SPARTANBURG, S.C. - Aug. 03, 2016 // 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 second quarter ended June 29, 2016.
John Miller, President and Chief Executive Officer, stated, “We continued to generate strong Free Cash Flow* during the second quarter which supported ongoing investments in both Denny's brand revitalization and company restaurants and the return of capital to our shareholders. Not unlike others in the industry, our quarterly results were impacted by a challenging full-service dining environment as well as our prior year quarter, during which we achieved our strongest same-store sales performance in over a decade. Despite these circumstances, we continued to grow our revenues and improve our company and franchised restaurant margins through effective cost management. Going forward, we remain committed to delivering positive and profitable system sales growth by executing our brand revitalization strategy, enhancing the overall guest experience, and expanding our global reach.”
Denny’s domestic system-wide same-store sales decreased 0.5%, including a 0.1% decrease at company restaurants and a 0.5% decrease at domestic franchised restaurants. During the quarter, Denny’s franchisees opened 13 restaurants. In addition, the Company acquired two franchised restaurants and refranchised two company restaurants. Denny’s franchisees closed six franchised restaurants, bringing the total number of restaurants to 1,720.
Denny’s total operating revenue grew 0.8% to $124.3 million due to an increase in both company restaurant sales and franchise royalties. Company restaurant sales grew 0.7% to $89.2 million due to a greater number of company restaurants compared to the prior year quarter. Franchise and licensing revenue grew 1.2% to $35.1 million primarily due to higher royalty revenue, partially offset by a decrease in occupancy revenue.
Company restaurant operating margin of $16.4 million, or 18.4% of company restaurant sales, increased $0.1 million and was flat on a percentage points basis. Franchise operating margin of $24.3 million, or 69.4% of franchise and licensing revenue, increased $0.9 million, or 1.7 percentage points.
Total general and administrative expenses of $16.2 million improved $0.6 million compared to the prior year quarter due to lower incentive compensation expense, partially offset by an increase in payroll and benefits expenses. Interest expense of $3.0 million increased $0.8 million due to higher borrowings compared to the prior year quarter. Denny’s ended the quarter with $221.7 million of total debt outstanding, including $198.0 million of borrowings under its revolving credit facility.
The provision for income taxes was $3.8 million, reflecting an effective tax rate of (49.5)%. This includes an income tax benefit of $2.1 million resulting from the pension plan liquidation. Excluding the impact of the liquidation, the effective income tax rate was 36.0%. Due to the use of net operating loss and tax credit carryforwards, the Company paid $0.6 million in cash taxes during the quarter.
Denny's Net Loss of $11.6 million, or $0.15 per diluted share, includes the impact of the Company's pension plan liquidation. Adjusted Net Income per Share* of $0.13 increased 18.6% compared to the prior year quarter and excludes the $22.2 million net settlement loss associated with the pension plan liquidation.
Denny’s generated $18.5 million of Free Cash Flow* in the quarter after investing $4.1 million in cash capital expenditures, including the remodeling of six company restaurants.
During the quarter, the Company allocated $3.8 million to repurchase 0.4 million shares. As of June 29, 2016, the Company had approximately $130 million remaining in authorized share repurchases, including the impact of the $50 million accelerated share repurchase agreement announced in November 2015. As part of that agreement, the Company received 3.5 million shares at the beginning of the term and received the remaining 1.5 million shares at the end of the agreement, which was completed during July 2016, after the quarter close.
As previously announced, the Company’s Advantica Pension Plan, which was closed to new participants at the end of 1999, was liquidated during the second quarter. As a result of the liquidation, the Company made a final contribution of $9.5 million and recorded a pre-tax settlement loss of $24.3 million during the quarter.
Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer, commented, “The continued successful execution of our brand transformation initiatives resulted in another quarter of increased revenues and company and franchise restaurant margins, along with greater profitability when excluding the one-time loss associated with our pension plan liquidation. Our highly franchised business is expected to generate over $50 million of Free Cash Flow* in 2016, after completing substantially all remodels at company restaurants and acquiring seven high-volume franchised restaurants."
The following full year 2016 estimates are based on management’s expectations at this time and exclude any impact from the liquidation of the Advantica Pension Plan.
* Adjusted Net Income excludes debt refinancing charges, impairment charges, gains on sales of assets, and other adjustments including the pension settlement loss. The forward looking non-GAAP estimates set forth above are provided only on a non-GAAP basis. The Company is not able to reconcile these forward-looking non-GAAP estimates to their most directly comparable GAAP estimates without unreasonable efforts because it is unable to predict or forecast the items impacting these estimates with a reasonable degree of accuracy. The Company is unable to determine the probable significance of the unavailable information. Please refer to the historical reconciliation of Net Income to Adjusted Income Before Taxes, Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA, and Free Cash Flow included in the following tables.
** Represents guidance ranges provided in Denny's first quarter 2016 earnings release dated May 2, 2016.
Denny’s will provide further commentary on the results for the second quarter ended June 29, 2016 on its quarterly investor conference call today,Wednesday, August 3, 2016 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. 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 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 June 29, 2016, Denny’s had 1,720 franchised, licensed, and company restaurants around the world with combined sales of $2.8 billion including 117 restaurants in Canada, Puerto Rico, New Zealand, Mexico, Costa Rica, Dominican Republic, Honduras, Guam, the United Arab Emirates,Chile, Curaçao, El Salvador, and Trinidad and Tobago. 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 “expect”, “anticipate”, “believe”, “intend”, “plan”, “hope”, 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: competitive pressures from within the restaurant industry; the level of success of our operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses, such as avian flu, 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, 2015 (and in the Company’s subsequent quarterly reports on Form 10-Q).
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DENNY’S CORPORATION
Reconciliation of Net (Loss) Income to Non-GAAP Operating 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 operating performance on a period-to-period basis. The Company uses Adjusted Income, Adjusted EBITDA, and Free Cash Flow internally as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes, including bonuses for certain employees. Adjusted EBITDA is also used to evaluate the ability to service debt because the excluded charges do not have an impact on prospective debt servicing capability and these adjustments are contemplated in our credit facility for the computation of our debt covenant ratios. Free Cash Flow, defined as Adjusted EBITDA less cash portion of interest expense net of interest income, capital expenditures, and cash taxes, is used to evaluate operating effectiveness and decisions regarding the allocation of resources. 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 U.S. generally accepted accounting principles.
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SOURCE Denny's
Curt Nichols
Investor Relations
877-784-7167
Jessica Liddell
Media Relations, ICR
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