Denny’s Corporation Reports Results For First Quarter 2017

SPARTANBURG, S.C. - May 02, 2017 // 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 29, 2017.

First Quarter 2017 Highlights Compared to First Quarter 2016

  • Domestic system-wide same-store sales were down 1.1%, including decreases of 1.6% at company restaurants and 1.1% at domestic franchised restaurants.
  • Opened eight system restaurants including three international franchised locations.
  • Completed 71 remodels at franchised restaurants.
  • Company restaurant operating margin was $15.9 million compared to $16.3 million and franchise operating margin was $24.4 million compared to $24.3 million.
  • Net Income was $8.4 million, or $0.11 per diluted share, compared to $10.0 million, or $0.13 per diluted share.
  • Adjusted Net Income* was $8.8 million versus $9.5 million, while Adjusted Net Income per Share* was $0.12 in both periods.
  • Adjusted EBITDA* was $19.8 million compared to $22.5 million.
  • Generated $9.4 million of Free Cash Flow*, after cash capital expenditures of $6.8 million.
  • Allocated $12.3 million towards share repurchases.

John Miller, President and Chief Executive Officer, stated, “Our highly franchised business model continued to generate operating revenue growth and strong Free Cash Flow* as we work to further differentiate Denny's as a relevant and compelling brand. Despite the influence of industry competitive pressures and holiday shifts, the Company outperformed key industry benchmarks during the first quarter, and we have been encouraged by our sales performance in April. We continue to successfully execute our brand revitalization strategy which delivers an enhanced guest experience across food, service, and atmosphere. Moving forward, despite an uncertain industry outlook, Denny’s remains committed to further elevating the guest experience, consistently growing sales, and expanding the brand across the globe, leading to value creation for all franchisees and shareholders.”

First Quarter Results

Denny’s total operating revenue grew 2.6% to $127.9 million primarily due to an increase in company restaurant sales. Company restaurant sales grew 3.8% to $93.8 million due to a greater number of company restaurants compared to the prior year quarter, partially offset by a reduction in same-store sales. Franchise and licensing revenue was $34.1 million compared to $34.3 million in the prior year quarter as an increase in royalty revenue was offset by a decrease in occupancy revenue due to scheduled lease terminations.

Company restaurant operating margin was $15.9 million, or 17.0% of company restaurant sales, compared to $16.3 million, or 18.0%, in the prior year quarter. Franchise operating margin was $24.4 million, or 71.4% of franchise and licensing revenue, compared to $24.3 million, or 70.8%, in the prior year quarter.

Total general and administrative expenses were $17.5 million compared to $16.9 million in the prior year quarter. Interest expense was $3.5 million versus $2.8 million in the prior year quarter. Denny’s ended the quarter with $257.8 million of total debt outstanding, including $230.0 million of borrowings under its revolving credit facility. The provision for income taxes was $4.7 million, reflecting an effective tax rate of 36.2%. Due to the use of net operating loss and tax credit carryforwards, the Company paid $0.4 million in cash taxes during the quarter.

Denny's Net Income was $8.4 million, or $0.11 per diluted share, compared to $10.0 million, or $0.13 per diluted share, in the prior year quarter. Adjusted Net Income per Share* was $0.12 in both periods.

Free Cash Flow* and Capital Allocation

Denny’s generated $9.4 million of Free Cash Flow* in the quarter after investing $6.8 million in cash capital expenditures, including the purchase of real estate associated with relocating a high-performing company restaurant due to the impending loss of property control and the acquisition of three franchised restaurants.

During the quarter, the Company allocated $12.3 million to share repurchases. As of March 29, 2017, the Company had approximately $67 million remaining in authorized share repurchases.

Business Outlook

Despite a challenging first quarter sales performance, the following full year 2017 estimates remain unchanged and are based on management’s expectations at this time.

  • Same-store sales growth at company and domestic franchised restaurants between 0% and 2% .
  • 45 to 50 new restaurant openings, with net restaurant growth of 10 to 20 restaurants.
  • Total operating revenue between $523 and $532 million including franchise and licensing revenue between $140 and $142 million.
  • Company restaurant margin between 17.5% and 18% and franchise restaurant margin between 71% and 71.5%.
  • Total general and administrative expenses between $68 and $71 million.
  • Adjusted EBITDA* between $101 and $103 million.
  • Depreciation and amortization expense between $23 and $24 million.
  • Net interest expense between $12.5 and $13 million.
  • Effective income tax rate between 35% and 37% with cash taxes between $7 and $9 million.
  • Cash capital expenditures between $22 and $24 million.
  • Free Cash Flow* between $58 and $60 million.

