Denny’s Corporation Reports Results for Fourth Quarter and Full Year 2015

-  5.8% Increase in 2015 Full Year Domestic System-Wide Same-Store Sales  -

-  16.4% Growth in 2015 Full Year Adjusted Net Income Per Share*  -

SPARTANBURG, S.C., Feb. 17, 2016 (GLOBE NEWSWIRE) -- Denny’s Corporation (NASDAQ:DENN), franchisor and operator of one of America's largest franchised full-service restaurant chains, today reported results for its fourth quarter and full year ended December 30, 2015.

John Miller, President and Chief Executive Officer, stated, “Our brand revitalization strategies led to another great year for the Denny’s brand.  We achieved the highest same-store sales and traffic growth in over a decade as we continued to offer craveable products and more consistent service, both delivered in a more inviting environment.  With only 32% of the system reflecting the Heritage image at the end of 2015, we are still in the early stages of our revitalization.  We currently anticipate over 70% of the system will have the Heritage image by the end of 2018.  As we continue to grow and transform the Denny’s brand, we will consistently grow same-store sales and expand our global reach, while returning cash to shareholders through our ongoing share repurchase program.”

Full Year 2015 Highlights

• Domestic system-wide same-store sales growth of 5.8%, comprised of a 6.5% increase at company restaurants and 5.7% increase at domestic franchised restaurants.
  
• Opened 45 system restaurants with net system growth of 8 restaurants.
  
• Completed 232 remodels including 51 at company restaurants.
  
• Adjusted EBITDA* of $88.7 million increased $6.2 million, or 7.5%.
  
• Net Income of $36.0 million, or $0.42 per diluted share, increased 9.9%.
  
• Adjusted Net Income per Share* of $0.43 grew 16.4%.
  
• Generated $42.3 million of Free Cash Flow*, after cash capital spending of $32.8 million.
  
• Allocated $105.8 million towards share repurchases. 
  
  

Fourth Quarter Highlights

• Domestic system-wide same-store sales growth of 2.9%, comprised of a 3.5% increase at company restaurants and 2.8% increase at domestic franchised restaurants.
  
• Opened 14 system restaurants including three company restaurants.
  
• Adjusted EBITDA* of $21.9 million grew 4.8%, excluding the impact of an additional operating week in 2014 which contributed approximately $3.6 million. 
  
• Net Income of $8.8 million, or $0.11 per diluted share, decreased 9.5%.
  
• Adjusted Net Income* of $8.9 million, or $0.11 per diluted share, increased 18.9%, excluding the impact of an additional operating week.
  
• Generated $7.1 million of Free Cash Flow* and repurchased 5.1 million shares. 
  
  

Fourth Quarter Results

Denny’s domestic system-wide same-store sales grew 2.9%, including growth of 3.5% at company restaurants and 2.8% at domestic franchised restaurants. During the quarter, Denny’s opened 14 restaurants, including 11 franchised locations and three company operated restaurants in partnership with Kwik Trip^TM convenience stores. Franchisees closed four restaurants, bringing the total number of restaurants to 1,710.

Denny’s total operating revenue of $124.0 million decreased by $4.7 million due to an additional operating week in the prior year.  Excluding this impact, total operating revenue would have increased $6.0 million, or 5.1%, primarily from the growth in same-store sales and the opening of new company restaurants, including the full-year impact of the Las Vegas Casino Royale restaurant which reopened in late 2014, and acquisition of three franchised locations.

The additional operating week in 2014 added approximately $8.3 million of company restaurant sales and $2.4 million of franchise and licensing revenue, $3.6 million of additional operating income, and $2.2 million of additional net income.  Company restaurant and franchise operating margins increased approximately $2.0 million and $2.2 million, respectively, with additional general and administrative expenses of approximately $0.6 million.

Franchise operating margin was $24.3 million, or 69.9% of franchise and licensing revenue.  The $0.9 million decrease was primarily due to the additional operating week in the prior year, which was partially offset by an increase in royalties.  Company restaurant operating margin was $13.5 million, or 15.2% of company restaurant sales.  The 0.4 percentage point decrease was primarily due to higher incentive compensation, increased commodity costs, and the additional operating week in the prior year, partially offset by the growth in same-store sales, favorable workers’ compensation costs, and the reopening of the Las Vegas Casino Royale restaurant.

