Denny’s Corporation Reports Results for Third Quarter 2019
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Denny’s Corporation Reports Results for Third Quarter 2019

SPARTANBURG, S.C., Oct. 29, 2019 // 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 third quarter ended September 25, 2019.

Third Quarter 2019 Highlights

  • Sold 56 company restaurants to franchisees.
  • Total Operating Revenue was $124.3 million.
  • Domestic system-wide same-store sales** grew 1.1%, including an increase of 1.2% at domestic franchised restaurants and a decrease of 0.2% at company restaurants.
  • Franchisees completed 31 restaurant remodels.
  • Operating Income was $68.2 million.
  • Franchise Operating Margin* was $29.5 million, or 48.7% of franchise and license revenue, and Company Restaurant Operating Margin* was $9.3 million, or 14.6% of company restaurant sales.
  • Net Income was $49.1 million, or $0.80 per diluted share.
  • Adjusted Net Income* was $11.2 million, or $0.18 per diluted share.
  • Adjusted EBITDA* was $24.2 million.
  • Adjusted Free Cash Flow* was $3.7 million.
  • Repurchased $12.8 million of common stock.

John Miller, President and Chief Executive Officer, stated, “Growth in domestic system-wide same-store sales** and Adjusted Net Income Per Share* reflected the strength of our business during a challenging third quarter for the restaurant industry. We expect to be substantially complete with the successful execution of our refranchising and development strategy by the end of 2019, and believe these efforts further our positioning as a franchisor of choice, providing more focused support services. Upon completion, this strategy is expected to result in a higher quality, more asset-light business model and the creation of additional stakeholder value."

Third Quarter Results

Denny’s total operating revenue was $124.3 million compared to $158.0 million in the prior year quarter. Company restaurant sales were $63.6 million compared to $103.6 million in the prior year quarter primarily due to a reduction in the number of equivalent company restaurants resulting from the Company's refranchising and development strategy. Franchise and license revenue was $60.7 million compared to $54.4 million in the prior year quarter. This change was primarily due to the impact of the Company's refranchising and development strategy.

Company Restaurant Operating Margin* was $9.3 million, or 14.6% of company restaurant sales, compared to $15.8 million, or 15.2%, in the prior year quarter. This margin rate change was primarily due to increases in other operating costs and occupancy expense. Other operating costs were impacted by an increase in repairs and maintenance costs related to the sale of company restaurants and unfavorable legal settlement costs. Occupancy expense was impacted by higher property insurance costs, unfavorable general liability experience, and refranchising restaurants where we own the real estate. These cost increases were partially offset by a decrease in payroll and benefits costs from the leveraging benefit of refranchising restaurants.

Franchise Operating Margin* was $29.5 million, or 48.7% of franchise and license revenue, compared to $26.2 million, or 48.2%, in the prior year quarter. This margin rate expansion was driven by the Company's refranchising and development strategy which yielded an improved occupancy margin and an increase in royalty revenue.

Total general and administrative expenses were $16.4 million, compared to $16.0 million in the prior year quarter. This change was primarily due to higher share-based compensation expense, partially offset by a $0.7 million reduction in personnel costs. Interest expense, net was $4.2 million, compared to $5.3 million in the prior year quarter. This change was primarily due to the decrease in the credit facility balance. Denny’s ended the quarter with $230.2 million of total debt outstanding, including $213.0 million of borrowings under its revolving credit facility.

The provision for income taxes was $15.3 million, reflecting an effective tax rate of 23.7%. Given the Company's utilization of tax credit carryforwards, approximately $5.9 million in cash taxes was paid during the quarter.

Net income was $49.1 million, or $0.80 per diluted share, compared to $10.8 million, or $0.16 per diluted share, in the prior year quarter. Adjusted Net Income Per Share* was $0.18 compared to $0.17 in the prior year quarter.

Adjusted Free Cash Flow* and Capital Allocation

Denny’s generated $3.7 million of Adjusted Free Cash Flow* in the quarter after investing $10.6 million in cash capital expenditures, including facilities maintenance and real estate acquisitions.

