Denny's Corporation Reports Results for First Quarter 2015

- 7.2% Growth in Domestic System-Wide Same-Store Sales -
- Raises 2015 Full Year Guidance for Same-Store Sales and Adjusted EBITDA* -

SPARTANBURG, S.C. - May 4, 2015 // 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 April 1, 2015.

First Quarter Summary

  • Domestic system-wide same-store sales growth of 7.2%, comprised of a 7.6% increase at company restaurants and 7.1% increase at domestic franchised restaurants.
  • Opened nine system restaurants including one non-traditional location.
  • Completed 31 remodels including seven at company restaurants.
  • Adjusted EBITDA* of $18.8 million, or 15.7% of total operating revenue, increased 14.8%.
  • Net Income of $8.5 million increased 32.7% with Diluted Net Income per Share of $0.10 growing 37.8%.
  • Adjusted Net Income of $8.7 million grew 36.0% with Adjusted Net Income per Share* of $0.10 increasing 41.2%.
  • Generated $13.2 million of Free Cash Flow* after remodel investments at company restaurants.
  • Allocated $5.1 million to repurchase 450,000 shares during the first quarter.

* Adjusted Net Income excludes debt refinancing charges, impairment charges and gains on sales of assets and other.  Please refer to the historical reconciliation of Net Income to Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA and Free Cash Flow included in the following tables.

John Miller, President and Chief Executive Officer, stated, "We are very pleased to start the year with the strongest quarter of same-store sales in more than a decade, including growth in guest traffic. We are benefiting from solid execution of our brand revitalization strategy focused on elevating our food, service and atmosphere, which is resonating with our guests. Although we have made remarkable progress to date due to our dedicated franchisees, employees and partners, we believe we are still in the early stages of our strategy with key initiatives like our Heritage remodel program penetrating less than 20% of our system. Going forward, we remain committed to driving long-term shareholder value by consistently growing the profitability of our highly franchised business primarily through consistent, sustainable same-store sales and traffic growth."

First Quarter Results

Denny's total operating revenue grew 7.4% to $120.2 million resulting from an increase in both company restaurant sales along with franchise and license revenue. Franchise and license revenue of $34.2 million increased $1.6 million, or 4.8%, primarily due to higher royalty revenue resulting from an increase in same-store sales. Company restaurant sales of $86.0 million grew $6.7 million, or 8.4%, primarily due to the increase in same-store sales and the reopening of the Las Vegas Casino Royale restaurant in November 2014.

In the first quarter, Denny's opened nine franchised restaurants, including one non-traditional location, and closed seventeen system restaurants, including one company restaurant, bringing the total number of restaurants to 1,694. Domestic system-wide same-store sales grew 7.2%, including a 7.6% increase at company restaurants and 7.1% increase at domestic franchised restaurants. Franchise operating margin was $23.2 million, or 67.9% of franchise and license revenue, an increase of $1.3 million, or 0.7 percentage points. This improvement was primarily due to an increase in royalties offset by an increase in direct costs. Company restaurant operating margin of $14.7 million, or 17.1% of company restaurant sales, increased $5.5 million, or 5.6 percentage points. The improvement in company margin was primarily driven by the leveraging effect from the growth in same-store sales and lower product costs.

Total general and administrative expenses were $16.9 million compared to $14.1 million in the prior year primarily due to higher payroll and benefits, and incentive and share-based compensation expenses. Depreciation and amortization expense of $5.0 million improved $0.2 million. Interest expense of $2.1 million improved $0.2 million primarily due to the expiration of capital leases and a $21.3 million reduction in total debt outstanding over the last 12 months. In the first quarter, the provision for income taxes was $4.7 million, reflecting an effective tax rate of 35.4%. Due to the use of net operating loss and tax credit carryforwards, the Company only paid $0.3 million in cash taxes during the first quarter.

