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TheStreet Open House

Denny's Corporation Reports Results For Fourth Quarter And Full Year 2012

Business Outlook

The Company continues to successfully execute against our Key Objectives implemented to strengthen and grow our position as one of the largest American full-service restaurant brands, based on number of restaurants.  These include:

  • Revitalize Denny's image with our "America's Diner" positioning.
  • Increase the growth of the Denny's brand both domestically and internationally.
  • Grow profitability and Free Cash Flow* through a primarily franchise-focused business model that balances reinvesting in the brand with debt repayment and returning cash to shareholders.

The following full year 2013 estimates are based on management's expectations at this time. 

  • System-wide same-store sales growth between 0% and 2%.
  • New restaurant openings (all franchised) between 40 and 45 restaurants with net restaurant growth between 5 and 10 restaurants.
  • Total G&A, including share-based compensation, between $59 million and $61 million.
  • Adjusted EBITDA* between $76 million and $80 million.
  • Cash capital expenditures between $17 million and $19 million, including approximately 20 to 25 remodels at company restaurants.
  • Depreciation and amortization between $20 million and $21 million.
  • Net interest expense between $10.5 million and $11.5 million.
  • Cash taxes between $2.5 million and $3.5 million with income tax rate between 35% and 40%.
  • Free Cash Flow* between $46 million and $49 million.

*  Please refer to the historical reconciliation of net income to Adjusted Income Before Taxes, Adjusted EBITDA, and Free Cash Flow included in the tables below.

Further Information

Denny's will provide further commentary on the results for the fourth quarter and full year 2012 on its quarterly investor conference call today, Wednesday, February 20, 2013 at 5:00 p.m. ET.  Interested parties are invited to listen to a live broadcast of the conference call accessible through the investor relations section of Denny's website at investor.dennys.com.  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 the franchisor and operator of one of America's largest full-service restaurant chains, based on number of restaurants. Denny's currently has 1,688 franchised, licensed, and company restaurants around the world with combined sales of $2.5 billion including 1,590 restaurants in the United States and 98 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, Dominican Republic and New Zealand. As of December 26, 2012, 1,524 of Denny's restaurants were franchised and 164 restaurants were company operated.  For further information on Denny's, including news releases, links to SEC filings and other financial information, please visit the Denny's investor relations website at investor.dennys.com.

The Denny's Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=16562

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 Ended
(In thousands, except per share amounts) 12/26/2012 12/28/2011
Revenue:    
Company restaurant sales  $ 81,733  $ 98,360
Franchise and license revenue 34,216 31,834
Total operating revenue 115,949 130,194
Costs of company restaurant sales 70,700 85,770
Costs of franchise and license revenue 11,899 10,971
General and administrative expenses 15,157 13,786
Depreciation and amortization 5,130 6,602
Operating (gains), losses and other charges, net 1,276 1,259
Total operating costs and expenses 104,162 118,388
Operating income 11,787 11,806
Other expenses:    
Interest expense, net 2,832 4,650
Other nonoperating (income) expense, net (15) 81
Total other expenses, net 2,817 4,731
Net income before income taxes 8,970 7,075
Provision for (benefit from) income taxes 2,490 (84,973)
Net income  $ 6,480  $ 92,048
     
Net income per share:    
Basic  $ 0.07  $ 0.96
Diluted  $ 0.07  $ 0.94
     
Weighted average shares outstanding:    
Basic 93,379 96,188
Diluted 95,437 97,750
     
