DENN - Earnings call transcript Q1 2018

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Operator

Good day, and welcome to the Denny's Corporation First Quarter 2018 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.

Curt Nichols

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

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

John Miller

beloved environment. competitive local team's in Good strength include: again vision delivering light growth, our pillars, These world's of to momentum family of strategic which highly domestic sales relative order execution against everyone. value contributed our and experience of same-store the a the support The afternoon, relevant same-store dining achieve I'm consistent generated to of choppy persistently our achieved Thank pillars the in our restaurants. brand sales being most-admired positive full our by of strategies environment. focused once proud growth. service and Curt. revitalization you, despite four a differentiated system-wide Denny's first, results largest,

consistently operating Second, satisfaction with of goal service the scores brands. quartile primary great of full restaurants being of the upper in

international allocation of Third, driving our and disciplined by expanding geographic our the benefit growing profitable with Denny's focus franchise for employees markets. the reach franchisees, and fourth, capital and global cost throughout growth a shareholders. And U.S. on

evolve to now continue core We our Double Banana guest Chicken We dinner, menu a launched latest beans. recently Mediterranean which made more Diner new a Blend of and Pancake expectations for Signature Meatloaf Difficulty] products. a coffee and includes Berry Grilled our meet arabica a with Homestyle to XXX% higher-quality dinner, [Technical menu, sustainable

exclusive Hungry menu LTO with a franchise, hunger. selling trading Through of raising of latest No the cards features Star Fire products Pancakes. the Blaster upcoming in the Our Burger Co-Reactor childhood our inspired we eradicate are Story, for including Solo: release partnership Wars support money mission and Wars Star to to A Kid also by

ordering resonate of seeking continues options convenience Our to delivery. Denny's and or the with platform who pickup on guests, Demand online from are payment

quarter off-premise The third-party driven during delivery. expansion June in business in year, platform. December. XXX the total represented of increase by Since Demand sales, in off-premise reflecting X.X% We total the on was In XXX approximately grown sales Denny's a of percentage sales off-premise sales off-premise total of at points encouraged of from of last have growth basis by this be as to continue our our in primarily XXXX, X.X% March launching sales points growth basis through sales. of an

delivery have or multiple quickly more agreements enabling these of and with on We partners. with one restaurants vendors, easily individual mastered sign to partnership

to engaged positive one domestic compared is our of delivery XX% units that system at option XXXX. with restaurants results of over company restaurants. XX% XX% same-store end delivery We of is least options domestic to engaged an at domestic of franchise company delivery positive compared Approximately this at approximately live with than difference sales during partner, partner. sell first restaurants believe quarter the the restaurants one as of of Just X.X% actively with franchise more additional actively portfolio are a at X.X% delivery with and higher contributed number the multiple we the

total from to over-index channels. old margin the date transactions delivery dinner low year upper XX%. delivery demographic. XX As to expand third-party a Demand growth rate Denny's delivery off-premise sales the continued of additional continue ranges transactions anticipate in to-go the these the restaurants incremental. teens platform They late-night skewed as and We more their younger these are toward XX long-term Despite from to part on fee, be highly reminder, to the the

Our Heritage well, a to receiving digit sales and guest feedback range mid-single continues generating consistently remodel lift. program perform favorable

tailwind expectation first of brand the of higher franchise on next significant These focused completed XX% a strategies few new but world, believe with teams their a achieve the system of not are revitalization end company but serve We service field operations many enable and brand system delivering currently with coaching the image, to quarter, remodels, franchisees as Approximately XX% a consistent years. quality system revitalization XXXX. is our our the our better of experience. have more we of be training approximately XX on the over will we goal remain franchise toward remodels remodel. to evolving During the our one remaining and we the products entering just an enhancing Heritage our initiatives that - completed progressively our also stages to to operators will by image continue only model middle and the

