Denny’s Corporation (NASDAQ: DENN), franchisor and operator of one
of America's largest franchised full-service restaurant chains,
today reported results for its second quarter ended June 26,
2019.
Second Quarter 2019 Highlights
- Sold 37 company restaurants to franchisees.
- Total Operating Revenue was $151.9 million.
- Domestic system-wide same-store sales** grew 3.8%, including
increases of 4.4% at company restaurants and 3.7% at domestic
franchised restaurants.
- Completed 41 remodels, including 40 at franchised
restaurants.
- Operating Income was $46.1 million.
- Company Restaurant Operating Margin* was $15.6 million, or
16.4% of company restaurant sales, and Franchise Operating Margin*
was $27.6 million, or 48.8% of franchise and license revenue.
- Net Income was $34.2 million, or $0.55 per diluted share.
- Adjusted Net Income* was $14.3 million, or $0.23 per diluted
share.
- Adjusted EBITDA* was $27.2 million.
- Adjusted Free Cash Flow* was $6.8 million.
- Repurchased $29.1 million of common stock.
John Miller, President and Chief Executive Officer, stated, “We
are pleased with the growth in system-wide same-store sales**,
Operating Margins*, and Adjusted Net Income Per Share*. Based on
the successful execution and acceleration of our refranchising and
development strategy, we now expect the vast majority of the
transactions to be completed by the end of 2019. As a result, we
have adjusted our annual business outlook to reflect the
accelerated timing of these transactions. We believe this strategy
will enable us to further evolve into a franchisor of choice in the
industry, 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."
Second Quarter Results
Denny’s total operating revenue was $151.9 million compared to
$157.3 million in the prior year quarter. Company restaurant sales
were $95.4 million compared to $102.7 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 $56.4
million compared to $54.6 million in the prior year quarter. This
change was primarily due to domestic franchise same-store sales**
growth of 3.7% and the impact of the Company's refranchising and
development strategy.
Company Restaurant Operating Margin* was $15.6 million, or 16.4%
of company restaurant sales, compared to $16.2 million, or 15.7%,
in the prior year quarter. This margin rate expansion was primarily
due to pricing, menu mix, and an enhanced restaurant portfolio
related to the Company's refranchising and development strategy,
partially offset by increases in minimum wages and commodities.
Franchise Operating Margin* was $27.6 million, or 48.8% of
franchise and license revenue, compared to $25.5 million, or 46.8%,
in the prior year quarter. This margin rate expansion was primarily
due to an increase in royalty revenue, a reduction in other direct
costs which was associated with the Company's refranchising and
development strategy, and an improved occupancy margin.
Total general and administrative expenses were $18.5 million,
compared to $15.6 million in the prior year quarter. This change
was primarily due to higher performance based incentive and
share-based compensation expenses, partially offset by a $0.6
million reduction in personnel costs. Interest expense, net was
$5.4 million in both the current and prior year quarter. Denny’s
ended the quarter with $294.1 million of total debt outstanding,
including $271.0 million of borrowings under its revolving credit
facility.
The provision for income taxes was $6.8 million, reflecting an
effective tax rate of 16.5%. During the quarter, the Company
recognized a net benefit of 4.8% related to the completion of an
Internal Revenue Service audit and 3.6% related to the settlement
of share-based compensation. Given the Company's utilization of tax
credit carryforwards, approximately $11.6 million in cash taxes was
paid during the quarter.
Net income was $34.2 million, or $0.55 per diluted share,
compared to $11.6 million, or $0.18 per diluted share, in the prior
year quarter. Adjusted Net Income Per Share* was $0.23 compared to
$0.18 in the prior year quarter, primarily due to tax provision
benefits.
Adjusted Free Cash Flow* and Capital
Allocation
Denny’s generated $6.8 million of Adjusted Free Cash Flow* in
the quarter after investing $3.7 million in cash capital
expenditures, including facilities maintenance, new construction,
and remodels.