During the quarter, the Company allocated $12.8 million to share repurchases. Between the end of the third quarter and October 28, 2019, the Company allocated an additional $7.9 million to share repurchases resulting in $58.7 million allocated towards share repurchases year to date. As of October 28, 2019, the Company had approximately $70 million remaining in authorized share repurchases under its existing $200 million share repurchase authorization.

Adoption of Topic 842 and Lease Accounting Impact

Effective December 27, 2018, the first day of fiscal 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The new guidance established a right-of-use (“ROU”) model that requires lessees to recognize a ROU asset and a lease liability for all leases with terms greater than 12 months. Denny's elected to apply the modified retrospective transition approach as of the date of initial application without restating comparative period financial statements.

Upon adoption of Topic 842, operating lease liabilities of $101.3 million and ROU assets of $94.1 million related to existing operating leases were recorded. In addition, the Company recorded a cumulative effect adjustment increasing the opening deficit by $0.4 million and deferred tax assets by $0.1 million. The lease liabilities were based on the present value of remaining rental payments under previous leasing standards for existing operating leases primarily related to real estate leases. Exit cost and straight-line lease liabilities that existed at the adoption date were reclassified against the ROU assets upon adoption. The amount recorded to opening deficit represents the initial impairment of ROU assets, net of the deferred tax impact.

Refranchising and Development Strategy

Following a refranchising strategy announced in October 2018, the Company is migrating from a 90% franchised business model to one that is between 96% and 97% franchised. The Company anticipates the sale of between 115 and 125 total company restaurants with between 70 and 80 attached development commitments will be substantially complete by the end of 2019.

In addition to refranchising, the Company plans to upgrade the quality of its real estate portfolio through a series of like-kind exchanges. The use of refranchising proceeds and a moderate increase in leverage are expected to generate more compelling returns for stakeholders, including the return of capital.

During the quarter ended September 25, 2019, 56 company restaurants were sold to franchisees. Additionally, the Company sold two pieces of real estate during the quarter for approximately $2.1 million and also purchased two pieces of real estate for $4.8 million in a series of like-kind exchange transactions.

The following table summarizes the activity related to the Company's current refranchising and development strategy.

  Quarter Ended
  September 25, 2019   September 26, 2018
  (Dollars in thousands)
Restaurants sold to franchisees 56      
Gains on sales of company restaurants:      
Cash proceeds $ 68,774     $  
Receivables 2,976      
Less: Property sold (17,759 )    
Less: Goodwill (1,705 )    
Less: Intangibles (579 )    
Less: Deferred gain (1,350 )    
Total gains of sales of company restaurants $ 50,357     $  
       
Real estate parcels sold 2      
Gains on sales of real estate:      
Cash proceeds $ 2,142     $  
Less: Property sold (740 )    
Less: Other assets (114 )    
Total gains on sales of real estate $ 1,288     $  
           

Gains on the sales of company restaurants and real estate are included as a component of operating (gains), losses and other charges, net. In addition to the proceeds noted in the table above, the Company also received front end fees and other transaction fees of approximately $3.1 million related to company restaurants sold to franchisees during the quarter.

As of September 25, 2019, the Company's assets held for sale balance included seven company restaurants at their carrying amounts of $1.4 million. Included in this total were six company restaurants that were subsequently sold in October, resulting in a total of 110 company restaurants sold to franchisees under this strategy.

Business Outlook

Based on third quarter results and management's expectations at this time, the Company is updating its guidance for same-store sales** and new restaurant openings, while reiterating its remaining previously announced full year 2019 guidance.

  • Same-store sales** growth at company and domestic franchised restaurants between 1.5% and 2.5% (vs. 1.0% and 3.0%).
  • 30 to 35 new restaurant openings (vs. 35 to 40), with approximately flat net restaurant growth.
  • Company Restaurant Operating Margin* between 15.0% and 16.5% and Franchise Operating Margin* between 47.0% and 48.5%.
  • Total general and administrative expenses between $71 and $74 million, including approximately $12 million related to share-based compensation and deferred compensation plan valuation adjustments.
  • Adjusted EBITDA* between $93 and $96 million.
  • Net interest expense between $21 and $23 million.
  • Effective income tax rate between 20% and 23% with cash taxes between $23 and $26 million, including between $19 and $22 million related to anticipated gains from refranchising transactions.
  • Cash capital expenditures between $38 and $43 million, including between $23 and $28 million of anticipated real estate acquisitions through like-kind exchanges.
  • Adjusted Free Cash Flow* between $7 and $10 million.