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

development. to Turning

in the since representing all additional and Canada, the of we momentum. forward restaurant in footprint first over the gaining to two In XXX interest service XXXX, XX% sixth and Our ongoing our we totals restaurants, of growth and full brands. expansion, of new restaurant a to highest led new opened initiatives international of Philippines, expanding current attract to the of footprint quarter, and The look openings brand further for leading continue have global international three restaurants. including to system XXX openings one international our current revitalization new over our

ahead, the our system share market to gains, meaningful allocation Heritage of friendly strategies continuing form benefits updates, of come. additional to image, the We Denny's XXXX, our Demand on remain with profitable have growth share share on sales to look we the As opportunity sales transformation program we of over deal to platform just still the brand Denny's adjusted and flow focused world. XX% on the committed repurchase a enhancing incremental like years and in With to repurchases. brand buyback. traffic cash along around ongoing for grow we share approximately our beginning to capture late new the the system we've remain allocated through $XXX Since of in shareholder million free

generate and our strong in efforts us to With Chief Financial that, Wolfinger, cash Our and Officer. model. business franchisees, our grow allowing call to expanding we turn highly returning These remain a shareholders. franchised efforts committed I'll global our Mark flows footprint and reflects of are profitability, growing collective Administrative interest to number to Officer our capital the support Chief over Denny's from

Mark Wolfinger

everyone. and John, you, afternoon, good Thank

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

In acquired franchise addition, restaurants. we five

our in or So include Topic sales did accordance our clarifies quarter me adapting first the of used a royalties of principles these which restaurant recognition adoption the with The of new impact of restaurants. not new moment from impact revenue XXX, level recognize in results. let Starting set revenue. financial standards recognition to company XXXX, take franchise results the the to standards

primarily deferred fees, for advertising and and we franchisees to a due an adoption Upon license advertising adoption deficit not assets. the termination. to sales. of of primarily accordance with new sales franchise income. breakage be adoption, within the impact did from are advertising basis revenue now opening in remaining which due deferred statement gross to of to In against license of a fees. these year of are any recognized net recognizing recorded franchise on upon the which deferred of revenue, quarterly a operating Franchise expense. to were restaurant now expenditures $XX.X are fees we and reported the under and restaurant of other grew the on were a $XX.X XX.X% million advertising Upon recorded arrangements the we basis, initial related Because card standards company and are gift they service guidance, previously in event franchise basis $XX other the period agreement total of million franchisees, franchise revenue. tax However, recognized recorded to prior grew recorded programs received our modified in the gross agreement. of now Denny's XX.X% an previous adopted franchise opening of basis increases increase the accounting. recognized over $XX.X XXX, Similarly, revenue the adjusted terminated, million historical netted Fees and is restaurant revenue $XXX.X franchise franchise underlying on advertising consolidated million, expenses. fees deferred continue revenue related with and includes recognizing Topic franchise Initial revenue gross services are million fees, million to company a whereas previously term on and retrospective $X.X and results

quarter. franchise by quarter which were would a prior operating initial points terminations. revenue to been revenue increases recognition scheduled Additionally, XX.X%, represents was year to advertising improvement partially in and changes XX.X% basis prior XX.X% recording in the of royalty margin offset compared on revenue revenue also primarily have the were Franchise due year operating recognition by over related due occupancy basis. to and gross revenue changes, margin impacted costs lease an fees, XXX which Absent lower

and initial increases in offset and partially franchise costs expenses. revenue related costs was were with gross in occupancy other direct increase direct associated by margin. the fees fees Additionally, an royalty service in other our a increase reduction in and of other The

acquire and losses gain million. sales. expected by other and of changes sale same-store was by year. along prior after $X.X expenditures, over resource higher related mentioned $XX.X number was cash outstanding of $X.XX real and to $X.X piece year to an deferred by tax due restaurant minimum due a XX was offset and cash the the income prior improved an of to effective the at quarter margin professional to offset of prior with an $X.X in with to three general by invested rate was the amortization interests, benefit cash and - restaurants. primarily during The charges partially increase quarter. costs XX.X% product by a adjusted due XX.X% X.X% to on on balance, X.X% $XXX,XXX prior $X with market reflecting year X.X% higher to estate compares with rose restaurants. used due in fees, partially $XXX,XXX to a million compared $X.X company growth a XX a restaurant approximate a million statutory million prior in EBITDA. income restaurants company compared delivery settlement compensation loans our taxes our to Total million acquisition to $X.X share-based gains, the $XXX.X expense capital to point quarter. months increase implementation Sales of in prior company net increase past the expenses increased a grew in in to as sales. million valuation revolver John five income XX% to to the $XX.X earlier, estate improved high-performing by $XX.X or higher approximately year franchisee. higher past expense general Moving quarter plan EBITDA in and rate $XXX,XXX $X system, and of compensation primarily million, capital approximately an income franchised primarily a to greater due weighted the to year and leases $X.X associated year expenditures by to net Adjusted Company grew to million basis and free taxes rise and in year of was offset expenditures This enterprise our cash on impacted acquire a due $XXX,XXX capital in million reductions capital per and the driven partially Depreciation - number of in million the Operating per flow new restaurants or to operating by compared the and share-based amounts interest benefit per planning million provision which million an share for share average the the our tax $X.XX year prior relocating XX.X% basis franchise compensation. administrative personnel. costs $X.X million real primarily restaurants third-party and by improved investments federal cloud-based with and to estate of - wages, quarter. rate share real by Adjusted $XXX,XXX franchise in partially approximately primarily our by due the offset included associated Interest of liability XX.X% revolver a Adjusted associated higher and interest Cash

