Denny's Corporation Reports Results for Fourth Quarter and Full Year 2023

February 13, 2024

SPARTANBURG, S.C., Feb. 13, 2024 (GLOBE NEWSWIRE) -- Denny’s Corporation (the "Company") (NASDAQ: DENN), owner and operator of Denny's Inc. ("Denny's") and Keke's Inc. ("Keke's") today reported results for its fourth quarter and full year ended December 27, 2023 and provided a business update on the Company’s operations.

Kelli Valade, Chief Executive Officer, stated, "We were pleased to close out 2023 with solid Denny’s domestic system-wide same-restaurant sales** of 1.3% in the fourth quarter, reflecting sequential improvement throughout the quarter, while also achieving results above the high-end of our previously guided range for the full year. We enter 2024 with growing momentum by focusing on our key strategic levers: a best-in-class breakfast with craveable items, an unbeatable value proposition, and convenience in the form of off-premises options.”

Fourth Quarter 2023 Highlights

  • Total operating revenue was $115.4 million compared to $120.8 million in the prior year quarter.
  • Denny's domestic system-wide same-restaurant sales** were 1.3% compared to the equivalent fiscal period in 2022, including 1.5% at domestic franchised restaurants and (1.2)% at company restaurants.
  • Opened nine franchised restaurants, including one international Denny's location and two Keke's locations.
  • Completed five Denny's franchised restaurant remodels.
  • Operating income was $7.7 million compared to $17.6 million in the prior year quarter.
  • Franchise Operating Margin* was $31.5 million, or 51.4% of franchise and license revenue, and Company Restaurant Operating Margin* was $5.4 million, or 10.0% of company restaurant sales.
  • Net income was $2.9 million, or $0.05 per diluted share.
  • Adjusted Net Income* and Adjusted Net Income Per Share* were $7.8 million and $0.14, respectively.
  • Adjusted EBITDA* was $18.6 million.
  • Cash provided by (used in) operating, investing, and financing activities was $21.4 million, ($4.5) million, and ($12.9) million, respectively.
  • Adjusted Free Cash Flow* was $7.4 million.
  • Repurchased $16.2 million of common stock.


Full Year 2023 Highlights

  • Total operating revenue was $463.9 million compared to $456.4 million in the prior year.
  • Denny's domestic system-wide same-restaurant sales** were 3.6% compared to the equivalent fiscal period in 2022, including 3.6% at domestic franchised restaurants and 2.7% at company restaurants.
  • Opened 32 franchised restaurants, including 11 international Denny's locations and 4 Keke's locations.
  • Completed 22 Denny's remodels including 21 franchised restaurants.
  • Operating income was $52.8 million compared to $60.6 million in the prior year.
  • Franchise Operating Margin* was $125.9 million, or 50.7% of franchise and license revenue, and Company Restaurant Operating Margin* was $27.9 million, or 13.0% of company restaurant sales.
  • Net income was $19.9 million, or $0.35 per diluted share.
  • Adjusted Net Income* and Adjusted Net Income Per Share* were $32.9 million and $0.59, respectively.
  • Adjusted EBITDA* was $81.5 million.
  • Cash provided by (used in) operating, investing, and financing activities was $72.1 million, ($7.6) million, and ($63.2) million, respectively.
  • Adjusted Free Cash Flow* was $44.7 million.
  • Repurchased $52.1 million of common stock.

Fourth Quarter 2023 Results

Total operating revenue was $115.4 million compared to $120.8 million in the prior year quarter.

Franchise and license revenue was $61.3 million compared to $66.5 million in the prior year quarter. This change was primarily driven by a $5.3 million decrease in initial and other fees associated with the sale of kitchen equipment in the prior year quarter.

Company restaurant sales were $54.0 million compared to $54.4 million in the prior year quarter.

Franchise Operating Margin* was $31.5 million, or 51.4% of franchise and license revenue, compared to $31.6 million, or 47.6%, in the prior year quarter. The favorable change in margin rate resulted from the completion of our kitchen modernization rollout during 2023.

