SPARTANBURG, S.C.--(BUSINESS WIRE)--April 29, 2008--Denny's
Corporation (NASDAQ:DENN) today reported results for its first quarter
ended March 26, 2008.
First Quarter Summary
- Same-store sales increased 0.7% at company units and decreased
0.9% at franchised units
- Net income increased $3.8 million to $5.0 million
- Adjusted income before taxes increased $2.1 million to $2.0
million
- Sold 21 company restaurants to four franchisees under
Franchise Growth Initiative (FGI)
- Opened nine new franchised restaurants and one new company
restaurant
Nelson Marchioli, President and Chief Executive Officer, stated,
"We are pleased with the progress we are making to optimize our
business model and strengthen our balance sheet, despite the difficult
operating and economic environment impacting our industry. We are
confronting the challenges of reduced consumer spending and rising
commodity costs with promotional items that have strong customer
appeal and offer a compelling value but are also designed to benefit
our food cost margins. In addition, our current marketing campaign
'Real Breakfast 24/7' powerfully emphasizes the quality and value of
Denny's real breakfast experience."
Mr. Marchioli concluded, "While we do not foresee near-term
improvement in the macroeconomic pressures on our business, we believe
our strategic actions will strengthen our long-term financial
performance and enhance shareholder value."
First Quarter Results
For the first quarter of 2008, Denny's reported total operating
revenue, including company restaurant sales and franchise revenue, of
$196.0 million compared with $236.8 million in the prior year quarter.
Company restaurant sales decreased $46.2 million due to the sale of
company restaurants to franchisees under the Franchise Growth
Initiative. A 0.7% increase in same-store sales at company restaurants
partially offset the impact of 128 fewer equivalent company
restaurants compared with the prior year quarter. During the first
quarter, Denny's opened one new company restaurant, closed one and
sold 21 to franchisee operators.
Company restaurant operating margin (as a percentage of company
restaurant sales) for the first quarter was 10.7%, a decrease of 0.6
percentage points compared with the same period last year. Product
costs for the first quarter decreased 0.8 percentage points to 24.7%
of sales due primarily to favorable menu mix. Payroll and benefit
costs increased 0.5 percentage points to 43.5% of sales as a result of
investment in restaurant management staffing. Other operating expenses
increased 0.6 percentage points to 4.3% of sales due primarily to an
insurance benefit of $0.6 million in the prior year period.
Franchise revenue in the first quarter increased $5.5 million, or
26%, to $26.4 million due primarily to an increase of 136 equivalent
franchise restaurants compared with the prior year period. The growth
in franchise revenue included a $2.7 million increase in rental
income, a $2.0 million increase in royalties and a $0.7 million
increase in franchise fees. Franchise operating margin increased by
$3.8 million, or 26%, in the first quarter as higher franchise revenue
offset a $1.7 million increase in franchise costs attributable to
higher rental expense. During the first quarter, Denny's franchisees
opened nine new restaurants, closed five and purchased 21 company
restaurants.
General and administrative expenses for the first quarter declined
$0.3 million from the same period last year resulting primarily from a
$0.6 million decrease in share-based compensation expenses.
Depreciation and amortization expense for the first quarter
declined by $2.6 million compared with the prior year period primarily
as a result of the sale of restaurant and real estate assets over the
past year. Operating gains, losses and other charges, net, which
reflect restructuring charges, exit costs, impairment charges and
gains or losses on the sale of assets, increased $7.0 million in the
quarter due primarily to a $7.4 million increase in gains on the sale
of restaurants.
Operating income for the first quarter increased $7.5 million to
$20.2 million due primarily to the increase in gains on the sale of
restaurants. Excluding gains, losses, and other charges in both
periods, operating income increased $0.5 million despite a $40.8
million decrease in total operating revenue.
Interest expense for the first quarter decreased $2.1 million, or
approximately 19%, to $9.2 million as a result of a $94.4 million
reduction in debt from the prior year period.
Other nonoperating expense increased $5.6 million in the first
quarter due primarily to the discontinuance of hedge accounting
related to a $150 million interest rate swap on Denny's credit
facility term loans. Under the current accounting treatment, changes
in the fair value of the swap are reflected as nonoperating expense or
income.
