Denny's misses by $0.01, beats on revenue
Nov 3 2015, 16:15 ET | About: Denny's Corporation (DENN) | By: Niloofer Shaikh, SA News Editor
Denny's (NASDAQ:DENN): Q3 EPS of $0.11 misses by $0.01.
Revenue of $123.78M (+5.8% Y/Y) beats by $0.63M.
Shares +0.34%.
Press Release
http://seekingalpha.com/news/2889566-dennys-misses-by-0_01-beats-on-revenue?uprof=45#email_link
Denny’s Corporation Reports Results for Third Quarter 2015
Tue November 3, 2015 4:05 PM|GlobeNewswire | About: DENN
- 6.1% Growth in Domestic System-Wide Same-Store Sales -
- Adjusted Net Income per Share* Grows 11.6% -
- Increases Financial Capacity and Flexibility with Amended Credit Facility -
- Plans to Accelerate Share Repurchase Program -
SPARTANBURG, S.C., Nov. 03, 2015 (GLOBE NEWSWIRE) -- Dennys Corporation (NASDAQ:DENN), franchisor and operator of one of America's largest franchised full-service restaurant chains, today reported results for its third quarter ended September 30, 2015.
Third Quarter Summary
•Domestic system-wide same-store sales growth of 6.1%, comprised of a 7.0% increase at company restaurants and 5.9% increase at domestic franchised restaurants.
•Opened nine franchised restaurants including one international location in Dubai.
•Completed 63 remodels including 13 at company restaurants.
•Company restaurant margin increased $3.2 million, or 2.6 percentage points.
•Franchise and licensing margin increased $1.0 million, or 2.2 percentage points.
•Adjusted EBITDA* of $23.6 million, or 19.0% of total operating revenue, grew 14.4%.
•Net Income of $9.0 million, or $0.11 per diluted share, increased 7.3%.
•Adjusted Net Income* of $9.3 million, or $0.11 per diluted share, increased 9.2%.
•Generated $12.4 million of Free Cash Flow*, which includes acceleration of remodels at company restaurants and the purchase of one franchised restaurant.
•Allocated $17.7 million to repurchase 1.5 million shares during the 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, Throughout the third quarter, brand momentum continued as we generated strong same-store sales growth at both franchised and company restaurants. This includes growth in guest traffic over the past year for the system and since 2013 at company restaurants. We are benefiting from the execution of our brand revitalization efforts focused on enhancing our food, service and atmosphere. With only 30% of the system expected to reflect the successful Heritage image by the end of this year, we are thrilled to have the opportunity to build on our progress. We are also encouraged by the results we are realizing from the ongoing investments made in our brand, in our team members and in our company restaurants. Based on our improved operations, we expect to continue to invest in our strategies to further elevate the Dennys experience, and build on our momentum in the coming years.
Third Quarter Results
Dennys total operating revenue grew 5.8% to $123.8 million resulting from growth in both company restaurant sales and franchise and license revenue. Franchise and license revenue grew 0.9% to $34.5 million. Company restaurant sales expanded 7.8% to $89.3 million, primarily due to the increase in same-store sales and the reopening of the Las Vegas Casino Royale restaurant in November 2014.
In the quarter, Dennys opened nine franchised restaurants, including one international location, and closed five franchised restaurants, bringing the total number of restaurants to 1,700. Domestic system-wide same-store sales grew 6.1%, including a 7.0% increase at company restaurants and a 5.9% increase at domestic franchised restaurants.
Franchise operating margin was $23.9 million, or 69.1% of franchise and license revenue. The $1.0 million improvement was primarily due to an increase in royalties. Company restaurant operating margin increased $3.2 million, or 2.6 percentage points, to $14.2 million, or 15.9% of company restaurant sales, primarily due to the leveraging effect from the growth in same-store sales, partially offset by higher product costs and higher incentive compensation.
Total general and administrative expenses were $16.0 million compared to $13.4 million in the prior year quarter primarily due to increases in share-based compensation and payroll and benefits. Depreciation and amortization expense of $5.4 million increased $0.2 million. Interest expense of $2.3 million was flat compared to the prior year quarter. The provision for income taxes was $3.9 million, reflecting an effective tax rate of 30.1%. Due to the use of net operating loss and tax credit carryforwards, the Company paid $0.8 million in cash taxes during the quarter.