Comprehensive income  $ 5,490  $ 86,434
 
DENNY'S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
     
  Fiscal Year Ended
(In thousands, except per share amounts) 12/26/2012 12/28/2011
Revenue:    
Company restaurant sales  $ 353,710  $ 411,595
Franchise and license revenue 134,653 126,939
Total operating revenue 488,363 538,534
Costs of company restaurant sales 302,206 357,759
Costs of franchise and license revenue 46,675 44,368
General and administrative expenses 60,307 55,352
Depreciation and amortization 22,304 27,979
Operating (gains), losses and other charges, net 482 2,102
Total operating costs and expenses 431,974 487,560
Operating income 56,389 50,974
Other expenses:    
Interest expense, net 13,369 20,040
Other nonoperating expense, net 7,926 2,607
Total other expenses, net 21,295 22,647
Net income before income taxes 35,094 28,327
Provision for (benefit from) income taxes 12,785 (83,960)
Net income  $ 22,309  $ 112,287
     
Net income per share:    
Basic  $ 0.23  $ 1.15
Diluted  $ 0.23  $ 1.13
     
Weighted average shares outstanding:    
Basic 94,949 97,646
Diluted 96,754 99,588
     
Comprehensive income  $ 22,123  $ 106,673
 
DENNY'S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
     
(In thousands) 12/26/2012 12/28/2011
Assets    
Current assets    
Cash and cash equivalents  $ 13,565  $ 13,740
Receivables, net 19,947 14,971
Assets held for sale 2,351
Current deferred tax asset 19,807 15,519
Other 11,291 14,712
  64,610 61,293
Property, net 107,004 112,772
Goodwill 31,430 30,764
Intangible assets, net 48,920 50,921
Noncurrent deferred tax asset 45,776 60,636
Other assets 27,145 34,115
Total assets  $ 324,885  $ 350,501
     
Liabilities    
Current liabilities    
Current maturities of long-term debt  $ 8,500  $ 2,591
Current maturities of capital lease obligations 4,181 4,380
Accounts payable 24,461 25,935
Other current liabilities 54,682 54,289
  91,824 87,195
Long-term liabilities    
Long-term debt, less current maturities 161,500 193,257
Capital lease obligations, less current maturities 15,953 18,077
Other 60,068 61,648
  237,521 272,982
 Total liabilities 329,345 360,177
     
Shareholders' equity    
Common stock 1,038 1,027
Paid-in capital 562,657 557,396
Deficit (495,518) (517,827)
Accumulated other comprehensive loss, net of tax (24,999) (24,813)
Treasury stock (47,638) (25,459)
Total shareholders' equity (4,460) (9,676)
Total liabilities and shareholders' equity  $ 324,885  $ 350,501
     
Debt Balances    
(In thousands) 12/26/2012 12/28/2011
Credit facility term loan due 2017, net of discount of $0 and $2,251, respectively  $ 170,000  $ 195,749
Capital leases and other debt 20,134 22,556
Total debt  $ 190,134  $ 218,305
 
DENNY'S CORPORATION
Income, EBITDA, Free Cash Flow and G&A Reconciliations
(Unaudited)
         
Income and EBITDA Reconciliation Quarter Ended Fiscal Year Ended
(In thousands) 12/26/2012 12/28/2011 12/26/2012 12/28/2011
Net income  $ 6,480  $ 92,048  $ 22,309  $ 112,287
         
Provision for (benefit from) income taxes 2,490 (84,973) 12,785 (83,960)
Operating (gains), losses and other charges, net 1,276 1,259 482 2,102
Other nonoperating (income) expense, net (15) 81 7,926 2,607
Share-based compensation 702 1,039 3,496 4,219
         
Adjusted Income Before Taxes (1)  $ 10,933  $ 9,454  $ 46,998  $ 37,255
         
Interest expense, net 2,832 4,650 13,369 20,040
Depreciation and amortization 5,130 6,602 22,304 27,979
Cash payments for restructuring charges and exit costs (936) (575) (3,781) (2,661)
Cash payments for share-based compensation (303) (209) (952) (803)
         
Adjusted EBITDA (1)  $ 17,656  $ 19,922  $ 77,938  $ 81,810
         
Cash interest expense, net (2,505) (3,907) (11,553) (17,019)
Cash paid for income taxes, net (169) (136) (2,034) (1,124)
Cash paid for capital expenditures (7,740) (3,162) (15,586) (16,089)
         