Net income for the first quarter was $5.0 million, or $0.05 per
diluted common share, an increase of $3.8 million compared with prior
year net income of $1.2 million, or $0.01 per diluted common share.
Adjusted income before taxes for the first quarter was $2.0 million,
an increase of $2.1 million compared with the prior year loss of $0.1
million. This measure, which is used as an internal profitability
metric, excludes restructuring charges, exit costs, impairment
charges, asset sale gains, share-based compensation, other
nonoperating expenses and income taxes.
Accounting Methodology Review
We are currently in the process of reviewing, in consultation with
our external auditors, our current and historical methodology for
writing off a portion of goodwill as restaurants are sold to
franchisees. The unaudited financial statements presented herein have
not been adjusted for any change to our methodology that may result
from our review. We currently expect that a change to our methodology
could cause goodwill; operating gains, losses and other charges, net;
and net income before taxes to decrease as follows:
Quarter ended March 28, 2007 approximately $0.0 to $0.5 million
Year ended December 26, 2007 approximately $3.0 to $4.5 million
Quarter ended March 26, 2008 approximately $0.5 to $1.5 million
These potential adjustments would be noncash in nature and would
have no impact on cash flows, adjusted income (loss) before taxes, as
defined herein, or adjusted EBITDA, as defined herein. Our estimates
are preliminary and could change based on our final conclusions. We
expect to complete this review by the time we file our Form 10-Q on
May 5, 2008 for the quarter ended March 26, 2008.
Franchise Growth Initiative (FGI)
Denny's continues its strategic initiative to increase franchise
restaurant development through the sale of certain company
restaurants. During the first quarter, the company sold 21 restaurants
to four franchisee operators. This brings the total number of company
restaurants sold to-date under FGI to 151. The first quarter
transactions generated net cash proceeds of $14.4 million; however,
approximately $12.7 million of the proceeds are included in
receivables on the quarter-end balance sheet as the funds were
received after the first quarter closed.
During the first quarter, franchisees signed FGI-related
development agreements committing to build 9 franchise restaurants.
Also during the quarter, franchisees signed traditional development
agreements (MGIP) committing to build an additional 6 restaurants.
Over the last 15 months, Denny's has signed development agreements for
135 new restaurants, 12 of which have opened, yielding a current
development pipeline of 123 restaurant commitments.
Further Information
Denny's will provide further commentary on its results for the
first quarter of 2008 on its quarterly investor conference call today,
Tuesday, April 29, 2008 at 5:00 p.m. EST. Interested parties are
invited to listen to a live broadcast of the conference call
accessible through Denny's website at www.dennys.com. On the front
page of the website, follow the link to "Investor Relations." Then
select the "Webcast" icon under "Upcoming Events." A replay of the
call may be accessed at the same location later in the day and will
remain available for 30 days.
Denny's is America's largest full-service family restaurant chain,
consisting of 373 company-owned units and 1,177 franchised and
licensed units, with operations in the United States, Canada, Costa
Rica, Guam, Mexico, New Zealand and Puerto Rico. For further
information on Denny's, including news releases, links to SEC filings
and other financial information, please visit the Denny's website.
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 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 "expects", "anticipates",
"believes", "intends", "plans", "hopes", 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:
the competitive pressures from within the restaurant industry; the
level of success of the Company's operating initiatives, advertising
and promotional efforts; adverse publicity; changes in business
strategy or development plans; terms and availability of capital;
regional weather conditions; overall changes in the general economy,
particularly at the retail level; political environment (including
acts of war and terrorism); and other factors from time to time set
forth in the Company's SEC reports, 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 26, 2007 (and in the
Company's subsequent quarterly reports on Form 10-Q).
