Denny’s Corporation Reports Results For Third Quarter 2022

SPARTANBURG, S.C., Nov. 01, 2022 (GLOBE NEWSWIRE) -- Denny’s Corporation (the "Company") (NASDAQ: DENN), owner and operator of Denny's Inc. ("Denny's") and Keke's Inc. ("Keke's") today reported results for its third quarter ended September 28, 2022 and provided a business update on the Company’s operations.

Kelli Valade, Chief Executive Officer, stated, "We were pleased with our solid performance as our long-standing commitment to everyday value resonated in this complex and challenging environment. The positive consumer response to our Summer Slamcation and recently launched All Day Diner Deals value menus drove incremental traffic at Denny's in the quarter and induced new customer trial."

Third Quarter 2022 Highlights

• Acquired Keke's on July 20, 2022 for $82.5 million.
• Total operating revenue grew 13.2% to $117.5 million compared to the prior year quarter.
• Denny's domestic system-wide same-store sales** grew 1.5% compared to the equivalent fiscal period in 2021, including a 1.1% increase at domestic franchised restaurants and a 7.1% increase at company restaurants.
• Opened eight franchised restaurants, including one international location and one Keke's location.
• Completed 19 remodels, including 16 franchised restaurants.
• Operating income was $15.8 million compared to $17.7 million in the prior year quarter.
• Franchise Operating Margin* was $30.7 million, or 47.0% of franchise and license revenue, and Company Restaurant Operating Margin* was $3.8 million, or 7.2% of company restaurant sales.
• Net income was $17.1 million, or $0.29 per diluted share.
• Adjusted Net Income* and Adjusted Net Income Per Share* were $7.1 million and $0.12, respectively.
• Adjusted EBITDA* was $19.2 million, which included $1.6 million in legal settlement expense.
• Cash provided by (used in) operating, investing, and financing activities was $15.3 million, ($77.3) million, and $64.9 million, respectively.
• Adjusted Free Cash Flow* was $8.7 million.
• Repurchased $7.9 million of common stock.
  

Third Quarter Results

Total operating revenue increased 13.2% to $117.5 million compared to $103.8 million in the prior year quarter.

Franchise and license revenue was $65.2 million compared to $57.3 million in the prior year quarter. This increase was primarily driven by $5.6 million related to the kitchen modernization rollout and $1.1 million of Keke's franchise revenue in the current quarter.

Company restaurant sales were $52.2 million compared to $46.5 million in the prior year quarter. This increase is comprised of benefits from Denny's price increases and changes in product mix compared to the prior year quarter and $2.7 million of Keke's company restaurant sales in the current quarter.

Franchise Operating Margin* was $30.7 million, or 47.0% of franchise and license revenue, compared to $29.9 million, or 52.1%, in the prior year quarter. The margin rate was impacted by approximately 440 basis points as kitchen modernization equipment is sold to franchisees at cost.

Company Restaurant Operating Margin* was $3.8 million, or 7.2% of company restaurant sales, compared to $7.9 million, or 17.0%, in the prior year quarter. This margin change was primarily due to commodity and labor inflation and $1.6 million in legal settlement expense, partially offset by the improvement in sales performance at company restaurants.

The provision for income taxes was $5.5 million, reflecting an effective tax rate of 24.3%. Approximately $1.5 million in cash taxes were paid during the quarter.

Net income was $17.1 million, or $0.29 per diluted share, compared to $12.3 million, or $0.19 per diluted share, in the prior year quarter. Adjusted Net Income* per share was $0.12 compared to $0.16 in the prior year quarter.

The Company ended the quarter with $278.2 million of total debt outstanding, including $266.5 million of borrowings under its credit facility.

Adjusted Free Cash Flow* and Capital Allocation

Adjusted Free Cash Flow* in the quarter was $8.7 million after investing $5.1 million in cash capital expenditures, including the remodel of three company restaurants, facilities maintenance, and the acquisition of a Denny's franchise restaurant.

During the quarter, the Company allocated $7.9 million to share repurchases resulting in approximately $160 million remaining under its existing repurchase authorization.

Business Outlook

The following expectations for the fiscal fourth quarter ending December 28, 2022 reflect management's expectations that the current consumer and economic environment will not change materially.

• Denny's domestic system-wide same-store sales** between 1% and 3%.
• Consolidated total general and administrative expenses between $17 million and $18 million, including approximately $2 million related to share-based compensation expense.
• Consolidated Adjusted EBITDA* between $21 million and $23 million.
  

* Please refer to the Reconciliation of Net Income and Net Cash Provided by (Used In) Operating Activities to Non-GAAP Financial Measures, 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 U.S. generally accepted accounting principles (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.

** Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-store sales and domestic system-wide same-store sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP.

