36,884    
Intangible assets, net 50,559       51,559    
Deferred financing costs, net 3,123       2,414    
Deferred income taxes, net 18,069       23,210    
Other noncurrent assets 32,878       32,698    
Total assets $ 411,024       $ 430,949    
       
Liabilities      
Current liabilities      
Current finance lease liabilities $ 2,016       $ 1,839    
Current operating lease liabilities 15,907       16,856    
Accounts payable 15,152       12,021    
Other current liabilities 56,985       46,462    
Total current liabilities 90,060       77,178    
Long-term liabilities      
Long-term debt 170,000       210,000    
Noncurrent finance lease liabilities 12,825       13,530    
Noncurrent operating lease liabilities 129,409       137,534    
Liability for insurance claims, less current portion 9,037       10,309    
Other noncurrent liabilities 89,330       112,844    
Total long-term liabilities 410,601       484,217    
Total liabilities 500,661       561,395    
       
Shareholders' deficit      
Common stock 642       640    
Paid-in capital 132,436       123,833    
Deficit (159,896 )     (194,514 )  
Accumulated other comprehensive loss, net (56,256 )     (60,405 )  
Treasury Stock (6,563 )        
Total shareholders' deficit (89,637 )     (130,446 )  
Total liabilities and shareholders' deficit $ 411,024       $ 430,949    
       
Debt Balances
Credit facility revolver due 2026 $ 170,000       $ 210,000    
Finance lease liabilities 14,841       15,369    
Total debt $ 184,841       $ 225,369    


DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

  Quarter Ended
(In thousands, except per share amounts) 9/29/21   9/23/20
Revenue:      
Company restaurant sales $ 46,470       $ 27,849    
Franchise and license revenue 57,324       43,795    
Total operating revenue 103,794       71,644    
Costs of company restaurant sales, excluding depreciation and amortization 38,569       27,370    
Costs of franchise and license revenue, excluding depreciation and amortization 27,469       24,073    
General and administrative expenses 16,497       13,694    
Depreciation and amortization 3,822       4,048    
Operating (gains), losses and other charges, net (215 )     (781 )  
Total operating costs and expenses, net 86,142       68,404    
Operating income 17,652       3,240    
Interest expense, net 3,671       4,422    
Other nonoperating income, net (2,368 )     (8,477 )  
Income before income taxes 16,349       7,295    
Provision for income taxes 4,084       818    
Net income $ 12,265       $ 6,477    
       
Basic net income per share $ 0.19       $ 0.10    
Diluted net income per share $ 0.19       $ 0.10    
       
Basic weighted average shares outstanding 65,447       63,793    
Diluted weighted average shares outstanding 65,829       64,027    
       
Comprehensive income $ 13,089       $ 7,489    
       
General and Administrative Expenses  
Corporate administrative expenses $ 11,157       $ 9,820    
Share-based compensation 3,352       1,998    
Incentive compensation 1,893       1,290    
Deferred compensation valuation adjustments 95       586    
Total general and administrative expenses $ 16,497       $ 13,694    


DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

  Three Quarters Ended
(In thousands, except per share amounts) 9/29/21   9/23/20
Revenue:      
Company restaurant sales $ 127,611       $ 85,268    
Franchise and license revenue 162,924       123,232    
Total operating revenue 290,535       208,500    
Costs of company restaurant sales, excluding depreciation and amortization 106,546       83,094    
Costs of franchise and license revenue, excluding depreciation and amortization 79,962       68,487    
General and administrative expenses 50,992       34,589    
Depreciation and amortization 11,380       12,252    
Operating (gains), losses and other charges, net 204       2,319    
Total operating costs and expenses, net 249,084       200,741    
Operating income 41,451       7,759    
Interest expense, net 12,014       13,320    
Other nonoperating expense (income), net (16,165 )     3,851    
Income (loss) before income taxes 45,602       (9,412 )  
Provision for (benefit from) income taxes 10,984       (1,937 )  
Net income (loss) $ 34,618       $ (7,475 )  
       
Basic net income (loss) per share $ 0.53       $ (0.13 )  
Diluted net income (loss) per share $ 0.53       $ (0.13 )  
       
Basic weighted average shares outstanding 65,413       59,350    
Diluted weighted average shares outstanding 65,814       59,350    
       
Comprehensive income (loss) $ 38,767       $ (34,720 )  
       
General and Administrative Expenses  
Corporate administrative expenses $ 32,374       $ 31,302    
Share-based compensation 10,212       1,972    
Incentive compensation 7,011       1,305    
Deferred compensation valuation adjustments 1,395       10    
Total general and administrative expenses $ 50,992       $ 34,589    