Denny's (DENN) net income of $9.0 million increased 7.3% compared to prior year quarter net income of $8.3 million, with net income per diluted share of $0.11 growing 9.7% compared to $0.10 per diluted share in the prior year quarter. Adjusted Net Income per Share* grew 11.6% to $0.11 compared to the prior year quarter.
Dennys generated $12.4 million of Free Cash Flow* in the quarter, after investing $8.4 million on capital expenditures, primarily used to remodel 13 company restaurants and to acquire a franchised restaurant.
Credit Facility Amendment
On October 30, 2015, the Company completed an amendment to its existing revolving credit facility increasing the credit facility to $325 million from $250 million. The maturity date remains March 2020. There was no change to the interest rates for the facility. Borrowings under the credit facility bear a tiered interest rate based, which is based on the Company's consolidated ratio and is currently set at LIBOR plus 150 basis points. Dennys ended the third quarter with $169.7 million of total debt outstanding, including $150.0 million of borrowings under its revolving credit facility.
Capital Allocation
During the third quarter, the Company repurchased 1.5 million shares for $17.7 million. Through the first three quarters of the year, $38.9 million has been allocated to repurchase 3.5 million shares. Subsequent to the quarter, the Company completed the 10 million share repurchase program announced April 25, 2013. As of October 30, 2015, the Company had approximately $92 million remaining under the $100 million authorized share repurchase program. In addition to open market repurchases or transactions conducted under the terms of a Rule 10b5-1 plan, Dennys intends to enter into a $50 million accelerated share repurchase program in the near term.
Business Outlook
Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer, commented, Our continued strong performance has enabled us to grow year-to-date Adjusted Net Income per Share* by 24%. Through the first three quarters, we have generated $35 million of Free Cash Flow*, after remodels and acquisitions, with our year-to-date allocation towards share repurchases exceeding all of 2014. Going forward, we remain focused on enhancing the growth of our highly franchised business with ongoing investments in our company restaurants while also returning value to our shareholders through our share repurchase program.
The following full year 2015 estimates are based on managements 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.
•Company same-store sales growth between 6.0% and 6.5% (vs. 5.5% to 6.5%**) with domestic franchise same-store sales growth between 5.2% and 5.7% (vs. 5.0% to 6.0%**).
•44 to 46 new restaurant openings (vs. 40 to 45**), including four company operated openings in partnership with Kwik Trip TM convenience stores, with net restaurant growth of 4 to 8 restaurants.
•Total operating revenue between $489 and $492 million with franchise and licensing revenue between $137 and $138 million.
•Company margin between 16.5% and 17.0% with franchise margin between 67.5% and 68.0%, including $10 million in franchise occupancy margin.
•Total general and administrative expenses between $66 and $67 million (vs. $64 to $67 million**), including approximately $7 million of share-based compensation expense.
•Adjusted EBITDA* between $86 and $88 million.
•Depreciation and amortization expense of approximately $21 million.
•Net interest expense between $9.0 and $9.5 million.
•Effective income tax rate between 34% and 35% with $5.5 to $6.5 million of cash taxes.
•Cash capital expenditures between $31 and $33 million (vs. $26 to $28 million**) including completion of approximately 50 remodels at company restaurants, opening of four new company restaurants, acquisition of three franchised restaurants and purchase of real estate.
•Free Cash Flow* between $40 and $42 million (vs. $44 to $46 million**).
* 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 Second Quarter 2015 Earnings Release on August 3, 2015.
Conference Call and Webcast Information
Dennys will provide further commentary on the results for the third quarter ended September 30, 2015 on its quarterly investor conference call today, Tuesday, November 3, 2015 at 5:00 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 Dennys 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 Dennys
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 September 30, 2015, Dennys had 1,700 franchised, licensed, and company restaurants around the world with combined sales of $2.7 billion including 109 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, Dominican Republic, El Salvador, Chile, New Zealand and the United Arab Emirates, and 161 company operated restaurants in the United States. For further information on Denny's, including news releases, links to SEC (SCUR) 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 Dennys 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 Companys 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 Companys SEC reports and other filings, including but not limited to the discussion in Managements Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2014 (and in the Companys subsequent quarterly reports on Form 10-Q).
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