Company Restaurant Operating Margin* was $5.4 million, or 10.0% of company restaurant sales, compared to $6.8 million, or 12.6%, in the prior year quarter. This margin change was primarily due to $1.8 million in legal costs in the current quarter partially offset by improvements in product costs compared to the prior year quarter.

Total general and administrative expenses were $19.3 million, compared to $17.0 million in the prior year quarter. This change was primarily due to increases in corporate administration expense, deferred compensation valuation adjustments and performance-based incentive compensation, partially offset by a reduction in stock-based compensation.

The provision for income taxes was $1.7 million, reflecting an effective tax rate of 36.9% for the quarter. Approximately $2.7 million in cash taxes were paid during the quarter.

Net income was $2.9 million, or $0.05 per diluted share, compared to $12.8 million, or $0.22 per diluted share, in the prior year quarter. This change in net income was primarily due to a $6.7 million impairment loss in the current quarter and $2.3 million of gains related to dedesignated interest rate swap valuation adjustments in the prior year quarter. Adjusted Net Income* per share was $0.14 compared to $0.18 in the prior year quarter.

The Company ended the quarter with $266.0 million of total debt outstanding, including $255.5 million of borrowings under its credit facility.

Adjusted Free Cash Flow* and Capital Allocation

Adjusted Free Cash Flow* in the quarter was $7.4 million after investing $4.5 million in cash capital expenditures, including facilities maintenance.

During the quarter, the Company allocated $16.2 million to share repurchases resulting in approximately $100.4 million remaining under its existing repurchase authorization.

Business Outlook

The following full year 2024 expectations reflect management's expectations that the current consumer and economic environment will not change materially.

  • Denny's domestic system-wide same-restaurant sales** between 0% and 3%
  • Consolidated restaurant openings of 40 to 50, including 12 to 16 new Keke's restaurants , with a consolidated net decline of 10 to 20.
  • Commodity inflation between 0% and 2%.
  • Labor inflation between 4% and 5%.
  • Total general and administrative expenses between $83 million and $86 million , including approximately $12 million related to share-based compensation expense which does not impact Adjusted EBITDA*.
  • Adjusted EBITDA* between $85 million and $89 million.

*   Please refer to the Reconciliation of Net Income and Net Cash Provided by Operating Activities to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income to Non-GAAP Financial Measures included in the tables below. The Company is not able to reconcile the forward-looking non-GAAP estimate set forth above to its most directly comparable U.S. generally accepted accounting principles (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 estimate is not provided.

** Same-restaurant 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, initial and other fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-restaurant sales and domestic system-wide same-restaurant 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

The Company will provide further commentary on the results for the fourth quarter ended December 27, 2023 on its quarterly investor conference call today, Tuesday, February 13, 2024 at 4:30 p.m. Eastern Time. Interested parties are invited to listen to a live broadcast of the conference call accessible through the Company's investor relations website at investor.dennys.com.

About Denny's Corporation

Denny’s Corporation is one of America’s largest full-service restaurant chains based on number of restaurants. As of December 27, 2023, the Company consisted of 1,631 restaurants, 1,558 of which were franchised and licensed restaurants and 73 of which were company operated. Denny's Corporation consists of the Denny’s brand and the Keke’s brand. As of December 27, 2023, the Denny's brand consisted of 1,573 global restaurants, 1,508 of which were franchised and licensed restaurants and 65 of which were company operated. As of December 27, 2023, the Keke's brand consisted of 58 restaurants, 50 of which were franchised restaurants and 8 of which were company operated.

For further information on Denny's Corporation, including news releases, links to SEC filings, and other financial information, please visit 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: economic, public health and political conditions that impact consumer confidence and spending, commodity and labor inflation; the ability to effectively staff restaurants and support personnel; the Company's ability to maintain adequate levels of liquidity for its cash needs, including debt obligations, payment of dividends, planned share repurchases and capital expenditures as well as the ability of its customers, suppliers, franchisees and lenders to access sources of liquidity to provide for their own cash needs; competitive pressures from within the restaurant industry; the Company's ability to integrate and derive the expected benefits from its acquisition of Keke's Breakfast Cafe; 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 and geopolitical events (including acts of war and terrorism); and other factors from time to time set forth in the Company’s SEC reports and other filings, including but not limited to the discussion in Management’s Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 28, 2022 (and in the Company’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K).

