Denny's Corporation Reports Results for Third Quarter 2024 and Hosts Investor Day Today
SPARTANBURG, S.C., Oct. 22, 2024 (GLOBE NEWSWIRE) -- Denny's Corporation (the "Company") (NASDAQ:DENN), owner and operator of Denny's Inc. ("Denny's") and Keke's Inc. ("Keke's") today reported results for its third quarter ended September 25, 2024 and provided a business update on the Company's operations.
Kelli Valade, Chief Executive Officer, stated, "Our third quarter sales results directly reflect ongoing brand investments and dedicated focus on value that resulted in outpacing the category. Denny's domestic system-wide same-restaurant sales** outperformed the BBI Family Dining index for the third consecutive quarter driven by the relaunch of our fan favorite $2-$4-$6-$8 value menu and the continued expansion of off-premises with our third virtual brand, Banda Burrito. Keke's also experienced significant sequential improvement in same-restaurant sales** as our initiatives to enact foundational marketing strategies and expand the alcohol program continued our efforts to close the gap to the competitive set. We are also very excited to be hosting an Investor Day today."
Beginning at 9:00am EST this morning, the Company will be hosting an Investor Day in New York, as well as a live webcast, to detail strategic initiatives to build on its third quarter progress and ensure long-term financial opportunities for its brands. The investor day will highlight the Company's plan to grow average unit volume sales, margins and the portfolio, while balancing capital allocations to maximize shareholder returns.
Third Quarter 2024 Highlights(1)
Total operating revenue was $111.8 million compared to $114.2 million for the prior year quarter.
Denny's domestic system-wide same-restaurant sales** were (0.1%) compared to the equivalent fiscal period in 2023, including (0.1%) at domestic franchised restaurants and (0.4%) at company restaurants.
Opened two Denny's domestic franchised restaurants.
Completed six Denny's remodels, including three company remodels.
Operating income was $11.7 million compared to $14.0 million for the prior year quarter.
Adjusted franchise operating margin* was $30.1 million, or 51.0% of franchise and license revenue, and Adjusted company restaurant operating margin* was $6.2 million, or 11.8% of company restaurant sales.
Net income was $6.5 million, or $0.12 per diluted share.
Adjusted net income* and adjusted net income per share* were $7.2 million and $0.14, respectively.
Adjusted EBITDA* was $20.0 million.
(1) Beginning fiscal 2024, the Company has evolved its definition of non-GAAP measures. Please see the definitions, explanations, and reconciliations further in this release.
Third Quarter 2024 Results
Total operating revenue was $111.8 million compared to $114.2 million for the prior year quarter.
Franchise and license revenue was $59.1 million compared to $61.0 million for the prior year quarter. This change was primarily driven by a decrease in initial and other fees associated with the sale of kitchen equipment in the prior year quarter, and decreases in equivalent units and franchise occupancy revenue, partially offset by an increase in franchise advertising revenue primarily related to higher local advertising co-op contributions for the current quarter.
Company restaurant sales were $52.7 million compared to $53.2 million for the prior year quarter primarily driven by four fewer Denny's equivalent units, including three refranchised units, partially offset by three additional Keke's equivalent units for the current quarter.
Adjusted franchise operating margin* was $30.1 million, or 51.0% of franchise and license revenue, compared to $31.1 million, or 51.0% for the prior year quarter. This margin change was primarily driven by the impact of fewer equivalent units on royalty revenues and lease terminations.
Adjusted company restaurant operating margin* was $6.2 million, or 11.8% of company restaurant sales, compared to $7.6 million, or 14.3% for the prior year quarter. This margin change was primarily due to investments in marketing and higher occupancy costs, including general liability insurance costs, for the current quarter.
Total general and administrative expenses were $19.8 million compared to $18.2 million in the prior year quarter. This change was primarily due to an increase in corporate administration expense.
The provision for income taxes was $1.5 million, reflecting an effective tax rate of 18.5% for the current quarter.
Net income was $6.5 million, or $0.12 per diluted share. Adjusted net income* per share was $0.14.
The Company ended the quarter with $272.0 million of total debt outstanding, including $261.0 million of borrowings under its credit facility.
Capital Allocation
The Company invested $7.8 million in cash capital expenditures, which included Keke's new development and Denny's company remodels.
During the quarter, the Company allocated $1.8 million to share repurchases resulting in approximately $89.2 million remaining under its existing repurchase authorization.
Business Outlook
The following full year 2024 expectations reflect management's expectations that the current consumer and economic environment will not change materially, as well as the Company's strategic initiative to accelerate the closure of lower volume Denny's restaurants.
