DENN - Earnings call transcript Q2 2019

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Operator

Good day. And welcome to the Denny's Second Quarter 2019 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

good and Trishaw, you, afternoon, everyone. Thank for earnings conference you joining us XXXX quarter second Denny's call. for Thank With me Executive today and from Financial management are John Officer Administrative and Mark Officer. Chief Chief Miller, and Wolfinger, President, Denny's Vice Officer Chief Executive Denny's President

to John measures investor.dennys.com find webcast Please is guidance introductory development of and begin call This mentioned provide quarter on XXXX. open our we'll for progress our today. reconciliation any being site for on our will along our later available Mark recap an refranchising be call annual the release today's our the strategy will call After press questions. that, and with the his a up Web archive webcast, discuss of comments. of it second at refer with site to earnings non-GAAP briefly second comment of and some financial results, quarter today. our will Web on

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

Executive I the Denny's will call turn Chief to John and that, Officer. President Miller, With now over

John Miller

we am I are accordingly. delivered also sale schedule restaurants good solid and annual of be you, now to wide quarter by afternoon, of system Thank of with pleased adjusting this transactions everyone. domestic delighted our another and year. the Denny's complete guidance to and materially of expect refranchising ahead Curt, are growth, our report the report sales end to we I'm same-store

franchisees, the virtually These our consistent in collaboration international technology and and third, and close expanding of In and growth allocation on throughout midst relevant more our fourth, a for franchises disciplined our goal by capital to restaurants transaction of I'm These of franchise sales delivering team proud focus the against our perpetuating pillars. strategic the along operating first, for continued pillars Denny's the on executing training, steadfast initiatives. brand their driving of with service; benefit operations with -- second, focus quality reliable supported with a are on U.S. transition pillars especially high profitable for and include; and consistent depreciated brand highly cost with footprint markets; same-store consistently shareholders. all our our a great and brand, with employees growth; investments

expectations to continue evolve for meet menu our and guest We product. cravable quality to more higher

newest also our of Our while feature recently features burgers, premium introduced to pressed menu continuing craves. LTO array hand

strategies of drive is second business. XX% quarter, off franchise restaurants total offering. guests increase approximately Meat part Delivery which the during our value also the brand Lovers sales younger expanding Denny's and reach us of We company premise everyday our in our at premise the off Furthermore, the have enabled been represented featuring awareness. as over our These at premise starting mid-XXXX. launch X% to from $X.XX of up at to and sales Slam off on-demand expansion of continues

and XX% of the system system costs, rates be approximately the at with the to transactions grew costs deliver the at to engaged total continue delivery after margin considering XX% product labor end beginning from actively of These the restaurants number to the one the and the quarter. fee. quarter of of The incremental domestic by upper low from partner XX% least teens approximately delivery

Our Heritage to resulting company of remodel guest favorable we well continues the Heritage the during and consistently the program image. approximately receives updated and completed featuring completed second XX XX% currently one feedback. quarter, franchisees system perform remodel, And remodels in

with focused revitalization to These the teams service and significant a tailwind to remain e-learning diner development Make initiatives deploy work We Ignite enhanced over delivering And menu on on to goals. our This to Denny's been together continues our curriculum several latest programs better coaching will offerings along service well franchisee Right higher continue are focused experience. brand Delight And it strategy we next develop as received. have enable the consistent for environment training initiatives a system. enhance and our team and operations our to system their provide our quality more our collaboration to years. field with learning achieve primarily our progressive and

substantial -- remain gaps full achieve our to closing far, and While on our made thus order have potential to progress process are these therefore, in we opportunities expectations. we focused acknowledge

Moving to development.

beginning and restaurants United approximately opened five efforts, international Guatemala including the to current the ever six restaurant, restaurant Our Philippines, revitalization in over in Emirates, new in XXX our initiatives Arab of our first quarter, Indonesia. second openings representing the Denny's the growth of have XX% openings Franchisees system. led since the

great ago current refranchising and a refranchising successfully led has same XX% Turning our that made to our team franchise XX% our efforts. strategy. The on from franchise transition to progress development decade business

interest been We we of ahead than have with and higher pace at communities' multiples very of been schedule and originally the franchise transactions, had anticipated. pleased have which

closed third strategy so the in last we second an the XX in since sale in on additional sold XX the announcement our of total have of resulting Specifically, restaurants restaurants on October. closed of the quarter, far quarter, and a XX restaurants

at the quarter. are of that XX transactions sales as for restaurants sale end held pending Additionally, for the classified were

at either have point, or sales of transactions sold on we total have pending a So XX restaurants. this