* Please refer to the Reconciliation of Net Income to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income to Non-GAAP Financial Measures included in the following tables. The Company is not able to reconcile the forward-looking non-GAAP estimates set forth above to their most directly comparable GAAP estimates without unreasonable efforts because it is unable to predict, forecast or determine the probable significance of the items impacting these estimates, including gains, losses and other charges, with a reasonable degree of accuracy. Accordingly, the most directly comparable forward-looking GAAP estimates are not provided.

** Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open the same period in the prior year. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-store sales and domestic system-wide same-store sales should be considered as a supplement to, not a substitute for, our results as reported under GAAP.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the third quarter ended September 25, 2019 on its quarterly investor conference call today, Tuesday, October 29, 2019 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 September 25, 2019, Denny’s had 1,706 franchised, licensed, and company restaurants around the world including 140 restaurants in Canada, Puerto Rico, Mexico, the Philippines, New Zealand, Honduras, the United Arab Emirates, Costa Rica, Guam, Guatemala, the United Kingdom, El Salvador, Aruba, and Indonesia. 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 26, 2018 (and in the Company’s subsequent quarterly reports on Form 10-Q).

DENNY’S CORPORATION

Condensed Consolidated Balance Sheets
(Unaudited)
       
(In thousands) 9/25/19   12/26/18
Assets      
Current assets      
Cash and cash equivalents $ 2,020     $ 5,026  
Investments 3,188     1,709  
Receivables, net 19,903     26,283  
Assets held for sale 1,419     723  
Other current assets 12,502     13,859  
Total current assets 39,032     47,600  
Property, net 98,540     117,251  
Financing lease right-of-use assets, net 12,410     22,753  
Operating lease right-of-use assets, net 143,371      
Goodwill 36,884     39,781  
Intangible assets, net 54,591     59,067  
Deferred income taxes 21,423     17,333  
Other noncurrent assets, net 35,180     31,564  
Total assets $ 441,431     $ 335,349  
       
Liabilities      
Current liabilities      
Current finance lease liabilities $ 1,812     $ 3,410  
Current operating lease liabilities 16,718      
Accounts payable 17,705     29,527  
Other current liabilities 51,618     61,790  
Total current liabilities 87,853     94,727  
Long-term liabilities      
Long-term debt 213,000     286,500  
Noncurrent finance lease liabilities 15,407     27,181  
Noncurrent operating lease liabilities 137,165      
Other 106,752     60,286  
Total long-term liabilities 472,324     373,967  
Total liabilities 560,177     468,694  
       
Shareholders' deficit      
Common stock 1,094     1,086  
Paid-in capital 604,406     592,944  
Deficit (207,957 )   (306,414 )
Accumulated other comprehensive loss, net of tax (41,907 )   (4,146 )
Treasury stock (474,382 )   (416,815 )
Total shareholders' deficit (118,746 )   (133,345 )
Total liabilities and shareholders' deficit $ 441,431     $ 335,349  
       
Debt Balances
(In thousands) 9/25/19   12/26/18
Credit facility revolver due 2022 $ 213,000     $ 286,500  
Finance lease liabilities 17,219     30,591  
Total debt $ 230,219     $ 317,091  
               