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

late year $XX beginning share repurchases. our quarter, of XX towards totaled million in over count. in approximately shares repurchase of shares $XXX million XXXX, the more shares, at allocated million reduction price to reduction our shares million from authorization. a or approximately share which to And we we've one ended outstanding at an share a million net quarter, program represents than repurchase share ago. end average per million repurchase the XX remaining the the share, bringing allocated approximately XX% During X.X We basic Since with $X.XX in of quarter $XXX X% our

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

exception initial component annual are reiterating our the adjustments, we three each of guidance. of With

$XX guidance is a our the revising the million, to discretionary at our is and in G&A softer incentive flow guest administrative free over expenses million elevate and also to liability change $XXX fees change continually $XX from are are close $XX other $XX our I expenses, We $XXX adjusted restaurant cost and while our from are look of expectation our previously million general with compensation growth teams as in in and practice, represents previous of to performance. range first for reductions at This and performance between expectation to increase along a guidance training experience. operating adjusted committed discussed, opportunities, revising in savings XX% the of the reaffirming Consistent expenses. range anticipated XXXX between cash quarter, investing million past $XX off-premise we which This compensation, adjusted includes our of flow cash our to with associated company Accordingly, This midpoint $XX margin margin delivery pursuing expectations with higher technology EBITDA faster-than-expected general range reflects million, to primarily X% an than million. and professional million we support to further our costs take of with and business. costs to range expectation million for between XX%. XX% by the free which the XX% more from coupled workers' conversative influenced expected our and previous in and similar

we updating expectations Finally, related taxes. to our are

and from of XX% the benefit million. our from settlement slight guidance a cash guidance effective range revising which the to to for XX% revising $X from $X results from the to million previous of share-based Given million $X Similarly, is expectations expectations rate compensation, tax we're the $X XX%. from million, decrease quarter our and and we're our between of tax taxes previous be to XX% our

brand towards guidance investments program. while wraps continue share our We allocate commentary. in ongoing company capital and through That capital repurchase our also our restaurants, returning will our shareholders to to up

turn the of Q&A our call. portion operator now Operator? begin call to will the We over the to

Operator

Stephens Will take Instructions] Thank our Please with go first you. [Operator We'll question Incorporated. Slabaugh ahead. from

Will Slabaugh

little flip delivery Thanks, the guys. more I franchise any a how and that profitability extent you a had to learning's wanted at being incrementality you've regard the of to we franchisees your to adopted about at ask having versus has? stores company stores. delivery much [indiscernible] believe company due was your away think roughly Can or franchisees? the stores either with adopt And to talk you switch I outperformance from mentioned that quickly. do of to are bit But far you delivery company-owned about the company

John Miller

we wheel their agenda. strategies, to go have it - is learning to owners move Yeah, XXX they new the a we digital really rollouts and They to and fast tends the versus organized can little when and up as it on on. at that trail comes bit. whatever move be Many pace but can sort tends herding implementations, or willing as go to that it of are to go which else

both that more more the this think, think that higher the be this in this news the we the add late I these sales, early pleased we get of continue continue just good incrementality, - traffic, the in details. to to little business, the with are think the for into due The think and deep will of you a will available see But bit time. know, country it's regarding a that the think the night expand. will of brand crowd. strong that franchisees end percentage Remember, companies or I this very the We we component to comment best under grow of position. a quarter. believe we here script total the to go to our can at even we're benefit a is we this and is younger margin, the will Denny's we still guide tailwind as in is And XX%