 



DENNY’S CORPORATION
Consolidated Balance Sheets
(Unaudited)
($ in thousands) 12/27/23   12/28/22
Assets      
  Current assets      
    Cash and cash equivalents $ 4,893     $ 3,523  
    Investments   1,281       1,746  
    Receivables, net   21,391       25,576  
    Inventories   2,175       5,538  
    Assets held for sale   1,455       1,403  
    Prepaid and other current assets   12,855       12,529  
      Total current assets   44,050       50,315  
  Property, net   93,494       94,469  
  Finance lease right-of-use assets, net   6,098       6,499  
  Operating lease right-of-use assets, net   116,795       126,065  
  Goodwill   65,908       72,740  
  Intangible assets, net   93,428       95,034  
  Deferred financing costs, net   1,702       2,337  
  Other noncurrent assets   43,343       50,876  
      Total assets $ 464,818     $ 498,335  
             
Liabilities      
  Current liabilities      
    Current finance lease liabilities $ 1,383     $ 1,683  
    Current operating lease liabilities   14,779       15,310  
    Accounts payable   24,070       19,896  
    Other current liabilities   63,068       56,762  
      Total current liabilities   103,300       93,651  
  Long-term liabilities      
    Long-term debt   255,500       261,500  
    Noncurrent finance lease liabilities   9,150       9,555  
    Noncurrent operating lease liabilities   114,451       123,404  
    Liability for insurance claims, less current portion   6,929       7,324  
    Deferred income taxes, net   6,582       7,419  
    Other noncurrent liabilities   31,592       32,598  
      Total long-term liabilities   424,204       441,800  
      Total liabilities   527,504       535,451  
             
Shareholders' deficit      
    Common stock   529       650  
    Paid-in capital   6,688       142,136  
    Deficit   (21,784 )     (41,729 )
    Accumulated other comprehensive loss, net   (41,659 )     (42,697 )
    Treasury stock   (6,460 )     (95,476 )
      Total shareholders' deficit   (62,686 )     (37,116 )
      Total liabilities and shareholders' deficit $ 464,818     $ 498,335  
             
Debt Balances
  Credit facility revolver due 2026 $ 255,500     $ 261,500  
  Finance lease liabilities   10,533       11,238  
    Total debt $ 266,033     $ 272,738  



DENNY’S CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
           
      Quarter Ended
($ in thousands, except per share amounts) 12/27/23   12/28/22
Revenue:      
  Company restaurant sales $ 54,046     $ 54,399  
  Franchise and license revenue   61,307       66,450  
    Total operating revenue   115,353       120,849  
Costs of company restaurant sales, excluding depreciation and amortization   48,646       47,554  
Costs of franchise and license revenue, excluding depreciation and amortization   29,795       34,814  
General and administrative expenses   19,255       16,985  
Depreciation and amortization   3,507       3,810  
Goodwill impairment charges   6,363        
Operating (gains), losses and other charges, net   63       46  
    Total operating costs and expenses, net   107,629       103,209  
Operating income   7,724       17,640  
Interest expense, net   4,309       4,240  
Other nonoperating income, net   (1,182 )     (2,714 )
Income before income taxes   4,597       16,114  
Provision for income taxes   1,695       3,343  
Net income $ 2,902     $ 12,771  
           
Net income per share - basic $ 0.05     $ 0.22  
Net income per share - diluted $ 0.05     $ 0.22  
           
Basic weighted average shares outstanding   53,648       58,406  
Diluted weighted average shares outstanding   53,893       58,480  
           
