DENN - Earnings call transcript Q4 2017

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Operator

Good day, and welcome to the Denny's Corporation Fourth Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Curt Nichols, Senior Director, Investor Relations. Please go ahead, sir.

Curt Nichols

Thank you, Glen, and good afternoon, everyone. us conference fourth call. joining year and for earnings XXXX you for quarter Denny's full Thank Wolfinger, President, With Miller, Financial Chief Mark Denny's today Officer. President Executive me from and Executive management Officer and Administrative Officer Chief are John Denny's Chief Vice and press financial Please earnings measures the website mentioned fourth our any with to investor.dennys.com to on along refer our reconciliation find at quarter release of non-GAAP call. later available today. and an archive the on is our call be website being webcast This webcast of will John call today's will comments. begin introductory his with then provide along will guidance on a Mark fourth recap XXXX. quarter with our of results, for commentary our a brief annual will we that for open After questions. it up

by may factors statements. John Report XX-Q. cause year President for performance Denny's to implied Form Denny's materially Such will from subsequent most are management urges Management XXXX, that, Form With any call. Before Officer. any be Safe on over forward-looking earnings Miller, during we provided the on the trends on of and caution in Executive Litigation ended of the by statements reports you the I that let to of constitute that in to XX-K remind the or call indicated risks this Securities members and Harbor this of company December XX, different its in XXXX and matters quarterly and current and certain in other the accordance factors outlook turn the discussed subject statements. knows Chief on to forth call are performance that provisions me risks, with Private the uncertainties may Annual set Act begin, considering be Reform company's actual such recent Such

John Miller

beloved these This consecutive consistently our and restaurant restaurants. good revitalization local our commitment efforts accomplished results benchmarks. and strategies. positive The restaurant everyone. delays, grocery of generated pricing, to against tax year, to to the thorough I'm often for lackluster momentum sighted of recent choppy Well, strategies, the admired That vision contributing reasons traffic be year once shifts, most seventh holiday the system-wide a same continued said, these of income the the and full thank to largest achieving key for and another positive by this proud hurricanes proved achieved support And what gap team challenges demonstrated the industry. industry again are store and world's reflects strength sales of in growth dining relative category. us you, our service we execute of Denny's few during Curt our revitalization the which being afternoon, between sales family

However, a driving franchise profitable and against geographical and for the achieve the allocation relevant vision all our the employees to consistently great we shareholders. U.S. fourth, our disciplined and restaurants reach costs operating pillars markets; international expanding with continue same overcome on of service satisfaction and third, throughout consistent include, execute These differentiated achieve strategic challenges. order pillars primary these being first and in four delivering goal sales of in brand store to to second, by the our franchisees, capital growth global scores growing our upper quartile Denny's and benefit brands; with focus full growth; for

better menu favorable more We for also meet expectations our continue to evolve guest products. to

introducing Spicy are and the success flavors we skillet in Crazy pancake. the our of premium relaunch But also Chicken Buttermilk in Our like LTO latest, menu by three dinners featuring Skillet both fresh ingredients craft Smoky Skillet. recent Gouda & the sizzling Pancake builds Broccoli on

which grew towards in highly encouraged of by total for off-premise Denny's XX in of transactions sales XX to total are for offers dinner greater a stages continue of early to business percentage go Day off-premise continue off-premise payment mobile In Demand or pickup Holidays the of And of X parts basis to sales through These XX.X% platform, sales in convenience of addressing On new of still sales. We good and at delivery. set and options sales to and December ordering but to record strong they and day progress demographic. while old late year be are for an exceptionally on total making and X.X% X.X% guest over XXXX. web expectation our XXX points. sales, Christmas indexed incremental, XXXX, days night platform, younger increase we skew represented the executing points new December at and this new

transactions individual burgers, program On of service And and the continued a featured restaurants receiving option we terms with is domestic transactions. partnership entrée one over your agreements free both these online Build more heritage generating And Denny's Slam their January In your second in delivery after lift. Your for value restaurants sign and perform commercial order. for and platform own continue milkshakes sales engaged In guest on to long-term sign compared Own mid-single locations. available. and off-premise favorable individual product next approximately growth Go agreements platform index a in or quickly digit master a we delivery to range delivery with by partnership from To a Demand Demand the Denny's the add as feedback sales options. well anticipate dine-in On continues remodel third of our offering where or system Grand consistently to We mix promoting more additional add delivery enable build XX% plates, These the master actively option. And to options delivery a to continue easily pancake providers agreements party