Will Slabaugh

so, of similar sort a of way would March traffic inflection, And way talked about Great. April. your a seen at it peers if either you then and seems classify or that And anything number in I least guess, you that have if your that that check? consumer manifesting through Have business? into

John Miller

Yes.

while, environment family we that good from Denny's out well. tailwind. is normally We outperformed would a of little is QSR sort from the story. quarter really for in But sort see the the that from we the persisting bit value continue environment actually you headwind a strong sandwich number think first of to in in the as first consumer could So in category normal wage same strong see the what a point category mid-scale the in a of a time where indicators. I We outperform this is see news this QSR category growth jobs,

I is a players the casual to that comparisons as environment consumer have So reported. it the think good

I I than think with to holidays big Other good environment a it's and mid-scale, how overall. they're so compared to non-comparable. mixing strong days it's think, say, in

Will Slabaugh

Got Thanks, John. it.

Operator

you. Thank

CL next King. Gallo We question from will take with our go Please Michael ahead.

Michael Gallo

same-store on was some along you quarter sales I kind of I pressure store was think permanent some could of and or issues this lessens I delivery, learning's there the the time gets as times come growth. like of whether those other you wondering margins. the which of on afternoon. Obviously, margin orders Thanks. with from if wondering will over delivery, in company in of the get some delivery is as whether further some some associated day a was and just labor had margin higher drill think that headwind, just will a structural managing the and alongside just you bigger? little headwind bigger you of of which the get good kind bit different the at Hi, the

Mark Wolfinger

Mike, its Mark.

guess, more some involved number the quarter the XX.X% through the answers, that John But third-party delivery Part some movement that pieces were I'll margin did to obviously the there in of fact margin. of talk us a moved the wants and have XX.X% So off-premise. the certainly about we a to was well. that I liability, provide costs we that year. commentary that with general of Part know, that that was last specific was I'll XXXX, really, give of benefit as then of company of it bring the packaging this some and in and don't some the you I margin first, quarter. in the to year, costs not are and And had

background ranked out And So minimum We of little well. just hour. in that here. bit wage was a these an bit aren't give size had order, of you the increase but $X.XX California, movement of as necessarily in that to obviously a another the

we I X/X mentioned think, before our our about California. stores company of in as base, company are in

commodity have that to but just as obviously that other there consistently we there of a move wanted our P&L, but a over in items within movement, few So the candidly, movements favor. bit number did And were the of just years, faced mention quite not well. last was headwind that

took XX.X%, in range. guided XX% looked gave first range looked for was business We in original company produced XX% in margin at that that the and of that annual for XX% we on So commentary account the guidance, points the and then we to approximately XX.X% February. guidance XX% at down to into as I the my which, mentioned quarter, overall that situation the back the basis XXX basically

mathematical in a XX.X% in QX. standpoint, we're from obviously So

our view to XX.X% that the the XX% new would something XX%. suggest is now, be will let's If right mathematically, say guidance, That is midpoint you take that margins midpoint XX.X-ish, and that obviously your of John That's side, additional the the year. and we to wants of during go from provide quarter improve - balance to know first I math the commentary as will question. the some

John Miller

have the and states add of company in we the to is higher overweight covered that portfolio other headwind near wage than that. know I those Mark an term what Well, with else there portion don't states, a

where in to don't the California all we, that see We 'XX at let's another the the way think I now $XX, hits out are I the way - Arizona $XX it dollar until in from west, and when now, grow California, know grow, are will $XX $XX. numbers rest continue

the little take So of near so longer time the a term, that that cover enough period to ability that, to price to and smooth so headwind. take is

Mark Wolfinger

mentioned wage as about And talk I we as think in just increases performer as when system the clearly of XX% come on comp is get as we our been is in you about need from about the to standpoint, look California, back geography to geography western domestic we the a several caution that - is a U.S. and us well. other very because minimum at has of that geography California, states and a strengthen that which for strong

clearly, move economy continues So way in time. the in at positive forward this a point to west out there at

Michael Gallo

as look go year, I of Mark. Just it just you obviously, how through was much was points the - much there guess, less. to basis costs? XXX that, be that a third-party the rollout that? that up you And headwind year-over-year. the year-over-year was are lap to in the I that, a kind like of increase follow-up How of But and little delivery will

Mark Wolfinger

you maybe of up Curt answer XX or exact - half, follow like don't say was me, that. in I and honestly bps, - front the I with but to can I to something good get certainly XX I want was have chunk, think but on that a some specific more it number like it

Michael Gallo

It it Even the less sounds was than with half of like? the increase, increase.