Comprehensive income (loss) $ (10,997 )   $ 13,377  
       
General and Administrative Expenses  
  Corporate administrative expenses $ 16,420     $ 13,812  
  Share-based compensation   403       1,933  
  Incentive compensation   1,305       866  
  Deferred compensation valuation adjustments   1,127       374  
    Total general and administrative expenses $ 19,255     $ 16,985  



DENNY’S CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
           
      Fiscal Year Ended
($ in thousands, except per share amounts) 12/27/23   12/28/22
Revenue:      
  Company restaurant sales $ 215,532   $ 199,753  
  Franchise and license revenue   248,390     256,676  
    Total operating revenue   463,922     456,429  
Costs of company restaurant sales, excluding depreciation and amortization   187,599     179,458  
Costs of franchise and license revenue, excluding depreciation and amortization   122,452     135,327  
General and administrative expenses   77,770     67,173  
Depreciation and amortization   14,385     14,862  
Goodwill impairment charges   6,363      
Operating (gains), losses and other charges, net   2,530     (1,005 )
    Total operating costs and expenses, net   411,099     395,815  
Operating income   52,823     60,614  
Interest expense, net   17,597     13,769  
Other nonoperating expense (income), net   8,288     (52,585 )
Income before income taxes   26,938     99,430  
Provision for income taxes   6,993     24,718  
Net income $ 19,945   $ 74,712  
           
Net income per share - basic $ 0.36   $ 1.23  
Net income per share - diluted $ 0.35   $ 1.23  
           
Basic weighted average shares outstanding   55,984     60,771  
Diluted weighted average shares outstanding   56,196     60,879  
           
Comprehensive income $ 20,983   $ 86,485  
       
General and Administrative Expenses  
  Corporate administrative expenses $ 60,339   $ 52,115  
  Share-based compensation   8,880     11,400  
  Incentive compensation   6,640     5,811  
  Deferred compensation valuation adjustments   1,911     (2,153 )
    Total general and administrative expenses $ 77,770   $ 67,173  



DENNY’S CORPORATION
Reconciliation of Net Income and Net Cash Provided by 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 and Adjusted Net Income Per Share internally as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes, including 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, Adjusted Net Income 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, net income, net income per share, net cash provided by operating activities, or other financial performance and liquidity measures prepared in accordance with GAAP.

  Quarter Ended   Fiscal Year Ended
($ in thousands) 12/27/23   12/28/22   12/27/23   12/28/22
Net income $ 2,902     $ 12,771     $ 19,945     $ 74,712  
Provision for income taxes   1,695       3,343       6,993       24,718  
Goodwill impairment charges   6,363             6,363        
Operating (gains), losses and other charges, net   63       46       2,530       (1,005 )
Other nonoperating (income) expense, net   (1,182 )     (2,714 )     8,288       (52,585 )
Share-based compensation expense   403       1,933       8,880       11,400  
Deferred compensation plan valuation adjustments   1,127       374       1,911       (2,153 )
Interest expense, net   4,309       4,240       17,597       13,769  
Depreciation and amortization   3,507       3,810       14,385       14,862  
Cash payments for restructuring charges and exit costs   (626 )     (402 )     (2,291 )     (1,067 )
Cash payments for share-based compensation               (3,131 )     (5,147 )
Adjusted EBITDA $ 18,561     $ 23,401     $ 81,470     $ 77,504  
               



