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Denny’s Corporation Reports Results for First Quarter 2015

- 7.2% Growth in Domestic System-Wide Same-Store Sales -

- Raises 2015 Full Year Guidance for Same-Store Sales and Adjusted EBITDA* -

SPARTANBURG, S.C., May 4, 2015 (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 first quarter ended April 1, 2015.

First Quarter Summary

  • Domestic system-wide same-store sales growth of 7.2%, comprised of a 7.6% increase at company restaurants and 7.1% increase at domestic franchised restaurants.
  • Opened nine system restaurants including one non-traditional location.
  • Completed 31 remodels including seven at company restaurants.
  • Adjusted EBITDA* of $18.8 million, or 15.7% of total operating revenue, increased 14.8%.
  • Net Income of $8.5 million increased 32.7% with Diluted Net Income per Share of $0.10 growing 37.8%.
  • Adjusted Net Income of $8.7 million grew 36.0% with Adjusted Net Income per Share* of $0.10 increasing 41.2%.
  • Generated $13.2 million of Free Cash Flow* after remodel investments at company restaurants.
  • Allocated $5.1 million to repurchase 450,000 shares during the first quarter.

* 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.

John Miller, President and Chief Executive Officer, stated, “We are very pleased to start the year with the strongest quarter of same-store sales in more than a decade, including growth in guest traffic. We are benefiting from solid execution of our brand revitalization strategy focused on elevating our food, service and atmosphere, which is resonating with our guests. Although we have made remarkable progress to date due to our dedicated franchisees, employees and partners, we believe we are still in the early stages of our strategy with key initiatives like our Heritage remodel program penetrating less than 20% of our system. Going forward, we remain committed to driving long-term shareholder value by consistently growing the profitability of our highly franchised business primarily through consistent, sustainable same-store sales and traffic growth."

First Quarter Results

Denny’s total operating revenue grew 7.4% to $120.2 million resulting from an increase in both company restaurant sales along with franchise and license revenue. Franchise and license revenue of $34.2 million increased $1.6 million, or 4.8%, primarily due to higher royalty revenue resulting from an increase in same-store sales. Company restaurant sales of $86.0 million grew $6.7 million, or 8.4%, primarily due to the increase in same-store sales and the reopening of the Las Vegas Casino Royale restaurant in November 2014.

In the first quarter, Denny’s opened nine franchised restaurants, including one non-traditional location, and closed seventeen system restaurants, including one company restaurant, bringing the total number of restaurants to 1,694. Domestic system-wide same-store sales grew 7.2%, including a 7.6% increase at company restaurants and 7.1% increase at domestic franchised restaurants. Franchise operating margin was $23.2 million, or 67.9% of franchise and license revenue, an increase of $1.3 million, or 0.7 percentage points. This improvement was primarily due to an increase in royalties offset by an increase in direct costs. Company restaurant operating margin of $14.7 million, or 17.1% of company restaurant sales, increased $5.5 million, or 5.6 percentage points. The improvement in company margin was primarily driven by the leveraging effect from the growth in same-store sales and lower product costs.

Total general and administrative expenses were $16.9 million compared to $14.1 million in the prior year primarily due to higher payroll and benefits, and incentive and share-based compensation expenses. Depreciation and amortization expense of $5.0 million improved $0.2 million. Interest expense of $2.1 million improved $0.2 million primarily due to the expiration of capital leases and a $21.3 million reduction in total debt outstanding over the last 12 months. In the first quarter, the provision for income taxes was $4.7 million, reflecting an effective tax rate of 35.4%. Due to the use of net operating loss and tax credit carryforwards, the Company only paid $0.3 million in cash taxes during the first quarter.

Denny's first quarter net income of $8.5 million increased 32.7% compared to prior year quarter net income of $6.4 million, with net income per diluted share of $0.10 growing 37.8% compared to $0.07 per diluted share in the prior year quarter. Net income was impacted by the refinancing of its credit facility which resulted in a charge to other nonoperating expense of $0.3 million in the first quarter of 2015. Adjusted net income* of $8.7 million grew 36.0% compared to prior year quarter adjusted net income* of $6.4 million. Adjusted net income per share* of $0.10 increased 41.2% compared with the prior year quarter Adjusted net Income per share* of $0.07.

Denny’s generated $13.2 million of Free Cash Flow* in the first quarter, after investing $3.4 million on capital expenditures. During the quarter, the Company repurchased 450,000 shares for $5.1 million. At the end of the first quarter, the Company had 3.4 million shares authorized to be repurchased in addition to the $100 million multi-year share repurchase program approved by the Company's Board of Directors on March 30, 2015. Denny’s ended the first quarter with $153.5 million of total debt outstanding, including $135.5 million of borrowings under its revolving credit facility.

Business Outlook

Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer, commented, “Our strong first quarter sales growth led to margin expansion and 41% growth in Adjusted Net Income per Share*. We are excited about continuing to grow our highly franchised business and using our Free Cash Flow* to both reinvest in our company restaurants and return value to our shareholders through our ongoing share repurchase program. Due to our strong first quarter results, we are raising our annual guidance for same-store sales and Adjusted EBITDA*."

