Denny’s Corporation Reports Results For Second Quarter 2020

Rhea-AI Summary

Denny's Corporation (NASDAQ: DENN) reported second-quarter results on July 28, 2020, highlighting the challenges posed by COVID-19. Total operating revenue fell to $40.2 million, a 73% decline from the prior year. Same-store sales decreased 56.9%, with franchise revenue dropping to $25.0 million. Denny's reported a net loss of $23.0 million, equating to $0.41 per diluted share. Despite a decrease in sales, the company experienced a sequential improvement in same-store sales and implemented cost-saving measures, including financial relief for franchisees and a successful capital raise of $69.6 million.

Positive

• Sequential improvement in sales during the second quarter.
• Successfully raised $69.6 million to strengthen the balance sheet.
• Enhanced operational adaptability with increased off-premise sales.

Negative

• Total operating revenue plummeted 73% year-over-year.
• Same-store sales declined 56.9%, affecting overall performance.
• Reported net loss of $23.0 million, or $0.41 per diluted share.

SPARTANBURG, S.C., July 28, 2020 (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 second quarter ended June 24, 2020 and provided a business update on the impact of the COVID-19 pandemic on the Company’s operations.

John Miller, Chief Executive Officer, stated, "Through enhanced health and safety training and protocols, Denny's team members continue to work together to protect our guests, employees, and suppliers to serve our communities. I am especially encouraged by their willingness to pivot to new operational standards with respect to our off-premise, curbside, outdoor dining, or dine-in channels, proving that 'We Love to Feed People' during both good and challenging times. These actions, coupled with easing dine-in restrictions, resulted in a sequential increase in sales over the course of the second quarter. Although many states have since reinstated dine-in restrictions due to an increase in COVID-19 cases, we have not experienced a significant drop in sales. We attribute our stabilization to our dedicated Denny's team members who are innovative and eager to adapt to their environment."

Miller continued, "During the second quarter, we provided additional financial relief to franchisees, while remaining focused on cost savings. Subsequent to the quarter, we closed on an opportunistic capital raise to further fortify what I believe is one of the strongest balance sheets in the industry. As we look ahead, we believe we are well-positioned to effectively navigate further impacts of the pandemic while preparing for eventual and future growth."

Second Quarter 2020 Highlights

• Total Operating Revenue was $40.2 million.
• Domestic system-wide same-store sales** decreased 56.9%.
• Completed 3 remodels, including 2 at franchised restaurants.
• Operating Loss was $13.5 million.
• Franchise Operating Margin* was $9.8 million, or 39.1% of franchise and license revenue, and Company Restaurant Operating Margin* was ($4.5) million, or (29.6%) of company restaurant sales.
• Net Loss was $23.0 million, or $0.41 per diluted share.
• Adjusted Net Loss* was $13.7 million, or $0.25 per diluted share.
• Adjusted EBITDA* was ($5.1) million.
• Adjusted Free Cash Flow* was ($11.5) million.

Current Trends

Domestic system-wide same-store sales** sequentially improved on a weekly basis during the second quarter ended June 24, 2020, as compared to the equivalent weeks of 2019. During the second quarter, dine-in restrictions continued to ease with most restaurants operating with streamlined menus and reduced operating hours. Due to the recent significant increase in COVID-19 cases, various states reinstated dining room closures, and the Company experienced a slight decline in domestic system-wide same-store sales** in fiscal July.

In an effort to provide greater transparency due to COVID-19, Denny's is providing the following tables that present second and third quarter weekly results compared to the equivalent fiscal weeks in 2019:

Domestic System-Wide Same-Store Sales^** for the Weeks Ended:

Fiscal April: (76%)								Fiscal May: (65%)								Fiscal June: (41%)
4/01		4/08		4/15		4/22		4/29		5/06		5/13		5/20		5/27		6/03		6/10		6/17		6/24
(79	%)	(78	%)	(76	%)	(72	%)	(72	%)	(68	%)	(63	%)	(60	%)	(55	%)	(47	%)	(39	%)	(37	%)	(29	%)

Fiscal July: (39%)1
7/01		7/08		7/15		7/221
(33%)		(42%)		(41%)		(41%)

1. Preliminary results

Number of Domestic Restaurants Operating with Open Dining Rooms for the Weeks Ended:

Fiscal April				Fiscal May				Fiscal June
4/01	4/08	4/15	4/22	4/29	5/06	5/13	5/20	5/27	6/03	6/10	6/17	6/24
7	2	2	2	11	339	521	646	967	1,116	1,234	1,355	1,424

Fiscal July
7/01	7/08	7/15	7/22
1,430	1,124	1,032	1,035

Average unit volumes of off-premise sales have almost doubled from February 2020 to July 2020, supported by temporarily waived delivery fees, new “Dine-Thru” curbside service programs, and recently launched shareable family meal packs.

