- Domestic System-Wide Same-Store Sales Increases 1.8% With Company Same-Store Sales Growing 3.2% -
- Completed 16 Heritage Remodels at Company Restaurants -
- Repurchased 1.4 Million Shares -
SPARTANBURG, S.C. - April 28, 2014 // 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 first quarter ended March 26, 2014.
First Quarter Summary
* Please refer to the historical reconciliation of Net Income to Adjusted EBITDA and Free Cash Flow included in the following tables.
John Miller, President and Chief Executive Officer, stated, "We are pleased to start the year with another quarter of system-wide same-store sales growth highlighted by our strongest quarter of same-store sales at company restaurants in over seven years. Our newly launched Heritage remodel program helped our company restaurants achieve positive same-store guest traffic. We continue to strengthen our position as a leader in our segment, as we make improvements in our food, service and atmosphere to evolve the business to meet the expectations of our guests. The success of our America's Diner revitalization is resonating with our guests and our franchisees, who continue to be energized and excited about the future at Denny's."
Denny's total operating revenue, including company restaurant sales and franchise and license revenue, was $111.9 million resulting from a reduction in both company restaurant sales and franchise and license revenue. Franchise and license revenue was $32.6 million compared with $33.5 million due to a decrease in occupancy revenue, partially offset by an increase in royalty revenue from ten additional equivalent franchised restaurants. Company restaurant sales were $79.3 million compared with $81.0 million due to five fewer equivalent company restaurants. The decrease in equivalent company restaurants reflects the impact of the previously announced temporary closure of the highest volume restaurant located in Las Vegas, temporary closures for remodeling restaurants and the permanent closure of a restaurant in Honolulu. The decrease in company restaurant sales was partially offset by a 3.2% increase in same-store sales during the quarter.
Denny's opened four franchised restaurants in the first quarter of this year and closed eight system restaurants (six franchised and two company) bringing the total restaurant count to 1,696, comprised of 161 company restaurants and 1,535 franchised restaurants.
Franchise operating margin was $21.9 million, or 67.2% of franchise and license revenue, an increase of 1.3 percentage points. This increase was due to both the increase in royalties and the decrease in occupancy dollar margin. Company restaurant operating margin was $9.1 million, or 11.5% of company restaurant sales. The decrease in company margin included a $0.7 million, or 0.6 percentage point, decrease due to the previously mentioned temporary restaurant closure. Excluding this impact, the decrease was primarily driven by increases in payroll and benefits costs and higher utilities and repair and maintenance expenses. Payroll and benefits costs, as a percentage of company restaurant sales, was 41.7% primarily due to a 1.4 percentage point increase in workers' compensation costs, increased group insurance and higher incentive compensation costs.
Total general and administrative expenses of $14.1 million were $1.0 million lower in the current year quarter. Depreciation and amortization expense of $5.2 million was flat to the prior year. Net operating gains, losses and other charges, which include restructuring charges, exit costs, impairment charges and gains or losses on the sale of assets, increased $0.3 million in the quarter. Interest expense improved $0.5 million to $2.3 million as a result of an $11.4 million reduction in total debt over the last 12 months and lower interest rates under the Company's refinanced credit facility. In the first quarter, the provision for income taxes was $2.6 million, reflecting an effective tax rate of 28.9%. Due to the use of net operating loss and tax credit carryforwards, the Company paid $0.8 million in cash taxes during the first quarter.
Denny's first quarter net income was $6.4 million, or $0.07 per diluted share, compared to prior year quarter net income of $7.1 million, or $0.07 per diluted share. Denny's generated $6.7 million of Free Cash Flow* in the first quarter, after spending $6.9 million on capital expenditures, primarily to remodel 16 company restaurants. During the quarter, the Company repurchased 1.4 million shares for $9.1 million. As of March 26, 2014, the Company has repurchased 17.1 million shares since initiating its share repurchase strategy in November 2010. At the end of the first quarter, the Company had 7.9 million authorized shares remaining to be purchased. Denny's ended the first quarter with $174.7 million of total debt outstanding, including $98.3 million of borrowings under the revolving line of credit and $57.0 million of term loan debt outstanding.
Mark Wolfinger, Executive Vice President, Chief Administrative Officer and Chief Financial Officer, commented, "We generated solid profitability and Free Cash Flow* while making investments in our Heritage remodel program through our company restaurants. We continue to demonstrate that our franchise-focused business provides financial stability and flexibility while enabling us to generate earnings growth and significant Free Cash Flow*. Returning value to our shareholders remains a very important part of our strategic plan as evidenced by the 1.4 million shares repurchased in the first quarter of this year."
As a reminder, key considerations impacting the Company's outlook for 2014 include:
Based on year-to-date results and management's expectations at this time, Denny's is reiterating the Company's financial guidance for full year 2014, with the exception of an increase in its estimates for company same-store sales.
* Please refer to the historical reconciliation of Net Income to Adjusted EBITDA and Free Cash Flow included in the following tables.
Denny's will provide further commentary on the results for the first quarter ended March 26, 2014 on its quarterly investor conference call today, Monday, April 28, 2014 at 4:30 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 franchised full-service restaurant chains, based on the number of restaurants. Denny's currently has 1,696 franchised, licensed, and company restaurants around the world with combined sales of $2.5 billion including 1,594 restaurants in the United States and 102 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, Dominican Republic, El Salvador, Chile and New Zealand. As of March 26, 2014, 1,535 of Denny's restaurants were franchised and 161 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 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 its 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 25, 2013 (and in the Company's subsequent quarterly reports on Form 10-Q).
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SOURCE Denny's Corporation
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