Denny’s Corporation Reports Results For First Quarter 2016

-  2.5% Increase in Domestic System-Wide Same-Store Sales  - 
-  9.7% Two-Year Growth in Domestic System-Wide Same-Store Sales  - 
-  21.0% Growth in Adjusted Net Income per Share*  - 
-  Raises 2016 Full Year Guidance for Adjusted EBITDA*  -

SPARTANBURG, S.C. - May 02, 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 first quarter ended March 30, 2016.

First Quarter Highlights

  • Domestic system-wide same-store sales grew 2.5%, comprised of a 3.5% increase at company restaurants and 2.3% growth at domestic franchised restaurants.
  • Opened 12 system restaurants including one company restaurant and six international locations.
  • Completed 57 remodels including five at company restaurants.
  • Company restaurant operating margin of $16.3 million increased 10.9% and franchise operating margin of $24.3 million increased 4.5%.
  • Adjusted EBITDA* of $22.5 million increased $3.7 million, or 19.7%.
  • Net Income of $10.0 million, or $0.13 per diluted share, grew 16.7%.
  • Adjusted Net Income per Share* of $0.12 grew 21.0%.
  • Generated $14.4 million of Free Cash Flow*, after capital expenditures of $5.3 million.
  • Allocated $3.9 million towards share repurchases.

John Miller, President and Chief Executive Officer, stated, “Our start to the year was quite positive as we grew same-store sales on top of one of our strongest quarters of growth in the prior year. Our revenue growth, coupled with our ongoing focus on costs, resulted in margin improvement and growth in key profitability metrics. We remain focused on executing our brand revitalization strategy to offer affordable and craveable products delivered with consistent service in an inviting environment.  Furthermore, given we are still in the early stages of our successful store revitalization efforts, with only 36% of the system reflecting the new Heritage image, we have an opportunity to further enhance our performance for the balance of 2016 and beyond. With ongoing same-store sales growth, an expanding global reach, and a highly franchised business model, the Free Cash Flow* we are generating enables us to make investments in our company restaurants and our brand support systems while returning excess cash to shareholders through our ongoing share repurchase program.”

First Quarter Results

Denny’s domestic system-wide same-store sales grew 2.5%, including a 3.5% increase at company restaurants and 2.3% increase at domestic franchised restaurants. During the quarter, Denny’s opened 12 restaurants, including 11 franchised locations and one company restaurant in partnership with Kwik TripTM convenience stores. In addition, the Company acquired one franchised restaurant and refranchised four company restaurants. Franchisees closed nine restaurants, bringing the total number of restaurants to 1,713.

Denny’s total operating revenue grew 3.7% to $124.6 million primarily resulting from an increase in company restaurant sales. Company restaurant sales grew 5.1% to$90.4 million primarily from the growth in same-store sales and increase in the number of company restaurants over the last 12 months. The Company has opened four restaurants, acquired four franchised restaurants, and refranchised five company restaurants during this time. Franchise and license revenue of $34.3 million increased$0.1 million primarily due to higher royalty revenue offset by a decrease in occupancy revenue.

Company restaurant operating margin of $16.3 million, or 18.0% of company restaurant sales, increased $1.6 million or 0.9 percentage points. Franchise operating margin of $24.3 million, or 70.8% of franchise and licensing revenue, increased $1.0 million, or 2.9 percentage points, primarily due to the increase in royalties.

Total general and administrative expenses of $16.9 million were flat to the prior year as lower incentive and deferred compensation costs offset an increase in share-based compensation and payroll and benefits expenses. Interest expense of $2.8 million increased by $0.7 million due to $68.0 million of additional debt outstanding compared to the prior year quarter. Denny’s ended the quarter with $221.5 million of total debt outstanding, including $201.0 million of borrowings under its revolving credit facility. The provision for income taxes was $5.5 million, reflecting an effective tax rate of 35.5%. Due to the use of net operating loss and tax credit carryforwards, the Company paid $0.3 million in cash taxes during the quarter.