/font>
DENNY'S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Quarter Quarter
Ended Ended
(In thousands, except per share amounts) 3/26/08 3/28/07
--------- ---------
Revenue:
Company restaurant sales $169,593 $215,801
Franchise and license revenue 26,403 20,950
--------- ---------
Total operating revenue 195,996 236,751
--------- ---------
Costs of company restaurant sales 151,435 191,435
Costs of franchise and license revenue 8,171 6,475
General and administrative expenses 15,615 15,926
Depreciation and amortization 10,241 12,878
Operating gains, losses and other charges, net (9,648) (2,633)
--------- ---------
Total operating costs and expenses 175,814 224,081
--------- ---------
Operating income 20,182 12,670
--------- ---------
Other expenses:
Interest expense, net 9,201 11,341
Other nonoperating expense (income), net 5,376 (197)
--------- ---------
Total other expenses, net 14,577 11,144
--------- ---------
Income before income taxes 5,605 1,526
Provision for income taxes 622 363
--------- ---------
Net income $ 4,983 $ 1,163
========= =========
Net income per share:
Basic $ 0.05 $ 0.01
========= =========
Diluted $ 0.05 $ 0.01
========= =========
Weighted average shares outstanding:
Basic 94,826 93,416
========= =========
Diluted 98,388 98,976
========= ========
DENNY'S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) 3/26/08 12/26/07
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 18,563 $ 21,565
Receivables, net 26,355 13,585
Assets held for sale 3,734 6,712
Other 14,639 16,011
---------- ----------
63,291 57,873
---------- ----------
Property, net 180,838 184,610
Goodwill 46,065 46,185
Intangible assets, net 61,606 62,657
Other assets 32,997 29,777
---------- ----------
Total Assets $ 384,797 $ 381,102
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Current maturities of notes and debentures $ 1,680 $ 2,085
Current maturities of capital lease obligations 3,865 4,051
Accounts payable and other accrued liabilities 121,525 125,331
---------- ----------
127,070 131,467
---------- ----------
Long-Term Liabilities
Notes and debentures, less current maturities 325,936 325,971
Capital lease obligations, less current
maturities 21,421 20,845
Other 82,561 81,689
---------- ----------
429,918 428,505
---------- ----------
Total Liabilities 556,988 559,972
Total Shareholders' Deficit (172,191) (178,870)
---------- ----------
Total Liabilities and Shareholders' Deficit $ 384,797 $ 381,102
========== ==========
Debt Balances
(In thousands) 3/26/08 12/26/07
---------- ----------
Credit facility revolver loans $ - $ -
Credit facility term loans 152,138 152,523
Capital leases and other debt 25,764 25,429
Senior notes due 2012 175,000 175,000
---------- ----------
Total Debt $ 352,902 $ 352,952
========== ==========
DENNY'S CORPORATION
Income, EBITDA and G&A Reconciliations
(Unaudited)
Quarter Quarter
Income and EBITDA Reconciliation Ended Ended
(In millions) 3/26/08 3/28/07
--------------- -------------
Net income $ 5.0 $ 1.2
Provision for income taxes 0.6 $ 0.4
Operating gains, losses and other
charges, net (9.6) $ (2.6)
Other nonoperating expense, net 5.4 $ (0.2)
Share-based compensation 0.6 $ 1.2
--------------- -------------
Adjusted income (loss) before taxes (1) $ 2.0 $ (0.1)
--------------- -------------
Interest expense, net 9.2 11.3
Depreciation and amortization 10.2 12.9
Cash payments for restructuring charges
and exit costs (1.5) (2.0)
Cash payments for share-based
compensation (0.4) -
--------------- -------------
Adjusted EBITDA (1) $ 19.5 $ 22.1
=============== =============
Quarter Quarter
General and Administrative Expenses Ended Ended
Reconciliation
(In millions) 3/26/08 3/28/07
--------------- -------------
Share-based compensation $ 0.6 $ 1.2
Other general and administrative
expenses 15.0 $ 14.7
--------------- -------------
Total general and administrative
expenses $ 15.6 $ 15.9
=============== =============
(1) We believe that, in addition to other financial measures, Adjusted
Income Before Taxes and Adjusted EBITDA are appropriate indicators to
assist in the evaluation of our operating performance on a period-to-
period basis. We also use Adjusted Income and Adjusted EBITDA
internally as performance measures for planning purposes, including
the preparation of annual operating budgets, and for compensation
purposes, including bonuses for certain employees. Adjusted EBITDA is
also used to evaluate our ability to service debt because the
excluded charges do not have an impact on our prospective debt
servicing capability and these adjustments are contemplated in our
senior credit facility for the computation of our debt covenant
ratios. However, Adjusted Income and Adjusted EBITDA should be
considered as a supplement to, not a substitute for, operating
income, net income or other financial performance measures prepared
in accordance with U.S. generally accepted accounting principles.