During the quarter, the Company allocated $29.1 million to share
repurchases. Between the end of the second quarter and July 29,
2019, the Company allocated an additional $9.4 million to share
repurchases resulting in $47.4 million allocated towards share
repurchases year to date. As of July 29, 2019, the Company had
approximately $81 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 model (“ROU”) 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
In October 2018, the Company announced a plan to migrate from a
90% franchised business model to one that is between 95% and 97%
franchised over a period of 18 months by selling between 90 and 125
total company restaurants with attached development commitments.
Based on management's current expectations, the Company now
anticipates selling between 115 and 125 total company restaurants
with between 70 and 80 attached development commitments. The vast
majority of these transactions are now expected to be completed by
the end of 2019.
This strategy creates an opportunity for well-capitalized,
development-focused franchisees to expand their businesses. 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 June 26, 2019, 37 company restaurants
were sold to franchisees. Additionally, the Company sold three
pieces of real estate during the quarter for approximately $3.9
million. The following table summarizes the activity related to the
Company's current refranchising and development strategy.
|
Quarter Ended |
|
June 26, 2019 |
|
June 27, 2018 |
|
(Dollars in thousands) |
Restaurants sold to
franchisees |
37 |
|
|
— |
|
Gains on sales of company
restaurants: |
|
|
|
Cash proceeds |
$ |
36,004 |
|
|
$ |
— |
|
Notes receivable |
470 |
|
|
— |
|
Less: Property sold |
(9,675 |
) |
|
— |
|
Less: Goodwill |
(925 |
) |
|
— |
|
Less: Intangibles |
(1,646 |
) |
|
— |
|
Total gains of sales of company restaurants |
$ |
24,228 |
|
|
$ |
— |
|
|
|
|
|
Real estate parcels sold |
3 |
|
|
— |
|
Gains on sales of real
estate: |
|
|
|
Cash proceeds |
$ |
3,850 |
|
|
$ |
— |
|
Less: Property sold |
(756 |
) |
|
— |
|
Less: Other assets |
(6 |
) |
|
— |
|
Total gains on sales of real estate |
$ |
3,088 |
|
|
$ |
— |
|
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 $2.0 million related to company restaurants sold
to franchisees during the quarter.
As of June 26, 2019, the Company's assets held for sale
balance included 49 company restaurants and one piece of real
estate at their carrying amounts of $15.4 million. Included in this
total were 22 company restaurants that were subsequently sold in
July, resulting in a total of 70 company restaurants sold to
franchisees under this strategy.
Business Outlook
The following full year 2019 expectations reflect the current
business environment and management's expectations at this
time:
- Same-store sales** growth at company and domestic franchised
restaurants between 1% and 3% (vs. 0% and 2%).
- 35 to 40 new restaurant openings (vs. 35 to 45), 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% (vs. 46.5%
and 48.0%).
- Total general and administrative expenses between $71 and $74
million (vs. $66 and $69 million), including approximately $12
million (vs. $8 million) related to share-based compensation and
deferred compensation plan valuation adjustments.
- Adjusted EBITDA* between $93 and $96 million (vs. $95 and $100
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 (vs. $13 and $16 million), including
between $19 and $22 million related to anticipated gains from
refranchising transactions (vs. $9 and $12 million).
- Cash capital expenditures between $38 and $43 million (vs. $35
and $40 million), including between $23 and $28 million of
anticipated real estate acquisitions through like-kind exchanges
(vs. $20 and $25 million).
