DENN - Earnings call transcript Q2 2018

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Operator

Good day and welcome to the Denny’s Corporation Second Quarter 2018 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Curt Nichols, Senior Director of Investor Relations. Please go ahead, sir.

Curt Nichols

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

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

John Miller

afternoon, Curt, everyone. and good Thank you,

consistency results. our resulted flow. year. guidance EBITDA cash contributed domestic by disciplined navigated franchise the our over last of while reiterating sales revitalization cash growth our Our same growth, of revenue annual relative are momentum store with to focus generation a delivered value-focused a The generated highly through income for growth net on environment with we and and revenue per business franchised competitive We the coupled operating in restaurant And share. strength growth quarter model strongest strong costs in adjusted our flow we our coupled free adjusted also rolling sales total adjusted challenging Company and strategies as

system-wide marketing Second of shifts and declined the quarter by competitive environment. holiday domestic value-focused same-store impacted in negative light sales highly X.X%,

our a limited positive has guest competitive and a the Slam time, quarter. very second new, move concerns, garnering, XX Slam. and to the sales two-year the impact, Super some quarter beginning X.X%. Although at for have To basis store spring nearly estimated same-store flat sequential the The of value been we same-store the same offer break contributed sales the Super by in response of quarter. Adjusting positive of trends an we $X.XX points. for The as through to been same-store address incident would the the on improved shift the sales sales rate improvement called domestic this launched XX% value sequentially Easter weighed our with over

global our response Denny’s product goal brand largest, our driving consistent sales first, delivering against international in world’s been team’s have focus restaurants allocation strategic on shareholders. the continue our vision the disciplined of this with cost and service I’m benefit and achieve great differentiated geographic reach expanding markets; of the franchise third, and same-store positive for the growth capital which employees brand; to in include the of and of U.S. growth; We profitable full four July. local see pillars, upper primary fourth, a family being messaging throughout our and experience second, execution with restaurants. proud and pleased pillars operating guest the support of franchisees, into for to scores of quartile relevant our satisfaction These most consistently admired also order being beloved the and a growing to by media

We guest quality higher meet expectations evolve for credible more products. our menu to continue to and

XXX% latest starting Our menu burgers, $X.XX. a and beef burger spicy burger, LTO a including avocado classic features our hand-pressed sriracha burger bacon at

have We breakfast selection include craft premium enhanced new also to our pancake pancake of mouthwatering lineup items.

And delivery. on over Demand online Company restaurants Off-premise of Our with resonate the now expansion total options of Company XX% ordering the the sales toward at pickup of continues sales platform seeking to channels in quarters. progression observed convenience Denny’s skewed is franchise for and are delivery stores are XX have represented guests actively last basis payment off-premise dinner with who quarter at couple incremental. on XX we the have or and sales late-night during engaged XXXX to These business. transactions of to of parts least year, continue partner. sales as the Demand XX% delivery X.X% demographic. over over the and the second system percentage about highly off-premise and Denny’s day a total steady one our continues XXX Over-index Since to-go points to grown last launching restaurants. a year drive to old domestic Approximately and be franchised of delivery adding of younger

to restaurants transactions with total party platform low delivery delivery fee Demand additional While sales margin -- delivery Denny’s growth the more from long-term XX%. to anticipate the the total their channels. from margin rate in ranges delivery teens as continued upper on off-premise the the expand We on the third fee, additional

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

our initiatives completed a model franchisees progressively new these on system quarter, an training image. products will our image strategies teams and consistent franchise We the continue goal the will their featuring coaching with second With XXXX, focused to many brand-enhancing remodels, for a approximately of our a more that also have remain to system field serve of the the as end quality remaining currently over but XX% few company operations XX% approximately new our by evolving the XX resulting three significant in remodels and next Heritage tailwind completed of system experience. delivering expectation be only the world, achieve better we service remodels higher enable not the brand and revitalization to years. to During

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

service of growth new restaurants Turning of in totals openings the our domestic over Franchisees opened X in have of one to approximately current our and restaurant full quarter. XXXX, led highest additional current second international restaurants. contributed system representing to restaurant international development, the XXX since XX% the of initiatives And footprint Canada XXX opening brands. all to