Free Cash Flow (1)  $ 7,242  $ 12,717  $ 48,765  $ 47,578
         
General and Administrative Expenses Reconciliation Quarter Ended Fiscal Year Ended
(In thousands) 12/26/2012 12/28/2011 12/26/2012 12/28/2011
Share-based compensation  $ 702  $ 1,039  $ 3,496  $ 4,219
Other general and administrative expenses 14,455 12,747 56,811 51,133
Total general and administrative expenses  $ 15,157  $ 13,786  $ 60,307  $ 55,352
         
         
(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 Ended
(In thousands) 12/26/2012 12/28/2011
Company restaurant operations: (2)        
Company restaurant sales  $ 81,733 100.0%  $ 98,360 100.0%
Costs of company restaurant sales:        
Product costs 20,789 25.4% 24,701 25.1%
Payroll and benefits 32,524 39.8% 39,698 40.4%
Occupancy 5,629 6.9% 6,791 6.9%
Other operating costs:        
Utilities 3,292 4.0% 4,310 4.4%
Repairs and maintenance 1,359 1.7% 1,721 1.7%
Marketing 3,259 4.0% 4,314 4.4%
Legal settlements 316 0.4% 160 0.2%
Other 3,532 4.3% 4,075 4.1%
Total costs of company restaurant sales  $ 70,700 86.5%  $ 85,770 87.2%
Company restaurant operating margin (3)  $ 11,033 13.5%  $ 12,590 12.8%
         
Franchise operations: (4)        
Franchise and license revenue        
Royalty and license revenue $ 21,040 61.5% $ 19,552 61.4%
Initial and other fee revenue 925 2.7% 1,147 3.6%
Occupancy revenue 12,251 35.8% 11,135 35.0%
Total franchise and license revenue  $ 34,216 100.0%  $ 31,834 100.0%
         
Costs of franchise and license revenue        
 Occupancy costs  $ 8,946 26.1%  $ 8,055 25.3%
 Direct franchise costs 2,953 8.7% 2,916 9.2%
Total costs of franchise and license revenue  $ 11,899 34.8%  $ 10,971 34.5%
Franchise operating margin (3)  $ 22,317 65.2%  $ 20,863 65.5%
         
Total operating revenue (1)  $ 115,949 100.0%  $ 130,194 100.0%
Total costs of operating revenue (1) 82,599 71.2% 96,741 74.3%
Total operating margin (1)(3)  $ 33,350 28.8%  $ 33,453 25.7%
         
Other operating expenses: (1)(3)        
General and administrative expenses  $ 15,157 13.1%  $ 13,786 10.6%
Depreciation and amortization 5,130 4.4% 6,602 5.1%
Operating gains, losses and other charges, net 1,276 1.1% 1,259 1.0%
Total other operating expenses  $ 21,563 18.6%  $ 21,647 16.6%
         
Operating income (1)  $ 11,787 10.2%  $ 11,806 9.1%
         
         
(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)
         
  Fiscal Year Ended
(In thousands) 12/26/2012 12/28/2011
Company restaurant operations: (2)        
Company restaurant sales  $ 353,710 100.0%  $ 411,595 100.0%
Costs of company restaurant sales:        
Product costs 88,473 25.0% 101,796 24.7%
Payroll and benefits 141,303 39.9% 167,574 40.7%
Occupancy 23,405 6.6% 27,372 6.7%
Other operating costs:        
Utilities 14,358 4.1% 18,051 4.4%
Repairs and maintenance 6,259 1.8% 7,207 1.8%
Marketing 13,397 3.8% 16,052 3.9%
Legal settlements 682 0.2% 831 0.2%
Other 14,329 4.1% 18,876 4.6%
Total costs of company restaurant sales  $ 302,206 85.4%  $ 357,759 86.9%
Company restaurant operating margin (3)  $ 51,504 14.6%  $ 53,836 13.1%
         