- Adjusted Free Cash Flow* between $7 and $10 million (vs. $23
and $26 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 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
second quarter ended June 26, 2019 on its quarterly investor
conference call today, Tuesday, July 30, 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 June 26, 2019, Denny’s had
1,702 franchised, licensed, and company restaurants around the
world including 137 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) |
6/26/19 |
|
12/26/18 |
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
$ |
2,292 |
|
|
$ |
5,026 |
|
Investments |
3,115 |
|
|
1,709 |
|
Receivables, net |
18,628 |
|
|
26,283 |
|
Assets held for sale |
15,420 |
|
|
723 |
|
Other current assets |
17,962 |
|
|
13,859 |
|
Total current assets |
57,417 |
|
|
47,600 |
|
Property, net |
97,047 |
|
|
117,251 |
|
Financing lease right-of-use assets, net |
16,701 |
|
|
22,753 |
|
Operating lease right-of-use assets |
115,338 |
|
|
— |
|
Goodwill |
37,080 |
|
|
39,781 |
|
Intangible assets, net |
55,736 |
|
|
59,067 |
|
Deferred income taxes |
20,848 |
|
|
17,333 |
|
Other noncurrent assets |
38,569 |
|
|
31,564 |
|
Total assets |
$ |
438,736 |
|
|
$ |
335,349 |
|
|
|
|
|
Liabilities |
|
|
|
Current liabilities |
|
|
|
Current finance lease liabilities |
$ |
2,651 |
|
|
$ |
3,410 |
|
Current operating lease liabilities |
16,999 |
|
|
— |
|
Accounts payable |
25,237 |
|
|
29,527 |
|
Other current liabilities |
53,842 |
|
|
61,790 |
|
Total current liabilities |
98,729 |
|
|
94,727 |
|
Long-term liabilities |
|
|
|
Long-term debt |
271,000 |
|
|
286,500 |
|
Noncurrent finance lease liabilities |
20,470 |
|
|
27,181 |
|
Noncurrent operating lease liabilities |
107,368 |
|
|
— |
|
Other |
83,741 |
|
|
60,286 |
|
Total long-term liabilities |
482,579 |
|
|
373,967 |
|
Total liabilities |
581,308 |
|
|
468,694 |
|
|
|
|
|
Shareholders'
deficit |
|
|
|
Common stock |
1,093 |
|
|
1,086 |
|
Paid-in capital |
601,902 |
|
|
592,944 |
|
Deficit |
(257,079 |
) |
|
(306,414 |
) |
Accumulated other comprehensive loss, net of tax |
(26,913 |
) |
|
(4,146 |
) |
Treasury stock |
(461,575 |
) |
|
(416,815 |
) |
Total shareholders' deficit |
(142,572 |
) |
|
(133,345 |
) |
Total liabilities and shareholders' deficit |
$ |
438,736 |
|
|
$ |
335,349 |
|
|
|
|
|
Debt Balances |
(In thousands) |
6/26/19 |
|
12/26/18 |
Credit facility revolver due
2022 |
$ |
271,000 |
|
|
$ |
286,500 |
|
Finance lease liabilities |
23,121 |
|
|
30,591 |
|
Total debt |
$ |
294,121 |
|
|
$ |
317,091 |
|
DENNY’S CORPORATION |
Condensed Consolidated Statements of Comprehensive
Income |
(Unaudited) |
|
|
|
|
|
Quarter Ended |
(In thousands, except per
share amounts) |
6/26/19 |
|
6/27/18 |
Revenue: |
|
|
|
Company restaurant sales |
$ |
95,447 |
|
|
$ |
102,741 |
|
Franchise and license revenue |
56,437 |
|
|
54,593 |
|
Total operating revenue |
151,884 |
|
|
157,334 |
|
Costs of company restaurant