* Adjusted Net Income excludes gains on sales of assets, and other. 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.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the first quarter ended March 29, 2017 on its quarterly investor conference call today, Tuesday, May 2, 2017 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 29, 2017, Denny’s had 1,731 franchised, licensed, and company restaurants around the world with combined sales of $2.8 billion including 126 restaurants in Canada, Puerto Rico, Mexico, New Zealand, Honduras, Costa Rica, Dominican Republic, the United Arab Emirates, Guam, the Philippines, 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 28, 2016 (and in the Company’s subsequent quarterly reports on Form 10-Q).

 
DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
             
(In thousands) 3/29/17   12/28/16
Assets      
  Current assets      
    Cash and cash equivalents $ 1,740     $ 2,592  
    Receivables 18,738     19,841  
    Assets held for sale 1,754     1,020  
    Other current assets 9,365     12,454  
      Total current assets 31,597     35,907  
  Property, net 133,141     133,102  
  Goodwill 35,607     35,233  
  Intangible assets, net 54,703     54,493  
  Deferred income taxes 23,845     17,683  
  Other noncurrent assets 29,266     29,733  
      Total assets $ 308,159     $ 306,151  
             
Liabilities      
  Current liabilities      
    Current maturities of capital lease obligations $ 3,319     $ 3,285  
    Accounts payable 21,030     25,289  
    Other current liabilities 52,719     64,796  
      Total current liabilities 77,068     93,370  
  Long-term liabilities      
    Long-term debt, less current maturities 230,000     218,500  
    Capital lease obligations, less current maturities 24,481     23,806  
    Other 41,292     41,587  
      Total long-term liabilities 295,773     283,893  
      Total liabilities 372,841     377,263  
             
Shareholders' deficit      
    Common stock 1,075     1,071  
    Paid-in capital 587,369     577,951  
    Deficit (366,050 )   (382,843 )
    Accumulated other comprehensive loss, net of tax (2,016 )   (1,407 )
    Treasury stock (285,060 )   (265,884 )
      Total shareholders' deficit (64,682 )   (71,112 )
      Total liabilities and shareholders' deficit $ 308,159     $ 306,151  
             
Debt Balances
(In thousands) 3/29/17   12/28/16
Credit facility revolver due 2020 $ 230,000     $ 218,500  
Capital leases 27,800     27,091  
  Total debt $ 257,800     $ 245,591  
                 

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
           
      Quarter Ended
(In thousands, except per share amounts) 3/29/17   3/30/16
Revenue:      
  Company restaurant sales $ 93,779     $ 90,386  
  Franchise and license revenue 34,131     34,256  
    Total operating revenue 127,910     124,642  
Costs of company restaurant sales 77,835     74,111  
Costs of franchise and license revenue 9,746     10,003  
General and administrative expenses 17,509     16,927  
Depreciation and amortization 5,736     5,493  
Operating (gains), losses and other charges, net 783     (125 )
    Total operating costs and expenses, net 111,609     106,409  
Operating income 16,301     18,233  
Interest expense, net 3,541     2,774  
Other nonoperating (income) expense, net (357 )   27  
Net income before income taxes 13,117     15,432  
Provision for income taxes 4,744     5,478  
Net income $ 8,373     $ 9,954  
           
           
Basic net income per share $ 0.12     $ 0.13  
Diluted net income per share $ 0.11     $ 0.13  
           
Basic weighted average shares outstanding 71,004     77,060  
Diluted weighted average shares outstanding 73,241     78,877  
           
Comprehensive income $ 7,764     $ 5,274  
       
General and Administrative Expenses Quarter Ended
(In thousands) 3/29/2017   3/30/2016
Share-based compensation $ 1,973     $ 1,948  
Other general and administrative expenses 15,536     14,979  
  Total general and administrative expenses $ 17,509     $ 16,927  
                 


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 Before Taxes, Adjusted EBITDA, Free Cash Flow and Adjusted Net Income 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.

  Quarter Ended
(In thousands, except per share amounts) 3/29/17   3/30/16
Net income $ 8,373     $ 9,954  
Provision for income taxes 4,744     5,478  
Operating (gains), losses and other charges, net 783     (125 )
Other nonoperating (income) expense, net (357 )   27  
Share-based compensation 1,973     1,948  
Adjusted Income Before Taxes $ 15,516     $ 17,282  
       
Interest expense, net 3,541     2,774  
Depreciation and amortization 5,736     5,493  
Cash payments for restructuring charges and exit costs (1,029 )   (494 )
Cash payments for share-based compensation (3,932 )   (2,529 )
Adjusted EBITDA $ 19,832     $ 22,526  
       