As we sales adjusted in free system share cash of look buyback. form of program expanding our remain have flow market ongoing to we Denny’s growth and In gains share beginning global of late repurchases. committed allocated allocation our committed footprint shareholder-friendly brand. ahead, closing, to remain we through the along Since share repurchase our profitable in the million to XXXX, we over $XXX share revitalization the with

will initiatives growth. to the years platform to to like strategies for atmosphere continue sales enhancing should ongoing We generate service benefits incremental and brand our believe enhance come. Demand profitable yield our food, on Denny’s Our

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

Mark Wolfinger

Thank you, John, and good afternoon, everyone.

by adjusted EBITDA We total X growing per ended share, cash company and $XX.X openings X.X% quarter the adjusted with Our XX.X% franchised X by restaurant were as restaurant $XX.X and of generating adjusted million million $X.XX a quarter include flow. second share net These closings. restaurants. by closings highlights opened Denny’s income X free franchisees X,XXX restaurants to to while offset

In one addition, we restaurant. franchised acquired

$XX.X of and these increase license in restaurant $XXX.X million lease basis, revenue Topic on prior with changes, costs been and our As revenue, modified year an benefited Form includes basis. operating recognition recognition which year the basis prior a basis continue gross scheduled Topic adopted a have with be revenue an report Topic by restaurant partially retrospective to fees license in total revenue a operating XXX represents revenue margin used revenue gross quarter adopting reminder, our in Franchise franchise primarily accordance changes, quarter. due which we in of can to million, XXXX report to advertising franchise that quarterly on not company and the improvement release in million, offset related were on and more with XXX XXXX recognizing primarily to was Franchise accordance points over our and would standards detailed adjusted an to franchise to a approximately in explanation increase and to prior sales. XX.X% quarter, be revenue XX% XX.X% include compared sales Because initial results the of revenue. in XXX, advertising these standards to and the our on XX-Q. with $XX.X due operating recognition XXX recognize grew and revenue XX.X%, recording terminations. grew historical occupancy results recognizing quarterly XX.X%, accordance revenue changes new accordance new advertising to second accounting. earnings Denny’s Absent clarifies recognition due margin year A principles financial found impacts lower revenue, in of company from revenue in which primarily

and occupancy was XXX. by in in in fees our costs. improving and costs other gross with the associated fees Additionally, franchise direct other margin with other expenses an offset The Topic service initial of increase were an accordance increase partially increase related direct

margin X.X% Moving to to sales. by sales impacted XX.X% minimum offset by the in by increase company grew restaurant in wages increases of over million past company, delivery Company months. restaurants to was higher restaurant XX $XXX.X number of and costs, third-party partially an operating our due the

million changes $X.X by provision by of credit improvement The associated prior to the flow million, basis on margin other Depreciation $XXX,XXX approximately primarily range and during valuation was EBITDA acquire prior and in X.X% capital free in in in the rate in year We facility due administrative Interest cash the restaurant. cash increases to commodity inflation of easing million. related cash Operating of Adjusted $X.X X.X% improved per or benefit income share-based results, of and improved share the franchise acquisition for company cost cash million $XXX,XXX compared taxes real liabilities. to the balance of in increase of to cash $X.X $X.X and the federal $X.XX at XX.X%, at estate software to $XX.X primarily the XX.X% the XXX million by or generally income an due included lines. and income Cash our primarily X% market good other franchise million, to restaurants $XXX,XXX, Adjusted the share-based are offset share used rates. to the income or expenditures, capital capital $X.X in and with in to acquire the expenditures by decreases our interest due restaurant year. $XX.X effective operating in partially a of X.X% XX% and expenditures, compensation. Adjusted expense tax taxes and improved invested in the prior interest. new $X million to controls by of quarter. million with This Total modest was per around due by $XX.X from compensation past was quarter net the primarily start first rate deferred $X.XX plan $X.X one approximately reduction losses per an franchise approximately year quarter, quarter. restaurants to the taxes interest and cost grew encouraged basis-point quarter, million, driven year after million expenses settlement due share to to to approximately driven general expense million, higher amortization $XX.X primarily compensation charges gains, cash rose year by of our a $X by $X.X or X reflecting and million quarter. compares implementation statutory prior by net million compared tax in $X.X the pricing $XXX,XXX million