Denny's first quarter net income of $8.5 million increased 32.7% compared to prior year quarter net income of $6.4 million, with net income per diluted share of $0.10 growing 37.8% compared to $0.07 per diluted share in the prior year quarter. Net income was impacted by the refinancing of its credit facility which resulted in a charge to other nonoperating expense of $0.3 million in the first quarter of 2015. Adjusted net income* of $8.7 million grew 36.0% compared to prior year quarter adjusted net income* of $6.4 million. Adjusted net income per share* of $0.10 increased 41.2% compared with the prior year quarter Adjusted net Income per share* of $0.07.

Denny's generated $13.2 million of Free Cash Flow* in the first quarter, after investing $3.4 million on capital expenditures. During the quarter, the Company repurchased 450,000 shares for $5.1 million. At the end of the first quarter, the Company had 3.4 million shares authorized to be repurchased in addition to the $100 million multi-year share repurchase program approved by the Company's Board of Directors on March 30, 2015. Denny's ended the first quarter with $153.5 million of total debt outstanding, including $135.5 million of borrowings under its revolving credit facility.

Business Outlook

Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer, commented, "Our strong first quarter sales growth led to margin expansion and 41% growth in Adjusted Net Income per Share*. We are excited about continuing to grow our highly franchised business and using our Free Cash Flow* to both reinvest in our company restaurants and return value to our shareholders through our ongoing share repurchase program. Due to our strong first quarter results, we are raising our annual guidance for same-store sales and Adjusted EBITDA*."

The following full year 2015 estimates are based on management's expectations at this time. A key consideration impacting the Company's outlook for 2015 is having 52 operating weeks in the year compared to 53 operating weeks in 2014. 

Component

Full Year 2015 Guidance

 

Previous**

Current

Domestic Franchise Same-Store Sales

1.5% to 3.0%

2.5% to 3.5%

Company Same-Store Sales

2.5% to 4.0%

3.5% to 4.5%

New Restaurant Openings

35 - 45 (All Franchised)

No Change

Net Restaurant Growth

Single Digit

No Change

Total General and Administrative Expenses (includes Share-Based Compensation)

$58M to $61M

$61M to $64M

Adjusted EBITDA*

$84M to $86M

$85M to $87M

Cash Capital Expenditures

$23M to $25M

$24M to $26M

Depreciation and Amortization Expense

$20M to $21M

No Change

Interest Expense, net

$9.5M to $10.5M

$8.5M to $9.5M

Effective Income Tax Rate (Cash Taxes)

    36% to 38% ($5M to $7M)    

36% to 38% ($6M to $8M)

Free Cash Flow*

$45M to $47M

No Change

*      Please refer to the historical reconciliation of Net Income to Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA and Free Cash Flow included in the following tables.

**   As announced in Fourth Quarter and Full Year 2014 Earnings Release on February 18, 2015.

Conference Call and Webcast Information

Denny's will provide further commentary on the results for the first quarter ended April 1, 2015 on its quarterly investor conference call today, Monday, May 4, 2015 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.

About Denny's

Denny's is the franchisor and operator of one of America's largest franchised full-service restaurant chains, based on the number of restaurants. As of April 1, 2015, Denny's had 1,694 franchised, licensed, and company restaurants around the world with combined sales of $2.6 billion including 106 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, Dominican Republic, El Salvador, Chile and New Zealand, and 160 company operated restaurants in the United States. 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.denny.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 31, 2014 (and in the Company's subsequent quarterly reports on Form 10-Q).