the completed on the on of moment. our a comments just by strategy result, to a I will few the As re-franchising in for details Mark substantially end wanted expect we expectations revised But progress. our more a to additional be XXXX. strategy provide share refranchising

for further franchisees and restaurant sale quickly sale the the business. to to of partners company Demand of excited and markets. restaurants strong, capitalized been West an how has Coast performing established in franchise their growth. the catalyst for is opportunity loyal, grow These appreciate a We're high operating particularly get well

initiatives. we to enable secured Denny's than excited to a through agreements have of the through still the this exchanges we ahead development most sale generation future breath on as leadership of originally estate a brand extend concurrent newer result, collaborate a like-kind into upgrade emerging As more the to and real while important, we of energy franchisees influence their is into is expected together of anticipated. series new our Perhaps restaurants effort portfolio quality XXXX. And on schedule, to are of great

invested elevate focus, Denny's closing, to to including on-demand, commitment as model, transition quality profitable investments to training strategies allocations support shareholder more our experience capital to sales convenience we gains, of enhancing highly of continue flow. everyday we and our adjusted menu, on growth, In our a friendly system enhancements and the remain value remodel heritage will and to program. the brand returns cash asset our free business share generating market These focused in strategies, guest accretive on compelling light

With Officer. that, I'll turn Chief Wolfinger, the and Chief Denny's Mark Administrative over call Financial Officer

Mark Wolfinger

John and afternoon everyone. good you, Thank

which domestic is system the include adjusted highlights quarter by despite and restaurants. lower wide growing year number compared second flat of company X.X%, to an generate Our $XX.X same-store of prior million, quarter sales a EBITDA

as XX.X% share $X.XX per income per year Adjusted share share adjusted These the from franchise our closings. the quarter free openings quarter. by first with restaurant restaurants, We total cash including $X.X and to offset X,XXX increased franchisees in were by restaurant Denny's flow was six in international million opened Indonesia. ended nine prior net per restaurants $X.XX

of an domestic strategy. to our was operating due increased of Franchise to and million, was X.X% direct revenue impact in XX.X% development in strategy margin. and primarily refranchising $XX.X development occupancy and increase the royalty year a due refranchising which improved our other same-store to XX.X% sales with primarily reduction Franchise in license and an prior growth X.X% to the costs, compared associated franchise and quarter, margin revenue,

million sales. company impacted company for restaurants, Consequently, were and commodities. franchise or strategy, our the X.X%. sales. strategy in to compared a pricing, restaurant refranchising X.X% XX.X% We're and sales operating enhanced restaurant same-store development Company to increases year partially resulted of $XX.X our number mix primarily quarter, an prior by margin restaurant and down portfolio the our Moving development increase XX.X% by in that wages partially to was and due equivalent lower approximately minimum offset in related to offset menu in quarter,

by administrative incentives performance-based based $XXX,XXX personnel and $XX.X to expenses costs. million general These EBITDA million. Total by in of share were compensation reduction contributed higher results offset expenses, adjusted partially impacted of $XX.X and

approximately at of amortization classifying company primarily resulting lower approximately a XX.X%. prior was current an the effective million, year was tax sale. tax rate for and lower as $X.X was restaurants equivalent held development and refranchise million million to $X The for in of $X.X income million, and Depreciation $X.X due income expense expense number quarter. from restaurants Interest reflecting and strategy, provision

completion net [Technical of $X.X million internal Difficulty] revenue and the settlement service to quarter, the During the an based the of related the company audit approximately compensation. share recognized

prior share Adjusted expenditures after provision $X.XX lower partially was $X.X the benefits. company due the compared to the million to in capital cash cash cash cash increases net to gains Adjusted compared the income by and year cash restaurants, year expenditures. capital taxes to free taxes to $X.XX primarily of in in flow tax offset sale primarily cash interest, was $XX.X on quarter, per million due prior quarter, related

of to to the remodels Absent prior free the to of and would Cash quarter. maintenance, expenditures cash been $X.X sale in facilities year included restaurants, million company related flow year prior have new on flat cash gains $X.X the million compared quarter. construction capital the taxes adjusted

