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Denny’s Corporation Reports Results For Second Quarter 2012

Stocks in this article: DENN

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 our 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 “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 strategic and 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 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 28, 2011 (and in the Company’s subsequent quarterly reports on Form 10-Q).

DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
               
Quarter Quarter
Ended Ended
(In thousands, except per share amounts) 6/27/12 6/29/11
Revenue:
Company restaurant sales $ 91,239 $ 104,021
Franchise and license revenue   33,492     31,832  
Total operating revenue   124,731     135,853  
Costs of company restaurant sales 77,743 90,154
Costs of franchise and license revenue 11,386 11,085
General and administrative expenses 14,785 14,092
Depreciation and amortization 5,827 7,234
Operating (gains), losses and other charges, net   (4,009 )   (419 )
Total operating costs and expenses   105,732     122,146  
Operating income   18,999     13,707  
Other expenses:
Interest expense, net 2,993 4,901
Other nonoperating expense, net   8,198     268  
Total other expenses, net   11,191     5,169  
Net income before income taxes 7,808 8,538
Provision for income taxes   3,207     408  
Net income $ 4,601   $ 8,130  
 
 
Net income per share:
Basic $ 0.05   $ 0.08  
Diluted $ 0.05   $ 0.08  
 
Weighted average shares outstanding:
Basic   95,637     98,421  
Diluted   97,408     100,602  
 
Comprehensive income $ 4,869   $ 8,130  
 
DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
               
Two Quarters Two Quarters
Ended Ended
(In thousands, except per share amounts) 6/27/12 6/29/11
Revenue:
Company restaurant sales $ 185,402 $ 208,576
Franchise and license revenue   66,067     63,082  
Total operating revenue   251,469     271,658  
Costs of company restaurant sales 157,698 182,102
Costs of franchise and license revenue 22,698 22,650
General and administrative expenses 30,448 28,231
Depreciation and amortization 11,887 14,422
Operating (gains), losses and other charges, net   (4,174 )   (948 )
Total operating costs and expenses   218,557     246,457  
Operating income   32,912     25,201  
Other expenses:
Interest expense, net 7,449 10,594
Other nonoperating expense, net   7,903     1,746  
Total other expenses, net   15,352     12,340  
Net income before income taxes 17,560 12,861
Provision for income taxes   7,094     607  
Net income $ 10,466   $ 12,254  
 
 
Net income per share:
Basic $ 0.11   $ 0.12  
Diluted $ 0.11   $ 0.12  
 
Weighted average shares outstanding:
Basic   95,856     98,700  
Diluted   97,651     100,976  
 
Comprehensive income $ 11,002   $ 12,254  
 
DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
             
(In thousands) 6/27/12 12/28/11
ASSETS
Current Assets
Cash and cash equivalents $ 20,997 $ 13,740
Receivables, net 13,781 14,971
Assets held for sale 486 2,351
Current deferred tax asset 20,324 15,519
Other   8,491     14,712  
  64,079     61,293  
Property, net 102,626 112,772
Goodwill 30,476 30,764
Intangible assets, net 49,804 50,921
Noncurrent deferred tax asset 49,137 60,636
Other assets   32,758     34,115  
Total Assets $ 328,880   $ 350,501  
 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Current maturities of long-term debt $ 12,054 $ 2,591
Current maturities of capital lease obligations 4,368 4,380
Accounts payable 17,035 25,935
Other current liabilities   50,971     54,289  
  84,428     87,195  
Long-Term Liabilities
Long-term debt, less current maturities 171,000 193,257
Capital lease obligations, less current maturities 16,996 18,077
Other   59,228     61,648  
  247,224     272,982  
Total Liabilities   331,652     360,177  
 
Shareholders' Deficit
Common stock 1,030 1,027
Paid-in capital 559,160 557,396
Deficit (507,361 ) (517,827 )
Accumulated other comprehensive loss, net of tax (24,277 ) (24,813 )
Treasury stock   (31,324 )   (25,459 )
Total Shareholders' Deficit   (2,772 )   (9,676 )
Total Liabilities and Shareholders' Deficit $ 328,880   $ 350,501  
 
 
Debt Balances
(In thousands) 6/27/12 12/28/11
Credit facility term loan due 2017, net of discount of $0 and $2,251, respectively $ 183,054 $ 195,749
Capital leases and other debt   21,364     22,556  
Total Debt $ 204,418   $ 218,305  
 
DENNY’S CORPORATION
Income, EBITDA, Free Cash Flow and G&A Reconciliations
(Unaudited)
                   
Quarter Quarter Two Quarters Two Quarters
Income and EBITDA Reconciliation Ended Ended Ended Ended
(In thousands) 6/27/12 6/29/11 6/27/12 6/29/11
Net income $ 4,601 $ 8,130 $ 10,466 $ 12,254
 