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
       
  Quarter Ended
(In thousands, except per share amounts) 9/25/19   9/26/18
Revenue:      
Company restaurant sales $ 63,582     $ 103,609  
Franchise and license revenue 60,676     54,414  
Total operating revenue 124,258     158,023  
Costs of company restaurant sales, excluding depreciation and amortization 54,306     87,846  
Costs of franchise and license revenue, excluding depreciation and amortization 31,136     28,174  
General and administrative expenses 16,395     15,981  
Depreciation and amortization 4,338     6,760  
Operating (gains), losses and other charges, net (50,091 )   793  
Total operating costs and expenses, net 56,084     139,554  
Operating income 68,174     18,469  
Interest expense, net 4,188     5,314  
Other nonoperating income, net (415 )   (460 )
Income before income taxes 64,401     13,615  
Provision for income taxes 15,279     2,810  
Net income $ 49,122     $ 10,805  
       
       
Basic net income per share $ 0.83     $ 0.17  
Diluted net income per share $ 0.80     $ 0.16  
       
Basic weighted average shares outstanding 59,430     63,246  
Diluted weighted average shares outstanding 61,189     65,522  
       
Comprehensive income $ 34,128     $ 15,363  
       
General and Administrative Expenses Quarter Ended
(In thousands) 9/25/19   9/26/18
Corporate administrative expenses $ 12,091     $ 12,779  
Share-based compensation 2,176     1,100  
Incentive compensation 1,872     1,645  
Deferred compensation valuation adjustments 256     457  
Total general and administrative expenses $ 16,395     $ 15,981  
               

 

DENNY’S CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
       
  Three Quarters Ended
(In thousands, except per share amounts) 9/25/19   9/26/18
Revenue:      
Company restaurant sales $ 257,574     $ 307,543  
Franchise and license revenue 169,979     163,087  
Total operating revenue 427,553     470,630  
Costs of company restaurant sales 218,249     261,279  
Costs of franchise and license revenue 87,065     85,779  
General and administrative expenses 53,659     48,138  
Depreciation and amortization 15,619     19,965  
Operating (gains), losses and other charges, net (85,459 )   1,615  
Total operating costs and expenses, net 289,133     416,776  
Operating income 138,420     53,854  
Interest expense, net 14,977     15,324  
Other nonoperating income, net (2,111 )   (877 )
Income before income taxes 125,554     39,407  
Provision for income taxes 26,703     7,217  
Net income $ 98,851     $ 32,190  
       
       
Basic net income per share $ 1.64     $ 0.50  
Diluted net income per share $ 1.58     $ 0.49  
       
Basic weighted average shares outstanding 60,457     63,774  
Diluted weighted average shares outstanding 62,370     66,122  
       
Comprehensive income $ 61,090     $ 37,047  
       
General and Administrative Expenses Three Quarters Ended
(In thousands) 9/25/19   9/26/18
Corporate administrative expenses $ 37,396     $ 39,252  
Share-based compensation 7,142     3,661  
Incentive compensation 7,329     4,738  
Deferred compensation valuation adjustments 1,792     487  
Total general and administrative expenses $ 53,659     $ 48,138  
               

DENNY’S CORPORATION
Reconciliation of Net Income to Non-GAAP Financial 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 EBITDA, Adjusted Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share 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. We define Adjusted Free Cash Flow for a given period as Adjusted EBITDA less the cash portion of interest expense net of interest income, capital expenditures, and cash taxes. Management believes that the presentation of Adjusted Free Cash Flow provides useful information to investors because it represents a liquidity measure used to evaluate, among other things, operating effectiveness and is used in 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   Three Quarters Ended
(In thousands, except per share amounts) 9/25/19   9/26/18   9/25/19   9/26/18
Net income $ 49,122     $ 10,805     $ 98,851     $ 32,190  
Provision for income taxes 15,279     2,810     26,703     7,217  
Operating (gains), losses and other charges, net (50,091 )   793     (85,459 )   1,615  
Other nonoperating (income) expense, net (415 )   (460 )   (2,111 )   (877 )
Share-based compensation 2,176     1,100     7,142     3,661  
Deferred compensation plan valuation adjustments 256     457     1,792     487  
Interest expense, net 4,188     5,314     14,977     15,324  
Depreciation and amortization 4,338     6,760     15,619     19,965  
Cash payments for restructuring charges and exit costs (672 )   (236 )   (2,052 )   (801 )
Cash payments for share-based compensation (28 )   (21 )   (3,559 )   (1,934 )
Adjusted EBITDA $ 24,153     $ 27,322     $ 71,903     $ 76,847  
               