 

DENNY'S CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

(In thousands)

April 1, 2015

    

December 31, 2014

Assets

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

1,718

 

 

$

3,074

 

 

 

Receivables

14,140

 

 

18,059

 

 

 

Current deferred tax asset

24,108

 

 

24,310

 

 

 

Other current assets

9,535

 

 

10,628

 

 

 

 

Total current assets

49,501

 

 

56,071

 

 

Property, net

108,412

 

 

109,777

 

 

Goodwill

31,451

 

 

31,451

 

 

Intangible assets, net

45,992

 

 

46,278

 

 

Noncurrent deferred tax asset

17,620

 

 

19,252

 

 

Other noncurrent assets

28,088

 

 

27,029

 

 

 

 

Total assets

$

281,064

 

 

$

289,858

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

 

Current maturities of long-term debt

$

 

 

$

4,125

 

 

 

Current maturities of capital lease obligations

3,271

 

 

3,609

 

 

 

Accounts payable

16,307

 

 

13,250

 

 

 

Other current liabilities

49,564

 

 

59,432

 

 

 

 

Total current liabilities

69,142

 

 

80,416

 

 

Long-term liabilities

 

 

 

 

 

Long-term debt, less current maturities

135,500

 

 

135,875

 

 

 

Capital lease obligations, less current maturities

14,689

 

 

15,204

 

 

 

Other

57,830

 

 

56,780

 

 

 

 

Total long-term liabilities

208,019

 

 

207,859

 

 

 

 

Total liabilities

277,161

 

 

288,275

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

Common stock

1,063

 

 

1,058

 

 

 

Paid-in capital

572,109

 

 

571,674

 

 

 

Deficit

(429,688

)

 

(438,221

)

 

 

Accumulated other comprehensive loss, net of tax

(26,152

)

 

(24,602

)

 

 

Treasury stock

(113,429

)

 

(108,326

)

 

 

 

Total shareholders' equity

3,903

 

 

1,583

 

 

 

 

Total liabilities and shareholders' equity

$

281,064

 

 

$

289,858

 

 

 

 

 

 

 

 

Debt Balances

(In thousands)

4/1/2015

 

12/31/2014

Credit facility revolver due 2020

$

135,500

 

 

$

 

Credit facility term loan and revolver due 2018

 

 

140,000

 

Capital leases

17,960

 

 

18,813

 

 

Total debt

$

153,460

 

 

$

158,813

 

 

DENNY'S CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

 

 

 

 

 

 

Quarter Ended

(In thousands, except per share amounts)

April 1, 2015

    

March 26, 2014

Revenue:

 

 

 

 

Company restaurant sales

$

85,982

 

 

$

79,304

 

 

Franchise and license revenue

34,189

 

 

32,616

 

 

 

Total operating revenue

120,171

 

 

111,920

 

Costs of company restaurant sales

71,308

 

 

70,175

 

Costs of franchise and license revenue

10,978

 

 

10,697

 

General and administrative expenses

16,936

 

 

14,116

 

Depreciation and amortization

5,024

 

 

5,238

 

Operating (gains), losses and other charges, net

608

 

 

422

 

 

 

Total operating costs and expenses, net

104,854

 

 

100,648

 

Operating income

15,317

 

 

11,272

 

Interest expense, net

2,087

 

 

2,322

 

Other nonoperating expense (income), net

29

 

 

(100

)

Net income before income taxes

13,201

 

 

9,050

 

Provision for income taxes

4,668

 

 

2,619

 

Net income

$

8,533

 

 

$

6,431

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

$

0.10

 

 

$

0.07

 

Diluted net income per share

$

0.10

 

 

$

0.07

 

 

 

 

 

 

 

Basic weighted average shares outstanding

84,875

 

 

88,803

 

Diluted weighted average shares outstanding

87,465

 

 

90,816

 

 

 

 

 

 

 

Comprehensive income

$

6,983

 

 

$

6,223

 

 

 

 

 

 

 

General and Administrative Expenses

Quarter Ended

(In thousands)

April 1, 2015

 

March 26, 2014

Share-based compensation

$

1,705

 

 

$

1,164

 

Other general and administrative expenses

15,231

 

 

12,952

 

 

Total general and administrative expenses

$

16,936

 

 

$

14,116

 

 

DENNY'S CORPORATION

Income, EBITDA, Free Cash Flow, and Net Income Reconciliations

(Unaudited)

 

 

 

 

 

 

