DENN - Earnings call transcript Q3 2018

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Operator

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

Curt Nichols

good and Ashley, you, afternoon. Thank joining Thank XXXX Denny's Quarter for Conference you Call. for Earnings Third us With from Denny's Chief Officer. Executive Chief me President Officer Officer; Denny's today Administrative and management are Mark Chief Wolfinger, and Executive President, Miller, Vice Financial John and refer financial at to measures this third own mentioned find with any website release, earnings on press along our reconciliation to our Please investor.dennys.com quarter 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 for our a Mark third recap quarter with annual of results, XXXX. on our brief commentary guidance that, up After for it open questions. we'll

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

John Miller

profitable strength the local of team's admired consistently brand relevant which also contributed vision largest, same-store order our strategies, operating our restaurants. include: to consistent our and of delivering X sales growth; capital pillars the restaurants throughout of These international driving and growth the goal disciplined the by costs geographic franchise with brands; great third, full-service benefit our of Denny's allocation the expanding global employees primary satisfaction upper and franchisees, markets; scores on of I'm a world's relative of differentiated with all quartile reach proud results. favorably X% first, challenging focus some minutes for respond the as our and and cash of business in operating for to focus. traffic I entrée, even about strong by to good a will franchised asset-light comments competitive more an the by navigated strong growth, company-operated per generated value share. quarter, and reviewing increased our highly model. with by same-store resulted costs, in followed afternoon, value adjusted in generation we few with total Domestic continued our growth guest revenue We our Curt, momentum coupled you, results growth on line quarter. to environment, strategy toward for characterized and as system-wide Thank positive migrate coupled the the restaurants through consistency focus Top beloved most U.S. growing a shareholders. pillars, flow to the a our revitalization being a and sales Slam on execution The spend everyone. Super of disciplined achieve business net fourth, our being guests income experience against model, support and in strategic family delivered our delivered second,

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

dinner Denny's to the Denny's steady company delivery on engaged now one have year, Delivery and and approximately domestic adding continues several and Turkey XX.X% of by franchised sales. last represented a the Breakfast, to highly & to Dinner. dayparts observed Since off-premise launching transactions total have during Inclusive menu more the the of teens continued expansion Off-premise business, in Our new stores than delivery transactions platform delivery Denny's late-night channels a a XX%. from towards also be approximately low delivery to at more platform channels. features sales as to new restaurants sales Approximately dinner rate XX% anticipate continue off-premise to the the system to-go restaurants fee, entrées. basis third-party We expand couple Melt we on which the as XX% over franchised new core the company total younger least menu, upper Demand sales launched their Spice These percentage Dressing growth Turkey XXX total is progression latest from and quarter points of Pumpkin skewed last quarters. on of Holiday third a our drive demographic. recently at ranges a restaurants. incremental including on LTO our We partner. of of delivery flavors, includes festive XX- actively the over craveable of Pancake sales Demand XX-year-old margin and indexed and in Demand latest off-premise long-term grown at our

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

the currently During franchisees X image. remodels image With have strategies approximately XX% over in featuring of brand-enhancing remaining system that the new expectations of years. for approximately quarter, we be revitalization tailwind remodels, the brand's XXXX, our XX% third remodels, the these completed the by the completed continue XX to end many next significant will new company and few resulting the and system Heritage our will of a

model system able our their goal serve model only franchise serve also have We franchise system not our achieve as higher-quality field better more consistent delivering with experience. to training franchisor in teams operations products important made only initiatives a but investments a to franchisor that service of a coaching and as that our

the remain. progressive We continue we further toward experience. to opportunities made realizing in and believe guest but potential, full talent we to have our improvements systems invest our Accordingly, elevate

development. to Turning

a Las over the highest international full-service opened led of and one one all Vegas system into restaurant of current of enhanced yesterday representing Philippines. the the Curaçao international agreements quarter. development add restaurants. were contributed in entered to have with initiatives in XXX XXX XXXX, current to restaurants will Rico, XX% during international since XX that brands. domestic Franchisees We our we growth Canada and closing to the and restaurants, agreement announce pipeline. restaurant to or additional third openings footprint of and company Puerto development excited An opened totals opened X new an Our in in existing restaurant approximately our franchisees agreements These over

have profitable shareholder-friendly allocated free allocation driving maintaining beginning million returns late share our to cash share capital our of and committed growth, now repurchases. invested repurchase Looking to market share flow towards generating strong $XXX remain XXXX, adjusted ahead, system sales we in share repurchases. over on Since program we gains,

us continue these that at enable considerations mind, are support to as stimulate of more Denny's while a further business With also in focused a we and model. asset-light yielding will services to strategic more choice, franchisor a growth evolve excited initiative to announce providing