DENNY’S CORPORATION
Reconciliation of Net Income and Net Cash Provided by Operating Activities
to Non-GAAP Financial Measures (Continued)
(Unaudited)
  Quarter Ended   Fiscal Year Ended
($ in thousands) 12/27/23   12/28/22   12/27/23   12/28/22
Net cash provided by operating activities $ 21,357     $ 14,502     $ 72,125     $ 39,452  
Capital expenditures   (4,479 )     (1,698 )     (9,978 )     (11,844 )
Acquisition of real estate and restaurant(1)               (1,227 )     (750 )
Cash payments for restructuring charges and exit costs   (626 )     (402 )     (2,291 )     (1,067 )
Cash payments for share-based compensation               (3,131 )     (5,147 )
Deferred compensation plan valuation adjustments   1,127       374       1,911       (2,153 )
Other nonoperating expense (income), net   (1,182 )     (2,714 )     8,288       (52,585 )
Gains (losses) on investments   26       (16 )     85       (305 )
Gains (losses) on early termination of debt and leases   (17 )     8       (17 )     37  
Amortization of deferred financing costs   (159 )     (159 )     (635 )     (634 )
Gains (losses) and amortization on interest rate swap derivatives, net   (121 )     2,311       (10,959 )     54,989  
Interest expense, net   4,309       4,240       17,597       13,769  
Cash interest expense, net (2)   (4,028 )     (3,925 )     (16,420 )     (14,923 )
Deferred income tax benefit (expense)   2,072       937       1,703       (14,732 )
Increase in tax valuation allowance   (205 )     (546 )     (205 )     (546 )
Provision for income taxes   1,695       3,343       6,993       24,718  
Income taxes paid, net   (2,664 )     (3,135 )     (9,195 )     (9,296 )
Changes in operating assets and liabilities, excluding acquisitions and dispositions              
Receivables   4,331       1,104       (3,904 )     5,892  
Inventories   (178 )     (3,406 )     (3,362 )     460  
Other current assets   1,037       2,821       325       1,138  
Other noncurrent assets   1,607       5,318       2,509       2,129  
Operating lease assets and liabilities   149       136       628       696  
Accounts payable   (11,111 )     (7,033 )     (4,032 )     (3,918 )
Other accrued liabilities   (4,675 )     5,315       (3,356 )     8,798  
Other noncurrent liabilities   (875 )     (2,732 )     1,198       6,513  
Adjusted Free Cash Flow $ 7,390     $ 14,643     $ 44,650     $ 40,691  

 

(1 ) For the year-to-date period ended December 27, 2023, amount includes cash paid for the acquisition of a piece of real estate. For the year-to-date period ended December 28, 2022, amount includes cash paid for the acquisition of a Denny's franchise restaurant and excludes cash paid for the acquisition of Keke's.
(2 ) Includes cash interest income, net for the quarter and year-to-date period ended December 27, 2023, and cash receipts of $0.2 million for dedesignated interest rate swap derivatives for the year-to-date period ended December 27, 2023. Includes cash interest expense (income), net and cash (receipts) payments of $(0.1) million and $1.8 million for dedesignated interest rate swap derivatives for the quarter and year-to-date period ended December 28, 2022, respectively.



DENNY’S CORPORATION
Reconciliation of Net Income and Net Cash Provided by Operating Activities
to Non-GAAP Financial Measures (Continued)
(Unaudited)
  Quarter Ended   Fiscal Year Ended
($ in thousands, except per share amounts) 12/27/23   12/28/22   12/27/23   12/28/22
Adjusted EBITDA $ 18,561     $ 23,401     $ 81,470     $ 77,504  
Cash interest expense, net (1)   (4,028 )     (3,925 )     (16,420 )     (14,923 )
Cash paid for income taxes, net   (2,664 )     (3,135 )     (9,195 )     (9,296 )
Cash paid for capital expenditures (2)   (4,479 )     (1,698 )     (11,205 )     (12,594 )
Adjusted Free Cash Flow $ 7,390     $ 14,643     $ 44,650     $ 40,691  
               
Net income $ 2,902     $ 12,771     $ 19,945     $ 74,712  
(Gains) losses and amortization on interest rate swap derivatives, net   121       (2,311 )     10,959       (54,989 )
Gains on sales of assets and other charges, net   (88 )     (67 )     (2,220 )     (3,378 )
Impairment charges (3)   6,737             8,577       963  
Tax effect (4)   (1,872 )     152       (4,329 )     14,294  
Adjusted Net Income $ 7,800     $ 10,545     $ 32,932     $ 31,602  
               
Diluted weighted average shares outstanding   53,893       58,480       56,196       60,879  
               
