Spartanburg / SC. (denn) South Carolina’s Denny’s Corporation, franchisor and operator of one of America’s largest franchised full-service restaurant chains, today reported results for its third quarter ended September 27, 2017.
Third Quarter 2017 Highlights
- Domestic system-wide same-store sales increased 0.6 percent, including growth of 0.6 percent at company restaurants and 0.6 percent at domestic franchised restaurants.
- Opened nine system restaurants, including eight franchised restaurants and one company restaurant.
- Completed 58 remodels, including 57 at franchised restaurants.
- Operating Income increased 5.5 percent to USD 18.5 million.
- Company Restaurant Operating Margin(*) grew 3.7 percent to USD 16.6 million and Franchise Operating Margin(*) was USD 25.0 million in both periods.
- Net Income was USD 9.3 million, or USD 0.13 per diluted share.
- Adjusted Net Income(*) was USD 9.7 million, while Adjusted Net Income per Share(*) was USD 0.14.
- Adjusted Ebitda(*) improved 9.6 percent to USD 27.3 million.
- Generated USD 12.6 million of Adjusted Free Cash Flow(*), after cash capital expenditures of USD 8.5 million.
- Allocated USD 29.7 million towards share repurchases.
John Miller, President and Chief Executive Officer, stated, «We once again achieved positive system same-store sales and continued to perform well against key industry benchmarks during the third quarter despite persistent challenges within the full-service dining environment. The disciplined execution of our brand revitalization strategy, which delivers an enhanced guest experience across food, service and atmosphere, coupled with our highly franchised business model, continues to generate growth in revenue and cash flows. We remain committed to effectively reinvesting capital in the business along with returning capital to our shareholders. While the industry outlook remains uncertain, we are focused on further elevating the guest experience, growing sales, and expanding Denny’s global reach to ensure long-term success».
Third Quarter Results
Denny’s total operating revenue grew 3.1 percent to USD 132.4 million primarily due to an increase in company restaurant sales. Company restaurant sales were up 5.1 percent to USD 97.9 million due to a greater number of company restaurants compared to the prior year quarter and same-store sales growth. Franchise and licensing revenue was USD 34.5 million compared to USD 35.3 million in the prior year quarter as an increase in royalty revenue was offset by lower occupancy revenue due to scheduled lease terminations and a reduction in initial fees from fewer restaurant openings.
Company Restaurant Operating Margin(*) was USD 16.6 million, or 16.9 percent of company restaurant sales, compared to USD 16.0 million, or 17.2 percent, in the prior year quarter, driven by expected increases in product costs and minimum wages, partially offset by higher sales and favorable workers’ compensation experience. Franchise Operating Margin(*) was USD 25.0 million, or 72.5 percent of franchise and licensing revenue, compared to USD 25.0 million, or 70.9 percent, in the prior year quarter, driven by higher royalty revenue and an improved occupancy margin.
Total general and administrative expenses improved to USD 16.4 million compared to USD 17.6 million in the prior year quarter. Interest expense was USD 4.1 million versus USD 3.1 million in the prior year quarter. Denny’s ended the quarter with USD 291.4 million of total debt outstanding, including USD 261.8 million of borrowings under its revolving credit facility. The provision for income taxes was USD 5.4 million, reflecting an effective tax rate of 36.8 percent. Due to the use of net operating loss and tax credit carry-forwards, the Company paid USD 2.4 million in cash taxes during the quarter.
Net Income was USD 9.3 million, or USD 0.13 per diluted share, compared to USD 9.7 million, or USD 0.13 per diluted share, in the prior year quarter. Adjusted Net Income per Share(*) grew 11.2 percent to USD 0.14 compared to the prior year quarter.
Adjusted Free Cash Flow(*) and Capital Allocation
Denny’s generated USD 12.6 million of Adjusted Free Cash Flow(*) in the quarter after investing USD 8.5 million in cash capital expenditures, including the acquisition of one franchised restaurant and costs associated with opening a new company restaurant and relocating a high-performing company restaurant due to the loss of property control.
During the quarter, the Company allocated USD 29.7 million to share repurchases. As of September 27, 2017, the Company had approximately USD 13 million remaining in authorized share repurchases under its existing USD 100 million share repurchase authorization. On October 31, 2017, the Company announced a new multi-year share repurchase program authorizing the repurchase of an additional USD 200 million of common stock.
On October 31, 2017, the Company also announced the refinance of its existing USD 325 million credit facility with a new five-year USD 400 million senior secured revolving credit facility. Borrowings under the new credit facility bear a tiered interest rate, which is based on the Company’s consolidated leverage ratio and was initially set at LIBOR plus 200 basis points. The maturity date for the new credit facility is October 26, 2022.
Business Outlook
The following full year 2017 estimates are based on management’s expectations at this time. Differences from previously provided guidance are noted in parenthesis below.
- Same-store sales growth at company and domestic franchised restaurants between 0 percent and 2 percent.
- 40 to 45 new restaurant openings (versus 45 to 50 restaurant openings), with net restaurant growth of 5 to 10 restaurants (versus 5 to 15 restaurants).
- Total operating revenue between USD 523 and USD 532 million including franchise and licensing revenue between USD 140 and USD 142 million.
- Company Restaurant Operating Margin(*) between 17.0 percent and 17.5 percent and Franchise Operating Margin(*) between 71.0 percent and 71.5 percent.
- Total general and administrative expenses between USD 67 and USD 70 million.
- Adjusted Ebitda(*) between USD 101 and USD 103 million.
- Depreciation and amortization expense between USD 23 and USD 24 million.
- Net interest expense between USD 14.5 and USD 15.0 million.
- Effective income tax rate between 35 percent and 37 percent with cash taxes between USD 6 and USD 8 million.
- Cash capital expenditures between USD 32 and USD 34 million (versus USD 25 and USD 27 million).
- Adjusted Free Cash Flow(*) between USD 48 and USD 50 million (versus USD 55 and USD 57 million).
(*)Please refer to the historical reconciliation of Net Income to Adjusted Income Before Taxes, Adjusted Ebitda, Adjusted Free Cash Flow, Adjusted Net Income, and Adjusted Net Income per Share, as well as the reconciliation of Operating Income to non-GAAP financial measures included in the following tables. The Company is not able to reconcile the forward-looking non-GAAP estimates set forth above to their most directly comparable 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 estimates are not provided.
About Denny’s
Denny’s Corporation is the franchisor and operator of one of America’s largest franchised full-service restaurant chains, based on the number of restaurants. As of September 27, 2017, Denny’s had 1’725 franchised, licensed, and company restaurants around the world including 125 restaurants in Canada, Puerto Rico, Mexico, New Zealand, Honduras, the Philippines, Costa Rica, Dominican Republic, the United Arab Emirates, Guam, Curaçao, and El Salvador.