Income, EBITDA and Free Cash Flow Reconciliation

Quarter Ended

(In thousands)

April 1, 2015

    

March 26, 2014

Net income

$

8,533

 

 

$

6,431

 

Provision for income taxes

4,668

 

 

2,619

 

Operating (gains), losses and other charges, net

608

 

 

422

 

Other nonoperating (income) expense, net

29

 

 

(100

)

Share-based compensation

1,705

 

 

1,164

 

Adjusted Income Before Taxes (1)

$

15,543

 

 

$

10,536

 

 

 

 

 

Interest expense, net

2,087

 

 

2,322

 

Depreciation and amortization

5,024

 

 

5,238

 

Cash payments for restructuring charges and exit costs

(402

)

 

(631

)

Cash payments for share-based compensation

(3,440

)

 

(1,083

)

Adjusted EBITDA (1)

$

18,812

 

 

$

16,382

 

 

 

 

 

Cash interest expense, net

(1,845

)

 

(2,052

)

Cash paid for income taxes, net

(298

)

 

(820

)

Cash paid for capital expenditures

(3,446

)

 

(6,857

)

Free Cash Flow (1)

$

13,223

 

 

$

6,653

 

 

 

 

 

Net Income Reconciliation

Quarter Ended

(In thousands)

April 1, 2015

 

March 26, 2014

Net income

$

8,533

 

 

$

6,431

 

Gains on sales of assets and other, net

(22

)

 

(8

)

Impairment charges

49

 

 

 

Loss on debt refinancing

293

 

 

 

Tax effect (2)

(113

)

 

2

 

Adjusted Net Income (1)

$

8,740

 

 

$

6,425

 

 

 

 

 

Diluted weighted-average shares outstanding

87,465

 

 

90,816

 

 

 

 

 

Adjusted Net Income Per Share (1)

$

0.10

 

 

$

0.07

 

 

 

(1

)

The Company believes that, in addition to other financial measures, Adjusted Income Before Taxes, Adjusted EBITDA, Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share are appropriate indicators to assist in the evaluation of its operating performance on a period-to-period basis. The Company also 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 its ability to service debt because the excluded charges do not have an impact on its prospective debt servicing capability and these adjustments are contemplated in its credit facility for the computation of its 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, Adjusted Income, Adjusted EBITDA, Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share 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.

 

(2

)

Tax adjustments for the three months ended April 1, 2015 are calculated using the Company's year-to-date effective tax rate of 35.4%. Tax adjustments for the three months ended March 26, 2014 are calculated using the Company's year-to-date effective tax rate of 28.9%.

 

DENNY'S CORPORATION

Operating Margins

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

(In thousands)

April 1, 2015

 

March 26, 2014

Company restaurant operations: (1)

 

 

 

 

 

 

Company restaurant sales

$

85,982

 

100.0

%

 

$

79,304

 

100.0

%

 

Costs of company restaurant sales:

 

 

 

 

 

 

 

Product costs

21,444

 

24.9

%

 

20,583

 

26.0

%

 

 

Payroll and benefits

33,204

 

38.6

%

 

33,099

 

41.7

%

 

 

Occupancy

4,895

 

5.7

%

 

5,128

 

6.5

%

 

 

Other operating costs:

 

 

 

 

 

 

 

 

Utilities

3,176

 

3.7

%

 

3,331

 

4.2

%

 

 

 

Repairs and maintenance

1,450

 

1.7

%

 

1,459

 

1.8

%

 

 

 

Marketing

3,207

 

3.7

%

 

3,007

 

3.8

%

 

 

 

Other

3,932

 

4.6

%

 

3,568

 

4.5

%

 

Total costs of company restaurant sales

$

71,308

 

82.9

%

 

$

70,175

 

88.5

%

 

Company restaurant operating margin (2)

$

14,674

 

17.1

%

 

$

9,129

 

11.5

%

 

 

 

 

 

 

 

 

 

Franchise operations: (3)

 

 