Net Income Per Share - Diluted $ 0.05     $ 0.22     $ 0.35     $ 1.23  
Adjustments Per Share   0.09       (0.04 )     0.24       (0.71 )
Adjusted Net Income Per Share $ 0.14     $ 0.18     $ 0.59     $ 0.52  

 

(1 ) Includes cash interest income, net for the quarter and year-to-date period ended December 27, 2023, and cash receipts of $0.2 million for dedesignated interest rate swap derivatives for the year-to-date period ended December 27, 2023. Includes cash interest expense (income), net and cash (receipts) payments of $(0.1) million and $1.8 million for dedesignated interest rate swap derivatives for the quarter and year-to-date period ended December 28, 2022, respectively.
(2 ) For the year-to-date period ended December 27, 2023, amount includes cash paid for capital expenditures and the acquisition of a piece of real estate. For the year-to-date period ended December 28, 2022, amount includes cash paid for capital expenditures and the acquisition of a Denny's franchise restaurant, and excludes cash paid for the acquisition of Keke's.
(3 ) Impairment charges include goodwill impairment charges of $6.4 million for the quarter and year-to-date period ended December 27, 2023.
(4 ) Tax adjustments for the quarter and year-to-date period ended December 27, 2023 reflect effective tax rates of 27.7% and 25.0%, respectively. Tax adjustments for the quarter and year-to-date period ended December 28, 2022 reflect effective tax rates of 6.4% and 24.9%, respectively.



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 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 and other 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 or other financial performance measures prepared in accordance with GAAP. 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) 12/27/23   12/28/22   12/27/23   12/28/22
Operating income $ 7,724   $ 17,640   $ 52,823   $ 60,614  
General and administrative expenses   19,255     16,985     77,770     67,173  
Depreciation and amortization   3,507     3,810     14,385     14,862  
Goodwill impairment charges   6,363         6,363      
Operating (gains), losses and other charges, net   63     46     2,530     (1,005 )
Restaurant-level Operating Margin $ 36,912   $ 38,481   $ 153,871   $ 141,644  
               
Restaurant-level Operating Margin consists of:              
Company Restaurant Operating Margin (1) $ 5,400   $ 6,845   $ 27,933   $ 20,295  
Franchise Operating Margin (2)   31,512     31,636     125,938     121,349  
Restaurant-level Operating Margin $ 36,912   $ 38,481   $ 153,871   $ 141,644  

 

(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, excluding depreciation and amortization; 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, excluding depreciation and amortization; less company restaurant sales.



DENNY’S CORPORATION
Operating Margins
(Unaudited)
             
        Quarter Ended
($ in thousands) 12/27/23   12/28/22
Company restaurant operations: (1)          
  Company restaurant sales $ 54,046 100.0 %   $ 54,399 100.0 %
  Costs of company restaurant sales, excluding depreciation and amortization:          
    Product costs   13,993 25.9 %     14,743 27.1 %
    Payroll and benefits   20,184 37.3 %     20,814 38.3 %
    Occupancy   4,699 8.7 %     3,838 7.1 %
    Other operating costs:          
      Utilities   1,811 3.4 %     2,062 3.8 %
      Repairs and maintenance   994 1.8 %     1,071 2.0 %
      Marketing   1,396 2.6 %     1,417 2.6 %
      Legal settlements   1,827 3.4 %     1 0.0 %
      Other direct costs   3,742 6.9 %     3,608 6.6 %
  Total costs of company restaurant sales, excluding depreciation and amortization $ 48,646 90.0 %   $ 47,554 87.4 %
  Company restaurant operating margin (non-GAAP) (2) $ 5,400 10.0 %   $ 6,845 12.6 %
                 
Franchise operations: (3)          
  Franchise and license revenue:          
  Royalties $ 30,025 49.0 %   $ 29,615 44.6 %
  Advertising revenue   19,676 32.1 %     19,284 29.0 %
  Initial and other fees   2,888 4.7 %     8,227 12.4 %
  Occupancy revenue   8,718 14.2 %     9,324 14.0 %
  Total franchise and license revenue $ 61,307 100.0 %   $ 66,450 100.0 %
                 