XX the XX% that we XX% Over is to are franchised to franchised. months, XX% we next intend between brand today migrate and the that one from

look by restaurants forward with to the businesses We selling franchisees into company-operated while between We development XXX attracting and attached. expand franchisees commitments additional welcoming will Denny's development-focused opportunity family. XX new, also their for and to so providing an well-capitalized do

franchised real the of to we While brand, some proceeds will also existing under our transitioning into portfolio properties and by a highly upgrade quality lower-volume through we redeploying more higher-quality exchanges. real estate stores estate those are selling like-kind

functions. certain support through we also evaluate will work this transition, adjust and we As

refranchising more share our will to quarters. the the timing of cost-savings We of and coming nature, expectations over strategy extent the initiatives related around

in In more committed expect term. utilize toward we footprint expanding We franchisees the closing, for we Denny's remain return migrate in model asset-light moderate system to the our the to generate global capital. a return leverage in attracting refranchising as compelling increase the of including and shareholders, a new near proceeds into to

commitment to steadfast our revitalizing growth. Denny's generate to profitable enhance brand Our food, sales atmosphere continue through ongoing and initiatives to will service the

flows like will the to enable -- earnings, years on I'll share, that, These Financial net Our support even Denny's Chief higher are us Wolfinger, for come. yield deliver Officer. to including Demand collective and brand-enhancing over per returns. platform, to Mark to efforts Administrative and and incremental Denny's to strategies, investments Officer cash shareholder-friendly Chief call to stronger the income Mark? With further commitment benefits turn adjusted expected generate adjusted our

Mark Wolfinger

Thank and good everyone. you, John, afternoon,

$XX.X flow. We were and These restaurant restaurants an closings. franchisees X,XXX offset quarter million cash include to of third Our of as Vegas. generate company in free adjusted million with Denny's share ended by the opened share openings and franchised growing opened highlights delivering $XX.X per total adjusted Las adjusted additional six restaurant net XX restaurants will that $X.XX a EBITDA XX.X% income by quarter

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

of primarily due an Total million primarily our a to expense to sales. workers' in higher $XXX,XXX $XXX.X of Company Net Moving $X.X offset due by reduction past EBITDA partially gain. approximately $XXX,XXX operating the rose over due prior share-based costs to by Sales rate. associated expenses year capital our compared per restaurants XX.X% and in favorable tax and and million charge, $X.XX due past rate $XXX,XXX, taxes share on high-performing approximately the losses included a related and the expenditures, million. expenditures prior $XX.X $X.XX compensation, higher quarter, margin operating an which restaurant labor increases million X and partially year to million The by increased $X.X number free in was experience driven was by third-party million, compares X.X% offset million by million decreases our XX.X%, restaurant. property in offset XX% in primarily acquisition after million prior $XX.X opened or growth the sales. at months X.X% opening liabilities. construction to company a primarily was to expenditures, general capital quarter million, to for cash and by compared in latest amortization primarily restaurant, cash a This year. $X.X in credit Depreciation provision same-store $X.X and to the due increase relocation by Vegas insurance increase cash Adjusted construction an the taxes separate interest expense one XX.X% and $X.X to partially $X.X to $X.X of restaurant facility the statutory changes company the to taxes balance administrative to income benefit year impacted million, a restaurants to benefit Interest in in increase flow, in capital of restaurant federal XX in the approximately net costs income compared costs during X.X% cash quarter. restaurant. plan per the inflation, income per franchised of during was of million deferred used interest. Boulevard, tax acquire to partially cash impairment to share and $XX.X the by $X.X reflecting compensation grew new restaurants delivery And due with improved for share with $XX.X compensation to and adjusted a Las of rates. franchised valuation associated $XXX,XXX in from core a effective year quarter. remodel grew the cash offset quarter, market income Adjusted costs of our a $XXX,XXX, an $XXX,XXX prior cash G&A approximately million by was company Cash new interest,