Total general and administrative expenses of $16.8 million improved $0.5 million compared to the prior year quarter primarily due to a reduction in share-based compensation, partially offset by additional incentive and deferred compensation and payroll and benefits expenses.  Depreciation and amortization expense of $5.7 million was up by $0.2 million.  Interest expense of $2.6 million was up by $0.3 million due to additional outstanding debt.  Denny’s ended the fourth quarter with $215.7 million of total debt outstanding, including $195.0 million of borrowings under its revolving credit facility. The provision for income taxes was $3.7 million, reflecting an effective tax rate of 29.9%.  Due to the use of net operating loss and tax credit carryforwards, the Company paid $0.4 million in cash taxes during the quarter.

Denny's net income of $8.8 million, or $0.11 per diluted share, decreased compared to prior year quarter net income of $9.7 million, or $0.11 per diluted share, primarily due to the additional operating week in the prior year.  Adjusted Net Income per Share* of $0.11 increased 28.2% compared to the prior year quarter when excluding the additional operating week in the prior year.

Free Cash Flow* and Capital Allocation

Denny’s generated $7.1 million of Free Cash Flow* in the quarter after investing $12.0 million to remodel 14 company restaurants, acquire a franchised restaurant, and purchase a parcel of real estate.  During the year, the Company allocated $105.8 million towards share repurchases including the $50 million accelerated share repurchase agreement announced in November 2015.  A total of 8.5 million shares were acquired during the year with 5.1 million shares acquired during the fourth quarter.  As of December 30, 2015, the Company had approximately $38 million remaining under a $100 million authorized share repurchase program.

Pension Plan Liquidation

The Company anticipates that its Advantica Pension Plan will be liquidated by the end of the second quarter of 2016.  The Advantica Pension Plan was closed to new participants at the end of 1999.  The Company expects to record an operating loss of approximately $24.0 million and make a required contribution of approximately $9.4 million as a result of the liquidation during the second quarter.

Business Outlook

Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer, and Chief Financial Officer, commented, “Our continued strong performance driven by our same-store sales growth enabled us to grow our revenue, margins, and profitability, while making investments in our support systems and company restaurants.  Our highly franchised business generated $42.3 million of Free Cash Flow* after accelerating remodels at company restaurants and acquiring franchised restaurants and real estate. Our annual guidance for 2016 anticipates continued same-store sales growth and ongoing investments in company restaurant remodels. As a result, we are expecting to grow our Adjusted EBITDA* 4% to 7% and generate between $59 and $62 million of Free Cash Flow*."

The following full year 2016 estimates are based on management’s expectations at this time and exclude any impact from the liquidation of the Advantica Pension Plan.

• Same-store sales growth at company restaurants between 1.5% and 2.5% with same-store sales growth at domestic franchised restaurants between 1% and 2%.
  
• 44 to 48 new restaurant openings, including one company operated opening in partnership with Kwik Trip^TM convenience stores, with net restaurant growth of 5 to 10 restaurants.
  
• Total operating revenue between $501 and $506 million with franchise and licensing revenue between $140 and $141 million.
  
• Company margin between 16% and 17% with franchise margin between 68.5% and 69%.
  
• Total general and administrative expenses between $64 and $67 million.
  
• Adjusted EBITDA* between $92 and $95 million.
  
• Depreciation and amortization expense between $21.5 and $22 million.
  
• Net interest expense between $11 and $11.5 million.
  
• Effective income tax rate between 33% and 37% with $3 to $5 million of cash taxes.
  
• Cash capital expenditures between $18 and $20 million including completion of approximately 25 remodels at company restaurants, opening of one new company restaurant, and scrape and rebuild of a company restaurant.
  
• Free Cash Flow* between $59 and $62 million. 
  
  

*  Adjusted Net Income excludes debt refinancing charges, impairment charges, and gains on sales of assets and other.  Please refer to the historical reconciliation of Net Income to Adjusted Net Income, Adjusted Net Income per Share, Adjusted EBITDA, and Free Cash Flow included in the following tables.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the fourth quarter and full year ended December 30, 2015 on its quarterly investor conference call today, Wednesday, February 17, 2016 at 4:30 p.m. Eastern Time.  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.

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 December 30, 2015, Denny’s had 1,710 franchised, licensed, and company restaurants around the world with combined sales of $2.7 billion including 111 restaurants in Canada, Puerto Rico, New Zealand, Mexico, Costa Rica, Dominican Republic, Honduras, Guam, the United Arab Emirates, Chile, Curaçao, and El Salvador, and 164 company operated restaurants in the United States.  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 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 its 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”, 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:  competitive pressures from within the restaurant industry; the level of success of our operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses, such as avian flu, 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 (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 31, 2014 (and in the Company’s subsequent quarterly reports on Form 10-Q).