  Costs of franchise and license revenue, excluding depreciation and amortization:          
  Advertising costs $ 19,676 32.1 %   $ 19,284 29.0 %
  Occupancy costs   5,307 8.7 %     5,739 8.6 %
  Other direct costs   4,812 7.8 %     9,791 14.7 %
  Total costs of franchise and license revenue, excluding depreciation and amortization $ 29,795 48.6 %   $ 34,814 52.4 %
  Franchise operating margin (non-GAAP) (2) $ 31,512 51.4 %   $ 31,636 47.6 %
                 
Total operating revenue (4) $ 115,353 100.0 %   $ 120,849 100.0 %
Total costs of operating revenue (4)   78,441 68.0 %     82,368 68.2 %
Restaurant-level operating margin (non-GAAP) (4)(2) $ 36,912 32.0 %   $ 38,481 31.8 %
                 
Other operating expenses: (4)(2)          
  General and administrative expenses $ 19,255 16.7 %   $ 16,985 14.1 %
  Depreciation and amortization   3,507 3.0 %     3,810 3.2 %
  Goodwill impairment charges   6,363 5.5 %     %
  Operating losses and other charges, net   63 0.1 %     46 0.0 %
  Total other operating expenses $ 29,188 25.3 %   $ 20,841 17.2 %
                 
Operating income (4) $ 7,724 6.7 %   $ 17,640 14.6 %
                 
(1 ) As a percentage of company restaurant sales.
(2 ) Other operating expenses such as general and administrative expenses and depreciation and amortization relate to both company and franchise operations and are not allocated to costs of company restaurant sales and costs of franchise and license revenue. As such, operating margin is considered a non-GAAP financial measure. Operating margins should be considered as a supplement to, not as a substitute for, operating income, net income or other financial measures prepared in accordance with GAAP.
(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) 12/27/23   12/28/22
Company restaurant operations: (1)          
  Company restaurant sales $ 215,532 100.0 %   $ 199,753   100.0 %
  Costs of company restaurant sales, excluding depreciation and amortization:          
    Product costs   55,789 25.9 %     53,617   26.8 %
    Payroll and benefits   80,666 37.4 %     76,412   38.3 %
    Occupancy   17,080 7.9 %     15,154   7.6 %
    Other operating costs:          
      Utilities   7,848 3.6 %     7,273   3.6 %
      Repairs and maintenance   3,661 1.7 %     3,874   1.9 %
      Marketing   5,603 2.6 %     5,294   2.7 %
      Legal settlements   2,302 1.1 %     4,224   2.1 %
      Other direct costs   14,650 6.8 %     13,610   6.8 %
  Total costs of company restaurant sales, excluding depreciation and amortization $ 187,599 87.0 %   $ 179,458   89.8 %
  Company restaurant operating margin (non-GAAP) (2) $ 27,933 13.0 %   $ 20,295   10.2 %
                 
Franchise operations: (3)          
  Franchise and license revenue:          
  Royalties $ 120,131 48.4 %   $ 113,891   44.4 %
  Advertising revenue   78,494 31.6 %     75,926   29.6 %
  Initial and other fees   13,882 5.6 %     28,262   11.0 %
  Occupancy revenue   35,883 14.4 %     38,597   15.0 %
  Total franchise and license revenue $ 248,390 100.0 %   $ 256,676   100.0 %
                 
  Costs of franchise and license revenue, excluding depreciation and amortization:          
  Advertising costs $ 78,494 31.6 %   $ 75,926   29.6 %
  Occupancy costs   22,160 8.9 %     24,090   9.4 %
  Other direct costs   21,798 8.8 %     35,311   13.8 %
  Total costs of franchise and license revenue, excluding depreciation and amortization $ 122,452 49.3 %   $ 135,327   52.7 %
  Franchise operating margin (non-GAAP) (2) $ 125,938 50.7 %   $ 121,349   47.3 %
                 