sales, excluding depreciation and amortization |
79,830 |
|
|
86,575 |
|
Costs of franchise and license
revenue, excluding depreciation and amortization |
28,871 |
|
|
29,049 |
|
General and administrative
expenses |
18,453 |
|
|
15,597 |
|
Depreciation and
amortization |
5,048 |
|
|
6,691 |
|
Operating (gains), losses and
other charges, net |
(26,433 |
) |
|
462 |
|
Total operating costs and expenses, net |
105,769 |
|
|
138,374 |
|
Operating income |
46,115 |
|
|
18,960 |
|
Interest expense, net |
5,382 |
|
|
5,385 |
|
Other nonoperating income,
net |
(273 |
) |
|
(629 |
) |
Income before income
taxes |
41,006 |
|
|
14,204 |
|
Provision for income
taxes |
6,767 |
|
|
2,578 |
|
Net income |
$ |
34,239 |
|
|
$ |
11,626 |
|
|
|
|
|
|
|
|
|
Basic net income per
share |
$ |
0.57 |
|
|
$ |
0.18 |
|
Diluted net income per
share |
$ |
0.55 |
|
|
$ |
0.18 |
|
|
|
|
|
Basic weighted average shares
outstanding |
60,290 |
|
|
63,644 |
|
Diluted weighted average
shares outstanding |
62,082 |
|
|
66,128 |
|
|
|
|
|
Comprehensive income |
$ |
23,625 |
|
|
$ |
15,016 |
|
|
|
|
|
General and Administrative Expenses |
Quarter Ended |
(In thousands) |
6/26/19 |
|
6/27/18 |
General and administrative
expenses |
$ |
12,436 |
|
|
$ |
13,010 |
|
Share-based compensation |
2,713 |
|
|
1,211 |
|
Incentive compensation |
2,919 |
|
|
1,126 |
|
Deferred compensation
valuation adjustments |
385 |
|
|
250 |
|
Total general and administrative expenses |
$ |
18,453 |
|
|
$ |
15,597 |
|
DENNY’S CORPORATION |
Condensed Consolidated Statements of Comprehensive
Income |
(Unaudited) |
|
|
|
|
|
Two Quarters Ended |
(In thousands, except per
share amounts) |
6/26/19 |
|
6/27/18 |
Revenue: |
|
|
|
Company restaurant sales |
$ |
193,992 |
|
|
$ |
203,934 |
|
Franchise and license revenue |
109,303 |
|
|
108,673 |
|
Total operating revenue |
303,295 |
|
|
312,607 |
|
Costs of company restaurant
sales |
163,943 |
|
|
173,433 |
|
Costs of franchise and license
revenue |
55,929 |
|
|
57,605 |
|
General and administrative
expenses |
37,264 |
|
|
32,157 |
|
Depreciation and
amortization |
11,281 |
|
|
13,205 |
|
Operating (gains), losses and
other charges, net |
(35,368 |
) |
|
822 |
|
Total operating costs and expenses, net |
233,049 |
|
|
277,222 |
|
Operating income |
70,246 |
|
|
35,385 |
|
Interest expense, net |
10,789 |
|
|
10,010 |
|
Other nonoperating income
net |
(1,696 |
) |
|
(417 |
) |
Income before income
taxes |
61,153 |
|
|
25,792 |
|
Provision for income
taxes |
11,424 |
|
|
4,407 |
|
Net income |
$ |
49,729 |
|
|
$ |
21,385 |
|
|
|
|
|
|
|
|
|
Basic net income per
share |
$ |
0.82 |
|
|
$ |
0.33 |
|
Diluted net income per
share |
$ |
0.79 |
|
|
$ |
0.32 |
|
|
|
|
|
Basic weighted average shares
outstanding |
60,970 |
|
|
64,038 |
|
Diluted weighted average
shares outstanding |
62,937 |
|
|
66,552 |
|
|
|
|
|
Comprehensive income |
$ |
26,962 |
|
|
$ |
21,684 |
|
|
|
|
|
General and Administrative Expenses |