remodels we XXX three remodels. completed completed franchisees XXXX, and company During

by system brand brand of XX% our to an image new into not approximately franchise that the we the expectation believe our end will years. have of be our progressively also approximately of the image stages believe goal our crossing service we coaching system will our a of and the just For next more with on strategies a XXXX. the better the model currently few as achieve focused We continue the remaining remodels on many enhancing system revitalization teams the XX% consistent a middle heritage toward evolving but serve tailwind initiatives with revitalization products their field experience. delivering of only to remain over franchise enable operations higher and or training We quality significant to to are

progress in And team guest the will to we by and to continue talent remain made, are we further opportunity to potential. encouraged elevate believe substantial accordingly While systems our in our order reach full our invest the has experience. we

of our since attract in nearly footprint brand three the of interest restaurant one and the The including of in initiatives over Philippine was opening international in highest have system XX% additional and and XXX our totals new all XXXX, to our restaurants, expanding Denny's to continue representing global Turning which to development, ongoing our both growth current expansion. for In also and new our brands. international the led Kingdom, full-service revitalization Guatemala the openings Europe. we restaurant new XXXX seven first first opened of United

current to further look of in international XXX than since restaurants. with pipeline XX beyond have gaining we our nine North of leading forward openings, XXXX We countries more international current footprint approximately planned a to new momentum locations international XX And opened America.

with flow adjusted to program share share approximately beginning gains million we the committed ahead, system As buyback. repurchase repurchases. share shareholder we Since and share have the form cash sales free our market profitable our XXX late growth XXXX, along allocation look remain friendly of of in in allocated we

new shareholders share through in capital our return to program further our to authorization intent repurchase was announced by supported Our refinancing ongoing facility October. and buyback credit

addition will in the tax of In which more reform, impact cover the detail. to favorable recent Mark

growing brand grow of remain of the new around the just the entering the focused brand the store same is middle revitalization sales on heritage Denny's through So image, closing, system to two-thirds world, continuing in we stages. we which our the transformation on with are

have We global pipeline remodels of to And a expanding benefits for years progress to brand franchisees strategies growing coupled future interest continued supports come. expected our with number for footprint active with an yield is openings. enhancing our with from

Finally us support capital strong Financial cash efforts our committed Wolfinger, our continue that to Denny's business to turn our and our our rate Officer. With Administrative blended growing model royalty Chief XX% we to Officer returning to with shareholders. increasing and call to the Chief flows generating I'll allowing profitability X.X% Mark in remain and franchise are towards over Mark?

Mark Wolfinger

Thank you, John good afternoon, and everyone.

opened by openings one ended Denny's cash adjusted free X,XXX four net EBITDA X.X% include company restaurants as income highlights to of we restaurants, growing domestic million quarter These flow. by per system-wide generated XX fourth the total offset adjusted quarter and were X.X% franchisees restaurant Our million store and franchise we closings. opened share X.X%, per by $XX.X with restaurant. $XX.X We share, sales $X.XX to same by adjusted

franchise in other year franchise was revenue. higher initial three license revenue revenue, occupancy prior costs increase due and to restaurants. in to royalties. other and primarily prior royalty due in a enhanced acquired $XX.X direct rate which a store direct X.X% as was offset license to quarter, the total sales with in margin locations. and an includes we sales primarily reduction and by million, year, same Denny's initial grew Franchise company franchise and openings restaurant of offset operating The by by occupancy non-traditional and costs addition, million, X.X% new lower $XXX.X in support fees increase company partially flat XX.X% X.X% In to higher revenue Franchise average to restaurant revenue fees was compared margin. higher increased restaurant sales, to growth in operating growth associated for and royalty