As of July 22, 2020, 97% of domestic Denny's restaurants were operating, most with take-out and delivery options, streamlined menus, and reduced operating hours, which impacted same-store sales** results. Also as of July 22, 2020, 55 Denny's restaurants remain temporarily closed, including 47 domestic franchise restaurants and 8 international franchise restaurants. Additionally, 1,035 domestic restaurants were operating with open dining rooms with capacity limitations across 28 states.

Liquidity

On July 6, 2020, the Company raised net proceeds of $69.6 million that were used to pay down its credit facility through the issuance and sale of 8.0 million shares of common stock. Subsequent to these two transactions, the Company had approximately $12.0 million of cash on hand and $237.0 million outstanding on the credit facility, or approximately $100 million of total available liquidity after considering the current liquidity covenant.

Pursuant to the underwriting agreement, the Company also granted the underwriters a 30-day option to purchase up to an additional 1.2 million shares of common stock, and currently expects the option will expire unexercised.

Second Quarter Results

Denny’s total operating revenue was $40.2 million compared to $151.9 million in the prior year quarter. Franchise and license revenue was $25.0 million compared to $56.4 million in the prior year quarter. Company restaurant sales were $15.1 million compared to $95.4 million in the prior year quarter. These changes were primarily due to the impact of COVID-19 on sales, the Company's refranchising and development strategy which was substantially complete by the end of 2019, and the related $3.0 million royalty abatement in the second fiscal quarter of 2020.

Franchise Operating Margin* was $9.8 million, or 39.1% of franchise and license revenue, compared to $27.6 million, or 48.8%, in the prior year quarter. This margin decrease was primarily driven by the impact of COVID-19 on sales and the related $3.0 million royalty abatement, partially offset by an increase in occupancy margin from additional leases and subleases to franchisees as a result of the Company's refranchising and development strategy in 2019.

Company Restaurant Operating Margin* was ($4.5) million, or (29.6%) of company restaurant sales, compared to $15.6 million, or 16.4%, in the prior year quarter. This margin decrease was primarily due to the impact of COVID-19 on sales, as well as fewer equivalent units through the Company's refranchising and development strategy.

Total general and administrative expenses were $13.2 million, compared to $18.5 million in the prior year quarter. This change was due to reductions in performance-based incentive compensation, personnel costs, and share-based compensation expense, partially offset by market valuation changes in the Company's deferred compensation plan liabilities.

Interest expense, net was $4.9 million, compared to $5.4 million in the prior year quarter, primarily due to a reduction in financing leases. Denny’s ended the quarter with $323.1 million of total debt outstanding, including $307.0 million of borrowings under its credit facility.

During the quarter, the Company recorded $11.5 million of other non-cash, nonoperating expenses related to the discontinuance of hedge accounting for a portion of its interest rate hedges. The expenses include a $7.4 million reclassification of amounts previously recorded in accumulated other comprehensive loss, net to expense, $3.8 million related to changes in fair value associated with the portion of interest rate hedges for which hedge accounting was discontinued, and $0.3 million of expense recognized related to amounts remaining in accumulated other comprehensive loss, net that will be recognized in other nonoperating expense (income), net over the remaining term of the interest rate hedges for which hedge accounting was discontinued.

The benefit from income taxes was $5.1 million, reflecting an effective tax rate of 18.1%. Approximately $0.1 million in cash taxes was paid during the quarter.

Net loss was $23.0 million, or $0.41 per diluted share, compared to net income of $34.2 million, or $0.55 per diluted share, in the prior year quarter. Adjusted Net Loss* per diluted share was $0.25 compared to Adjusted Net Income* per diluted share of $0.23 in the prior year quarter.

Adjusted Free Cash Flow* and Capital Allocation

Denny’s Adjusted Free Cash Flow* in the quarter after investing $1.7 million in cash capital expenditures, including maintenance capital and remodels, was ($11.5) million.

Business Outlook

On March 16, 2020, the Company announced that it had withdrawn its guidance for the fiscal year ending on December 30, 2020. Given the dynamic and evolving impact of the COVID-19 pandemic on the Company's operations and substantial uncertainty about future performance, the Company cannot reasonably provide an updated business outlook at this time.

* Please refer to the Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income (Loss) to Non-GAAP Financial Measures included in the following tables. 

