DENNY’S CORPORATION REPORTS RESULTS FOR FIRST QUARTER 2012
- System-wide Same Store Sales Grows 2.4% and Adjusted Income Before Taxes* Increases 61% -
- Raises 2012 Guidance for Adjusted Income Before Taxes* and Free Cash Flow* -
| | SPARTANBURG, S.C., April 30, 2012 – Denny’s Corporation (NASDAQ: DENN), one of America’s largest full-service family restaurant chains, today reported results for its first quarter ended March 28, 2012. |
First Quarter Summary
| · | System-wide same-store sales grew 2.4% with a 2.7% increase at franchised units and a 0.8% increase at company-owned units marking the fourth consecutive quarter both franchise and company same-store sales have been positive. |
| · | Opened six franchised units, including two international units in Puerto Rico and Canada. |
| · | Franchise operating margin, as a percentage of franchise and license revenue, increased 2.3 percentage points to 65.3% compared with the prior year. |
| · | Company restaurant operating margin increased 3.0 percentage points to 15.1% compared with the prior year. |
| · | Adjusted EBITDA* margin, as a percentage of total operating revenue, increased 1.8 percentage points to 15.4% compared with the prior year. |
| · | Net income of $5.9 million, or $0.06 per diluted share, increased 42.2% compared with the prior year quarter net income of $4.1 million, or $0.04 per diluted share. |
| · | Adjusted Income Before Taxes* grew 61.4% to $10.1 million compared with the prior year. |
| · | Free Cash Flow* increased 81.9% to $13.7 million compared with the prior year. |
| · | Reduced outstanding term loan debt by $8 million to $190 million bringing total term loan debt reduction since September 2010 refinancing to $60 million. |
| · | Subsequent to the first quarter, closed on a new credit facility with a $190 million term loan and a $60 million revolving line of credit that will reduce interest costs and increase balance sheet flexibility. |
John Miller, President and Chief Executive Officer, stated, “We are encouraged about our start to the year. During the first quarter, we achieved the highest quarterly system-wide same-store sales increase in almost five years despite the persistently challenging economic environment. We remain committed to differentiating Denny’s in the market place and executing successfully on our strategies to further reinforce our position as America’s Favorite Diner. We will continue to work closely with our franchisees to maintain the growth in new units, sales and profitability, while generating additional free cash to further strengthen our balance sheet in our efforts to increase long-term shareholder value.”
First Quarter Results
For the first quarter of 2012, Denny’s total operating revenue, including company restaurant sales and franchise revenue, was $126.7 million compared with $135.8 million in the prior year quarter. Company restaurant sales decreased $10.4 million to $94.2 million due to 31 fewer equivalent company restaurants compared with the prior year quarter, partially offset by the increase in same-store sales for the quarter. Franchise and license revenue was $32.6 million compared with $31.3 million in the prior year quarter. The $1.3 million increase in franchise revenue was primarily driven by a $1.2 million increase in royalties due to 51 additional equivalent franchise restaurants and the effects of higher same-store sales.
Denny’s franchisees opened six new units in the first quarter of this year, including two international units in Puerto Rico and Canada. During the quarter, Denny’s franchisees closed eight restaurants and purchased six company restaurants.
Total operating margin increased $3.2 million, or 9.8%, to $35.5 million. Franchise operating margin increased $1.6 million to $21.3 million primarily due to the increases in franchise royalties and occupancy margin and decrease in direct franchise costs, which were partially offset by the decrease in initial and other fee revenue.
Total operating margin, as a percentage of total operating revenue, increased 4.2 percentage points to 28.0%. Franchise operating margin, as a percentage of franchise and license revenue, was 65.3%, an increase of 2.3 percentage points compared with the prior year quarter. Company restaurant operating margin (as a percentage of company restaurant sales) was 15.1%, an increase of 3.0 percentage points compared with the prior year quarter. The increase in company restaurant operating margin was primarily driven by lower payroll and benefit costs, which included $1.0 million in favorable workers’ compensation claims development compared to the prior year quarter, and lower other operating costs compared to the prior year quarter.