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

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

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

expected $XX We are reaffirming same-store free million range expectations million, key X%, several our adjusted to million. to guidance XX XX sales X restaurants financial compared of new expectations an and XX of and between of $XXX zero This flat EBITDA previous net approximately company franchise with expected restaurant includes our reduction to XX to million in restaurants including flow previous revised from growth for XX annual of and to our of metrics with $XX openings the guidance growth. domestic cash $XXX net restaurants of restaurant adjusted to restaurant new and

expectations previous million. guidance total revenue operating for to changes, between count between $XXX million $XXX updated guidance our revising also these and million of our we $XXX million unit from for are $XXX and With

previous We franchise million are also million from and $XXX million between and revising revenue guidance license and between our our million. expectations $XXX $XXX $XXX for of to

our $XX raising XX% cost we results. $XX and of past teams and expenses opportunities operating elevate are based reductions compared and guidance support guidance XX% with continually are close $XX our expenses. the expectations experience. with to range and to our between previous Accordingly, discretionary We training practice, XX% at franchise change of million costs $XX investing pursuing are take for year-to-date million. previous G&A margins professional while compensation, guidance administrative guest in Consistent also on million look from a to from our and of to committed to we our other primarily XX% incentive further million in our our between for and the technology anticipated fees This revising reflects general savings

of for in $XX.X we our guidance net $XX.X range interest between and of million increase the are the $XX.X expense related adjusting million credit $XX.X and our rates, previous million With balance interest from our facility to million. to

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

Operator

very Thank you Securities. We’ll Please from Wedbush our take [Operator Setyan Nick with ahead. much. go Instructions] question first

Nick Setyan

comp. quantify Thanks, to the that guys. way improvement in improvement? to Any the appreciate about the sequential be able commentary I

John Miller

A little Yes. Thanks Nick. the commentary, question. for

imaging noticed really the was brand working -- was at was calendar where focused the might value of -- out in on of term you industry the And Our messaging. as with of longer doing quarter particular and the building have the rest media the rest of start cycle equities -- by on were was, industry we now. imaging

we And a then, into in by ago, transcript were We launched slightly did So, and positive the $X.XX we May in Slam. June, we course and negative continued moment correction. that as both July. mentioned April in a the June, Super

Nick Setyan

beginning pricing What total terms of mix take that was in and of then, where currently some does does -- that the in the at the [ph] one the incremental one what at to quarter? And quarter. pricing

John Miller

Yes.

softer Next the a quarter, X was in about point. down little

the pricing about that to had X.X in added that point carryover there so range. X think, some during And pricing, quarter. we X was we of I

Nick Setyan

your revenue size guess, on franchise relative while quarter, guidance to changed on Ant turning franchise then, the you the to the kind going the allowed license lowering into the what margin margin that side. just expectations I of increase number? margin and

Mark Wolfinger

out quarters. the that’s combination Nick, really the the -- -- with Yes. probably to we as franchise really, Mark. margin theme franchise it changes think, It’s royalty come be, I continue as several piece, a to rate. a It’s I see the continues last it’s far mean,

now, the margins probably side. X.XX%, in picked with continued franchise so, the royalty that rate up Right about enhance the on the quarter, again average has And clearly, to probably X.XX%.

the up from a just quarter. bit that So, prior was

I locations we quarter, of quarter XXXX, was end the XXX prior at royalty. the on second the think quarter domestic had to Also, of X.XX%. close X.X%

So, us. that trickle piece. continues to And that’s again, one

the piece the franchisees. with our place those high-margins. other around, think which but primary subleasing occupancy comes onto about Many we’re I not are much is lease on locations that those again talked piece time -- didn’t the we landlord emphasis properties on through, margin and that this and probably this of we’re where as

percentage [indiscernible] the would a obviously to of I in also books those are goes pass-through. on store I And franchisee term the franchise off landlord an basis, leases directly the be it’s closes, as pretty So, losing margin the well. that low-margin think fall business as much enhances and obviously, our we to what

Operator

with hear Will ahead. Stephens [Operator next Instructions] Slabaugh Please go Incorporated. We’ll from

Will Slabaugh

Thanks guys.

both competitive the quick little came You about full from? that the coming the mentioned bit more? that in that’s heightened or service quarter. in release, talk you of impact particular, in either majority Where you maybe or from around Can and where saw the service value a activity in this

John Miller

steak. your for deals, And free. and dinner quarter, lot are There some in get I’m dinner there then, the including were then casual of $XX was core home bundled -- speak Well, to evidenced as the McDonald’s precision [indiscernible] the persisted to the with it’s board Wendy’s think it hard across in from and I Throughout late casual, or take buy two impact conjecture, without quarter. deals, were there the but dollar competitors.

