DENNY’S CORPORATION REPORTS RESULTS FOR FIRST QUARTER 2011
| | SPARTANBURG, S.C., May 3, 2011 – Denny’s Corporation (NASDAQ: DENN) one of America’s largest full-service family restaurant chains, today reported results for its first quarter ended March 30, 2011. |
First Quarter Summary
| · | Opened 18 new units, including 12 Flying J Travel Center conversion sites and 2 units at university locations at Auburn and Kansas State Universities. |
| · | System-wide same-store sales decreased 1.7% with a 1.3% decrease at company units and 1.7% decrease at franchised units. |
| · | Same-store guest count decrease of 1.1% was impacted by not repeating a 2010 Super Bowl promotional event and the Easter-Spring Break calendar shift. |
| · | Franchise operating margin of $19.7 million grew $2.3 million, or 13.2%, compared to the prior year quarter. |
| · | Franchise operating margin, as a percentage of franchise and license revenue, increased 4.5 percentage points to 63.0%, compared with the same quarter last year. |
| · | Net income of $4.1 million, or $0.04 per diluted share. Net income was impacted by $1.4 million in expenses associated with re-pricing the Company’s credit facility, $0.5 million for a one-time franchisee settlement, and $0.5 million for an unfavorable workers’ compensation claims development. |
| · | Adjusted income before taxes* of $6.2 million was also impacted by the one-time franchisee settlement and the unfavorable workers’ compensation claims development. |
| · | Re-priced $290 million credit facility, reduced outstanding term debt by $10 million during the quarter, and increased availability under the revolver by $10 million. |
| · | Board of Directors approved a new share repurchase program for up to six million shares, after completing the three million share repurchase program previously announced on November 9, 2010. |
John Miller, President and Chief Executive Officer, stated, “Denny’s continued to build on the positive achievements realized in the second half of 2010. In the first quarter, same-store guest trends continued to improve as we executed on our marketing strategies that emphasize everyday affordability combined with attractive “Limited Time Offers.” We are pleased that our efforts resulted in continued progress despite inflationary pressures and economic uncertainty impacting our customers. In addition, we opened 18 new units in the quarter after completing a company record opening of 136 new unit openings last year.”
Mr. Miller concluded, “Our growing free cash flow, which was further enhanced by the re-pricing of our credit facility, has enabled us to continue to strengthen the balance sheet and bring value to shareholders through share repurchases. Our leadership team is committed to executing successfully on our strategies to further strengthen our position as America`s favorite diner in 2011 and beyond.”
First Quarter Results
For the first quarter of 2011, Denny’s reported total operating revenue, including company restaurant sales and franchise revenue, of $135.8 million compared with $137.6 million in the prior year quarter. Company restaurant sales decreased $3.2 million due to four fewer equivalent company restaurants compared with the prior year quarter, and the decrease in same-store sales for the quarter. During the first quarter, we opened five new company-owned Flying J Travel Center conversion sites, closed two restaurants and sold nine restaurants to franchisees.
Company restaurant operating margin (as a percentage of company restaurant sales) was 12.1%, a decrease of 1.5 percentage points compared with the same period last year. Product costs increased 0.7 percentage points to 24.5% primarily due to the impact of increased commodity costs and a higher mix of value priced items. Payroll and benefit costs increased 1.3 percentage points to 42.3% primarily due to higher restaurant manager incentive compensation, and $0.5 million in unfavorable workers’ compensation claims development compared to the prior year. Occupancy costs decreased 0.3 percentage points to 6.6% due to favorable developments in general liability claims. Other operating costs decreased 0.1 percentage points to 14.6% primarily due to the corporate investment in media in the prior year quarter, partially offset by higher new store opening expenses associated with the opening of 16 company-owned Flying J units in the last two quarters.
Franchise and license revenue increased by $1.5 million to $31.3 million compared with $29.8 million in the prior year quarter. The increase in franchise revenue included a $1.3 million increase in royalties and $0.5 million increase in franchise fees, partially offset by a $0.3 million decrease in occupancy revenue. The royalty revenue increase was due to 110 additional equivalent franchise restaurants, partially offset by the effects of lower same-store sales. The franchise fee increase resulted from opening 13 franchise and license units in the first quarter of this year, which included seven Flying J Travel Center conversion sites, and two university locations at Auburn and Kansas State Universities. Denny’s franchisees closed nine restaurants, and purchased nine company restaurants.