Two Quarters Ended |
(In thousands) |
6/26/19 |
|
6/27/18 |
General and administrative
expenses |
$ |
25,305 |
|
|
$ |
26,473 |
|
Share-based compensation |
4,966 |
|
|
2,561 |
|
Incentive compensation |
5,457 |
|
|
3,093 |
|
Deferred compensation
valuation adjustments |
1,536 |
|
|
30 |
|
Total general and administrative expenses |
$ |
37,264 |
|
|
$ |
32,157 |
|
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 |
|
Two Quarters Ended |
(In thousands, except per
share amounts) |
6/26/19 |
|
6/27/18 |
|
6/26/19 |
|
6/27/18 |
Net income |
$ |
34,239 |
|
|
$ |
11,626 |
|
|
$ |
49,729 |
|
|
$ |
21,385 |
|
Provision for income
taxes |
6,767 |
|
|
2,578 |
|
|
11,424 |
|
|
4,407 |
|
Operating (gains), losses and
other charges, net |
(26,433 |
) |
|
462 |
|
|
(35,368 |
) |
|
822 |
|
Other nonoperating (income)
expense, net |
(273 |
) |
|
(629 |
) |
|
(1,696 |
) |
|
(417 |
) |
Share-based compensation |
2,713 |
|
|
1,211 |
|
|
4,966 |
|
|
2,561 |
|
Deferred compensation plan
valuation adjustments |
385 |
|
|
250 |
|
|
1,536 |
|
|
30 |
|
Interest expense, net |
5,382 |
|
|
5,385 |
|
|
10,789 |
|
|
10,010 |
|
Depreciation and
amortization |
5,048 |
|
|
6,691 |
|
|
11,281 |
|
|
13,205 |
|
Cash payments for
restructuring charges and exit costs |
(629 |
) |
|
(375 |
) |
|
(1,380 |
) |
|
(565 |
) |
Cash payments for share-based
compensation |
— |
|
|
— |
|
|
(3,531 |
) |
|
(1,913 |
) |
Adjusted EBITDA |
$ |
27,199 |
|
|
$ |
27,199 |
|
|
$ |
47,750 |
|
|
$ |
49,525 |
|
|
|
|
|
|
|
|
|
Cash interest expense,
net |
(5,122 |
) |
|
(5,106 |
) |
|
(10,270 |
) |
|
(9,451 |
) |
Cash paid for income taxes,
net |
(11,625 |
) |
|
(1,072 |
) |
|
(11,992 |
) |
|
(1,495 |
) |
Cash paid for capital
expenditures |
(3,668 |
) |
|
(7,362 |
) |
|
(11,483 |
) |
|
(19,928 |
) |
Adjusted Free Cash Flow |
$ |
6,784 |
|
|
$ |
13,659 |
|
|
$ |
14,005 |
|
|
$ |
18,651 |
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Two Quarters Ended |
(In thousands, except per
share amounts) |
6/26/19 |
|
6/27/18 |
|
6/26/19 |
|
6/27/18 |
Net income |
$ |
34,239 |
|
|
$ |
11,626 |
|
|
$ |
49,729 |
|
|
$ |
21,385 |
|
Gains on sales of assets and
other, net |
(26,839 |
) |
|
(27 |
) |
|
(36,314 |
) |
|
(64 |
) |
Impairment charges |
— |
|
|
81 |
|
|
— |
|
|
118 |
|
Tax effect (1) |
6,935 |
|
|
(9 |
) |
|
9,384 |
|
|
(9 |
) |
Adjusted Net Income |
$ |
14,335 |
|
|
$ |
11,671 |
|
|
$ |
22,799 |
|
|
$ |
21,430 |
|
|
|
|
|
|
|
|
|
Diluted weighted average
shares outstanding |
62,082 |
|
|
66,128 |
|
|
62,937 |
|
|
66,552 |
|
|
|
|
|
|
|
|
|
Diluted Net Income Per
Share |
$ |
0.55 |
|
|
$ |
0.18 |
|
|
$ |
0.79 |
|
|
$ |
0.32 |
|
Adjustments Per Share |
$ |
(0.32 |
) |
|
$ |
— |
|
|
$ |
(0.43 |
) |
|
$ |
— |
|
Adjusted Net Income Per
Share |
$ |
0.23 |
|
|
$ |
0.18 |
|
|
$ |
0.36 |
|
|
$ |
0.32 |
|
(1 |
) |
Tax adjustments for the gains on
sales of assets and other, net for the three and six months ended