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

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

XXXX. few expectations expand results business on we let me updated a to current earnings of on guidance take release. third outlook annual minutes expectations, Based section Now have our and quarter for our the

previous X% and previous of X and our guidance restaurants We we domestic for for X%. tightening are to net X%. to on are are company X% we sales compared decline expectations to date, to our between -- our X% up of to our from decline tightening restaurants Similarly, expectations restaurants. previous restaurant to to of guidance restaurants X XX guidance our versus X same-store XX Based franchised the X% are to a net between of XX we net now closings expecting of

guidance We adjusted million our million. current are $XXX reaffirming $XXX between of EBITDA for and

our Cash have to outpace of Our sell real a proceeds real of estate estate yielded continually to some efforts -- in stores like-kind under lower-volume value sale in property is from order property to the acquire exchange. through the optimize an higher-quality not opportunity we cash $XX captured portfolio are previous provide $XX million expenditures the to million included. we adjusting $XX metrics purchases we -- $XX guidance provided of our while guidance for to of to our expectations are property of to impending reflect capital Accordingly, real million million from purchase estate. the

to and revising like I we flow on $XX are refranchising our to John and between $XX million few million to quality Finally, previous free I guidance a upgrade million our would real to details just the $XX $XX reflect mentioned the adjusted from in estate million of development more for strategy earlier. cash provide expectations mentioned.

that a company-operated and months, and with XX% XX next business franchised. we XXX commitments toward the as model migrate restaurants XX sell development Over we between is between future commence -- to XX% intend

highest-volume will revenue quarters. partially discuss are offset by future which number detail cost-savings related and rental to in evaluating of adjusted restaurants operate intend will Vegas we areas, of our to a the Further, EBITDA the the additional such be in trade carefully refranchise income. royalty Strip. The a in contribution will continue restaurants Las as initiatives We company refranchising portfolio of we to strategy, more we

asset-light annual to Our capital with expected model cash $XX costs a by between reduce and and transition million. million is more associated business remodel expenditures $X maintenance to

support commitment of shareholders. million. The including with returns, commitments, maintenance revenue coupled future proceeds ongoing excess our also will investments shareholder-friendly remodel and generating our further proceeds the royalty anticipate in to refranchising and and reduction to associated the refranchising capital of development on return We pretax $XXX in capital,

X.XXx We are appropriate increasing debt franchised for leverage also -- our franchised a reviewing highly anticipate from our highly leverage a of the moderately and level from level model. current a to more

this dilutive very our attract a free proceeds, adjusted to Denny's per initially model franchisees strategy franchised to We're share and accretive enable lower-risk compelling to cash combined this the earnings we for us to will a our EBITDA, on partners adjusted refranchising use new While excited impacts shareholders. generate additional brand. business which, stimulate and growth on flow, for more returns transition have to refranchising with anticipate enhanced impact to

also through XX% properties XX of of first earlier will exchanges. real We the mentioned portfolio capital cash sale adjustment from estate estate real a higher-quality own. million like-kind quality sale our and acquire We upgrade the total will we of of like-kind XX% guidance estate. under of lower-volume exchanges. real of redeployed series approximately generating between the a $XX the contemplates I currently the expenditures anticipate Proceeds of be to XXXX The restaurants these from

accordingly, million captured estate good business against still successfully that to real XX% approximately ability franchised place real reminder, provides we to high the refranchising capital The call. with confidence and, a more a in or this proceeds a and the now led business us asset-light operator expenditures. turn not as is As that in transition franchised is our up our Operator? comments. in prepared begin of to Q&A the I'll portion in strategy $XX cash is the our move development to a execute of XX% from purchases netted degree a over total That call team model. estate news to our wraps our

Operator

Instructions]. [Operator

question of from We will Slabaugh Stephens take now Inc. first Will our

William Slabaugh

strategy I of like. and couple had the that a what might questions refranchising look on

to impact preliminary stores? demand way have there, any had of cost-savings to like coming franchisees do you'd at kind high we with that. temperature conversations a at that, or respect didn't about but refranchise current prospective level know also, I know And should you have And G&A the some plans you with think might as you've what think our look EBITDA? then out anticipated if a we you of curious about if that. point just First, mentioned and how your how corporate should of some sort

John Miller

is wanted this what we to I'll level will starting by due the in John. to announcements, to sure Well, believe high, before conversations the everybody and materiality the saying were We do Coast be engaged. we running to not very there have preliminary Yes. start we up that knew East. West been that the of make the interest

can that take to you opportunities and development the entire -- to EBITDA similar with so fairly attract to the lot royalties And remarks, be in is the into -- qualified -- committed as get addition culmination basically to treatment so cost to expect prepared the then the time. bolt-on the reward through the certainly we and system we color give in developer process, already a committed, discern new them time -- and and Obviously, we to to idea in position. regarding will And if -- from more be agreements, the been savings we family of G&A grow. a expectations over that by to be franchisees of what's revenue franchisees expect then the also

William Slabaugh

you leave how that process? rate then some the to? point or Got like level in as going in think whether lately, And how a about get our terms happened level would minds you. you to you're And in to then fix like That's to given there for that helpful. what's floating all about or you of keep at us thinking debt, is this would through debt your a environment of you are