Conference Call and Webcast Information

The Company will provide further commentary on the results for the third quarter ended September 28, 2022 on its quarterly investor conference call today, Tuesday, November 1, 2022 at 4:30 p.m. Eastern Time. Interested parties are invited to listen to a live broadcast of the conference call accessible through the Company's investor relations website at investor.dennys.com.

About Denny's Corporation

Denny’s Corporation is one of America’s largest full-service restaurant chains based on number of restaurants. As of September 28, 2022, the Company consisted of 1,666 restaurants, 1,592 of which were franchised and licensed restaurants and 74 of which were company operated.

Denny's Corporation consists of the Denny’s brand and the Keke’s brand. Keke’s was acquired on July 20, 2022. As of September 28, 2022, the Denny's brand consisted of 1,613 global restaurants, 1,547 of which were franchised and licensed restaurants and 66 of which were company operated. At September 28, 2022, the Keke's brand consisted of 53 restaurants, 45 of which were franchised restaurants and 8 of which were company operated.

For further information on Denny's Corporation, including news releases, links to SEC filings, and other financial information, please visit investor.dennys.com.

Cautionary Language Regarding Forward-Looking Statements

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 management's 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 “expect”, “anticipate”, “believe”, “intend”, “plan”, “hope”, "will", 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 evolving COVID-19 pandemic and related containment measures, including the potential for further operational disruption from government mandates affecting restaurants; economic, public health and political conditions that impact consumer confidence and spending, including COVID-19; commodity and labor inflation; the ability to effectively staff restaurants; the Company's ability to maintain adequate levels of liquidity for its cash needs, including debt obligations, payment of dividends, planned share repurchases and capital expenditures as well as the ability of its customers, suppliers, franchisees and lenders to access sources of liquidity to provide for their own cash needs; competitive pressures from within the restaurant industry; the Company's ability to integrate and derive the expected benefits from our acquisition of Keke's Breakfast Cafe; the level of success of the Company’s operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses or other diseases; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy (including with regard to energy costs), particularly at the retail level; political environment and geopolitical events (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 29, 2021 (and in the Company’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K).

The Company believes that, in addition to GAAP measures, certain non-GAAP financial measures are appropriate indicators to assist in the evaluation of operating performance and liquidity on a period-to-period basis. The Company uses Adjusted EBITDA, Adjusted Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share internally as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes, including incentive compensation for certain employees. Adjusted EBITDA is also used in the calculation of financial covenant ratios in accordance with the Company’s credit facility. Adjusted Free Cash Flow is also used as a non-GAAP liquidity measure by Management to assess the Company’s ability to generate cash and plan for future operating and capital actions. Management believes that the presentation of Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Share and Adjusted Free Cash Flow provide useful information to investors and analysts about the Company’s operating results, financial condition or cash flows. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income, net income per share, net cash provided by operating activities, or other financial performance and liquidity measures prepared in accordance with GAAP.

The Company believes that, in addition to GAAP measures, certain other non-GAAP financial measures are appropriate indicators to assist in the evaluation of restaurant-level operating efficiency and performance of ongoing restaurant-level operations. The Company uses Restaurant-level Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin internally as performance measures for planning purposes, including the preparation of annual operating budgets, and these three non-GAAP measures are used to evaluate operating effectiveness.

The Company defines Restaurant-level Operating Margin as operating income excluding the following three items: general and administrative expenses, depreciation and amortization, and operating (gains), losses and other charges, net. Restaurant-level Operating Margin is presented as a percent of total operating revenue. The Company excludes general and administrative expenses, which include primarily non-restaurant-level costs associated with support of company and franchised restaurants and other activities at their corporate office. The Company excludes depreciation and amortization expense, substantially all of which is related to company restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlays for the restaurants. The Company excludes special items, included within operating (gains), losses and other charges, net, to provide investors with a clearer perspective of its ongoing operating performance and a more relevant comparison to prior period results.

Restaurant-level Operating Margin is the total of Company Restaurant Operating Margin and Franchise Operating Margin. The Company defines Company Restaurant Operating Margin as company restaurant sales less costs of company restaurant sales (which include product costs, company restaurant level payroll and benefits, occupancy costs, and other operating costs including utilities, repairs and maintenance, marketing and other expenses) and presents it as a percent of company restaurant sales. The Company defines Franchise Operating Margin as franchise and license revenue (which includes franchise royalties and other non-food and beverage revenue streams such as initial franchise and other fees, advertising revenue and occupancy revenue) less costs of franchise and license revenue and presents it as a percent of franchise and license revenue.

These non-GAAP financial measures provide a meaningful comparison between periods and enable investors to focus on the performance of restaurant-level operations by excluding revenues and costs unrelated to food and beverage sales in addition to corporate general and administrative expense, depreciation and amortization, and operating (gains), losses and other charges, net. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income or other financial performance measures prepared in accordance with GAAP. Restaurant-level Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin do not accrue directly to the benefit of shareholders because of the aforementioned excluded items and are not indicative of the overall results for the Company.