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

allocated allocated end to and XX, in as additional $XX.X XXXX, July We quarter quarter. the resulting of the million repurchases, million share year-to-date. allocated Between we share $X.X repurchases to share million the $XX.X towards during an repurchases

million approximately XXXX, net share allocated $X.XX of XX count our program XX, reduction remaining shares share, million existing July $XXX of our share share leading repurchase had Since approximately in under repurchases company approximately authorization. we've in to beginning XXXX, repurchase As of price at share XX%. per million an average approximately million its to repurchase $XX authorized late a its in $XXX the

development total and strategy. to Now, information found I a the another XX on comments sold strategy. of John the updating on the would presentation Web quarter. like that can spend the the we includes XX This the and first far of few second be quarter under sold of Further during fourth investor moments current last have restaurants refranchising our his restaurants sold everyone restaurants previously our total quarter the sold in year, sold eight a XX in three third in in status quarter, in restaurants thus site. mentioned announced restaurants

we to of resulting on of over commitments. quarter, as received our in we of XX sale July. anticipation transactions, held times, the one front in over some pre-tax EBITDA X.X restaurants date, $XX end proceeds of and balance restaurants the of development of the piece additional multiple is the company million well fees, have end second XX including as XX sold real in refranchising for as classified In sheet Program approximately estate transaction fees

near-term. the a for a as that practices held identified to we will intent have of confidence specifically of sale and reminder, restaurants when in degree category occur the signed And move of our sale letter assets the to high

from We to interest the community, transition together. forward look this continue to be and encouraged franchise by continuing the

completed selling commitments. and Based vast on of transactions development company The be are XX the now management's XXX the XX between to these with transactions, current refranchising of expected and majority XXXX. for restaurants by company between expectations end attached total anticipates XXX

earnings more While a the and asset transition per cash light model business share EBITDA, adjusted lower free have this anticipate risk dilutive flow. adjusted effect an adjusted we will a from enhance accretive to on initially impact

$XX compared on business cost offset updated contribution range million actions, costs are compelling by EBITDA restaurants generate expected refranchised, billion income sell will our accretive rationalization. are to for rental restaurants partially us shareholders. to beginning with to returns refranchising total to The to enable of billion of range we These proceeds, Based rationalize to to to $XX $XX approximately our the expect previous revenue, more and we company of of the $XX combined be royalty million. be

our cost approximately how field XX% of are currently will expect support With savings operating the savings of savings these process functions, we approximately in the XX% from we in will refining support margins; underway, reductions years. the gradually come relationalize; from captured come from come structure; will with G&A of shared support the from adjustments and costs XX% Denny's over G&A corporate in to couple migrating remaining the costs next certain franchisees

in conclusion Following the of business our is similar expect efforts the adjusted inflationary to excluding results refranchising of and XXXX, pressures. yield EBITDA trailing rationalization we that costs, an the delivered we to level

to compared expect yield of level over million compared four these refranchising $XXX range EBITDA X $XXX across refranchising restaurant the on the the multiples estimate X X.X pretax and These receive between to times million million We previous of to processes. to times. on proceeds multiples of total guidance to the previous $XXX expected X.X transactions are to of

continue we portfolio operate volume is Vegas asset our maintenance remodel areas, as $XX with $X to company transition a and $X restaurants associated our annual the previous will cash guidance million more million of While light compared business capital a the to of strip, between $XX expenditures in of model highest to and expected to million trade million. reduce to such in costs Las

investments The in future shareholder leverage assess returns, strategy further ongoing capital, and coupled the allocation with royalty commitments, capital our strategic our associated support on revenue the shareholders. including remodel development refranchising proceeds broader reduction optimal that and returns shareholder balancing initiatives. We capital commitment friendly of the friendly goal will to maintenance an with of continually supports to profile return Denny's with and our

anticipate also we level result, our current leverage a times. from of As increasing the X.XX

approximately be we owned our through start exchanges. estate. approximately real million of part from strategy. lower upgrading the in will estate strategy the estate We $XX second like-kind of that to higher quality portfolio real Proceeds XX% acquire includes and generate redeployed XX the under sale the sale series real XX% of The of from of a the between properties at quality restaurants proceeds the our anticipate of of volume

to three for redeploy to properties $X.X term. proceeds transactions the exchange sold During we the quarter, these plan in the approximately near million, and like-kind

success. have our diligently the updated updated our outlook to We worked make second are very of we results proud strategy, the this strategy has a our development quarter team that and and for so business for refranchising Based expectations XXXX.