DENNY'S CORPORATION
Quarterly Operating Margins
(Unaudited)
Quarter Quarter
Ended Ended
(In millions) 3/26/08 3/28/07
----------------- ----------------
Total operating revenue (1) $ 196.0 100.0% $ 236.8 100.0%
Company restaurant operations: (2)
Company restaurant sales 169.6 100.0% 215.8 100.0%
Costs of company restaurant sales:
Product costs 41.9 24.7% 55.1 25.5%
Payroll and benefits 73.7 43.5% 92.9 43.0%
Occupancy 10.6 6.2% 13.1 6.1%
Other operating costs:
Utilities 8.3 4.9% 10.8 5.0%
Repairs and maintenance 3.7 2.2% 3.9 1.8%
Marketing 5.6 3.3% 7.2 3.3%
Legal settlements 0.4 0.2% 0.5 0.3%
Other 7.3 4.3% 7.9 3.7%
---------------- ----------------
Total costs of company restaurant
sales $ 151.4 89.3% $ 191.4 88.7%
---------------- ----------------
Company restaurant operating
margin (3) $ 18.2 10.7% $ 24.4 11.3%
---------------- ----------------
Franchise operations: (4)
Franchise and license revenue $ 26.4 100.0% $ 21.0 100.0%
Costs of franchise and license
revenue 8.2 30.9% 6.5 30.9%
---------------- ----------------
Franchise operating margin (3) $ 18.2 69.1% $ 14.5 69.1%
---------------- ----------------
Total operating margin (1)(3) $ 36.4 18.6% $ 38.8 16.4%
Other operating expenses: (1)(3)
General and administrative expenses 15.6 8.0% 15.9 6.7%
Depreciation and amortization 10.2 5.2% 12.9 5.4%
Operating gains, losses and other
charges, net (9.6) (4.9%) (2.6) (1.1%)
---------------- ----------------
Total other operating expenses $ 16.2 8.3% $ 26.2 11.1%
---------------- ----------------
---------------- ----------------
Operating income (1) $ 20.2 10.3% $ 12.7 5.4%
================ ================
(1) As a percentage of total operating revenue
(2) As a percentage of company restaurant sales
(3) Other operating expenses such as general and administrative
expenses and depreciation and amortization relate to both company and
franchise operations and are not allocated to costs of company
restaurant sales and costs of franchise and license revenue. As such,
operating margin is considered a non-GAAP financial measure.
Operating margins should be considered as a supplement to, not as a
substitute for, operating income, net income or other financial
measures prepared in accordance with U.S. generally accepted
accounting principles.
(4) As a percentage of franchise and license revenue
DENNY'S CORPORATION
Statistical Data
(Unaudited)
Quarter Quarter
Same-Store Sales Ended Ended
(increase/(decrease) vs. prior year) 3/26/08 3/28/07
---------- ----------
Same-Store Sales
Company Restaurants 0.7% (1.8%)
Franchised Restaurants (0.9%) (0.7%)
System-wide Restaurants (0.4%) (1.1%)
Company Restaurant Sales Detail
Guest Check Average 5.7% 2.7%
Guest Counts (4.7%) (4.3%)
Quarter Quarter
Average Unit Sales Ended Ended
($ in thousands) 3/26/08 3/28/07
---------- ----------
Company Restaurants $ 433.3 $ 416.0
Franchised Restaurants $ 366.7 $ 366.5
Franchised
Restaurant Unit Activity Company & Licensed Total
------- ---------- ------
Ending Units 12/26/07 394 1,152 1,546
Units Opened 1 9 10
Units Refranchised (21) 21 0
Units Closed (1) (5) (6)
------- ---------- ------
Net Change (21) 25 4
------- ---------- ------
Ending Units 3/26/08 373 1,177 1,550
======= ========== ======
Equivalent Units
First Quarter 2007 519 1,023 1,542
First Quarter 2008 391 1,159 1,550
------- ---------- ------
(128) 136 8
======= ========== ======
CONTACT: Denny's Corporation
Investor Contact: Alex Lewis, 877-784-7167
Media Contact: Debbie Atkins, 864-597-8361
SOURCE: Denny's Corporation
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