Cash interest expense, net (3,949 )   (5,017 )   (14,219 )   (14,468 )
Cash paid for income taxes, net (5,861 )   (852 )   (17,853 )   (2,347 )
Cash paid for capital expenditures (10,619 )   (7,782 )   (22,102 )   (27,710 )
Adjusted Free Cash Flow $ 3,724     $ 13,671     $ 17,729     $ 32,322  
               
  Quarter Ended   Three Quarters Ended
(In thousands, except per share amounts) 9/25/19   9/26/18   9/25/19   9/26/18
Net income $ 49,122     $ 10,805     $ 98,851     $ 32,190  
Gains on sales of assets and other, net (51,183 )   (695 )   (87,497 )   (759 )
Impairment charges     1,440         1,558  
Tax effect (1) 13,226     (136 )   22,610     (146 )
Adjusted Net Income $ 11,165     $ 11,414     $ 33,964     $ 32,843  
               
Diluted weighted average shares outstanding 61,189     65,522     62,370     66,122  
               
Diluted Net Income Per Share $ 0.80     $ 0.16     $ 1.58     $ 0.49  
Adjustments Per Share $ (0.62 )   $ 0.01     $ (1.04 )   $ 0.01  
Adjusted Net Income Per Share $ 0.18     $ 0.17     $ 0.54     $ 0.50  

 

(1)   Tax adjustments for the gains on sales of assets and other, net for the three and nine months ended September 25, 2019 are calculated using an effective rate of 25.8%. Tax adjustments for the three and nine months ended September 26, 2018 are calculated using the Company's 2018 year-to-date effective tax rate of 18.3%.
     

DENNY’S CORPORATION
Reconciliation of Operating Income to Non-GAAP Financial 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 restaurant-level operating efficiency and performance of ongoing restaurant-level operations. The Company uses Total Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin internally as performance measures for planning purposes, including the preparation of annual operating budgets, and these three non-GAAP measures are used to evaluate operating effectiveness.

We define Total Operating Margin as operating income excluding the following three items: general and administrative expenses, depreciation and amortization, and operating (gains), losses and other charges, net. We present Total Operating Margin as a percent of total operating revenue. We exclude general and administrative expenses, which includes primarily non-restaurant-level costs associated with support of company and franchised restaurants and other activities at our corporate office. We exclude depreciation and amortization expense, substantially all of which is related to company restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlays for the restaurants. We exclude special items, included within operating (gains), losses and other charges, net, to provide investors with a clearer perspective of the Company’s ongoing operating performance and a more relevant comparison to prior period results.

Total Operating Margin is the total of Company Restaurant Operating Margin and Franchise Operating Margin. We define Company Restaurant Operating Margin as company restaurant sales less costs of company restaurant sales (which include product costs, company restaurant level payroll and benefits, occupancy costs, and other operating costs including utilities, repairs and maintenance, marketing and other expenses) and present it as a percent of company restaurant sales. We define Franchise Operating Margin as franchise and license revenue (which includes franchise royalties and other non-food and beverage revenue streams such as initial franchise fees, advertising revenue and occupancy revenue) less costs of franchise and license revenue and present it as a percent of franchise and license revenue.

These non-GAAP financial measures provide a meaningful comparison between periods and enable investors to focus on the performance of restaurant-level operations by excluding revenues and costs unrelated to food and beverage sales in addition to corporate general and administrative expense, depreciation and amortization, and other gains and charges. 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. Total Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin do not accrue directly to the benefit of shareholders because of the aforementioned excluded costs, and are not indicative of the overall results for the Company.