Denny's domestic system-wide same-restaurant sales** between (1%) and 0% (vs. between (1%) and 1%).
Consolidated restaurant openings of 30 to 40, including 12 to 16 new Keke's restaurants, with a consolidated net decline of 45 to 55 (vs. 20 to 30).
Commodity inflation of approximately 2% (vs. between 0% and 2%).
Labor inflation between 3% and 4%.
Total general and administrative expenses between $82 million and $85 million, including approximately $11 million related to share-based compensation expense which does not impact Adjusted EBITDA*.
Adjusted EBITDA* between $81 million and $84 million (vs. between $83 million and $87 million).
*
Please refer to the Reconciliation of Net Income to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income to Non-GAAP Financial Measures included in the tables below. The Company is not able to reconcile the forward-looking non-GAAP estimate set forth above to its most directly comparable U.S. generally accepted accounting principles (GAAP) estimates without unreasonable efforts because it is unable to predict, forecast or determine the probable significance of the items impacting these estimates, including gains, losses and other charges, with a reasonable degree of accuracy. Accordingly, the most directly comparable forward-looking GAAP estimate is not provided.
**
Same-restaurant sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, initial and other fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-restaurant sales and domestic system-wide same-restaurant sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP.
Conference Call and Webcast Information
The Company will provide further commentary on the results for the third quarter ended September 25, 2024 and its investor day on a webcast today, Tuesday, October 22, 2024 at 9:00 a.m. Eastern Time. Interested parties are invited to listen to the webcast accessible through the Company's investor relations website at investor.dennys.com.
About Denny's Corporation
Denny's Corporation is one of America's largest full-service restaurant chains based on number of restaurants. As of September 25, 2024, the Company consisted of 1,586 restaurants, 1,514 of which were franchised and licensed restaurants and 72 of which were company operated.
The Company consists of the Denny's brand and the Keke's brand. As of September 25, 2024, the Denny's brand consisted of 1,525 global restaurants, 1,464 of which were franchised and licensed restaurants and 61 of which were company operated. As of September 25, 2024, the Keke's brand consisted of 61 restaurants, 50 of which were franchised restaurants and 11 of which were company operated.
For further information on Denny's Corporation, including news releases, links to SEC filings, and other financial information, please visit investor.dennys.com.
Non-GAAP Definition Changes
The Company has evolved its definition of non-GAAP financial measures starting in fiscal 2024 to provide more clarity and comparability relative to peers. Denny's Corporation management uses certain non-GAAP measures in analyzing operating performance and believes that the presentation of these measures provides investors and analysts with information that is beneficial to gaining an understanding of the Company's financial results. Non-GAAP disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP.
The Company excludes legal settlement expenses, pre-opening expenses, and other items management does not consider in the evaluation of its ongoing core operating performance from adjusted operating margin*, adjusted net income*, adjusted net income per share*, and adjusted EBITDA*. In addition, the Company no longer deducts cash payments for restructuring and exit costs, or cash payments for share-based compensation from Adjusted EBITDA*. Lastly, the Company has transitioned to utilizing GAAP cash flows included in its SEC filed documents in lieu of a non-GAAP financial measure.
Reconciliations of these non-GAAP measures are included in the tables of this press release and a recast of historical non-GAAP financial measures can be found on the Company's website, or its most recent investor presentation.
Cautionary Language Regarding Forward-Looking Statements
The Company urges caution in considering its current trends and any outlook on earnings disclosed in this press release. In addition, certain matters discussed in this release may constitute forward-looking statements. These forward-looking statements, which reflect management's best judgment based on factors currently known, are intended to speak only as of the date such statements are made and involve risks, uncertainties, and other factors that may cause the actual performance of Denny's Corporation, its subsidiaries, and underlying restaurants to be materially different from the performance indicated or implied by such statements. Words such as "expect", "anticipate", "believe", "intend", "plan", "hope", "will", and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others: economic, public health and political conditions that impact consumer confidence and spending, commodity and labor inflation; the ability to effectively staff restaurants and support personnel; the Company's ability to maintain adequate levels of liquidity for its cash needs, including debt obligations, payment of dividends, planned share repurchases and capital expenditures as well as the ability of its customers, suppliers, franchisees and lenders to access sources of liquidity to provide for their own cash needs; competitive pressures from within the restaurant industry; the Company's ability to integrate and derive the expected benefits from its acquisition of Keke's Breakfast Cafe; the level of success of the Company's operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses or other diseases; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy (including with regard to energy costs), particularly at the retail level; political environment and geopolitical events (including acts of war and terrorism); and other factors from time to time set forth in the Company's SEC reports and other filings, including but not limited to the discussion in Management's Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company's Annual Report on Form 10-K for the year ended December 27, 2023 (and in the Company's subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K).