Franchise operations: (4)        
Franchise and license revenue        
Royalty and license revenue  $ 83,774 62.2%  $ 79,221 62.4%
Initial and other fee revenue 3,092 2.3% 3,197 2.5%
Occupancy revenue 47,787 35.5% 44,521 35.1%
Total franchise and license revenue  $ 134,653 100.0%  $ 126,939 100.0%
         
Costs of franchise and license revenue        
 Occupancy costs  $ 35,401 26.3%  $ 33,622 26.5%
 Direct franchise costs 11,274 8.4% 10,746 8.5%
Total costs of franchise and license revenue  $ 46,675 34.7%  $ 44,368 35.0%
Franchise operating margin (3)  $ 87,978 65.3%  $ 82,571 65.0%
         
Total operating revenue (1)  $ 488,363 100.0%  $ 538,534 100.0%
Total costs of operating revenue (1) 348,881 71.4% 402,127 74.7%
Total operating margin (1)(3)  $ 139,482 28.6%  $ 136,407 25.3%
         
Other operating expenses: (1)(3)        
General and administrative expenses  $ 60,307 12.3%  $ 55,352 10.3%
Depreciation and amortization 22,304 4.6% 27,979 5.2%
Operating gains, losses and other charges, net 482 0.1% 2,102 0.4%
Total other operating expenses  $ 83,093 17.0%  $ 85,433 15.9%
         
Operating income (1)  $ 56,389 11.5%  $ 50,974 9.5%
         
         
(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)
         
Same-Store Sales Quarter Ended Fiscal Year Ended
(increase/(decrease) vs. prior year) 12/26/2012 12/28/2011 12/26/2012 12/28/2011
Company Restaurants 0.5% 1.0% 0.2% 0.8%
Franchised Restaurants 2.0% 1.8% 1.5% 0.7%
System-wide Restaurants 1.7% 1.6% 1.3% 0.7%
         
Company Restaurant Sales Detail        
Guest Check Average 1.3% 0.3% 1.8% 0.6%
Guest Counts (0.8)% 0.7% (1.6)% 0.2%
         
Average Unit Sales Quarter Ended Fiscal Year Ended
(In thousands) 12/26/2012 12/28/2011 12/26/2012 12/28/2011
Company Restaurants  $ 489  $ 455  $ 1,936  $ 1,838
Franchised Restaurants  $ 349  $ 342  $ 1,410  $ 1,385
         
    Franchised    
Restaurant Unit Activity Company & Licensed Total  
Ending Units 9/26/12 171 1,516 1,687  
Units Opened 1 12 13  
Units Relocated 0 2 2  
Units Reacquired 1 (1) 0  
Units Refranchised (8) 8 0  
Units Closed (Including Units Relocated) (1) (13) (14)  
Net Change (7) 8 1  
Ending Units 12/26/12 164 1,524 1,688  
         
Equivalent Units        
Fourth Quarter 2012 167 1,520 1,687  
Fourth Quarter 2011 216 1,465 1,681  
  (49) 55 6  
         
    Franchised    
Restaurant Unit Activity Company & Licensed Total  
Ending Units 12/28/11 206 1,479 1,685  
Units Opened 1 39 40  
Units Relocated 0 2 2  
Units Reacquired 1 (1) 0  
Units Refranchised (36) 36 0  
Units Closed (Including Units Relocated) (8) (31) (39)  
Net Change (42) 45 3  
Ending Units 12/26/12 164 1,524 1,688  
         
Equivalent Units        
Year-to-Date 2012 183 1,501 1,684  
Year-to-Date 2011 224 1,447 1,671  
  (41) 54 13  
CONTACT: Investor Contact:
         Whit Kincaid
         877-784-7167
         
         Media Contact:
         Liz DiTrapano, ICR
         646-277-1226

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