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   Three Quarters Ended
(In thousands) 9/29/21   9/23/20   9/29/21   9/23/20
Net income (loss) $ 12,265       $ 6,477       $ 34,618       $ (7,475 )  
Provision for (benefit from) income taxes 4,084       818       10,984       (1,937 )  
Operating (gains), losses and other charges, net (215 )     (781 )     204       2,319    
Other nonoperating expense (income), net (2,368 )     (8,477 )     (16,165 )     3,851    
Share-based compensation expense 3,352       1,998       10,212       1,972    
Deferred compensation plan valuation adjustments 95       586       1,395       10    
Interest expense, net 3,671       4,422       12,014       13,320    
Depreciation and amortization 3,822       4,048       11,380       12,252    
Cash payments for restructuring charges and exit costs (274 )     (1,032 )     (1,548 )     (2,406 )  
Cash payments for share-based compensation       (13 )     (1,565 )     (3,224 )  
Adjusted EBITDA $ 24,432       $ 8,046       $ 61,529       $ 18,682    
               


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   Three Quarters Ended
(In thousands) 9/29/21   9/23/20   9/29/21   9/23/20
Net cash provided by (used in) operating activities $ 19,858       $ (3,652 )     $ 63,229       $ (11,610 )  
Capital expenditures (2,213 )     (1,000 )     (5,321 )     (5,476 )  
Cash payments for restructuring charges and exit costs (274 )     (1,032 )     (1,548 )     (2,406 )  
Cash payments for share-based compensation       (13 )     (1,565 )     (3,224 )  
Deferred compensation plan valuation adjustments 95       586       1,395       10    
Other nonoperating expense (income), net (2,368 )     (8,477 )     (16,165 )     3,851    
Gains on investments 14       26       11       117    
Gains (losses) on early termination of debt and leases (20 )     10       52       (43 )  
Amortization of deferred financing costs (258 )     (251 )     (946 )     (591 )  
Gains (losses) and amortization on interest rate swap derivatives, net 2,265       7,281       14,771       (4,185 )  
Interest expense, net 3,671       4,422       12,014       13,320    
Cash interest expense, net (1) (4,195 )     (4,698 )     (13,236 )     (13,135 )  
Deferred income tax (expense) benefit (1,502 )     (1,200 )     (3,713 )     2,505    
Provision for (benefit from) income taxes 4,084       818       10,984       (1,937 )  
Income taxes paid, net (3,696 )     (268 )     (5,638 )     (545 )  
Changes in operating assets and liabilities              
Receivables (3,425 )     1,877       (4,182 )     (7,465 )  
Inventories (49 )     (90 )     49       (265 )  
Other current assets 2,381       1,272       (4,296 )     3,865    
Other noncurrent assets (296 )     (368 )     1,021       (474 )  
Operating lease assets and liabilities 329       538       1,150       (1,231 )  
Accounts payable (740 )     8,003       (6,360 )     8,540    
Accrued payroll 530       (2,780 )     (1,462 )     8,739    
Accrued taxes (819 )     (1,683 )     (1,253 )     (971 )  
Other accrued liabilities (1,241 )     (39 )     (5,890 )     6,512    
Other noncurrent liabilities 2,197       2,798       4,233       5,625    
Adjusted Free Cash Flow $ 14,328       $ 2,080       $ 37,334       $ (474 )  

 

(1) Includes cash interest expense, net and cash payments of approximately $0.8 million and $2.3 million for dedesignated interest rate swap derivatives for the quarter and year-to-date periods ended September 29, 2021, respectively. 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, 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   Three Quarters Ended
(In thousands, except per share amounts) 9/29/21   9/23/20   9/29/21   9/23/20
Adjusted EBITDA $ 24,432       $ 8,046       $ 61,529       $ 18,682    
Cash interest expense, net (1) (4,195 )     (4,698 )     (13,236 )     (13,135 )  
Cash paid for income taxes, net (3,696 )     (268 )     (5,638 )     (545 )  
Cash paid for capital expenditures (2,213 )     (1,000 )     (5,321 )     (5,476 )  
Adjusted Free Cash Flow $ 14,328       $ 2,080       $ 37,334       $ (474 )  
               
Net income (loss) $ 12,265       $ 6,477       $ 34,618       $ (7,475 )  
(Gains) losses and amortization on interest rate swap derivatives, net (2,265 )     (7,281 )     (14,771 )     4,185    
(Gains) losses on sales of assets and other, net (93 )     (1,202 )     (1,100 )     (2,260 )  
Impairment charges       338             2,519    
Tax effect (2) 636       2,093       3,825       (1,142 )  
Adjusted Net Income (Loss) $ 10,543       $ 425       $ 22,572       $ (4,173 )  
               