grew The by company to million and year million increase impairment lower interest million, higher workers' losses loans in year to leases of year. by increase and in quarter. of of or experience XXXX, to $XXX,XXX a compared Company was number rate primarily over a current primarily experience points due to and charges $XXX,XXX $XXX.X XX% compensation in the prior due year to both the to our was income an the expense basis million compensation impacted during the $X.X higher of in restaurants our were same-store sales. provision past basis in improved exit the in year wages, improved fees by to to franchise primarily an our to from rise reduction X.X% by to by and the primarily in Moving revolver full current rate. amortization taxes $X.X growth greater Total the $XX.X an by due deferred of workers X.X% the on months expense the $X.X $X quarter sales quarter. offset and prior operating $X.X quarter. due Operating Jobs to restaurants to million. year Tax compared XX using to of the million at $X.X compensation $X.X EBITDA number million other decreased announced million, XX.X%. was The acquisition million, costs reversals company Depreciation X% $XXX,XXX enactment for or during weighted due average higher approximately tax to and the compared Adjusted us minimum $X tax gains, our the favorable Interest approximately$XXX,XXX and in XX and a reflect by reduction basis, favorable restaurant balance income The was prior effective compensation. costs statutory in capital a Act unfavorable On margin in in million sales in income million XX.X% required up of year. reduction compared expense. and partially of charges revolver to and incentive to due and $X.X approximately tax million lower $XX.X was of restructuring and restaurants, federal experience and product expected general the X% prior net expenses fourth Cuts professional assets administrative expense revalue the liabilities quarter rate workers

for one-time of provision income million non-cash a benefit $X.X we As to recorded result, taxes. a

company capital remodel to tax based taxes tax share compensation, cash with share $X.X benefit restaurants. expenditures stock $X.X been interest $X.XX effective cash Adjusted this settlement the $XX.X quarter, the was million by income per after grew associated acquisition a compared due our lower income would rate approximately of reform increased to quarter in cash million Cash the have taxes cash of for the EBITDA quarter. and impact of flow expenditures year higher in the the primarily prior two interest. $XX.X free the compared Adjusted $X.XX million per to fourth prior franchise Excluding net X.X% cash and included adjusted and of million offset three and to capital year and restaurants XX.X%. partially of share expenditures capital per

was ratio $XXX we had our the at leverage credit end of debt quarter total the outstanding including quarter $XXX Our end times, X.XX of facility. under million revolving million

we shares compared outstanding share to During by $XX X.X the on shares. repurchases. of our reduced authorization. Since million in late for our million million approximately more the beginning the the million We of totaled XX shares basic XX%. the approximately to our quarter At year shares million year share program over a million end of the allocated ended million shares with over repurchase to allocated XXXX, share share repurchase remaining XX.X our of and count we've $XXX quarter reduction prior at than $XXX repurchase the total XX.X end

review earnings section the outlook Now, to let business release. few take minutes our me of a

year fiscal growth to same-store franchise range to flat sales restaurants anticipate domestic company positive XXXX, at from we and For X%. restaurants

the revenue over received We franchise expect previous items license previously revenue we restaurants million of and open These our in were compared growth. franchise franchise revenue the we franchise related expenditures. which proceeds and to components of from term Upon begin both with began $XX XX franchise separating Further, will franchise fees revenue. term. which income revenue will appear the of standards separate of our the in approximately but the fees, recognize be net related between related together remaining previously license the of agreement statement, globally restaurants deferred expect franchise advertising to new over approximately to in and amortized costs restaurant recognizing will that to initial initial January, at ratably record and effective we recognized changes term adoption, practice will XX to from netted the became Due of agreements. beginning recognition flat

adjusted we to $XXX million are operating revenue Had revenue While operating they revenue of franchise guidance margin revenue, and franchise XXXX to $XXX.X $XXX approximately including $XXX dollars, and million. these adjusted million, franchise applied revenue license will million operating would We operating flow recognition million or changes changes currently reported revenue fiscal total revenue on of $XXX total results, franchise revenue license to $XXX.X and franchise our of have license to our expect a the impact EBITDA approximately rate. have total expected not material impact cash free and we recognition and for of million. margin

between on, XX.X%. Moving further our company restaurant margin and is XX.X% expectation