Total operating revenue (4) $ 463,922 100.0 %   $ 456,429   100.0 %
Total costs of operating revenue (4)   310,051 66.8 %     314,785   69.0 %
Restaurant-level operating margin (non-GAAP) (4)(2) $ 153,871 33.2 %   $ 141,644   31.0 %
                 
Other operating expenses: (4)(2)          
  General and administrative expenses $ 77,770 16.8 %   $ 67,173   14.7 %
  Depreciation and amortization   14,385 3.1 %     14,862   3.3 %
  Goodwill impairment charges   6,363 1.4 %       %
  Operating (gains), losses and other charges, net   2,530 0.5 %     (1,005 ) (0.2)        %
  Total other operating expenses $ 101,048 21.8 %   $ 81,030   17.8 %
                 
Operating income (4) $ 52,823 11.4 %   $ 60,614   13.3 %
                 
(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 margin should be considered as a supplement to, not as a substitute for, operating income, net income or other financial measures prepared in accordance with GAAP.
(3 ) As a percentage of franchise and license revenue.
(4 ) As a percentage of total operating revenue.



DENNY’S CORPORATION
Statistical Data
(Unaudited)
                                   
      Denny's   Keke's (2)
Changes in Same-Restaurant Sales (1) Quarter Ended   Fiscal Year Ended   Quarter Ended   Fiscal Year Ended
(Increase vs. prior year) 12/27/23   12/28/22   12/27/23   12/28/22   12/27/23   12/28/22   12/27/23   12/28/22
    Company Restaurants   (1.2 )%     6.0 %     2.7 %     10.4 %     0.7 %   N/A     (1.1 )%   N/A
    Domestic Franchise Restaurants   1.5 %     1.7 %     3.6 %     6.0 %     (3.8 )%   N/A     (4.4 )%   N/A
    Domestic System-wide Restaurants   1.3 %     2.0 %     3.6 %     6.3 %     (3.1 )%   N/A     (3.9 )%   N/A
                                   
Average Unit Sales              
($ in thousands)                              
    Company Restaurants $ 770     $ 776     $ 3,073     $ 2,985     $ 429     $ 438   $ 1,796     $ 772
    Franchised Restaurants $ 467     $ 448     $ 1,843     $ 1,729     $ 432     $ 453   $ 1,828     $ 802
                                   
                                   
(1 ) Same-restaurant 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, initial and other fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-restaurant sales and domestic system-wide same-restaurant sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP.  
(2 ) Effective July 20, 2022, the Company acquired Keke's, as such data for the quarter and year-to-date period ended December 28, 2022 only represent post-acquisition results.



Restaurant Unit Activity Denny's   Keke's
          Franchised           Franchised    
      Company   & Licensed   Total   Company   & Licensed   Total
Ending Units September 27, 2023 66     1,522     1,588     8   48   56
  Units Opened     7     7       2   2
  Units Closed (1 )   (21 )   (22 )      
    Net Change (1 )   (14 )   (15 )     2   2
Ending Units December 27, 2023 65     1,508     1,573     8   50   58
                           
Equivalent Units                      
  Fourth Quarter 2023 65     1,512     1,577     8   50   58
  Fourth Quarter 2022 65     1,543     1,608     8   46   54
    Net Change     (31 )   (31 )     4   4
                           
Ending Units December 28, 2022 66     1,536     1,602     8   46   54
  Units Opened     28     28       4   4
  Units Closed (1 )   (56 )   (57 )      
    Net Change (1 )   (28 )   (29 )     4   4
Ending Units December 27, 2023 65     1,508     1,573     8   50   58
                           
Equivalent Units                      
  Year-to-Date 2023 65     1,522     1,587     8   48   56
  Year-to-Date 2022 65     1,561     1,626     4   20   24
    Net Change     (39 )   (39 )   4   28   32
   

 


Investor Contact: 877-784-7167

Media Contact: 864-597-8005

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Source: Denny's Corporation