June 26, 2019 are calculated using an effective rate of 25.8%. Tax
adjustments for the three and six months ended June 27, 2018 are
calculated using the Company's year-to-date effective tax rate of
17.1%. |
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 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 |
|
Two Quarters Ended |
(In thousands) |
6/26/19 |
|
6/27/18 |
|
6/26/19 |
|
6/27/18 |
Operating income |
$ |
46,115 |
|
|
$ |
18,960 |
|
|
$ |
70,246 |
|
|
$ |
35,385 |
|
General and administrative
expenses |
18,453 |
|
|
15,597 |
|
|
37,264 |
|
|
32,157 |
|
Depreciation and
amortization |
5,048 |
|
|
6,691 |
|
|
11,281 |
|
|
13,205 |
|
Operating (gains), losses and
other charges, net |
(26,433 |
) |
|
462 |
|
|
(35,368 |
) |
|
822 |
|
Total Operating Margin |
$ |
43,183 |
|
|
$ |
41,710 |
|
|
$ |
83,423 |
|
|
$ |
81,569 |
|
|
|
|
|
|
|
|
|
Total Operating Margin
consists of: |
|
|
|
|
|
|
|
Company Restaurant Operating
Margin (1) |
$ |
15,617 |
|
|
$ |
16,166 |
|
|
$ |
30,049 |
|
|
$ |
30,501 |
|
Franchise Operating Margin
(2) |
27,566 |
|
|
25,544 |
|
|
53,374 |
|
|
51,068 |
|
Total Operating Margin |
$ |
43,183 |
|
|
$ |
41,710 |
|
|
$ |
83,423 |
|
|
$ |
81,569 |
|
(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) |
6/26/19 |
|
6/27/18 |
Company restaurant operations:
(1) |
|
|
|
|
|
Company restaurant sales |
$ |
95,447 |
|
100.0 |
% |
|
$ |
102,741 |
|
100.0 |
% |
Costs of company restaurant sales: |
|
|
|
|
|
Product costs |
23,363 |
|
24.5 |
% |
|
25,054 |
|
24.4 |
% |
Payroll and benefits |
36,866 |
|
38.6 |
% |
|
41,065 |
|
40.0 |
% |
Occupancy |
5,498 |
|
5.8 |
% |
|
5,435 |
|
5.3 |
% |
Other operating costs: |
|
|
|
|
|
Utilities |
3,106 |
|
3.3 |
% |
|
3,359 |
|
3.3 |
% |
Repairs and maintenance |
2,080 |
|
2.2 |
% |
|
1,887 |
|
1.8 |
% |
Marketing |
3,239 |
|
3.4 |
% |
|
3,711 |
|
3.6 |
% |
Other |
5,678 |
|
5.9 |
% |
|
6,064 |
|
5.9 |
% |
Total costs of company restaurant sales |
$ |
79,830 |
|
83.6 |
% |
|
$ |
86,575 |
|
84.3 |
% |
Company restaurant operating margin (non-GAAP) (2) |
$ |
15,617 |
|
16.4 |
% |
|
$ |
16,166 |
|
15.7 |
% |
|
|
|
|
|
|
Franchise operations: (3) |
|
|
|
|
|
Franchise and license revenue: |
|
|
|
|
|
Royalties |
$ |
26,672 |
|
47.3 |
% |
|
$ |
25,192 |
|
46.1 |
% |
Advertising revenue |
19,884 |
|
35.2 |
% |
|
19,530 |
|
35.8 |
% |
Initial and other fees |
1,755 |
|
3.1 |
% |
|
1,810 |
|
3.3 |
% |
Occupancy revenue |
8,126 |
|
14.4 |
% |
|
8,061 |
|
14.8 |
% |
Total franchise and license revenue |
$ |
56,437 |
|
100.0 |
% |
|
$ |
54,593 |
|
100.0 |
% |
|
|
|
|
|
|
Costs of franchise and license revenue: |
|
|
|
|
|
Advertising costs |
$ |
19,884 |
|
35.2 |
% |
|
$ |
19,530 |
|
35.8 |
% |
Occupancy costs |
5,512 |
|
9.8 |
% |
|
5,645 |
|
10.3 |
% |
Other direct costs |
3,475 |
|
6.2 |
% |
|
3,874 |
|
7.1 |
% |
Total costs of franchise and license revenue |
$ |
28,871 |
|
51.2 |
% |
|
$ |
29,049 |
|
53.2 |
% |
Franchise operating margin (non-GAAP) (2) |
$ |
