SPARTANBURG, S.C. - Feb. 20, 2013 // GLOBE NEWSWIRE // - Denny's Corporation (Nasdaq:DENN), franchisor and operator of one of America's largest full-service restaurant chains, today reported results for its fourth quarter and full year ended December 26, 2012.
John Miller, President and Chief Executive Officer, stated, "Denny's delivered another year of solid results while generating our second consecutive year of positive company and franchise same-store sales. This is a testament to our positioning as America's Diner, emphasizing everyday affordability with attractive Limited Time Only products. Although we are encouraged about the progress we have made thus far, we believe there is much work to be done in our revitalization plan to drive additional value. In our efforts to increase long-term shareholder value, we will continue to work closely with our franchisees to increase sales, profitability and new restaurant growth through our franchised-focused business model. By balancing our capital allocation between reinvestments in the brand, whether it's through our franchisees or our company restaurants, strengthening our balance sheet, and returning value to shareholders, we will continue to grow value for all stakeholders."
For the fourth quarter of 2012, franchise and license revenue increased 7.5% to $34.2 million compared with $31.8 million in the prior year quarter. The $2.4 million increase in franchise revenue was primarily driven by a $1.5 million increase in royalties and a $1.1 million increase in occupancy revenue due to 55 additional equivalent franchise restaurants. Company restaurant sales of $81.7 million decreased $16.6 million due to 49 fewer equivalent company restaurants. This decrease reflects the continuing impact of selling company restaurants to franchisees as part of our FGI refranchising strategy that was completed at the end of 2012.
Denny's opened 12 new franchised restaurants in the fourth quarter of this year, including the third location in Honduras. The Company opened one company restaurant in the quarter in downtown Las Vegas and acquired one franchised restaurant location in the San Diego market for $1.4 million. During the quarter, Denny's closed 11 franchised restaurants, one company restaurant and sold eight company restaurants to franchisees.
Franchise operating margin increased $1.5 million to $22.3 million primarily due to the increases in franchise royalties and occupancy margin. Franchise operating margin (as a percentage of franchise and license revenue) was 65.2%, a decrease of 0.3 percentage points. The decrease was primarily due to lower initial fee revenue from refranchising fewer restaurants.
Company restaurant operating margin decreased $1.6 million primarily due to the impact of selling company restaurants to franchisees. However, company restaurant operating margin (as a percentage of company restaurant sales) was 13.5%, an increase of 0.7 percentage points. The increase was primarily driven by lower payroll and benefits costs and lower other operating costs, partially offset by increases in product costs.
Total general and administrative expenses increased $1.4 million primarily due to higher performance-based compensation expenses. Depreciation and amortization expense decreased by $1.5 million primarily as a result of the sale of restaurants over the past two years. Interest expense decreased by $1.8 million to $2.8 million as a result of a $30.4 million reduction in total gross debt over the last 12 months and lower interest rates under our refinanced credit facility.
Adjusted Income Before Taxes*, Denny's target metric for earnings, increased 15.6% to $10.9 million compared with $9.5 million in the prior year quarter. In the fourth quarter, the provision for income taxes was $2.5 million, reflecting an annual effective tax rate of 36.4%. Due to the use of net operating loss and tax credit carryforwards, the Company paid only $0.2 million in cash taxes in the fourth quarter and $2.0 million in 2012.
Denny's net income was $6.5 million for the fourth quarter 2012, or $0.07 per diluted share, which was impacted by $0.7 million of impairment expense. Prior year quarter net income of $92.0 million, or $0.94 per diluted share, was impacted by the recording of an $89.1 million, or $0.91 per diluted share, net deferred tax benefit resulting from the release of a substantial portion of the valuation allowance on certain deferred tax assets based on our improved historical and projected pre-tax income.
For the full year 2012, Denny's generated $48.8 million of Free Cash Flow* which the Company used to reduce its outstanding term loan by $28.0 million and to return value to shareholders by repurchasing 4.8 million shares for $22.2 million. Since initiating our share repurchase strategy in November 2010, the Company has repurchased 11.5 million shares and now has 3.5 million shares remaining in its current authorized share repurchase initiative.
Mark Wolfinger, Executive Vice President, Chief Administrative Officer and Chief Financial Officer, concluded, "We are pleased that we have reached our target of being a 90% franchised system, which has enabled us to drive significant improvements in our financial performance. Our franchise focused business model enables us to continue to reinvest in the growth of the brand, pay down debt and repurchase shares. Despite numerous external headwinds facing the restaurant industry in 2013, we anticipate growing adjusted earnings per share by at least 10% and generating close to $50 million in Free Cash Flow* this year, after reinvestments in our company restaurants."
The Company continues to successfully execute against our Key Objectives implemented to strengthen and grow our position as one of the largest American full-service restaurant brands, based on number of restaurants.
* Please refer to the historical reconciliation of net income to Adjusted Income Before Taxes, Adjusted EBITDA, and Free Cash Flow included in the tables below.
Denny's will provide further commentary on the results for the fourth quarter and full year 2012 on its quarterly investor conference call today, Wednesday, February 20, 2013 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 investor.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 the franchisor and operator of one of America's largest full-service restaurant chains, based on number of restaurants. Denny's currently has 1,688 franchised, licensed, and company restaurants around the world with combined sales of $2.5 billion including 1,590 restaurants in the United States and 98 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, Dominican Republic and New Zealand. As of December 26, 2012, 1,524 of Denny's restaurants were franchised and 164 restaurants were company operated. 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.
The Denny's Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=16562
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 28, 2011 (and in the Company's subsequent quarterly reports on Form 10-Q).
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Whit Kincaid
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Liz DiTrapano, ICR
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