  Quarter Ended   Three Quarters Ended
(In thousands) 9/25/19   9/26/18   9/25/19   9/26/18
Operating income $ 68,174     $ 18,469     $ 138,420     $ 53,854  
General and administrative expenses 16,395     15,981     53,659     48,138  
Depreciation and amortization 4,338     6,760     15,619     19,965  
Operating (gains), losses and other charges, net (50,091 )   793     (85,459 )   1,615  
Total Operating Margin $ 38,816     $ 42,003     $ 122,239     $ 123,572  
               
Total Operating Margin consists of:              
 Company Restaurant Operating Margin (1) $ 9,276     $ 15,763     $ 39,325     $ 46,264  
 Franchise Operating Margin (2) 29,540     26,240     82,914     77,308  
Total Operating Margin $ 38,816     $ 42,003     $ 122,239     $ 123,572  

 

(1)   Company Restaurant Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of franchise and license revenue; less franchise and license revenue.
(2)   Franchise Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of company restaurant sales; less company restaurant sales.
     

 

DENNY’S CORPORATION
Operating Margins
(Unaudited)
       
  Quarter Ended
(In thousands) 9/25/19   9/26/18
Company restaurant operations: (1)          
Company restaurant sales $ 63,582   100.0 %   $ 103,609   100.0 %
Costs of company restaurant sales:          
Product costs 15,603   24.5 %   25,303   24.4 %
Payroll and benefits 23,777   37.4 %   41,041   39.6 %
Occupancy 4,301   6.8 %   6,083   5.9 %
Other operating costs:          
Utilities 2,438   3.8 %   3,926   3.8 %
Repairs and maintenance 1,774   2.8 %   1,870   1.8 %
Marketing 2,411   3.8 %   3,791   3.7 %
Other 4,002   6.3 %   5,832   5.6 %
Total costs of company restaurant sales $ 54,306   85.4 %   $ 87,846   84.8 %
Company restaurant operating margin (non-GAAP) (2) $ 9,276   14.6 %   $ 15,763   15.2 %
           
Franchise operations: (3)          
Franchise and license revenue:          
Royalties $ 27,830   45.9 %   $ 25,518   46.9 %
Advertising revenue 20,756   34.2 %   19,546   35.9 %
Initial and other fees 1,356   2.2 %   1,415   2.6 %
Occupancy revenue 10,734   17.7 %   7,935   14.6 %
Total franchise and license revenue $ 60,676   100.0 %   $ 54,414   100.0 %
           
Costs of franchise and license revenue:          
Advertising costs $ 20,757   34.2 %   $ 19,546   35.9 %
Occupancy costs 7,257   12.0 %   5,585   10.3 %
Other direct costs 3,122   5.1 %   3,043   5.6 %
Total costs of franchise and license revenue $ 31,136   51.3 %   $ 28,174   51.8 %
Franchise operating margin (non-GAAP) (2) $ 29,540   48.7 %   $ 26,240   48.2 %
           
Total operating revenue (4) $ 124,258   100.0 %   $ 158,023   100.0 %
Total costs of operating revenue (4) 85,442   68.8 %   116,020   73.4 %
Total operating margin (non-GAAP) (4)(2) $ 38,816   31.2 %   $ 42,003   26.6 %
           
Other operating expenses: (4)(2)          
General and administrative expenses $ 16,395   13.2 %   $ 15,981   10.1 %
Depreciation and amortization 4,338   3.5 %   6,760   4.3 %
Operating (gains), losses and other charges, net (50,091 ) (40.3 )%   793   0.5 %
Total other operating (income) expenses $ (29,358 ) (23.6 )%   $ 23,534   14.9 %
           
Operating income (4) $ 68,174   54.9 %   $ 18,469   11.7 %

 

(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
Operating Margins
(Unaudited)
       
  Three Quarters Ended
(In thousands) 9/25/19   9/26/18
Company restaurant operations: (1)          
Company restaurant sales $ 257,574   100.0 %   $ 307,543   100.0 %
Costs of company restaurant sales:          
Product costs 62,871   24.4 %   75,292   24.5 %
Payroll and benefits 100,475   39.0 %   123,332   40.1 %
Occupancy 15,583   6.0 %   17,165   5.6 %
Other operating costs:          
Utilities 8,916   3.5 %   10,690   3.5 %
Repairs and maintenance 5,742   2.2 %   5,647   1.8 %
Marketing 9,357   3.6 %   11,267   3.7 %
Other 15,305   5.9 %   17,886   5.8 %
Total costs of company restaurant sales $ 218,249   84.7 %   $ 261,279   85.0 %
Company restaurant operating margin (non-GAAP) (2) $ 39,325   15.3 %   $ 46,264   15.0 %
           