Provision for (benefit from) income taxes 3,207 408 7,094 607
Operating (gains), losses and other charges, net (4,009 ) (419 ) (4,174 ) (948 )
Other nonoperating expense, net 8,198 268 7,903 1,746
Share-based compensation 876 1,176 1,666 2,149
       
Adjusted Income Before Taxes (1) $ 12,873   $ 9,563   $ 22,955   $ 15,808  
 
Interest expense, net 2,993 4,901 7,449 10,594
Depreciation and amortization 5,827 7,234 11,887 14,422
Cash payments for restructuring charges and exit costs (543 ) (747 ) (1,324 ) (1,453 )
Cash payments for share-based compensation - (99 ) (355 ) (99 )
       
Adjusted EBITDA (1) $ 21,150   $ 20,852   $ 40,612   $ 39,272  
 
Cash interest expense, net (2,579 ) (4,111 ) (6,329 ) (9,085 )
Cash paid for income taxes, net (1,152 ) (574 ) (1,365 ) (737 )
Cash paid for capital expenditures (2,443 ) (3,084 ) (4,279 ) (8,854 )
       
Free Cash Flow (1) $ 14,976   $ 13,083   $ 28,639   $ 20,596  
 
Quarter Quarter Two Quarters Two Quarters
General and Administrative Expenses Reconciliation Ended Ended Ended Ended
(In thousands)   6/27/12     6/29/11     6/27/12     6/29/11  
Share-based compensation $ 876 $ 1,176 $ 1,666 $ 2,149
Other general and administrative expenses   13,909     12,916     28,782     26,082  
Total general and administrative expenses $ 14,785   $ 14,092   $ 30,448   $ 28,231  
 
(1)   We believe that, in addition to other financial measures, Adjusted Income Before Taxes, Adjusted EBITDA and Free Cash Flow are appropriate indicators to assist in the evaluation of our operating performance on a period-to-period basis. We also use Adjusted Income, Adjusted EBITDA and Free Cash Flow 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 credit facility for the computation of our debt covenant ratios. Free Cash Flow, defined as Adjusted EBITDA less cash portion of interest expense net of interest income, capital expenditures, and cash taxes, is used to evaluate operating effectiveness and decisions regarding the allocation of resources. However, Adjusted Income, Adjusted EBITDA and Free Cash Flow 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
Operating Margins
(Unaudited)
                     
Quarter Quarter
Ended Ended
(In thousands) 6/27/12 6/29/11
Company restaurant operations: (2)
Company restaurant sales $ 91,239 100.0 % $ 104,021 100.0 %
Costs of company restaurant sales:
Product costs 22,702 24.9 % 25,613 24.6 %
Payroll and benefits 36,617 40.1 % 42,419 40.8 %
Occupancy 6,222 6.8 % 6,793 6.5 %
Other operating costs:
Utilities 3,592 3.9 % 4,590 4.4 %
Repairs and maintenance 1,634 1.8 % 1,890 1.8 %
Marketing 3,389 3.7 % 3,971 3.8 %
Legal settlements 71 0.1 % (14 ) (0.0 %)
Other   3,516   3.9 %   4,892   4.7 %
Total costs of company restaurant sales $ 77,743   85.2 % $ 90,154   86.7 %
Company restaurant operating margin (3) $ 13,496   14.8 % $ 13,867   13.3 %
 
Franchise operations: (4)
Franchise and license revenue
Royalty and license revenue $ 20,874 62.3 % $ 19,926 62.6 %
Initial and other fee revenue 1,003 3.0 % 708 2.2 %
Occupancy revenue   11,615   34.7 %   11,198   35.2 %
Total franchise and license revenue $ 33,492   100.0 % $ 31,832   100.0 %
 
Costs of franchise and license revenue
Direct franchise costs $ 2,681 8.0 % $ 2,427 7.6 %
Occupancy costs   8,705   26.0 %   8,658   27.2 %
Total costs of franchise and license revenue $ 11,386   34.0 % $ 11,085   34.8 %
Franchise operating margin (3) $ 22,106   66.0 % $ 20,747   65.2 %
 
Total operating revenue (1) $ 124,731 100.0 % $ 135,853 100.0 %
Total costs of operating revenue (1)   89,129   71.5 %   101,239   74.5 %
Total operating margin (1)(3) $ 35,602   28.5 % $ 34,614   25.5 %
 
Other operating expenses: (1)(3)
General and administrative expenses $ 14,785 11.9 % $ 14,092 10.4 %
Depreciation and amortization 5,827 4.7 % 7,234 5.3 %
Operating gains, losses and other charges, net   (4,009 ) (3.2 %)   (419 ) (0.3 %)
Total other operating expenses $ 16,603   13.3 % $ 20,907   15.4 %
       