our expectations our between We X% restaurants are to increasing same-store franchise sales X% from for company and and to domestic guidance of previous X%. X%

net range We growth. guidance to from XX openings approximately while are XX, flat to tightening our to XX our current XX for new restaurant of reaffirming restaurant

expenses valuation to and administrative based guidance million franchise We and to from from expectations to total margin $XX are million million increasing XX.X% $XX $XX between general million. to planned to operating our between previous due our for XX% in for compensation XX.X% of between our between and share deferred and increases are XX%. adjusting adjustments, guidance Primarily $XX we compensation

the coupled EBITDA $XX faster than to just million. refranchising with from expected of other Due guidance revising I described, of $XXX we previous updates $XX $XX transactions, and between to between million guidance the adjusted expectations and million are our pace

million estimate to are versus from $X and Cash gains transactions, is million. million increase refranchising million. taxes the expected this million Included million million million guided $XX $XX in $XX $XX and which and now $XX anticipated to $XX to is between between taxes from previously $XX be an related between on

from transactions, to to we increasing $XX to to our million and expenditures are and $XX between previous million of million guidance million from our $XX between to million $XX exchange due cash million between $XX Related like-kind million. $XX $XX and strategy, increasing real-estate our $XX capital million

transactions between we transactions. accelerated of $XX cash $X real-estate and $XX refranchising to our adjusted to previous and free reflect million timing revising expectations million Finally, of the additional from are flow our million $XX million guidance to

flow And refranchising $XX for between XXXX million be adjusted from with the this million the would and million from X% and $XX cash free free expectations X% flow At excluded real-estate anticipated along were delivered $XX XXXX transactions, on respectively. and in represents as the a and growth taxes incremental transactions our note, adjusted $XX.X in the between cash if million. gains cash midpoint, anticipated

prepared turn comments. operator wraps-up now I'll portion call. our That Operator? to call the Q&A the over begin the of to our

Operator

Thank Stephens from you from [Operator will we question Slabaugh instructions]. take Will our first And Inc.

Will Slabaugh

for and a promotions some marketing. question had I

on the press on year drove you viral talk digital maybe basis your this during quarter most the your marketing what you marketing Can what some quarter? message, improvement during drives your thought there good the some worked thinking what of imply may the received acceleration media marketing future? about two You quarter, include as the about and the nice And well. if comps that in or

John Miller

Super would worked strategy starting priced for and a markets. with with new for a great in the news a along introduction combination us. introductions We combination But in barbell promotion, platform new $XXX the is interest of at product value a I Denny's, new was say Slam the good combination and us. higher premium prices of the combination well had which of for

to I with XX as to circumstances modules have to say that XX go of menu in both advanced every in to the as on flexibility value ahead that predictions so time. are, other depending with premium wouldn't news, in into the and/or much we on our we planning future the get core module months as too LTO at prior we than preparation want in mentioned calls, far attempting from

Will Slabaugh

a selling wondering, G&A, was as And how the stores little on, behind thing. increase has if that about planned that obviously sorry costs the more good in than I is affected do as guidance this. question and putting with missed as change what can then against I But well? that And of which initially based far quicker you you're a Mark, the to EBITDA was a on in then, give compensation much you color share had there. a little bit that around increase quote if number the

Mark Wolfinger

the first selling, assets. fact faster there drivers far of guidance. selling are EBITDA the we that -- primary we Well, So as as one stores obviously move is the on

EBITDA And guidance assets the projections, moved that of based so out adjusted looked as internal we on some our accordingly. the at we

sell the adjust So you Again, get our sooner back XXX-ish range is driver piece as was in in said. again, I past. achieved that soon that will is That Obviously, the as target think to biggest the there. an really just we the EBITDA the rationalization level EBITDA. store and for you But trail obviously to reference that obviously, that about the we've talked XXXX. in cost we've

the included a piece, actually our public in on G&A Specifically table we've documents.

as the today, have to strategy. as what really declined try share. obviously, Difficulty] there closed would what it If just two as administrative to show that we've to is I a and try far release, as Q we the development of see year-to-date be go will what you general or quarters, the and is actually a $XX you obviously -- I but number, there kind the back refranchising first at [Technical expenses in our look above point P&L And the of think also bit filing actually well. will out G&A. press And what call pure And I'm we

timeframe. So change in in nine that's about XX% that month price share

compensation the senior share plans Again, plans, management. also are three these year fees. based incentive long-term that's So for

based share that that's So piece.

years. incentive we're over on an incentive, of couple good based and off $X.X year the around Again, piece, that from Clearly, an annual cash annual year averaged is that's accrual standpoint the you our the that of compensation incentive XX% back our the look to at actual effect is a this about go piece, our current there through incentive first higher start cash year this cash the performance. last and proxy payout The quarters annual two also compensation to statement million. if increase shown which

that's So other explanation. the

So response the about the I long apologize third piece and here. -- winded

bottom as and shows as in backed that's piece to The up comp the we've the referred our talked when historically, G&A. I that equity valuation, about get improve which the adjustment, markets gets we line. negative a It again third out

is the first long-term really comp. annual But repeat year-over-year, And a cash So it comp time, almost Incentive two $X neutral plan. more big there, incentive plan. it's Share effect. will share the based for million. the one a I is quarters, and based comp that's drivers is

