Second Quarter Results
For the second quarter of 2012, franchise and license revenue increased 5.2% to $33.5 million compared with $31.8 million in the prior year quarter. The $1.7 million increase in franchise revenue was primarily driven by a $0.9 million increase in royalties due to 51 additional equivalent franchise restaurants and the effects of higher same-store sales in addition to higher occupancy revenue. Company restaurant sales of $91.2 million decreased $12.8 million due to 36 fewer equivalent company restaurants compared with the prior year quarter. Denny’s total operating revenue, including both company restaurant sales and franchise revenue, was $124.7 million compared with $135.9 million in the prior year quarter.
Denny’s opened nine new franchised units in the second quarter of this year, including two international units in the Dominican Republic and Canada. During the quarter, Denny’s closed five franchised and company restaurants and franchisees purchased 17 company-owned restaurants.
Total operating margin increased $1.0 million, or 2.9%, to $35.6 million. Franchise operating margin increased $1.4 million to $22.1 million primarily due to the increases in franchise royalties and occupancy margin. Company restaurant operating margin decreased $0.4 million primarily due to the impact of selling company-owned units to franchisees.As a percentage of total operating revenue, total operating margin increased 3.0 percentage points to 28.5%. Franchise operating margin, as a percentage of franchise and license revenue, was 66.0%, an increase of 0.8 percentage points compared with the prior year quarter. Company restaurant operating margin (as a percentage of company restaurant sales) was 14.8%, an increase of 1.5 percentage points compared with the prior year quarter. The increase in company restaurant operating margin was primarily driven by lower other operating costs and lower payroll and benefit costs compared to the prior year quarter. Total general and administrative expenses increased $0.7 million compared with the prior year quarter primarily due to higher performance-based compensation accruals.