Denny's net income of $10.0 million, or $0.13 per diluted share, increased 16.7% compared to prior year quarter net income of $8.5 million, or $0.10 per diluted share. Adjusted Net Income per Share* of $0.12 increased 21.0% compared to the prior year quarter when excluding the $0.6 million operating gain on the sale of assets.

Free Cash Flow* and Capital Allocation

Denny’s generated $14.4 million of Free Cash Flow* in the quarter after investing $5.3 million in capital expenditures including remodeling five company restaurants and acquiring a franchised restaurant.

During the quarter, the Company allocated $3.9 million to repurchase 400,000 shares. As of March 30, 2016, the Company had approximately $34 million remaining under a $100 million authorized share repurchase program, including the impact of the $50 million accelerated share repurchase agreement announced in November 2015. As part of the agreement, the Company received approximately 3.5 million shares at the beginning of the term and will receive the remaining portion of the shares at the end of the agreement, which is expected to be completed no later than July 2016.

Pension Plan Liquidation

The Company’s Advantica Pension Plan, which was closed to new participants at the end of 1999, was liquidated in April, subsequent to the end of the first quarter. As a result of the liquidation, the Company made a required contribution of $9.5 million and expects to record an operating loss of approximately $24 million during the second quarter.

Business Outlook

Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer, commented, “Our continued execution drove another quarter of growth in revenue, margins, and profitability. We believe that an additional avenue of growth will be opportunistic acquisitions of franchised restaurants. Including our anticipated increase in capital expenditures, our highly franchised business is expected to generate over $60 million of Free Cash Flow* in 2016, after completing substantially all remodels at company 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. The Company is increasing its expectations for Adjusted EBITDA* due to a positive start to the year and more favorable commodities costs.

  • Same-store sales growth at company restaurants between 1.5% and 2.5% with same-store sales growth at domestic franchised restaurants between 1% and 2%.
  • 44 to 48 new restaurant openings, including one company operated restaurant in partnership with Kwik TripTM convenience stores, with net restaurant growth of 5 to 10 restaurants.
  • Acquisition of one franchised restaurant and refranchising of four company restaurants.
  • Total operating revenue between $500 and $505 million (vs. $501 and $506 million**) with franchise and licensing revenue between $139 and $140 million (vs. $140 and$141 million**).
  • Company margin between 16.5% and 17.5% (vs. 16% to 17%**) with franchise margin between 68.5% and 69%.
  • Total general and administrative expenses between $64 and $67 million.
  • Adjusted EBITDA* between $94 and $96 million (vs. $92 to $95 million**).
  • Depreciation and amortization expense between $21.5 and $22 million.
  • Net interest expense between $11 and $11.5 million.
  • Effective income tax rate between 33% and 37% with $3 to $5 million of cash taxes.
  • Cash capital expenditures between $19 and $21 million (vs. $18 to $20 million**) including the acquisition of one franchised restaurant, completion of approximately 25 remodels at company restaurants, the opening of one new company restaurant, and scrape and rebuild of one company restaurant.
  • Free Cash Flow* between $60 and $62 million (vs. $59 to $62 million**).

* 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.

** Represents guidance ranges provided in Denny's fourth quarter and full year 2015 earnings release dated February 17, 2016.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the first quarter ended March 30, 2016 on its quarterly investor conference call today, Monday, May 2, 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.

About Denny’s

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 March 30, 2016, Denny’s had 1,713 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 atinvestor.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).

DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
             
(In thousands) 3/30/16   12/30/15
Assets      
  Current assets      
    Cash and cash equivalents $ 4,137     $ 1,671  
    Receivables 13,819     16,552  
    Assets held for sale 251     931  
    Other current assets 12,427     17,260  
      Total current assets 30,634     36,414  
  Property, net 122,444     124,816  
  Goodwill 33,667     33,454  
  Intangible assets, net 46,311     46,074  
  Deferred income taxes 28,426     29,159  
  Other noncurrent assets 27,355     27,120  
      Total assets $ 288,837     $ 297,037  
             