And air April again So, during food May. and there on is had considerable no we activity.

further your know answers that if don’t or So, you question if commentary? I like

Will Slabaugh

on in on change earlier. it. It guidance X.X% the had about that a to the appreciate X% improvement looked just like, comps back follow-up I getting your year back math, helpful. the that’s half guidance implies of the by my revenue. I to talked you No

it something number that coming say, up more So, Would like looked to that should changes be guidance me as fair be backroom looking. there to revenue on well? or is a we that reducing

Mark Wolfinger

wouldn’t Mark. looking. it’s backward Well, is Well, this I say

the we numbers just script. and guide we’re look on X% revenue through Obviously, side in with from combination a at as a I for we’re revenue there from that, talked about bit other hard tuning There the I X%. ultimately, that well. of say, standpoint. in store store revenue fine little point. that it’s sticking that through we’re also franchise comps. a little earlier, standpoint the range taking occupancy so Obviously, John that both rolls slightly, roll zero have closings, decreased of and bit of the to that think at think mentioned because a to of this is But, comp closing I earnings zero a that number, But, decreases for we continue to costs a my I’d guidance

Operator

next Please King. Gallo with hear ahead. we’ll from go C.L. Michael And

Michael Gallo

confident with you a whether and calendar if on with of May. wondering of weakness your and I look of broadly the expectations. on with end Thanks. you’re moving differences? broad-based, wondering the dinner promotions, today? could kind marketing you I that And saw of overall And further, in saw in saw the if [ph] where was expectations specific underperformed bit it high whether year around was perhaps was you kind delving obviously rest kind have casual regional the any you more kind of is weakness consumer you sync a if a the guess, [indiscernible] to how April more whether also underperforming you I bit as the just little the some parse little that

John Miller

It’s a great question.

the finished where with, on the marketing calendar of start and just Let’s discussion sales. I

came with As and I is value the mentioned, that in lunch. strong at consistent a also said, equity believe building the core this is breakfast up of we biggest -- what’s pick had We a That July. on June consumer message that did and we Super a Slam. followed off marketplace more that the going with response into --

-- the in there was in it’s accurate, dinner suggests the It’s little dinner a So, that there, of your viewing than a question is is we value that softer casual more a felt indeed were that been -- reason we Mike. right positive that been time, saying of breakfast little will bit. said, initiative. we our the we’ve this That building but in been with strategy. some year comp lunch of our be for and were Xth And revitalization we’ve middle growth innings nothing

remodeled the on XX% to a which not XX% responsive dinner would right system We very initiatives means be now. image are modern of

vulnerable we’re So, there. particularly

through burger [ph] We believe state. programs as unfold. broadcast and years strategies some strategies but the those another this hear equities building come as those talk yet have us product at been development outward about really you our dinner are those, not to We

over regarding question through So, on our quality April also strategies are and unfolding, built read in particular positioning get a but, relationship had build the believe play where is is brand the practice I we long-term that there see the we consumer And the role and and that response we’ve pleased that confident a a confidence much we that equities. around to time. to had I’d initiatives period. is our then we say longer equity do equity do we just building and and they strong and continue return in upside are or over May, believe we direct have inequities to

Michael Gallo

can And touch the -- then, that? much of on on you regional differences

John Miller

as into of so in it’s in speaking a Texas the brand. than outperformed of again, that; row, say us, the that we’ve degree and good across quarter continue Florida softer strong a positive being directly the averages us. Sure. quite population quarter. I one stands And weren’t Washington what and really had. a third year-to-date quarter a to for really value think, until you a regions consecutive and are we for be in late for sensitive, strong the and sign more California the to for them Proud on could little And of the then the drive reason stories have the basis Other basis, year-to-date quarter. Arizona that to That’s retirees high are

Operator

to [Operator today’s session. Instructions] remarks. closing turn to question-and-answer additional call over like back the And for any that Mr. I’d does Nichols concludes or

Curt Nichols

We call fall thank later joining third on the today’s Thank discuss results. you. a to for next look and everyone to Corrina. great to in forward us like our quarter our conference I’d Thank earnings you have evening. call. XXXX

Operator

does that Thank for today’s again, Once conclude conference. you participation. your

disconnect. may You now

Denny's (DENN) 30 Jul 182018 Q2 Earnings call transcript