Mark Wolfinger

and and mention Yes. to obviously, so question can as little think, why leverage, slightly script back wanted Xx bit as glad under down below were far slightly in between QX, down leveraged we X, that. below obviously Well, X we come and you currently. the to we we're Basically, then the a we that's QX. it's Mark. certainly asked we're And But in floated QX over in I X I'm --- in X.X-ish,

one I a entity. mentioned you be a -- know very moderate at in this there's Clearly, increase there that time, point leverage. think we're was I in here. my a highly would levered comments, the Obviously, in history looking

it, about on And cautious obviously so it. focused we're

swaps as obviously, think believe to we're return at. factors about place rate leverage and your we have right looking as is the mentioned, we of I rates, our it's point additional on, take one increases, additional in shareholders. some I now. do can cash do a reminder, many a And to just again, there series we But interest that of

looking degree, in looking a But we're a say, manner. it. So to predictability question, though, leverage, moderate fixed we're some I'd obviously asking to talking some and that we a about mention, rate I we're again, now, to did right and you at at, want increase appreciate follow-up

I come know pointed specifics, the doesn't So unfolds. as out, you strategy but to I as it give more think the John

Operator

King. Our next Gallo Michael CL from of question is

Michael Gallo

your Texas a Just overall the look they're guess scattered. outside couple when company really on questions of follow-up and I refranchising. I of Florida, markets at California,

component So the you're have exit Or that standpoint rent expect do do areas? plan to kind how are from on? -- refranchising you'll many properties looking of at you about you of the franchising you a specific thinking How that? that of refranchising

John Miller

So a the believe place us the that very to is first is question, be to of for focused. we Mike, be good part

And the So end we the and come and we We'll of process. some overall transactions, you the to over And that second optimize plan the for more believe EBITDA me? really in. down believe, to allows question, the XX do reduction us DMAs that'll between states, I time we're balance one I the X -- now. DMAs markets. repeat throughout in could that time operate to dramatic of now in consolidate

Michael Gallo

properties after terms rent collecting where you'll refranchise factor you of -- it. have that a In the you on end up may

Mark Wolfinger

it's Mike, Mark.

quarters. you're there's of a details go so the here. again, obviously rent next bit But right, opportunity a probably we And we'll talk little more through as couple

obviously, rental sell there's I in takes of. in obviously, you that lease. property headlease my we're the we're as as sits There's for opportunities a we on a stores, EBITDA as obviously, currently could these inflow know we comments, royalty top well, process store on think primary and that And place. on mentioned I -- own on the the Though fee opportunities. company that be, rental the that

markup, also [indiscernible] or And really can the split today rental We increase so sides have from provide between obviously, far as that. a be that opportunity we headlease an a fees. don't so that as obviously would of the there both or fee specific But the we've today real at again, that real piece, our good base, piece stores. real refranchising look estate And of to the discussion taken from is surmise company the obviously, a of parallel asset estate the sale both the and the can you a company stores.

John Miller

And I to back states just Mike, DMAs. states. It's X want I jump to in. down said XX XX

So just to clarify.

Michael Gallo

something till deploy end kind you XX%? obviously, XX% pieces again, That's to program? is there'll return of could And point imply of very increase. of the be you'd modest wait increase kind something Or as to leverage. that you the then you towards know of lot opportunistically on back come leverage. helpful. have just Mark, plus as, move you of that the would to Obviously, that kind a moving Is to in the proceeds, said I

Mark Wolfinger

a through That's I you're obviously, at Mike. part obviously in. proceeds the we're going would question, the describing good very flow -- looking think that's right way now, of the process mean, I

put rates, also XX-month parallel with in increases I those talked year. all it's because think leverage this be obviously, time situation, there interest several things together. watching taking then have our look been a of at frame. And we'd structure debt about obviously, or we that, an But

is again, return we're of this our and creation ability very think I'll we value and John's go shareholders, to value to a as back that my view -- is focused to on. that comments more and I very, even what which comments our

Operator

phone for any no back questions to the Nichols the or conference additional like I time. at [Operator Instructions]. would Mr. further are in It appears this there remarks. queue to closing turn

Curt Nichols

I'd in results. look you, our to conference XXXX a to to you, Thank Ashley. evening. for great today's our have forward call. on during everyone February next thank like discuss and Thank us fourth [indiscernible] call earnings joining quarter We

Operator

call. concludes you for participation. This your today's conference Thank

disconnect. now may You

Denny's (DENN) 30 Oct 182018 Q3 Earnings call transcript