27,566 |
|
48.8 |
% |
|
$ |
25,544 |
|
46.8 |
% |
|
|
|
|
|
|
Total operating revenue
(4) |
$ |
151,884 |
|
100.0 |
% |
|
$ |
157,334 |
|
100.0 |
% |
Total costs of operating
revenue (4) |
108,701 |
|
71.6 |
% |
|
115,624 |
|
73.5 |
% |
Total operating margin
(non-GAAP) (4)(2) |
$ |
43,183 |
|
28.4 |
% |
|
$ |
41,710 |
|
26.5 |
% |
|
|
|
|
|
|
Other operating expenses:
(4)(2) |
|
|
|
|
|
General and administrative expenses |
$ |
18,453 |
|
12.1 |
% |
|
$ |
15,597 |
|
9.9 |
% |
Depreciation and amortization |
5,048 |
|
3.3 |
% |
|
6,691 |
|
4.3 |
% |
Operating (gains), losses and other charges, net |
(26,433 |
) |
(17.4 |
)% |
|
462 |
|
0.3 |
% |
Total other operating (income) expenses |
$ |
(2,932 |
) |
(1.9 |
)% |
|
$ |
22,750 |
|
14.5 |
% |
|
|
|
|
|
|
Operating income (4) |
$ |
46,115 |
|
30.4 |
% |
|
$ |
18,960 |
|
12.1 |
% |
|
|
|
|
|
|
(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 |
Operating Margins |
(Unaudited) |
|
|
|
|
|
Two Quarters Ended |
(In thousands) |
6/26/19 |
|
6/27/18 |
Company restaurant operations:
(1) |
|
|
|
|
|
Company restaurant sales |
$ |
193,992 |
|
100.0 |
% |
|
$ |
203,934 |
|
100.0 |
% |
Costs of company restaurant sales: |
|
|
|
|
|
Product costs |
47,268 |
|
24.4 |
% |
|
49,989 |
|
24.5 |
% |
Payroll and benefits |
76,698 |
|
39.5 |
% |
|
82,291 |
|
40.4 |
% |
Occupancy |
11,282 |
|
5.8 |
% |
|
11,082 |
|
5.4 |
% |
Other operating costs: |
|
|
|
|
|
Utilities |
6,478 |
|
3.3 |
% |
|
6,764 |
|
3.3 |
% |
Repairs and maintenance |
3,968 |
|
2.0 |
% |
|
3,777 |
|
1.9 |
% |
Marketing |
6,946 |
|
3.6 |
% |
|
7,476 |
|
3.7 |
% |
Other |
11,303 |
|
5.8 |
% |
|
12,054 |
|
5.9 |
% |
Total costs of company restaurant sales |
$ |
163,943 |
|
84.5 |
% |
|
$ |
173,433 |
|
85.0 |
% |
Company restaurant operating margin (non-GAAP) (2) |
$ |
30,049 |
|
15.5 |
% |
|
$ |
30,501 |
|
15.0 |
% |
|
|
|
|
|
|
Franchise operations: (3) |
|
|
|
|
|
Franchise and license revenue: |
|
|
|
|
|
Royalties |
$ |
51,912 |
|
47.5 |
% |
|
$ |
50,357 |
|
46.3 |
% |
Advertising revenue |
38,826 |
|
35.5 |
% |
|
38,840 |
|
35.7 |
% |
Initial and other fees |
2,894 |
|
2.6 |
% |
|
3,227 |
|
3.0 |
% |
Occupancy revenue |
15,671 |
|
14.3 |
% |
|
16,249 |
|
15.0 |
% |
Total franchise and license revenue |
$ |
109,303 |
|
100.0 |
% |
|
$ |
108,673 |
|
100.0 |
% |
|
|
|
|
|
|
Costs of franchise and license revenue: |
|
|
|
|
|
Advertising costs |
$ |
38,826 |
|
35.5 |
% |
|
$ |
38,840 |
|
35.7 |
% |
Occupancy costs |
10,761 |
|
9.8 |
% |
|
11,474 |
|
10.6 |
% |
Other direct costs |
6,342 |
|
5.8 |
% |
|
7,291 |
|
6.7 |
% |
Total costs of franchise and license revenue |
$ |
55,929 |
|
51.2 |
% |
|
$ |
57,605 |
|
53.0 |
% |
Franchise operating margin (non-GAAP) (2) |
$ |
53,374 |
|
48.8 |
% |
|
$ |
51,068 |
|
47.0 |
% |
|
|
|
|
|
|
Total operating revenue
(4) |
$ |
303,295 |
|
100.0 |
% |
|
$ |
312,607 |
|
100.0 |
% |
Total costs of operating
revenue (4) |
219,872 |
|
72.5 |
% |
|
231,038 |