By reported Our franchise XX.X%. approximately operating comparison, margin fiscal margin operating the recognition XX% estimate we for standards. applied would had revenue we have new franchise is General XXXX between of functions and strategies. our include range support and and technology are expenses and million $XX brand to training and higher $XX anticipated incentive assumed million from administrative investments in XX.X% to to compensation revitalization further our

with restaurant range million. restaurant recent volume relates restaurant franchise This $X capital. of The to $XX and flow million million. million. opening $X to Adjusted be acquisitions between is expected remodels is $X and planned Texas million anticipated between income CapEx month, acquisition of free between high franchise million million expected to $XX cash later expenditures growth be from is million tax range be EBITDA to million balance also to and restaurants $XX maintenance to million. offsets. Cash rate of associated and five year. range $XXX company the million cash $XX effective XX% taxes ongoing to $XX million to Adjusted Our encompasses this of XX% $X approximately to This $XX addition range in with capital between including in capital to in approximately estimated $XXX includes the are last a from

while allocate of operator will That the to our and shareholders the in continue to Operator? program. I'd We brand our investments to now company towards call. ongoing begin through our our returning capital portion restaurants, the to also wraps over repurchase commentary. And turn guidance Q&A to capital like call our up share

Operator

take Slabaugh with Instructions] from [Operator question we'll first And you. our Will Thank Stephens.

Will Slabaugh

XXXX, to of has as Hey, pressure out about for additional sales you're either that think same-store we there to begun? setting ask or seeing out X% is any there maybe the already or on competitive guide guys. expecting of X% for as year goalpost should thanks Want typical there sort the you're a that the year

John Miller

Will. question, great That's

us think if at forward-looking you I year and time. the for the then look over history we guide a

industry Denny's our service I of that quarter the peers X% in has and been, has to think the this consistent first grew fourth casual X% terms as quarter peers full where we stronger finishing of just continue the family rather is of the to been. narrative our than side on bright of outperform guidance of sort where separation dining XXXX peers. throughout sort outperforming range in

continues challenges So at is competitive be the traffic set our solid, brand the with of category. time the there same the in but performance is to there challenges in -

And just we so want according we're deliver. guiding expect that make we to what to sure to

Will Slabaugh

service traditionally impact aggressiveness to if that points ways. curious any pressure you price service you've Understood. show seen or But And haven't I'm up? quick guys any quick in that if seen anything we within the recent combat around impact of planning there to what significant

John Miller

leverage investments we toward value of great with we that pull our deal try brand. flexibility. to of or planning the can like calendar Right, made in We and in prepare we oriented marketing the guide a we've course fact have always quality value guest

eat, slims area pressure. seem to offered. rather a spite promotions pancake see in hold than continues of fact value, value of Our that have consumers our in can you is the lot have that mid-teen been that's just rather all builders And to self-selected toward XXXX check you everyday there than

growing to category to the value seems to attention trend to response our be the QSRs. that's counter the So

is know to traffic hard under it's pressure. yet So

ways home all the the got is there I think So believe some to groceries impact. as have that these categories greater Will of mature well the anecdotally still industry We in in continue one that's there a can strong indication. that that sort answer, Denny's is you a hard to of is on evidence the but different And that in short of articulate impact. point to demand

think though of a it points the for long-term investment put grown has finish behind terms nevertheless overweight midyear equity advertising in despite of builder this I little we've is brand some even an basis you XXX see demand not over loss XXXX. the customer little and since amortizing

that there value we you than the pressures think So pressures to are impacting industry. that QSR know drive is or just other

Will Slabaugh

And it. on the or rather. question if more Got the guidance one margins could I on

if So the you XX% for XX% fiscal look wide fairly at guide of level margin store range. XXXX, to the

of comps, I be curious low outside of might other the to variables that was to what that range? high take or the So end

John Miller

- me let guidance I our range. just obviously to Yes, confirm just want

Mark Wolfinger

the is think to XX% XX.X%. I guidance

Will Slabaugh

that. about Sorry

Mark Wolfinger

along back just got I So Will is - lines, second. what step so a let guess those seeing we're me you've obviously

standpoint So a operated from a company company just of XX% restaurants restaurant reminder are our about as California. in

has XX minimum in about that's hour per $X.XX wage obviously stores we California another increase taken California wage. on So have and