Cash interest expense, net (3,264 )   (2,518 )
Cash paid for income taxes, net (395 )   (311 )
Cash paid for capital expenditures (6,817 )   (5,307 )
Free Cash Flow $ 9,356     $ 14,390  
       
  Quarter Ended
(In thousands, except per share amounts) 3/29/17   3/30/16
Net income $ 8,373     $ 9,954  
Losses (gains) on sales of assets and other, net 684     (644 )
Tax effect (1) (248 )   229  
Adjusted Net Income $ 8,809     $ 9,539  
       
Diluted weighted average shares outstanding 73,241     78,877  
       
Adjusted Net Income Per Share $ 0.12     $ 0.12  
               
(1) Tax adjustment for the three months ended March 29, 2017 are calculated using the Company's year-to-date effective tax rate of 36.2%. 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%.

 

DENNY’S CORPORATION
Operating Margins
(Unaudited)
             
        Quarter Ended
(In thousands) 3/29/17   3/30/16
Company restaurant operations: (1)          
  Company restaurant sales $ 93,779   100.0 %   $ 90,386   100.0 %
  Costs of company restaurant sales:                  
    Product costs 23,133   24.7 %   22,653   25.1 %
    Payroll and benefits 37,397   39.9 %   34,461   38.1 %
    Occupancy 4,734   5.0 %   4,800   5.3 %
    Other operating costs:                  
      Utilities 3,053   3.3 %   2,951   3.3 %
      Repairs and maintenance 1,663   1.8 %   1,602   1.8 %
      Marketing 3,621   3.9 %   3,242   3.6 %
      Other 4,234   4.5 %   4,402   4.9 %
  Total costs of company restaurant sales $ 77,835   83.0 %   $ 74,111   82.0 %
  Company restaurant operating margin (2) $ 15,944   17.0 %   $ 16,275   18.0 %
                         
Franchise operations: (3)                  
  Franchise and license revenue:                  
  Royalties $ 24,544   71.9 %   $ 24,144   70.5 %
  Initial fees 484   1.4 %   526   1.5 %
  Occupancy revenue 9,103   26.7 %   9,586   28.0 %
  Total franchise and license revenue $ 34,131   100.0 %   $ 34,256   100.0 %
                         
  Costs of franchise and license revenue:                  
  Occupancy costs $ 6,506   19.1 %   $ 7,063   20.6 %
  Other direct costs 3,240   9.5 %   2,940   8.6 %
  Total costs of franchise and license revenue $ 9,746   28.6 %   $ 10,003   29.2 %
  Franchise operating margin (2) $ 24,385   71.4 %   $ 24,253   70.8 %
                         
Total operating revenue (4) $ 127,910   100.0 %   $ 124,642   100.0 %
Total costs of operating revenue (4) 87,581   68.5 %   84,114   67.5 %
Total operating margin (4)(2) $ 40,329   31.5 %   $ 40,528   32.5 %
                         
Other operating expenses: (4)(2)                  
  General and administrative expenses $ 17,509   13.7 %   $ 16,927   13.6 %
  Depreciation and amortization 5,736   4.5 %   5,493   4.4 %
  Operating (gains), losses and other charges, net 783   0.6 %   (125 ) (0.1 )%
  Total other operating expenses $ 24,028   18.8 %   $ 22,295   17.9 %
                         
Operating income (4) $ 16,301   12.7 %   $ 18,233   14.6 %
                 
(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) 3/29/17   3/30/16    
  Company Restaurants (1.6 )%   3.5 %    
  Domestic Franchised Restaurants (1.1 )%   2.3 %    
  Domestic System-wide Restaurants (1.1 )%   2.5 %    
  System-wide Restaurants (1.1 )%   2.1 %    
               
Average Unit Sales Quarter Ended    
(In thousands) 3/29/17   3/30/16    
  Company Restaurants $ 553     $ 554      
  Franchised Restaurants $ 385     $ 388      
               
          Franchised    
Restaurant Unit Activity Company   & Licensed   Total
Ending Units December 28, 2016 169     1,564     1,733  
  Units Opened     8     8  
  Units Reacquired 3     (3 )    
  Units Refranchised          
  Units Closed     (10 )   (10 )
    Net Change 3     (5 )   (2 )
Ending Units March 29, 2017 172     1,559     1,731  
               
Equivalent Units          
  Year-to-Date 2017 170     1,561     1,731  
  Year-to-Date 2016 163     1,548     1,711  
    Net Change 7     13     20  
                     


Contacts:

Curt Nichols
Investor Relations
877-784-7167

Jessica Liddell
ICR
Media Relations
203-682-8208

SOURCE Denny's Corporation

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