Diluted weighted average shares outstanding 65,829       64,027       65,814       59,350    
               
Diluted Net Income (Loss) Per Share $ 0.19       $ 0.10       $ 0.53       $ (0.13 )  
Adjustments Per Share $ (0.03 )     $ (0.09 )     $ (0.19 )     $ 0.06    
Adjusted Net Income (Loss) Per Share $ 0.16       $ 0.01       $ 0.34       $ (0.07 )  

 

(1) Includes cash interest expense, net and cash payments of approximately $0.8 million and $2.3 million for dedesignated interest rate swap derivatives for the quarter and year-to-date periods ended September 29, 2021, respectively. 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, respectively.
   
(2) Tax adjustments for the quarter and year-to-date periods ended September 29, 2021 reflect an effective tax rate of 27.0% and 24.1%, respectively. Tax adjustments are calculated using an effective tax rate of 25.7% for the quarter and year-to-date periods ended September 23, 2020.
   

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 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   Three Quarters Ended
(In thousands) 9/29/21   9/23/20   9/29/21   9/23/20
Operating income $ 17,652       $ 3,240       $ 41,451       $ 7,759    
General and administrative expenses 16,497       13,694       50,992       34,589    
Depreciation and amortization 3,822       4,048       11,380       12,252    
Operating (gains), losses and other charges, net (215 )     (781 )     204       2,319    
Restaurant-level Operating Margin $ 37,756       $ 20,201       $ 104,027       $ 56,919    
               
Restaurant-level Operating Margin consists of:              
Company Restaurant Operating Margin (1) $ 7,901       $ 479       $ 21,065       $ 2,174    
Franchise Operating Margin (2) 29,855       19,722       82,962       54,745    
Restaurant-level Operating Margin $ 37,756       $ 20,201       $ 104,027       $ 56,919    

 

(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) 9/29/21   9/23/20
Company restaurant operations: (1)          
Company restaurant sales $ 46,470     100.0   %   $ 27,849     100.0   %
Costs of company restaurant sales:          
Product costs 11,430     24.6   %   7,106     25.5   %
Payroll and benefits 17,404     37.5   %   11,925     42.8   %
Occupancy 3,013     6.5   %   2,638     9.5   %
Other operating costs:          
Utilities 1,660     3.6   %   1,281     4.6   %
Repairs and maintenance 722     1.6   %   711     2.6   %
Marketing 1,239     2.7   %   1,045     3.8   %
Other direct costs 3,101     6.7   %   2,664     9.6   %
Total costs of company restaurant sales $ 38,569     83.0   %   $ 27,370     98.3   %
Company restaurant operating margin (non-GAAP) (2) $ 7,901     17.0   %   $ 479     1.7   %
           
Franchise operations: (3)          
Franchise and license revenue:          
Royalties $ 27,336     47.7   %   $ 17,896     40.9   %
Advertising revenue 18,215     31.8   %   13,927     31.8   %
Initial and other fees 1,442     2.5   %   1,890     4.3   %
Occupancy revenue 10,331     18.0   %   10,082     23.0   %
Total franchise and license revenue $ 57,324     100.0   %   $ 43,795     100.0   %
           
Costs of franchise and license revenue:          
Advertising costs $ 18,216     31.8   %   $ 13,927     31.8   %
Occupancy costs 6,445     11.2   %   6,858     15.7   %
Other direct costs 2,808     4.9   %   3,288     7.5   %
Total costs of franchise and license revenue $ 27,469     47.9   %   $ 24,073     55.0   %
Franchise operating margin (non-GAAP) (2) $ 29,855     52.1   %   $ 19,722     45.0   %
           
Total operating revenue (4) $ 103,794     100.0   %   $ 71,644     100.0   %
Total costs of operating revenue (4) 66,038     63.6   %   51,443     71.8   %
Restaurant-level operating margin (non-GAAP) (4)(2) $ 37,756     36.4   %   $ 20,201     28.2   %
           
Other operating expenses: (4)(2)          
General and administrative expenses $ 16,497     15.9   %   $ 13,694     19.1   %
Depreciation and amortization 3,822     3.7   %   4,048     5.7   %
Operating (gains), losses and other charges, net (215 )   (0.2 ) %   (781 )   (1.1 ) %
Total other operating expenses $ 20,104     19.4   %   $ 16,961     23.7   %
           
Operating income (4) $ 17,652     17.0   %   $ 3,240     4.5   %

 

(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 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)