|
73.9 |
% |
Total operating margin
(non-GAAP) (4)(2) |
$ |
83,423 |
|
27.5 |
% |
|
$ |
81,569 |
|
26.1 |
% |
|
|
|
|
|
|
Other operating expenses:
(4)(2) |
|
|
|
|
|
General and administrative expenses |
$ |
37,264 |
|
12.3 |
% |
|
$ |
32,157 |
|
10.3 |
% |
Depreciation and amortization |
11,281 |
|
3.7 |
% |
|
13,205 |
|
4.2 |
% |
Operating gains, losses and other charges, net |
(35,368 |
) |
(11.7 |
)% |
|
822 |
|
0.3 |
% |
Total other operating expenses |
$ |
13,177 |
|
4.3 |
% |
|
$ |
46,184 |
|
14.8 |
% |
|
|
|
|
|
|
Operating income (4) |
$ |
70,246 |
|
23.2 |
% |
|
$ |
35,385 |
|
11.3 |
% |
|
|
|
|
|
|
(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 |
|
Two Quarters Ended |
(increase vs. prior year) |
6/26/19 |
|
6/27/18 |
|
6/26/19 |
|
6/27/18 |
Company Restaurants |
4.4 |
% |
|
(0.1 |
)% |
|
2.9 |
% |
|
1.5 |
% |
Domestic Franchised Restaurants |
3.7 |
% |
|
(0.8 |
)% |
|
2.5 |
% |
|
0.2 |
% |
Domestic System-wide Restaurants |
3.8 |
% |
|
(0.7 |
)% |
|
2.5 |
% |
|
0.4 |
% |
|
|
|
|
|
|
|
|
Average Unit
Sales |
Quarter Ended |
|
Two Quarters Ended |
(In thousands) |
6/26/19 |
|
6/27/18 |
|
6/26/19 |
|
6/27/18 |
Company Restaurants |
$ |
612 |
|
|
$ |
570 |
|
|
$ |
1,193 |
|
|
$ |
1,135 |
|
Franchised Restaurants |
$ |
419 |
|
|
$ |
402 |
|
|
$ |
821 |
|
|
$ |
798 |
|
|
|
|
|
|
|
|
|
|
|
|
Franchised |
|
|
|
|
Restaurant Unit
Activity |
Company |
|
& Licensed |
|
Total |
|
|
Ending Units March 27,
2019 |
170 |
|
|
1,535 |
|
|
1,705 |
|
|
|
Units Opened |
— |
|
|
6 |
|
|
6 |
|
|
|
Units Refranchised |
(37 |
) |
|
37 |
|
|
— |
|
|
|
Units Closed |
— |
|
|
(9 |
) |
|
(9 |
) |
|
|
Net Change |
(37 |
) |
|
34 |
|
|
(3 |
) |
|
|
Ending Units June 26,
2019 |
133 |
|
|
1,569 |
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
Equivalent Units |
|
|
|
|
|
|
|
Second Quarter 2019 |
156 |
|
|
1,543 |
|
|
1,699 |
|
|
|
Second Quarter 2018 |
180 |
|
|
1,543 |
|
|
1,723 |
|
|
|
Net Change |
(24 |
) |
|
— |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised |
|
|
|
|
Restaurant Unit
Activity |
Company |
|
& Licensed |
|
Total |
|
|
Ending Units December 26,
2018 |
173 |
|
|
1,536 |
|
|
1,709 |
|
|
|
Units Opened |
— |
|
|
8 |
|
|
8 |
|
|
|
Units Refranchised |
(40 |
) |
|
40 |
|
|
— |
|
|
|
Units Closed |
— |
|
|
(15 |
) |
|
(15 |
) |
|
|
Net Change |
(40 |
) |
|
33 |
|
|
(7 |
) |
|
|
Ending Units June 26,
2019 |
133 |
|
|
1,569 |
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
Equivalent Units |
|
|
|
|
|
|
|
Year-to-Date 2019 |
163 |
|
|
1,539 |
|
|
1,702 |
|
|
|
Year-to-Date 2018 |
179 |
|
|
1,543 |
|
|
1,722 |
|
|
|
Net Change |
(16 |
) |
|
(4 |
) |
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
(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 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. |
Investor Contact:
Curt Nichols
877-784-7167
Media Contact:
Hadas Streit, Allison+Partners
646-428-0629
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