Liabilities      
  Current liabilities      
    Current maturities of capital lease obligations $ 3,288     $ 3,246  
    Accounts payable 15,982     20,759  
    Other current liabilities 60,258     77,548  
      Total current liabilities 79,528     101,553  
  Long-term liabilities      
    Long-term debt, less current maturities 201,000     195,000  
    Capital lease obligations, less current maturities 17,192     17,499  
    Other 48,544     43,580  
      Total long-term liabilities 266,736     256,079  
      Total liabilities 346,264     357,632  
             
Shareholders' deficit      
    Common stock 1,070     1,065  
    Paid-in capital 567,156     565,364  
    Deficit (392,291 )   (402,245 )
    Accumulated other comprehensive loss, net of tax (28,457 )   (23,777 )
    Treasury stock (204,905 )   (201,002 )
      Total shareholders' deficit (57,427 )   (60,595 )
      Total liabilities and shareholders' deficit $ 288,837     $ 297,037  
             
Debt Balances
(In thousands) 3/30/16   12/30/15
Credit facility revolver due 2020 $ 201,000     $ 195,000  
Capital leases 20,480     20,745  
  Total debt $ 221,480     $ 215,745  

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
           
      Quarter Ended
(In thousands, except per share amounts) 3/30/16   4/1/15
Revenue:      
  Company restaurant sales $ 90,386     $ 85,982  
  Franchise and license revenue 34,256     34,189  
    Total operating revenue 124,642     120,171  
Costs of company restaurant sales 74,111     71,308  
Costs of franchise and license revenue 10,003     10,978  
General and administrative expenses 16,927     16,936  
Depreciation and amortization 5,493     5,024  
Operating (gains), losses and other charges, net (125 )   608  
    Total operating costs and expenses, net 106,409     104,854  
Operating income 18,233     15,317  
Interest expense, net 2,774     2,087  
Other nonoperating expense, net 27     29  
Net income before income taxes 15,432     13,201  
Provision for income taxes 5,478     4,668  
Net income $ 9,954     $ 8,533  
           
           
Basic net income per share $ 0.13     $ 0.10  
Diluted net income per share $ 0.13     $ 0.10  
           
Basic weighted average shares outstanding 77,060     84,875  
Diluted weighted average shares outstanding 78,877     87,465  
           
Comprehensive income $ 5,274     $ 6,983  
       
General and Administrative Expenses Quarter Ended
(In thousands) 3/30/16   4/1/15
Share-based compensation $ 1,948     $ 1,705  
Other general and administrative expenses 14,979     15,231  
  Total general and administrative expenses $ 16,927     $ 16,936  

 

DENNY’S CORPORATION
Income, EBITDA, Free Cash Flow, and Net Income Reconciliations
(Unaudited)
           
Income, EBITDA and Free Cash Flow Reconciliation Quarter Ended
(In thousands) 3/30/16   4/1/15
Net income $ 9,954     $ 8,533  
Provision for income taxes 5,478     4,668  
Operating (gains), losses and other charges, net (125 )   608  
Other nonoperating (income) expense, net 27     29  
Share-based compensation 1,948     1,705  
Adjusted Income Before Taxes (1) $ 17,282     $ 15,543  
       
Interest expense, net 2,774     2,087  
Depreciation and amortization 5,493     5,024  
Cash payments for restructuring charges and exit costs (494 )   (402 )
Cash payments for share-based compensation (2,529 )   (3,440 )
Adjusted EBITDA (1) $ 22,526     $ 18,812  
       
Cash interest expense, net (2,518 )   (1,845 )
Cash paid for income taxes, net (311 )   (298 )
Cash paid for capital expenditures (5,307 )   (3,446 )
Free Cash Flow (1) $ 14,390     $ 13,223  
       
Net Income Reconciliation Quarter Ended
(In thousands) 3/30/16   4/1/15
Net income $ 9,954     $ 8,533  
Gains on sales of assets and other, net (644 )   (22 )
Impairment charges     49  
Loss on debt refinancing     293  
Tax effect (2) 229     (113 )
Adjusted Net Income (1) $ 9,539     $ 8,740  
       
Diluted weighted-average shares outstanding 78,877     87,465  
       
Adjusted Net Income Per Share (1) $ 0.12     $ 0.10  

 

  (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 March 30, 2016 are calculated using the Company's year-to-date effective tax rate of 35.5%. Tax adjustments for the three months ended April 2, 2015 are calculated using the Company's 2015 year-to-date effective tax rate of 35.4%.