DENNY'S CORPORATION
Consolidated Balance Sheets
(Unaudited)
($ in thousands)
9/25/24
12/27/23
Assets
Current assets
Cash and cash equivalents
$
1,466
$
4,893
Investments
2,902
1,281
Receivables, net
17,038
21,391
Inventories
1,835
2,175
Assets held for sale
—
1,455
Prepaid and other current assets
10,610
12,855
Total current assets
33,851
44,050
Property, net
101,532
93,494
Finance lease right-of-use assets, net
6,411
6,098
Operating lease right-of-use assets, net
121,169
116,795
Goodwill
66,357
65,908
Intangible assets, net
92,112
93,428
Deferred financing costs, net
1,225
1,702
Other noncurrent assets
38,966
43,343
Total assets
$
461,623
$
464,818
Liabilities
Current liabilities
Current finance lease liabilities
$
1,457
$
1,383
Current operating lease liabilities
15,076
14,779
Accounts payable
14,685
24,070
Other current liabilities
56,474
63,068
Total current liabilities
87,692
103,300
Long-term liabilities
Long-term debt
261,000
255,500
Noncurrent finance lease liabilities
9,540
9,150
Noncurrent operating lease liabilities
117,390
114,451
Liability for insurance claims, less current portion
7,160
6,929
Deferred income taxes, net
4,619
6,582
Other noncurrent liabilities
28,705
31,592
Total long-term liabilities
428,414
424,204
Total liabilities
516,106
527,504
Shareholders' deficit
Common stock
533
529
Paid-in capital
13,129
6,688
Deficit
(7,009
)
(21,784
)
Accumulated other comprehensive loss, net
(43,445
)
(41,659
)
Treasury stock
(17,691
)
(6,460
)
Total shareholders' deficit
(54,483
)
(62,686
)
Total liabilities and shareholders' deficit
$
461,623
$
464,818
Debt Balances
Credit facility revolver due 2026
$
261,000
$
255,500
Finance lease liabilities
10,997
10,533
Total debt
$
271,997
$
266,033
DENNY'S CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
Quarter Ended
($ in thousands, except per share amounts)
9/25/24
9/27/23
Revenue:
Company restaurant sales
$
52,701
$
53,153
Franchise and license revenue
59,058
61,030
Total operating revenue
111,759
114,183
Costs of company restaurant sales, excluding depreciation and amortization
46,820
45,893
Costs of franchise and license revenue, excluding depreciation and amortization
28,999
29,810
General and administrative expenses
19,831
18,237
Depreciation and amortization
3,622
3,605
Operating (gains), losses and other charges, net
746
2,620
Total operating costs and expenses, net
100,018
100,165
Operating income
11,741
14,018
Interest expense, net
4,571
4,381
Other nonoperating (income) expense, net
(824
)
43
Income before income taxes
7,994
9,594
Provision for income taxes
1,478
1,686
Net income
$
6,516
$
7,908
Net income per share - basic
$
0.12
$
0.14
Net income per share - diluted
$
0.12
$
0.14
Basic weighted average shares outstanding
52,148
55,869
Diluted weighted average shares outstanding
52,207
56,082
Comprehensive (loss) income
$
(2,468
)
$
20,469
General and Administrative Expenses
Corporate administrative expenses
$
15,875
$
14,580
Share-based compensation
3,006
2,864
Incentive compensation
447
1,049
Deferred compensation valuation adjustments
503
(256
)
Total general and administrative expenses
$
19,831
$
18,237
DENNY'S CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
Three Quarters Ended
($ in thousands, except per share amounts)
9/25/24
9/27/23
Revenue:
Company restaurant sales
$
159,391
$
161,486
Franchise and license revenue
178,269
187,083
Total operating revenue
337,660
348,569
Costs of company restaurant sales, excluding depreciation and amortization
142,516
138,953
Costs of franchise and license revenue, excluding depreciation and amortization
89,801
92,657
General and administrative expenses
61,539
58,515
Depreciation and amortization
10,938
10,878
Goodwill impairment charges
20
—
Operating (gains), losses and other charges, net
1,984
2,467
Total operating costs and expenses, net
306,798
303,470
Operating income
30,862
45,099
Interest expense, net
13,564
13,288
Other nonoperating (income) expense, net
(1,685
)
9,470
Income before income taxes
18,983
22,341
Provision for income taxes
4,208
5,298
Net income
$
14,775
$
17,043
Net income per share - basic
$
0.28
