SPARTANBURG, S.C., Nov 01, 2011 (BUSINESS WIRE) -- Denny's Corporation (NASDAQ: DENN), one of America's largest full-service family restaurant chains, today reported results for its third quarter ended September 28, 2011.
John Miller, President and Chief Executive Officer, stated, "Denny's generated positive same-store sales and positive two-year same-store guest counts in the face of a very challenging consumer and inflationary economic environment. This is a testament to the success of our positioning as America's favorite diner, emphasizing everyday affordability with attractive Limited Time Only products. We also achieved an increase in profitability despite the headwinds coming from inflationary pressures. We are working closely with our franchisees to continue building on our success in growing units, sales and profitability which has enabled Denny's to grow free cash flow, pay down debt and repurchase shares in its efforts to increase long-term shareholder value."
For the third quarter of 2011, Denny's total operating revenue, including company restaurant sales and franchise revenue, decreased by $3.2 million to $136.7 million compared with $139.9 million in the prior year quarter. Company restaurant sales decreased $2.5 million due to eight fewer equivalent company restaurants compared with the prior year quarter, partially offset by the increase in same-store sales for the quarter.
Company restaurant operating margin (as a percentage of company restaurant sales) was 14.1%, a decrease of 0.8 percentage points compared with the prior year quarter. Product costs increased 1.0 percentage point to 24.7% primarily due to the impact of increased commodity costs. Payroll and benefit costs increased 0.6 percentage points to 39.4% primarily due to $2.1 million, or 2.0%, of favorable workers' compensation claims development in the prior year period, partially offset by improved scheduling of restaurant staff. Other operating costs decreased 0.9 percentage points to 15.1% primarily due to the corporate investment in media in the prior year and new store opening expenses associated with the opening of 6 company-owned Flying J units in the prior year quarter.
Franchise and license revenue decreased by $0.8 million to $32.0 million compared with $32.8 million in the prior year quarter. The decrease in franchise revenue included a $2.3 million decrease in initial and other fee revenue associated with opening 42 Flying J conversion units in the prior year quarter. This decrease was offset by a $1.8 million increase in royalties due to 103 additional equivalent franchise restaurants and the effects of higher same-store sales. Denny's franchisees opened nine new units in the third quarter of this year, including four traditional units, three university locations, one Flying J Travel Center conversion site, and one international unit in New Zealand. Denny's franchisees closed ten restaurants and purchased three company restaurants.
Franchise operating margin increased $0.5 million to $21.3 million, primarily due to the $1.8 million increase in franchise royalties and $0.9 million decrease in direct franchise costs, offset by a $2.3 million decrease in initial and other fee revenue. Franchise operating margin (as a percentage of franchise and license revenue) was 66.4%, an increase of 3.1 percentage points compared with the prior year quarter.
Total general and administrative expenses decreased $1.0 million compared with the prior year quarter primarily due to a decrease in performance-based and deferred compensation expenses.
Depreciation and amortization expense decreased by $0.4 million compared with the prior year quarter. Net operating gains, losses and other charges, which reflect restructuring charges, exit costs, impairment charges and gains or losses on the sale of assets, decreased $3.7 million in the quarter. The decrease was primarily the result of lower gains on the sale of real estate and impairment charges related to underperforming units.
Operating income decreased $3.0 million from the prior year quarter to $14.0 million primarily due to the decrease in operating gains, losses and other charges described above.
Interest expense decreased $1.6 million, or 25%, to $4.8 million as a result of lower interest rates under the refinanced and re-priced credit facility and a $29.1 million reduction in total gross debt over the last 12 months.
Denny's net income was $8.0 million for the third quarter 2011, or $0.08 per diluted share, compared with the prior year quarter net income of $9.9 million, or $0.10 per diluted share. Adjusted income before taxes*, Denny's metric for earnings guidance, increased 28% to $12.0 million compared with the prior year quarter adjusted income of $9.4 million.
Mark Wolfinger, Executive Vice President, Chief Administrative Officer and Chief Financial Officer, stated, "Our efforts to drive improvement in the business are reflected in our results, specifically the increases in profitability and same-store sales in the third quarter. Our franchise focused business model has enabled us to continue to strengthen our balance sheet, and positions us well to navigate the challenging environment impacting our customers and our business."
Denny's is updating its full-year 2011 financial guidance to reflect the third quarter positive same-store sales, current thinking on new unit development initiatives, and current commodity inflation expectations. The company anticipates same-store sales for company units to be between 0.0% and 1.0% and same-store sales for franchise units to be between (0.5%) and 0.5% with 60 to 62 new unit openings for 2011 including 23 Flying J conversion units, five university units, three international units, and no new Denny's Fast Casual test units. In addition, the company expects the annual increase in commodities to be at high end of our second quarter outlook, with Adjusted EBITDA* between $80 million and $83 million and Adjusted Income Before Taxes* between $36 million and $39 million.
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* Please refer to the historical reconciliation of net income to adjusted income before taxes and adjusted EBITDA included in the tables below.
** As announced in Second Quarter 2011 Earnings Release on August 2, 2011.
Denny's will provide further commentary on the results for the third quarter of 2011 on its quarterly investor conference call today, Tuesday, November 1, 2011 at 5:00 p.m. ET. 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 ir.dennys.com. A replay of the call may be accessed at the same location later in the day and will remain available for 30 days.
Denny's is one of America's largest full-service family restaurant chains, currently operating more than 1,670 franchised, licensed, and company-owned restaurants across the United States, Canada, Costa Rica, Mexico, Honduras, Guam, Puerto Rico and New Zealand. 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.
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 our 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 "expects", "anticipates", "believes", "intends", "plans", "hopes", 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 competitive pressures from within the restaurant industry; the level of success of the Company's strategic and operating initiatives, advertising and promotional efforts; adverse publicity; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy, 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 29, 2010 (and in the Company's subsequent quarterly reports on Form 10-Q).
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* Please refer to the historical reconciliation of net income to adjusted income before taxes and adjusted EBITDA included in the tables below.
** As announced in Second Quarter 2011 Earnings Release on August 2, 2011.
Further Information
Denny's will provide further commentary on the results for the third quarter of 2011 on its quarterly investor conference call today, Tuesday, November 1, 2011 at 5:00 p.m. ET. 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 ir.dennys.com. A replay of the call may be accessed at the same location later in the day and will remain available for 30 days.
Denny's is one of America's largest full-service family restaurant chains, currently operating more than 1,670 franchised, licensed, and company-owned restaurants across the United States, Canada, Costa Rica, Mexico, Honduras, Guam, Puerto Rico and New Zealand. 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.
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 our 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 "expects", "anticipates", "believes", "intends", "plans", "hopes", 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 competitive pressures from within the restaurant industry; the level of success of the Company's strategic and operating initiatives, advertising and promotional efforts; adverse publicity; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy, 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 29, 2010 (and in the Company's subsequent quarterly reports on Form 10-Q).
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SOURCE: Denny's Corporation