So X. January on $XX that $XX.XX moved to from

got inflation late cost to occurred there have coming so so of I the - then there, in wage in of from Additionally And from wage obviously you've carryover impact jurisdictions that the going year labor sort got will in certain inflation some labor. out California. that's we say state

going that run XX, it range to basis of probably to X% comp the inflation, line. basically So probably within we we're there's to again labor their X% XX what of call seeing that's think points

So that's the comment. first

number we're haven't commodity in what in and probably this question to XXXX speak seeing commodity the inflation ahead go we're year. highly put of above that a just X.X% viewing commodity X% To was just at point X.X% side, On in had for which was slightly that so time. in XXXX and course inflation the to on, that, XXXX perspective deflationary that's I'll I

And XXXX that So restaurant through for put fiscal of range rolling altogether, sort hopefully how XXXX that the it sort a you when are we in gives the P&L. you operating inflations of feel for that company margin. for

Will Slabaugh

Great, thanks guys.

Operator

to Gallo with C.L. go next We'll Michael King.

John Miller

Mike. Hey,

Michael Gallo

hear you Can me.

John Miller

now. can We

Mark Wolfinger

you Mike, there? are

Michael Gallo

Yes, here. I am

a I in questions, quick on I up royalty pro-forma couple guidance know implies that rate margin rolls is escalating had Just you a there a step franchise the think off, old on the meaningful basis some Mark number that's terms line there going have in that restaurant if or off some larger is of in else is something item? XXXX percentage contract roll

Mark Wolfinger

rev just there and things Yes, rec it and XX.X% rec back there's couple in that of again franchise of at But XXXX stage to you and set would moving I I rev go XX% and is to Mike, because know a numbers think guiding it because you around was through rolling the a the around fiscal lot XX%, was XX.X%. if change. sort new margin that rules apply call look the we're that of

to Part and to between point basis somewhere franchise your So we up X.X% the royalty that points. points to stores to basis we are XXX this fact or - is call it XXX we rate. of continue see XXX XXX that roll-on to see continue

And probably of about so XXX XX at roll fiscal the X.X% year to at the will put way, stores it around we ended be XXXX XXXX end the let with with fiscal that at about XXX end another that it XXXX. so at call And had was rate the franchise there the end during of we of XXX this X.X% anticipate XXXX me we X.X%. just the stores XX will - up

that So royalty if we benefiting with that of change back there P&L obviously that that that other recall through it building and definitely all does is X.X% the certain brand XXXX. fund you margins - at the to a there that end and that's the go rolling away piece, is was of the contributed portion

there the to fiscal that lower P&L be it expense that would a other franchise benefit XXXX. put been throughout has a of So the bit there is little extra way rolling

for confused XXXX. XXX our XXX haven't between in we're bottom-line basis on guidance up completely hopefully points is somewhere you So but franchise operating to based margin

Michael Gallo

willingness also your of but reform, where entities. depreciation is significant Question in which invest Okay. that franchisees obviously potential three to that pronged, talk and tax benefit one a terms And or of think lot are I what tax through new pass franchisees of the stores? remodels, particularly own or to to John, will or remodels then Can I you your think say for in the them dropping, obviously given sort would and sense. you're benefit rate so seeing accelerating make

John Miller

Sure. I waiting prongs. was other for the two That's the…

Michael Gallo

Well, as the part behavior consumer you've a was in any the side next well on change as seen if result.