Will Slabaugh

if one I quick One could on off-premise.

growth throughout delivery big grew nice you driver your guess and basis will that restaurants how the year-over-year the mentioned delivery. You off-premise on say I quarter be business on that quickly of Did a that? that offered

Mark Wolfinger

you. to don't X% What to have remarks look from the front about I I'll my you. said in in in that mid-year growth. now. to didn't I I of XX% I give right that we've up gone XXXX have is me. quarterly get can back for

Operator

Nick we'll Setyan our And take Wedbush Securities. with next from question

Nick Setyan

Thank pricing Congrats versus you. quarter? versus Would on mix, you guys mind the the great transactions the out in breaking comp. the

Mark Wolfinger

the comps Sure. your a shifts that looking were the system. just question. I range. about X% I've gave think which the the Mix on And -- We pricing mid had the in least mid side flat at -- X.X%. answers got company X% traffic. were range, We in at

Nick Setyan

inflation? and we for about contracting terms as about seeing think egg costs of baking we costs of in of costs, XXXX. think kind food kind the we As are What

Mark Wolfinger

lot we've that much Nick, obviously, feared. I think there's has pricing. the an read around at pork hold research inflationary pork not is as standpoint and been latest news of bellies as looking been discussion and from taken And a I people

is now far the not what last much couple it's up talking between we're again of to XXXX, pretty that's without of significant we're X% pretty last the year, some be be on half XXXX, going change X%. probably years. question thinking seen to years. and pork prices, the kind couple right we've I your thinking, to been again, similar XXXX But mean, we in same yet. the And range for again shaping to I and know first think So I'm

know change of to you half say X specifically. again, again, that is effect. -- I Denny's X, that's of But commodity that was But commodity maybe part

been commodities was have part. of part not And on it So our inflationary. that menu improvements

to ingredients decisions X upgrade menu about of half X within that certain was, to we made our and again So that range.

on your again, but to -- So 'XX. question

pork certainly the held yet or inflationary up severe So articles We'll at third a of months as that. into better more really news the us, the XXXX, into current hasn't as the some far, we call and haven't and reports has okay it probably as give on year. pricing for side ago. we're little On we talked been insight quarter bit of XXXX through October, end get much about insight the halfway really since only get a several

Nick Setyan

you Last talk question variances of Do comps. as see well? any the also if kind geographic dayparts on dayparts, and about you can

John Miller

operations. penetrated of of those Texas, reorder basis. with our newer York in in I'd a things the it energy New strength and to be some relative will of Sure. there the our dayparts out X.X% states region Florida, comps by and first, on softer regional, The and franchisees into, at dinner and On going dinner with a positive some lunch, Nick. I'll more year-to-day at negative Texas and nice followed by Florida, is New then for breakfast and the system transference and York followed was say, breakfast on But some strongest improvements and do late the year-to-date night in nearly was slightly -- York night. quarter continue California, with were New lunch. Dayparts strongest then deeply actually California late then

Operator

And with we next will Maxim from Anderson Group. our take question Stephen

Mark Wolfinger

have Do Steve, us. it's for lost, have we may like question Mark. Steve… you It a looks

Operator

We instructions] Maxim [Operator with take another Group. question Stephen will from Anderson

Stephen Anderson

free much given Just on how you buyback outlook flow? your authorization for your adjusted share ask have wanted to cash

Mark Wolfinger

that we that. little bit talked clarify comments, think a about my will in I I

we quoted we place, we I dollar over update give to put year-to-date shares buy we've got years our the so yesterday that our also think think I on million. $XX we think buyback -- wanted in bit, July share timeframe million what the I everybody little terms moved little $XXX And is two up bit basically about $XX million number, a left And XXth. ago. number we a in an the -- and through authorization back on a because

So of slightly that July date $XX million. stock. again, be but activity July would over second repurchased we year-to-date, XXth so plus the And $XX XXth quarter the million just through that's in about the in July,

Operator

Instructions] [Operator

Curt Nichols

Okay.

thank everyone in look and for call. Thank to you late like discuss during XXXX joining call quarter on all, we earnings us to our great and conference today's We evening. have forward results. next our I'd third a October, which each So will

Denny's (DENN) 30 Jul 192019 Q2 Earnings call transcript