Total general and administrative expenses increased $1.5 million compared with the prior year quarter primarily due to an increase in payroll and benefit costs and higher performance-based compensation accruals relative to the prior year quarter.
Depreciation and amortization expense decreased by $1.1 million compared with the prior year quarter, primarily as a result of the sales of restaurants over the past two years. Net operating gains, losses and other charges, which reflect restructuring charges, exit costs, impairment charges and gains or losses on the sale of assets, decreased $0.4 million in the quarter. The decrease was primarily the result of higher restructuring and impairment charges, which was offset by higher gains on the sales of assets.
Interest expense decreased 22%, or $1.2 million, to $4.5 million as a result of a $41.0 million reduction in total gross debt over the last 12 months and lower interest rates.
In the first quarter, the provision for income taxes increased $3.7 million, primarily due to a higher effective tax rate of 39.9% compared to 4.6% effective tax rate in the prior year quarter. The change in the effective tax rate compared to the prior year resulted from the release of a substantial portion of the valuation allowance on certain deferred tax assets based on our improved historical and projected pre-tax income. Due to the use of net operating loss carryforwards, the Company only paid $0.2 million in cash taxes in the first quarter.
Denny’s net income was $5.9 million for the first quarter 2012, or $0.06 per diluted share, compared with prior year period net income of $4.1 million, or $0.04 per diluted share. Adjusted Income Before Taxes*, Denny’s metric for earnings guidance, increased 61.4% to $10.1 million compared with the prior year quarter adjusted income of $6.2 million.
Business Outlook
Mark Wolfinger, Executive Vice President, Chief Administrative Officer and Chief Financial Officer, stated, “Our solid financial performance is demonstrated by our year-over-year increases in same-store sales, profitability, and cash flow. Our franchised-focused business model is enabling us to add value as demonstrated by our ability to refinance our credit facility in the second quarter. The new credit facility will lower our borrowing costs and give us more flexibility to support our franchise-focused growth while continuing to allow us to return value to shareholders.”
Based on year-to-date results, the new credit facility, and management’s expectations, Denny’s is updating its financial guidance for full year 2012.
| Component | Full Year 2012 Guidance |
| | Previous** | | | Current |
| Company Same-Store Sales | 0.0% to 2.0% | | | No Change |
| | | | | |
| Franchise Same-Store Sales | 0.0% to 2.0% | | | 1.0% to 3.0% |
| | | | | |
| New System Units | 45 – 50 (includes 1 company-owned unit) | | | No Change |
| | | | | |
| Adjusted EBITDA* ($M) | $80 to $84 | | | No Change |
| | | | | |
| Adjusted Income Before Taxes* ($M) | $41 to $45 | | | $45 to $49 |
| | | | | |
| Interest Expense, net ($M) | $16 to $17 (includes $13 to $14 of net cash interest expense) | | | $12.5 to $13.5 (includes $10.5 to $11.5 of net cash interest expense) |
| | | | | |
| Cash Capital Expenditure ($M) | $15 to $16 | | | No Change |
| | | | | |
| Cash Taxes ($M) | $2 to $4 | | | $3 to $4 |
| | | | | |
| Free Cash Flow* ($M) | $48 to $52 | | | $51 to $55 |
| * | Please refer to the historical reconciliation of net income to Adjusted Income Before Taxes, Adjusted EBITDA, and Free Cash Flow included in the tables below. |
| ** | As announced in Fourth Quarter and Full Year 2011 Earnings Release on February 15, 2012. |
Further Information
Denny’s will provide further commentary on the results for the first quarter of 2012 on its quarterly investor conference call today, Monday, April 30, 2012 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 1,680 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, which reflect our 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 “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 28, 2011 (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 |
