EX-99.1 2 q12015earningspressrelease.htm EXHIBIT 99.1
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 - 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.

Component | Full Year 2015 Guidance
| Previous** | Current
Domestic Franchise Same-Store Sales | 1.5% to 3.0% | 2.5% to 3.5%
Company Same-Store Sales | 2.5% to 4.0% | 3.5% to 4.5%
New Restaurant Openings | 35 - 45 (All Franchised) | No Change
Net Restaurant Growth | Single Digit | No 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 $21M | No 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 $47M | No 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.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 “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).

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

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 |
|  | Receivables | 14,140 |  |  | 18,059 |
|  | Current deferred tax asset | 24,108 |  |  | 24,310 |
|  | Other current assets | 9,535 |  |  | 10,628 |
|  |  | Total current assets | 49,501 |  |  | 56,071 |
| Property, net | 108,412 |  |  | 109,777 |
| Goodwill | 31,451 |  |  | 31,451 |
| Intangible assets, net | 45,992 |  |  | 46,278 |
| Noncurrent deferred tax asset | 17,620 |  |  | 19,252 |
| Other noncurrent assets | 28,088 |  |  | 27,029 |
|  |  | Total assets | $ | 281,064 |  |  | $ | 289,858 |
Liabilities |  |  |
| Current liabilities |  |  |
|  | Current maturities of long-term debt | $ | — |  |  | $ | 4,125 |
|  | Current maturities of capital lease obligations | 3,271 |  |  | 3,609 |
|  | Accounts payable | 16,307 |  |  | 13,250 |
|  | Other current liabilities | 49,564 |  |  | 59,432 |
|  |  | Total current liabilities | 69,142 |  |  | 80,416 |
| Long-term liabilities |  |  |
|  | Long-term debt, less current maturities | 135,500 |  |  | 135,875 |
|  | Capital lease obligations, less current maturities | 14,689 |  |  | 15,204 |
|  | Other | 57,830 |  |  | 56,780 |
|  |  | Total long-term liabilities | 208,019 |  |  | 207,859 |
|  |  | Total liabilities | 277,161 |  |  | 288,275 |
Shareholders' equity |  |  |
|  | Common stock | 1,063 |  |  | 1,058 |
|  | Paid-in capital | 572,109 |  |  | 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' equity | 3,903 |  |  | 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 leases | 17,960 |  |  | 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 revenue | 34,189 |  |  | 32,616 |
|  | Total operating revenue | 120,171 |  |  | 111,920 |
Costs of company restaurant sales | 71,308 |  |  | 70,175 |
Costs of franchise and license revenue | 10,978 |  |  | 10,697 |
General and administrative expenses | 16,936 |  |  | 14,116 |
Depreciation and amortization | 5,024 |  |  | 5,238 |
Operating (gains), losses and other charges, net | 608 |  |  | 422 |
|  | Total operating costs and expenses, net | 104,854 |  |  | 100,648 |
Operating income | 15,317 |  |  | 11,272 |
Interest expense, net | 2,087 |  |  | 2,322 |
Other nonoperating expense (income), net | 29 |  |  | (100 | )
Net income before income taxes | 13,201 |  |  | 9,050 |
Provision for income taxes | 4,668 |  |  | 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 outstanding | 84,875 |  |  | 88,803 |
Diluted weighted average shares outstanding | 87,465 |  |  | 90,816 |
Comprehensive income | $ | 6,983 |  |  | $ | 6,223 |
General and Administrative Expenses | Quarter Ended
(In thousands) | April 1, 2015 |  | March 26, 2014
Share-based compensation | $ | 1,705 |  |  | $ | 1,164 |
Other general and administrative expenses | 15,231 |  |  | 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 Reconciliation | Quarter Ended
(In thousands) | April 1, 2015 |  | March 26, 2014
Net income | $ | 8,533 |  |  | $ | 6,431 |
Provision for income taxes | 4,668 |  |  | 2,619 |
Operating (gains), losses and other charges, net | 608 |  |  | 422 |
Other nonoperating (income) expense, net | 29 |  |  | (100 | )
Share-based compensation | 1,705 |  |  | 1,164 |
Adjusted Income Before Taxes (1) | $ | 15,543 |  |  | $ | 10,536 |
Interest expense, net | 2,087 |  |  | 2,322 |
Depreciation and amortization | 5,024 |  |  | 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 Reconciliation | Quarter 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 charges | 49 |  |  | — |
Loss on debt refinancing | 293 |  |  | — |
Tax effect (2) | (113 | ) |  | 2 |
Adjusted Net Income (1) | $ | 8,740 |  |  | $ | 6,425 |
Diluted weighted-average shares outstanding | 87,465 |  |  | 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 costs | 21,444 |  | 24.9 | % |  | 20,583 |  | 26.0 | %
|  | Payroll and benefits | 33,204 |  | 38.6 | % |  | 33,099 |  | 41.7 | %
|  | Occupancy | 4,895 |  | 5.7 | % |  | 5,128 |  | 6.5 | %
|  | Other operating costs: |  |  |  |  |
|  |  | Utilities | 3,176 |  | 3.7 | % |  | 3,331 |  | 4.2 | %
|  |  | Repairs and maintenance | 1,450 |  | 1.7 | % |  | 1,459 |  | 1.8 | %
|  |  | Marketing | 3,207 |  | 3.7 | % |  | 3,007 |  | 3.8 | %
|  |  | Other | 3,932 |  | 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 fees | 445 |  | 1.3 | % |  | 117 |  | 0.3 | %
| Occupancy revenue | 10,581 |  | 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 costs | 3,087 |  | 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 amortization | 5,024 |  | 4.2 | % |  | 5,238 |  | 4.7 | %
| Operating gains, losses and other charges, net | 608 |  | 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 Sales | Quarter Ended |  |
(increase vs. prior year) | April 1, 2015 |  | March 26, 2014 |  |
| Company Restaurants | 7.6 | % |  | 3.2 | % |  |
| Domestic Franchised Restaurants | 7.1 | % |  | 1.5 | % |  |
| Domestic System-wide Restaurants | 7.2 | % |  | 1.8 | % |  |
| System-wide Restaurants | 6.5 | % |  | 1.4 | % |  |
Average Unit Sales | Quarter Ended |  |
(In thousands) | April 1, 2015 |  | March 26, 2014 |  |
| Company Restaurants | $ | 538 |  |  | $ | 498 |  |  |
| Franchised Restaurants | $ | 383 |  |  | $ | 356 |  |  |
|  |  |  |  | Franchised |  |
Restaurant Unit Activity | Company |  | & Licensed |  | Total
Ending Units December 31, 2014 | 161 |  |  | 1,541 |  |  | 1,702 |
| Units Opened | — |  |  | 9 |  |  | 9 |
| Units Closed | (1 | ) |  | (16 | ) |  | (17 | )
|  | Net Change | (1 | ) |  | (7 | ) |  | (8 | )
Ending Units April 1, 2015 | 160 |  |  | 1,534 |  |  | 1,694 |
Equivalent Units |  |  |  |  |
| Year-to-Date 2015 | 160 |  |  | 1,537 |  |  | 1,697 |
| Year-to-Date 2014 | 159 |  |  | 1,536 |  |  | 1,695 |
|  |  | 1 |  |  | 1 |  |  | 2 |