Operating income (1) $ 18,999   15.2 % $ 13,707   10.1 %
 
(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
Operating Margins
(Unaudited)
                     
Two Quarters Two Quarters
Ended Ended
(In thousands) 6/27/12 6/29/11
Company restaurant operations: (2)
Company restaurant sales $ 185,402 100.0 % $ 208,576 100.0 %
Costs of company restaurant sales:
Product costs 46,235 24.9 % 51,248 24.6 %
Payroll and benefits 74,370 40.1 % 86,615 41.5 %
Occupancy 11,996 6.5 % 13,653 6.5 %
Other operating costs:
Utilities 7,306 3.9 % 8,979 4.3 %
Repairs and maintenance 3,322 1.8 % 3,732 1.8 %
Marketing 6,924 3.7 % 7,812 3.7 %
Legal settlements 169 0.1 % 63 0.0 %
Other   7,376   4.0 %   10,000   4.8 %
Total costs of company restaurant sales $ 157,698   85.1 % $ 182,102   87.3 %
Company restaurant operating margin (3) $ 27,704   14.9 % $ 26,474   12.7 %
 
Franchise operations: (4)
Franchise and license revenue
Royalty and license revenue $ 41,401 62.7 % $ 39,220 62.2 %
Initial and other fee revenue 1,439 2.2 % 1,613 2.6 %
Occupancy revenue   23,227   35.1 %   22,249   35.2 %
Total franchise and license revenue $ 66,067   100.0 % $ 63,082   100.0 %
 
Costs of franchise and license revenue
Direct franchise costs $ 5,270 8.0 % $ 5,432 8.6 %
Occupancy costs   17,428   26.4 %   17,218   27.3 %
Total costs of franchise and license revenue $ 22,698   34.4 % $ 22,650   35.9 %
Franchise operating margin (3) $ 43,369   65.6 % $ 40,432   64.1 %
 
Total operating revenue (1) $ 251,469 100.0 % $ 271,658 100.0 %
Total costs of operating revenue (1)   180,396   71.7 %   204,752   75.4 %
Total operating margin (1)(3) $ 71,073   28.3 % $ 66,906   24.6 %
 
Other operating expenses: (1)(3)
General and administrative expenses $ 30,448 12.1 % $ 28,231 10.4 %
Depreciation and amortization 11,887 4.7 % 14,422 5.3 %
Operating gains, losses and other charges, net   (4,174 ) (1.7 %)   (948 ) (0.3 %)
Total other operating expenses $ 38,161   15.2 % $ 41,705   15.4 %
       
Operating income (1) $ 32,912   13.1 % $ 25,201   9.3 %
 
(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 Two Quarters Two Quarters
Same-Store Sales Ended Ended Ended Ended
(increase/(decrease) vs. prior year) 6/27/12 6/29/11 6/27/12 6/29/11
Company Restaurants 0.0 % 2.6 % 0.4 % 0.6 %
Franchised Restaurants 0.9 % 1.8 % 1.8 % 0.0 %
System-wide Restaurants 0.8 % 2.0 % 1.6 % 0.2 %
 
Company Restaurant Sales Detail
Guest Check Average 1.7 % 1.2 % 2.0 % 0.5 %
Guest Counts (1.6 %) 1.4 % (1.6 %) 0.1 %
 
 
Quarter Quarter Two Quarters Two Quarters
Average Unit Sales Ended Ended Ended Ended
(In thousands) 6/27/12 6/29/11 6/27/12 6/29/11
Company Restaurants $ 484 $ 463 $ 954 $ 915
Franchised Restaurants $ 354 $ 349 $ 703 $ 688
 
Franchised
Restaurant Unit Activity Company & Licensed Total
Ending Units 3/28/12 197 1,483 1,680
Units Opened 0 9 9
Units Refranchised (17 ) 17 0
Units Closed (Including Units Relocated)   (3 )   (2 )   (5 )
Net Change   (20 )   24     4  
Ending Units 6/27/12   177     1,507     1,684  
 
Equivalent Units
Second Quarter 2012 188 1,493 1,681
Second Quarter 2011   224     1,442     1,666  
  (36 )   51     15  
 
 
Franchised
Restaurant Unit Activity Company & Licensed Total
Ending Units 12/28/11 206 1,479 1,685
Units Opened 0 15 15
Units Refranchised (23 ) 23 0
Units Closed (Including Units Relocated)   (6 )   (10 )   (16 )
Net Change   (29 )   28     (1 )
Ending Units 6/27/12   177     1,507     1,684  
 
Equivalent Units
Year-to-Date 2012 194 1,487 1,681
Year-to-Date 2011   228     1,436     1,664  
  (34 )   51     17  
 




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