The following full year 2015 estimates are based on management’s expectations at this time. A key consideration impacting the Company's outlook for 2015 is having 52 operating weeks in the year compared to 53 operating weeks in 2014.

ComponentFull Year 2015 Guidance
Previous**Current
Domestic Franchise Same-Store Sales1.5% to 3.0%2.5% to 3.5%
Company Same-Store Sales2.5% to 4.0%3.5% to 4.5%
New Restaurant Openings35 - 45 (All Franchised)No Change
Net Restaurant GrowthSingle DigitNo Change
Total General and Administrative Expenses (includes Share-Based Compensation)$58M to $61M$61M to $64M
Adjusted EBITDA*$84M to $86M$85M to $87M
Cash Capital Expenditures$23M to $25M$24M to $26M
Depreciation and Amortization Expense$20M to $21MNo Change
Interest Expense, net$9.5M to $10.5M$8.5M to $9.5M
Effective Income Tax Rate (Cash Taxes)36% to 38% ($5M to $7M)36% to 38% ($6M to $8M)
Free Cash Flow*$45M to $47MNo Change

* 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.

** As announced in Fourth Quarter and Full Year 2014 Earnings Release on February 18, 2015.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the first quarter ended April 1, 2015 on its quarterly investor conference call today, Monday, May 4, 2015 at 4:30 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.

About Denny’s

Denny's is the franchisor and operator of one of America's largest franchised full-service restaurant chains, based on the number of restaurants. As of April 1, 2015, Denny’s had 1,694 franchised, licensed, and company restaurants around the world with combined sales of $2.6 billion including 106 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, Dominican Republic, El Salvador, Chile and New Zealand, and 160 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.denny.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 “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 31, 2014 (and in the Company’s subsequent quarterly reports on Form 10-Q).

DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)April 1, 2015 December 31, 2014
Assets
Current assets
Cash and cash equivalents$1,718 $3,074
Receivables14,140 18,059
Current deferred tax asset24,108 24,310
Other current assets9,535 10,628
Total current assets49,501 56,071
Property, net108,412 109,777
Goodwill31,451 31,451
Intangible assets, net45,992 46,278
Noncurrent deferred tax asset17,620 19,252
Other noncurrent assets28,088 27,029
Total assets$281,064 $289,858
Liabilities
Current liabilities
Current maturities of long-term debt$ $4,125
Current maturities of capital lease obligations3,271 3,609
Accounts payable16,307 13,250
Other current liabilities49,564 59,432
Total current liabilities69,142 80,416
Long-term liabilities
Long-term debt, less current maturities135,500 135,875
Capital lease obligations, less current maturities14,689 15,204
Other57,830 56,780
Total long-term liabilities208,019 207,859
Total liabilities277,161 288,275
Shareholders' equity
Common stock1,063 1,058
Paid-in capital572,109 571,674
Deficit(429,688) (438,221)
Accumulated other comprehensive loss, net of tax(26,152) (24,602)
Treasury stock(113,429) (108,326)
Total shareholders' equity3,903 1,583
Total liabilities and shareholders' equity$281,064 $289,858
Debt Balances
(In thousands)4/1/2015 12/31/2014
Credit facility revolver due 2020$135,500 $
Credit facility term loan and revolver due 2018 140,000
Capital leases17,960 18,813
Total debt$153,460 $158,813


DENNY’S CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Quarter Ended
(In thousands, except per share amounts)April 1, 2015 March 26, 2014
Revenue:
Company restaurant sales$85,982 $79,304
Franchise and license revenue34,189 32,616
Total operating revenue120,171 111,920
Costs of company restaurant sales71,308 70,175
Costs of franchise and license revenue10,978 10,697
General and administrative expenses16,936 14,116
Depreciation and amortization5,024 5,238
Operating (gains), losses and other charges, net608 422
Total operating costs and expenses, net104,854 100,648
Operating income15,317 11,272
Interest expense, net2,087 2,322
Other nonoperating expense (income), net29 (100)
Net income before income taxes13,201 9,050
Provision for income taxes4,668 2,619
Net income$8,533 $6,431
Basic net income per share$0.10 $0.07
Diluted net income per share$0.10 $0.07
Basic weighted average shares outstanding84,875 88,803
Diluted weighted average shares outstanding87,465 90,816
Comprehensive income$6,983 $6,223
General and Administrative ExpensesQuarter Ended
(In thousands)April 1, 2015 March 26, 2014
Share-based compensation$1,705 $1,164
Other general and administrative expenses15,231 12,952
Total general and administrative expenses$16,936 $14,116