  Three Quarters Ended
(In thousands) 9/29/21   9/23/20
Company restaurant operations: (1)          
Company restaurant sales $ 127,611   100.0 %   $ 85,268   100.0 %
Costs of company restaurant sales:          
Product costs 31,149   24.4 %   21,541   25.3 %
Payroll and benefits 47,339   37.1 %   37,070   43.5 %
Occupancy 8,707   6.8 %   8,529   10.0 %
Other operating costs:          
Utilities 4,275   3.4 %   3,815   4.5 %
Repairs and maintenance 1,890   1.5 %   1,928   2.3 %
Marketing 3,571   2.8 %   2,771   3.2 %
Other direct costs 9,615   7.5 %   7,440   8.7 %
Total costs of company restaurant sales $ 106,546   83.5 %   $ 83,094   97.5 %
Company restaurant operating margin (non-GAAP) (2) $ 21,065   16.5 %   $ 2,174   2.5 %
           
Franchise operations: (3)          
Franchise and license revenue:          
Royalties $ 75,297   46.2 %   $ 48,462   39.3 %
Advertising revenue 50,926   31.3 %   38,685   31.4 %
Initial and other fees 5,346   3.3 %   4,933   4.0 %
Occupancy revenue 31,355   19.2 %   31,152   25.3 %
Total franchise and license revenue $ 162,924   100.0 %   $ 123,232   100.0 %
           
Costs of franchise and license revenue:          
Advertising costs $ 50,927   31.3 %   $ 38,685   31.4 %
Occupancy costs 19,863   12.2 %   20,096   16.3 %
Other direct costs 9,172   5.6 %   9,706   7.9 %
Total costs of franchise and license revenue $ 79,962   49.1 %   $ 68,487   55.6 %
Franchise operating margin (non-GAAP) (2) $ 82,962   50.9 %   $ 54,745   44.4 %
           
Total operating revenue (4) $ 290,535   100.0 %   $ 208,500   100.0 %
Total costs of operating revenue (4) 186,508   64.2 %   151,581   72.7 %
Restaurant-level operating margin (non-GAAP) (4)(2) $ 104,027   35.8 %   $ 56,919   27.3 %
           
Other operating expenses: (4)(2)          
General and administrative expenses $ 50,992   17.6 %   $ 34,589   16.6 %
Depreciation and amortization 11,380   3.9 %   12,252   5.9 %
Operating (gains), losses and other charges, net 204   0.1 %   2,319   1.1 %
Total other operating expenses $ 62,576   21.5 %   $ 49,160   23.6 %
           
Operating income (4) $ 41,451   14.3 %   $ 7,759   3.7 %

 

(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) vs. 2019 Quarter Ended   Three Quarters Ended
(Increase (decrease)) 9/29/21       9/29/21    
Company Restaurants 1.9   %       (6.4 ) %    
Domestic Franchised Restaurants (0.3 ) %       (6.7 ) %    
Domestic System-wide Restaurants (0.1 ) %       (6.7 ) %    
               
Changes in Same-Store Sales (1) vs. Prior Year Quarter Ended   Three Quarters Ended
(Increase (decrease)) 9/29/21   9/23/20   9/29/21   9/23/20
Company Restaurants 67.7   %   (40.2 ) %   54.1   %   (37.4 ) %
Domestic Franchised Restaurants 48.9   %   (33.1 ) %   37.2   %   (30.1 ) %
Domestic System-wide Restaurants 50.2   %   (33.6 ) %   38.3   %   (30.7 ) %
               
Average Unit Sales Quarter Ended   Three Quarters Ended
(In thousands) 9/29/21   9/23/20   9/29/21   9/23/20
Company Restaurants $ 717       $ 423       $ 1,974       $ 1,313    
Franchised Restaurants $ 424       $ 282       $ 1,166       $ 868    
               
      Franchised        
Restaurant Unit Activity Company   & Licensed   Total    
Ending Units June 30, 2021 65       1,580       1,645        
Units Opened       7       7        
Units Closed       (5 )     (5 )      
Net Change       2       2        
Ending Units September 29, 2021 65       1,582       1,647        
               
Equivalent Units              
Third Quarter 2021 65       1,578       1,643        
Third Quarter 2020 66       1,608       1,674        
Net Change (1 )     (30 )     (31 )      
               
      Franchised        
Restaurant Unit Activity Company   & Licensed   Total    
Ending Units December 30, 2020 65       1,585       1,650        
Units Opened       13       13        
Units Closed       (16 )     (16 )      
Net Change       (3 )     (3 )      
Ending Units September 29, 2021 65       1,582       1,647        
               
Equivalent Units              
Year-to-Date 2021 65       1,581       1,646        
Year-to-Date 2020 65       1,620       1,685        
Net Change       (39 )     (39 )      

 

(1) Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. 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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NON-GAAP INFORMATION

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