John Miller

I'll consumer well Yes, the first. do

little I too well. or moment Will alluded value X QSR early think in among it's with noise number a and there. then a XX ago for or kind casual to a a of lot out on going of for different stimulus discounting

got the to eating correlation say know, not persist. to I'd and this to reasonably employment normally environment near a a really out strong is you've high enough market full So yet so with a economy, value noisy

our work strong So whether their there kind not of think because for chain being fast is But restaurant has a say our you bigger this longer the it. I to just of noise, industries franchise they're do it to reaction casual yet the good for we a stimulus seven that can by the in those whether ultimately for too some be run boxes system, dining cycle. it a pay capital in or heritage so year of they that check pure by term, and family changing another just is to being whether are said check. of news or plays in fatter that more big of brands those driven and be in words all or or to be to QSR, all casual, out it's And a there know. role really or selection driven mature is throughout - out I that plays think remodel believe I be general. or you not feeling It's a out early retailer growth consumers dine through where explanations is categories. habits, these whether for conjecture in more seen, it when know is that time things when and overall On yourself then investment hard we've early know. but somebody too this that program, starts a and economy overall bit it's

going XX% to be the mark this scheme. towards So with pushing we're what remodel

think And point enough people dates. that so of this this money cycle their be moving due you it's that likely see It's year scheme in that much late ahead at this wouldn't allocated more seven would we the differently.

So will applied toward franchise those too or deal be work we to you. accelerated of or development, a for I early this questions. know, investments it's builds those And interest we new have the with again community in great great as but kitchen our once think are throughout year questions answering too,

Michael Gallo

clarification then great. from has Okay, what a just And Mark said.

was you XX% I operating think said guidance to the XX%. XX% to restaurant XX.X% profit margin. thought I

you just So clarify. you can if

Mark Wolfinger

I correct. misspoke, That's to XX% it's right. Mike, sorry sorry. that's XX% Yes,

Michael Gallo

you. Thank

Operator

[Operator Securities. go Wedbush Instructions] Setyan to with Nick We'll next

John Miller

Hi, Nick.

Nick Setyan

for the Hi, guys. question. taking Thanks

guidance came in haven't guess G&A in for below was Your think I G&A XXXX. the $XX And actually I million we while. step a it calls guidance a million up to seen for $XX for XXXX

give of of step up the what up kind just some of on sort what entails? color - maybe us guess I So some step

Mark Wolfinger

to, be here it's to Mark. Yes, sort history let just a go Sure, I'll happy so stage. to back Nick, set just the me I'd little - do bit

around So million. in $XX around million. for million, now $XX.X XXXX $XX.X million. actual came $XX our $XX to XXXX is million a guidance right was XXXX G&A And

be think really script is And to sort by or change the think, mean, spoken as reduced year will in incentive looking incentive based in increase performance I of I are around a we've move incentive XXXX I as as at on the forth our cash so the that it's we change full my together back we accruals. backup basically on in can in accruals those the this the mentioned really year XXXX, this and particular incentive accruals driven accruals. And the past annual accruals, components, came reloading taking our the

function. technology a is primary of a rest investment that's the of driver, really it to and training bit So and

on but a again function the ops incentive say our focused larger accrual. and then piece again some the So But driving revitalization the of side. on it, both and is training the piece technology would headcount that's additions I

Nick Setyan

the Just press million. release the guidance on is to to clarify $XX million $XX

So $XX $XX million million? is it million or $XX million to $XX to

Mark Wolfinger

sorry. million $XX $XX million, to

Nick Setyan

Okay. And what moving you just but out there, into on parts it the could terms top-line, can guys are just in back break advertising just help? we the of then kind that so dollars would of

John Miller

revenue You want the rec change?

Nick Setyan

Yes.

John Miller

of out. in range In million advertising of $XX about it's and the sort then goes probably total, that of

Nick Setyan

terms clarification, just of And count for in last mix the and price Okay. guests then quarter? the and

Mark Wolfinger

fourth the On alone? quarter

Nick Setyan

Yes.

Mark Wolfinger

or Yes, point fourth quarter negative. on was a of slightly point the traffic slightly mix quarter end so, positive - quarter

Nick Setyan

Got you very much. thank it,

Operator

And speakers turn things our any that session. I to like our closing remarks. question-and-answer for concludes back would

Curt Nichols

Thank a conference I'd us to our We discuss for you, forward XXXX evening. next results. call. thank and Glen. earnings first our great today's to look quarter to early call on joining everyone like have Thank you in May

Operator

Thank you, everyone. We thank That participation. does conclude today's for conference. you your

now may You disconnect.

Denny's (DENN) 13 Feb 182017 Q4 Earnings call transcript