 

DENNY’S CORPORATION
Operating Margins
(Unaudited)
             
        Quarter Ended
(In thousands) 3/30/16   4/1/15
Company restaurant operations: (1)          
  Company restaurant sales $ 90,386   100.0 %   $ 85,982   100.0 %
  Costs of company restaurant sales:          
    Product costs 22,653   25.1 %   21,444   24.9 %
    Payroll and benefits 34,461   38.1 %   33,204   38.6 %
    Occupancy 4,800   5.3 %   4,895   5.7 %
    Other operating costs:          
      Utilities 2,951   3.3 %   3,176   3.7 %
      Repairs and maintenance 1,602   1.8 %   1,450   1.7 %
      Marketing 3,242   3.6 %   3,207   3.7 %
      Other 4,402   4.9 %   3,932   4.6 %
  Total costs of company restaurant sales $ 74,111   82.0 %   $ 71,308   82.9 %
  Company restaurant operating margin (2) $ 16,275   18.0 %   $ 14,674   17.1 %
                 
Franchise operations: (3)          
  Franchise and license revenue:          
    Royalties $ 24,144   70.5 %   $ 23,163   67.7 %
    Initial fees 526   1.5 %   445   1.3 %
    Occupancy revenue 9,586   28.0 %   10,581   31.0 %
  Total franchise and license revenue $ 34,256   100.0 %   $ 34,189   100.0 %
                 
  Costs of franchise and license revenue:          
    Occupancy costs $ 7,063   20.6 %   $ 7,891   23.1 %
    Other direct costs 2,940   8.6 %   3,087   9.0 %
  Total costs of franchise and license revenue $ 10,003   29.2 %   $ 10,978   32.1 %
  Franchise operating margin (2) $ 24,253   70.8 %   $ 23,211   67.9 %
                 
Total operating revenue (4) $ 124,642   100.0 %   $ 120,171   100.0 %
Total costs of operating revenue (4) 84,114   67.5 %   82,286   68.5 %
Total operating margin (4)(2) $ 40,528   32.5 %   $ 37,885   31.5 %
                 
Other operating expenses: (4)(2)          
  General and administrative expenses $ 16,927   13.6 %   $ 16,936   14.1 %
  Depreciation and amortization 5,493   4.4 %   5,024   4.2 %
  Operating gains, losses and other charges, net (125 ) (0.1 )%   608   0.5 %
  Total other operating expenses $ 22,295   17.9 %   $ 22,568   18.8 %
                 
Operating income (4) $ 18,233   14.6 %   $ 15,317   12.7 %

 

  (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) 3/30/16   4/1/15    
  Company Restaurants 3.5 %   7.6 %    
  Domestic Franchised Restaurants 2.3 %   7.1 %    
  Domestic System-wide Restaurants 2.5 %   7.2 %    
  System-wide Restaurants 2.1 %   6.5 %    
               
Average Unit Sales Quarter Ended    
(In thousands) 3/30/16   4/1/15    
  Company Restaurants $ 554     $ 538      
  Franchised Restaurants $ 391     $ 388      
               
          Franchised    
Restaurant Unit Activity Company    & Licensed   Total
Ending Units December 30, 2015 164     1,546     1,710  
  Units Opened 1     11     12  
  Units Reacquired 1     (1 )    
  Units Refranchised (4 )   4      
  Units Closed     (9 )   (9 )
    Net Change (2 )   5     3  
Ending Units March 30, 2016 162     1,551     1,713  
               
Equivalent Units          
  Year-to-Date 2016 163     1,548     1,711  
  Year-to-Date 2015 160     1,537     1,697  
    Net Change 3     11     14  

 

SOURCE Denny's Corporation

Contact:

Investor Relations
ir@dennys.com
877-784-7167

Media Relations
dennys@icrinc.com
646-277-1226

###

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