Franchise operating margin increased $2.3 million to $19.7 million, primarily due to the $1.3 million increase in franchise royalties from the additional 110 equivalent franchise restaurants, a $0.7 million decrease in direct franchise costs, and a $0.5 million increase in franchise fees, offset by a $0.2 million decrease in franchise occupancy margin. Franchise operating margin (as a percentage of franchise and license revenue) was 63.0%, an increase of 4.5 percentage points compared with the same quarter last year. The increase in margin was primarily driven by the increase in franchise royalties and fees and decrease in direct franchise costs, offset by the lower occupancy margin.
General and administrative expenses, which were primarily driven by higher incentive compensation accruals relative to the prior year quarter, increased $1.1 million from the same period last year.
Depreciation and amortization expense declined by $0.2 million compared with the prior year quarter primarily as a result of the sale of restaurants and real estate over the past year, offset by the addition of 25 new units in the last 12 months. Operating gains, losses and other charges, net, which reflect restructuring charges, exit costs, impairment charges and gains or losses on the sale of assets, increased $1.0 million in the quarter. This increase resulted from higher gains on the sale of company restaurants to franchisees, and lower closed store exit costs.
Operating income for the quarter increased $0.3 million from the prior year period to $11.5 million, primarily due to the $2.3 million increase in franchise margin, partially offset by a $2.0 million decrease in gross profit from our company operations.
Interest expense decreased $0.7 million, or 11.0%, to $5.7 million as a result of the lower interest rates under the refinanced and re-priced credit facility, and a $20.1 million reduction in total gross debt from the prior year period. Other non-operating expense increased $1.5 million in the quarter primarily due to expenses associated with the re-pricing of the Company’s debt.
Denny’s net income was $4.1 million for the first quarter 2011, or $0.04 per diluted share, compared with prior year period net income of $4.6 million, or $0.05 per diluted share. Adjusted income before taxes*, Denny’s metric for earnings guidance, was $6.2 million compared with prior year period adjusted income of $6.6 million.
Business Outlook
Mark Wolfinger, Executive Vice President, Chief Administrative Officer and Chief Financial Officer, stated, “Our transition to a franchise focused business model continues to enable growth in unit development and profitability while enabling us to grow free cash flow. With our increased financial flexibility, we expect to continue to strengthen our balance sheet and pursue additional shareholder friendly activities.”
Based on the interest savings generated by the re-pricing of our credit facility in the first quarter, Denny’s is updating its financial guidance for full-year 2011 adjusted income before taxes by $2 million.
| Component – Full Year 2011 | Previous Guidance** | Updated Guidance |
| Company Same-Store Sales | (2.0%) to 1.0% | No Change |
| Franchise Same-Store Sales | (2.0%) to 1.0% | No Change |
| New Company Units | 7 - 12 (includes 5-10 Flying J units and 2 Denny’s Fast Casual test units) | No Change |
| New Franchise Units | 63 (includes 15 -20 Flying J units and 10 university units) | No Change |
| Total New Unit Openings | 70 – 75 (includes 25 Flying J units) | No Change |
| Adjusted EBITDA** ($M) | $80 to $85 | No Change |
| Adjusted Income Before Taxes** ($M) | $36 to $40 | $38 to $42 |
| Cash Interest Expense ($M) | $19 | $17 |
| Cash Capital Expenditure ($M) | $18 | No Change |
| * | Please refer to the historical reconciliation of net income to adjusted income before taxes and adjusted EBITDA included in the tables below. |
| ** | As announced in Fourth Quarter and Full Year 2010 Earnings Release on February 15, 2011. |
Further Information
Denny’s will provide further commentary on the results for the first quarter of 2011 on its quarterly investor conference call today, Tuesday, May 3, 2011 at 5:00 p.m. ET. Interested parties are invited to listen to a live broadcast of the conference call accessible through the investor relations section of Denny’s website at ir.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.
Denny's is one of America's largest full-service family restaurant chains, currently operating more than 1,650 franchised, licensed, and company-owned restaurants across the United States, Canada, Costa Rica, Mexico, Honduras, Guam, Puerto Rico and New Zealand. 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.
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 involve risks, uncertainties, and other factors that may cause the actual performance of Denny’s Corporation, its subsidiaries and underlying restaurants to be materially different from the performance indicated or implied by such statements. Words such as “expects”, “anticipates”, “believes”, “intends”, “plans”, “hopes”, and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others: the competitive pressures from within the restaurant industry; the level of success of the Company’s strategic and operating initiatives, advertising and promotional efforts; adverse publicity; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy, particularly at the retail level; political environment (including acts of war and terrorism); and other factors from time to time set forth in the Company’s SEC reports and other filings, including but not limited to the discussion in Management’s Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 29, 2010 (and in the Company’s subsequent quarterly reports on Form 10-Q).
Investor Contact: Whit Kincaid 877-784-7167
Media Contact: Liz Brady, ICR
646-277-1226