Franchise operations: (3)          
Franchise and license revenue:          
Royalties $ 79,742   46.9 %   $ 75,875   46.5 %
Advertising revenue 59,582   35.1 %   58,386   35.8 %
Initial and other fees 4,250   2.5 %   4,642   2.8 %
Occupancy revenue 26,405   15.5 %   24,184   14.8 %
Total franchise and license revenue $ 169,979   100.0 %   $ 163,087   100.0 %
           
Costs of franchise and license revenue:          
Advertising costs $ 59,583   35.1 %   $ 58,386   35.8 %
Occupancy costs 18,018   10.6 %   17,059   10.5 %
Other direct costs 9,464   5.6 %   10,334   6.3 %
Total costs of franchise and license revenue $ 87,065   51.2 %   $ 85,779   52.6 %
Franchise operating margin (non-GAAP) (2) $ 82,914   48.8 %   $ 77,308   47.4 %
           
Total operating revenue (4) $ 427,553   100.0 %   $ 470,630   100.0 %
Total costs of operating revenue (4) 305,314   71.4 %   347,058   73.7 %
Total operating margin (non-GAAP) (4)(2) $ 122,239   28.6 %   $ 123,572   26.3 %
           
Other operating expenses: (4)(2)          
General and administrative expenses $ 53,659   12.6 %   $ 48,138   10.2 %
Depreciation and amortization 15,619   3.7 %   19,965   4.2 %
Operating gains, losses and other charges, net (85,459 ) (20.0 )%   1,615   0.3 %
Total other operating expenses $ (16,181 ) (3.8 )%   $ 69,718   14.8 %
           
Operating income (4) $ 138,420   32.4 %   $ 53,854   11.4 %

 

(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)
               
Changes in Same-Store Sales (1) Quarter Ended   Three Quarters Ended
(increase vs. prior year) 9/25/19   9/26/18   9/25/19   9/26/18
Company Restaurants (0.2 )%   2.1 %   2.1 %   1.7 %
Domestic Franchised Restaurants 1.2 %   0.8 %   2.0 %   0.4 %
Domestic System-wide Restaurants 1.1 %   1.0 %   2.1 %   0.6 %
               
Average Unit Sales Quarter Ended   Three Quarters Ended
(In thousands) 9/25/19   9/26/18   9/25/19   9/26/18
Company Restaurants $ 640     $ 582     $ 1,820     $ 1,716  
Franchised Restaurants $ 421     $ 409     $ 1,242     $ 1,207  
               
      Franchised        
Restaurant Unit Activity Company    & Licensed   Total    
Ending Units June 26, 2019 133     1,569     1,702      
Units Opened     13     13      
Units Refranchised (56 )   56          
Units Closed     (9 )   (9 )    
Net Change (56 )   60     4      
Ending Units September 25, 2019 77     1,629     1,706      
               
Equivalent Units              
Third Quarter 2019 99     1,603     1,702      
Third Quarter 2018 178     1,536     1,714      
Net Change (79 )   67     (12 )    
               
      Franchised        
Restaurant Unit Activity Company    & Licensed   Total    
Ending Units December 26, 2018 173     1,536     1,709      
Units Opened     21     21      
Units Refranchised (96 )   96          
Units Closed     (24 )   (24 )    
Net Change (96 )   93     (3 )    
Ending Units September 25, 2019 77     1,629     1,706      
               
Equivalent Units              
Year-to-Date 2019 141     1,560     1,701      
Year-to-Date 2018 179     1,541     1,720      
Net Change (38 )   19     (19 )    

 

(1)   Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open the same period in the prior year. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-store sales and domestic system-wide same-store sales should be considered as a supplement to, not a substitute for, our results as reported under GAAP.

Source: Denny's Corporation

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