 

 

 

 

Franchise and license revenue:

 

 

 

 

 

 

Royalties

$

23,163

 

67.7

%

 

$

21,481

 

65.9

%

 

Initial fees

445

 

1.3

%

 

117

 

0.3

%

 

Occupancy revenue

10,581

 

31.0

%

 

11,018

 

33.8

%

 

Total franchise and license revenue

$

34,189

 

100.0

%

 

$

32,616

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Costs of franchise and license revenue:

 

 

 

 

 

 

Occupancy costs

$

7,891

 

23.1

%

 

$

8,268

 

25.4

%

 

Other direct costs

3,087

 

9.0

%

 

2,429

 

7.4

%

 

Total costs of franchise and license revenue

$

10,978

 

32.1

%

 

$

10,697

 

32.8

%

 

Franchise operating margin (2)

$

23,211

 

67.9

%

 

$

21,919

 

67.2

%

 

 

 

 

 

 

 

 

 

Total operating revenue (4)

$

120,171

 

100.0

%

 

$

111,920

 

100.0

%

Total costs of operating revenue (4)

82,286

 

68.5

%

 

80,872

 

72.3

%

Total operating margin (4)(2)

$

37,885

 

31.5

%

 

$

31,048

 

27.7

%

 

 

 

 

 

 

 

 

 

Other operating expenses: (4)(2)

 

 

 

 

 

 

General and administrative expenses

$

16,936

 

14.1

%

 

$

14,116

 

12.6

%

 

Depreciation and amortization

5,024

 

4.2

%

 

5,238

 

4.7

%

 

Operating gains, losses and other charges, net

608

 

0.5

%

 

422

 

0.4

%

 

Total other operating expenses

$

22,568

 

18.8

%

 

$

19,776

 

17.7

%

 

 

 

 

 

 

 

 

 

Operating income (4)

$

15,317

 

12.7

%

 

$

11,272

 

10.1

%

 

 

 

 

 

 

 

 

 

 

(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 U.S. generally accepted accounting principles.

 

(3

)

As a percentage of franchise and license revenue

 

(4

)

As a percentage of total operating revenue

 

DENNY'S CORPORATION

Statistical Data

(Unaudited)

 

 

 

 

 

 

 

 

Same-Store Sales

Quarter Ended

 

 

(increase vs. prior year)

April 1, 2015

    

March 26, 2014

 

 

 

Company Restaurants

7.6

%

 

3.2

%

 

 

 

Domestic Franchised Restaurants

7.1

%

 

1.5

%

 

 

 

Domestic System-wide Restaurants

7.2

%

 

1.8

%

 

 

 

System-wide Restaurants

6.5

%

 

1.4

%

 

 

 

 

 

 

 

 

 

 

Average Unit Sales

Quarter Ended

 

 

(In thousands)

April 1, 2015

 

March 26, 2014

 

 

 

Company Restaurants

$

538

 

 

$

498

 

 

 

 

Franchised Restaurants

$

383

 

 

$

356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchised

 

 

Restaurant Unit Activity

Company

 

 & Licensed

 

Total

Ending Units December 31, 2014

161

 

 

1,541

 

 

1,702

 

 

Units Opened

 

 

9

 

 

9

 

 

Units Closed

(1

)

 

(16

)

 

(17

)

 

 

Net Change

(1

)

 

(7

)

 

(8

)

Ending Units April 1, 2015

160

 

 

1,534

 

 

1,694

 

 

 

 

 

 

 

 

 

Equivalent Units

 

 

 

 

 

 

Year-to-Date 2015

160

 

 

1,537

 

 

1,697

 

 

Year-to-Date 2014

159

 

 

1,536

 

 

1,695

 

 

 

 

1

 

 

1

 

 

2

 

SOURCE Denny's Corporation

Contacts:

Whit Kincaid
Investor Relations
877-784-7167

Liz DiTrapano
ICR
Media Relations
646-277-1226

###

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