Mark Wolfinger

just here there. I as in Right, movements there were the a that on go of mentioned, and P&L number didn't other

mentioned, And went that I I through it's again, that of so, the think P&L. combination events a as

Michael Gallo

Okay. Thank you.

Operator

you. Setyan Nick go Thank Wedbush with next go ahead. to We Securities. Please

Nick Setyan

Thanks, guys.

sure check think the the [ph] earlier. I answer? were average heard somebody not what I'm if I transactions with asked

John Miller

Yeah. brand something XX-XX 'XX. like Average in in is [ph] that check the XX-XX, QX of somewhere

combination And and as so lift, price. about X-X stores, up same the that's company comp the [ph] mix the about of on

Nick Setyan

it. Got

terms And that hasn't changed Okay. in that for from expectation the pricing of X% XXXX range? about

John Miller

range, company Yes. higher factor west you the average say will out. skew which that'll the and the drag be X% when I'd it'd then that, but than probably brand in

Nick Setyan

it. Got

Okay.

commodities, terms in XXXX? inflation? Specifically do you QX see really on what guess, just that commodity egg And expect seen that of then the did contracted bit. the And as - is you what year terms I that you are address because Is guys margin of do a some little in you now too to costs the what in headwind guys much or potentially seeing of we've already progresses? that impact didn't for could

Mark Wolfinger

been we that Nick, market I commodities. based today, to a our to we a XX% guided X.X% side. within XXs just as - think, it still its movement bit are around in has to think basket with range or in And maximum on locked movements And we're when originally probably of about XX% mean, probably I commodity Mark. of this comes feel high inflation. on look little some comfortable Eggs egg it Yes. XX% under the we that. other I range, mark again the X.X% we to inflation There for at X.X% X.X% in commodities. probably

think range we're again that that And with sort So X.X% now, range. as I what to fits right year well. X.X% last comfortable in of for certainly year we the overall the saw

Nick Setyan

Thank you.

Mark Wolfinger

You're welcome.

Operator

go Research. [Operator to Stump Longbow Alton with Instructions] next We'll

Alton Stump

afternoon. Good

John Miller

Good afternoon.

Alton Stump

in the on you missed but first I quarter? an mention this estimate had weather much impact the in sorry comps presentation, that of I'm did if how

John Miller

southern mostly some impact. there footprint, western and have a was but fairly with We modest negligible a not

Alton Stump

versus It basis you a quarter. fourth as it. at bit what fell put of And look sense. franchise then quite up the makes you comp your stack Got kind in the number, it's obviously,

of kind is something kind increased to view? else If drove there weakness of had you it's competition your reasons there or point that two out if in that whether

John Miller

category, there is again, I is jobs, on confidence and is think - growth. there off-premise plus wage side, there growth, consumer our for the - the

On degree. of environment value at to then QSR the sort desire sort stay the headwind side, and there's winning home persist the of some and groceries to

$X $X in We are Menus. company year-over-year and $X Value down $X both franchise

a it of So which pushed those expensive expense comes could to bit. But robust our up continue to has be it check come down, with - skew little traffic.

the our chair that to overall out see But strong I category which a year. where strategies our, there's guidance indications our for should like group we'd So value of general think play about this to initiatives and of I some our and strong our environment that in idea they we an environment to continued and [ph] win us are think, outperformance consecutive think little a leads bit. be positive of

Alton Stump

the help. sense. Got for it. Makes Thanks

Operator

no there this further comments. to Instructions] conference back are for presenters time, to closing questions. turn any or I'd [Operator the At over your additional to like

Curt Nichols

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

Operator

today's this participation. does gentlemen, and Ladies conclude your Thank conference. you, for

disconnect. now may You

Denny's (DENN) 1 May 182018 Q1 Earnings call transcript