DENNY’S CORPORATION
Income, EBITDA, Free Cash Flow, and Net Income Reconciliations
(Unaudited)
Income, EBITDA and Free Cash Flow ReconciliationQuarter Ended
(In thousands)April 1, 2015 March 26, 2014
Net income$8,533 $6,431
Provision for income taxes4,668 2,619
Operating (gains), losses and other charges, net608 422
Other nonoperating (income) expense, net29 (100)
Share-based compensation1,705 1,164
Adjusted Income Before Taxes (1)$15,543 $10,536
Interest expense, net2,087 2,322
Depreciation and amortization5,024 5,238
Cash payments for restructuring charges and exit costs(402) (631)
Cash payments for share-based compensation(3,440) (1,083)
Adjusted EBITDA (1)$18,812 $16,382
Cash interest expense, net(1,845) (2,052)
Cash paid for income taxes, net(298) (820)
Cash paid for capital expenditures(3,446) (6,857)
Free Cash Flow (1)$13,223 $6,653
Net Income ReconciliationQuarter Ended
(In thousands)April 1, 2015 March 26, 2014
Net income$8,533 $6,431
Gains on sales of assets and other, net(22) (8)
Impairment charges49
Loss on debt refinancing293
Tax effect (2)(113) 2
Adjusted Net Income (1)$8,740 $6,425
Diluted weighted-average shares outstanding87,465 90,816
Adjusted Net Income Per Share (1)$0.10 $0.07


(1)The Company believes that, in addition to other financial measures, Adjusted Income Before Taxes, Adjusted EBITDA, Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share are appropriate indicators to assist in the evaluation of its operating performance on a period-to-period basis. The Company also uses 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 its ability to service debt because the excluded charges do not have an impact on its prospective debt servicing capability and these adjustments are contemplated in its credit facility for the computation of its 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, Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share 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.
(2)Tax adjustments for the three months ended April 1, 2015 are calculated using the Company's year-to-date effective tax rate of 35.4%. Tax adjustments for the three months ended March 26, 2014 are calculated using the Company's year-to-date effective tax rate of 28.9%.


DENNY’S CORPORATION
Operating Margins
(Unaudited)
Quarter Ended
(In thousands)April 1, 2015 March 26, 2014
Company restaurant operations: (1)
Company restaurant sales$85,982 100.0% $79,304 100.0%
Costs of company restaurant sales:
Product costs21,444 24.9% 20,583 26.0%
Payroll and benefits33,204 38.6% 33,099 41.7%
Occupancy4,895 5.7% 5,128 6.5%
Other operating costs:
Utilities3,176 3.7% 3,331 4.2%
Repairs and maintenance1,450 1.7% 1,459 1.8%
Marketing3,207 3.7% 3,007 3.8%
Other3,932 4.6% 3,568 4.5%
Total costs of company restaurant sales$71,308 82.9% $70,175 88.5%
Company restaurant operating margin (2)$14,674 17.1% $9,129 11.5%
Franchise operations: (3)
Franchise and license revenue:
Royalties$23,163 67.7% $21,481 65.9%
Initial fees445 1.3% 117 0.3%
Occupancy revenue10,581 31.0% 11,018 33.8%
Total franchise and license revenue$34,189 100.0% $32,616 100.0%
Costs of franchise and license revenue:
Occupancy costs$7,891 23.1% $8,268 25.4%
Other direct costs3,087 9.0% 2,429 7.4%
Total costs of franchise and license revenue$10,978 32.1% $10,697 32.8%
Franchise operating margin (2)$23,211 67.9% $21,919 67.2%
Total operating revenue (4)$120,171 100.0% $111,920 100.0%
Total costs of operating revenue (4)82,286 68.5% 80,872 72.3%
Total operating margin (4)(2)$37,885 31.5% $31,048 27.7%
Other operating expenses: (4)(2)
General and administrative expenses$16,936 14.1% $14,116 12.6%
Depreciation and amortization5,024 4.2% 5,238 4.7%
Operating gains, losses and other charges, net608 0.5% 422 0.4%
Total other operating expenses$22,568 18.8% $19,776 17.7%
Operating income (4)$15,317 12.7% $11,272 10.1%
(1)As a percentage of company restaurant sales
(2)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.
(3)As a percentage of franchise and license revenue
(4)As a percentage of total operating revenue


DENNY’S CORPORATION
Statistical Data
(Unaudited)
Same-Store SalesQuarter Ended
(increase vs. prior year)April 1, 2015 March 26, 2014
Company Restaurants7.6% 3.2%
Domestic Franchised Restaurants7.1% 1.5%
Domestic System-wide Restaurants7.2% 1.8%
System-wide Restaurants6.5% 1.4%
Average Unit SalesQuarter Ended
(In thousands)April 1, 2015 March 26, 2014
Company Restaurants$538 $498
Franchised Restaurants$383 $356
Franchised
Restaurant Unit ActivityCompany & Licensed Total
Ending Units December 31, 2014161 1,541 1,702
Units Opened 9 9
Units Closed(1) (16) (17)
Net Change(1) (7) (8)
Ending Units April 1, 2015160 1,534 1,694
Equivalent Units
Year-to-Date 2015160 1,537 1,697
Year-to-Date 2014159 1,536 1,695
1 1 2



Investor Contact: Whit Kincaid 877-784-7167 Media Contact: Liz DiTrapano, ICR 646-277-1226

Source:Denny's Corporation