**  Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open the same period in the prior year. 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

Denny’s will provide further commentary on the results for the second quarter ended June 24, 2020 on its quarterly investor conference call today, Tuesday, July 28, 2020 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 June 24, 2020, Denny’s had 1,683 franchised, licensed, and company restaurants around the world including 147 restaurants in Canada, Puerto Rico, Mexico, the Philippines, New Zealand, Honduras, the United Arab Emirates, Costa Rica, Guam, Guatemala, the United Kingdom, El Salvador, Indonesia, and Aruba. 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.

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 rapidly 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; competitive pressures from within the restaurant industry; 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 (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 25, 2019 (and in the Company’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K).

DENNY’S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)				6/24/20				12/25/19
Assets
	Current assets
		Cash and cash equivalents		$	21,077			$	3,372
		Investments		2,240				3,649
		Receivables, net		19,049				27,488
		Assets held for sale		1,973				1,925
		Other current assets		18,674				16,299
			Total current assets	63,013				52,733
	Property, net			93,759				97,626
	Financing lease right-of-use assets, net			10,672				11,720
	Operating lease right-of-use assets, net			149,169				158,550
	Goodwill			36,884				36,832
	Intangible assets, net			52,681				53,956
	Deferred income taxes, net			28,597				14,718
	Other noncurrent assets, net			33,928				34,252
			Total assets	$	468,703			$	460,387
Liabilities
	Current liabilities
		Current finance lease liabilities		$	1,987			$	1,674
		Current operating lease liabilities		18,479				16,344
		Accounts payable		18,901				20,256
		Other current liabilities		37,390				57,307
			Total current liabilities	76,757				95,581
	Long-term liabilities
		Long-term debt		307,000				240,000
		Noncurrent finance lease liabilities		14,144				14,779
		Noncurrent operating lease liabilities		146,080				152,750
		Other		142,229				95,341
			Total long-term liabilities	609,453				502,870
			Total liabilities	686,210				598,451
Shareholders' deficit
		Common stock		1,097				1,094
		Paid-in capital		600,936				603,980
		Deficit		(203,350		)		(189,398		)
		Accumulated other comprehensive loss, net of tax		(62,217		)		(33,960		)
		Treasury stock		(553,973		)		(519,780		)
			Total shareholders' deficit	(217,507		)		(138,064		)
			Total liabilities and shareholders' deficit	$	468,703			$	460,387
Debt Balances
(In thousands)				6/24/20				12/25/19
Credit facility revolver due 2022				$	307,000			$	240,000
Finance lease liabilities				16,131				16,453
	Total debt			$	323,131			$	256,453

DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
							Quarter Ended
(In thousands, except per share amounts)							6/24/20									6/26/19
Revenue:
	Company restaurant sales						$	15,128								$	95,447
	Franchise and license revenue						25,033									56,437
			Total operating revenue				40,161									151,884
Costs of company restaurant sales, excluding depreciation and amortization							19,606									79,830
Costs of franchise and license revenue, excluding depreciation and amortization							15,244									28,871
General and administrative expenses							13,153									18,453
Depreciation and amortization							4,058									5,048
Operating (gains), losses and other charges, net							1,627									(26,433					)
			Total operating costs and expenses, net				53,688									105,769
Operating income (loss)							(13,527					)				46,115
Interest expense, net							4,947									5,382
Other nonoperating expense (income), net							9,565									(273					)
Income (loss) before income taxes							(28,039					)				41,006
Provision for (benefit from) income taxes							(5,074					)				6,767
Net income (loss)							$	(22,965				)				$	34,239
Basic net income (loss) per share							$	(0.41				)				$	0.57
Diluted net income (loss) per share							$	(0.41				)				$	0.55
Basic weighted average shares outstanding							55,686									60,290
Diluted weighted average shares outstanding							55,686									62,082
Comprehensive income (loss)							$	(18,550				)				$	23,625
General and Administrative Expenses							Quarter Ended
(In thousands)							6/24/20									6/26/19
Corporate administrative expenses							$	9,701								$	12,436
Share-based compensation							1,511									2,713
Incentive compensation							1									2,919
Deferred compensation valuation adjustments							1,940									385
	Total general and administrative expenses						$	13,153								$	18,453

DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
					Two Quarters Ended
(In thousands, except per share amounts)					6/24/20									6/26/19
Revenue:
		Company restaurant sales			$	57,419								$	193,992
		Franchise and license revenue			79,437									109,303
				Total operating revenue	136,856									303,295
Costs of company restaurant sales, excluding depreciation and amortization					55,724									163,943
Costs of franchise and license revenue, excluding depreciation and amortization					44,414									55,929
General and administrative expenses					20,895									37,264
Depreciation and amortization					8,204									11,281
Operating (gains), losses and other charges, net					3,100									(35,368				)
				Total operating costs and expenses, net	132,337									233,049
Operating income					4,519									70,246
Interest expense, net					8,898									10,789
Other nonoperating expense (income), net					12,328									(1,696				)
Income (loss) before income taxes					(16,707				)					61,153
Provision for (benefit from) income taxes					(2,755				)					11,424
Net income (loss)					$	(13,952			)					$	49,729
Basic net income (loss) per share					$	(0.25			)					$	0.82
Diluted net income (loss) per share					$	(0.25			)					$	0.79
Basic weighted average shares outstanding					55,993									60,970
Diluted weighted average shares outstanding					55,993									62,937
Comprehensive income (loss)					$	(42,209			)					$	26,962
General and Administrative Expenses					Two Quarters Ended
(In thousands)					6/24/20									6/26/19
Corporate administrative expenses					$	21,482								$	25,305
Share-based compensation					(26				)					4,966
Incentive compensation					15									5,457
Deferred compensation valuation adjustments					(576				)					1,536
		Total general and administrative expenses			$	20,895								$	37,264

DENNY’S CORPORATION

Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures

(Unaudited)

The Company believes that, in addition to GAAP measures, certain other non-GAAP financial measures are appropriate indicators to assist in the evaluation of operating performance on a period-to-period basis. The Company uses Adjusted EBITDA, Adjusted Free Cash Flow, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share 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 the ability to service debt because the excluded charges do not have an impact on prospective debt servicing capability and these adjustments are contemplated in the Company's credit facility for the computation of its debt covenant ratios. The Company defines Adjusted Free Cash Flow for a given period as Adjusted EBITDA less the cash portion of interest expense net of interest income, capital expenditures, and cash taxes. Management believes that the presentation of Adjusted Free Cash Flow provides useful information to investors because it represents a liquidity measure used to evaluate, among other things, operating effectiveness and is used in decisions regarding the allocation of resources. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income (loss), net income (loss) or other financial performance and liquidity measures prepared in accordance with U.S. generally accepted accounting principles.

	Quarter Ended								Two Quarters Ended
(In thousands, except per share amounts)	6/24/20				6/26/19				6/24/20				6/26/19
Net income (loss)	$	(22,965	)		$	34,239			$	(13,952	)		$	49,729
Provision for (benefit from) income taxes	(5,074		)		6,767				(2,755		)		11,424
Operating (gains), losses and other charges, net	1,627				(26,433		)		3,100				(35,368		)
Other nonoperating expense (income), net	9,565				(273		)		12,328				(1,696		)
Share-based compensation	1,511				2,713				(26		)		4,966
Deferred compensation plan valuation adjustments	1,940				385				(576		)		1,536
Interest expense, net	4,947				5,382				8,898				10,789
Depreciation and amortization	4,058				5,048				8,204				11,281
Cash payments for restructuring charges and exit costs	(690		)		(629		)		(1,374		)		(1,380		)
Cash payments for share-based compensation	—				—				(3,211		)		(3,531		)
Adjusted EBITDA	$	(5,081	)		$	27,199			$	10,636			$	47,750
Cash interest expense, net	(4,717		)		(5,122		)		(8,437		)		(10,270		)
Cash paid for income taxes, net	(53		)		(11,625		)		(277		)		(11,992		)
Cash paid for capital expenditures	(1,658		)		(3,668		)		(4,476		)		(11,483		)
Adjusted Free Cash Flow	$	(11,509	)		$	6,784			$	(2,554	)		$	14,005
	Quarter Ended								Two Quarters Ended
(In thousands, except per share amounts)	6/24/20				6/26/19				6/24/20				6/26/19
Net income (loss)	$	(22,965	)		$	34,239			$	(13,952	)		$	49,729
Losses on interest rate swap derivatives	11,466				—				11,466				—
(Gains) losses on sales of assets and other, net	12				(26,839		)		(1,058		)		(36,314		)
Impairment charges	—				—				2,181				—
Tax effect (1)	(2,168		)		6,935				(2,396		)		9,384
Adjusted Net Income (Loss)	$	(13,655	)		$	14,335			$	(3,759	)		$	22,799
Diluted weighted average shares outstanding	55,686				62,082				55,993				62,937
Diluted Net Income (Loss) Per Share	$	(0.41	)		$	0.55			$	(0.25	)		$	0.79
Adjustments Per Share	$	0.16			$	(0.32	)		$	0.18			$	(0.43	)
Adjusted Net Income (Loss) Per Share	$	(0.25	)		$	0.23			$	(0.07	)		$	0.36

(1

)

Tax adjustments for the reclassification of losses related to derivatives are calculated using an effective tax rate of 25.7% for the quarter and year-to-date periods ended June 24, 2020. Tax adjustments for all other items for the quarter and year-to-date periods ended June 24, 2020 are calculated using an effective rate of 5.4% and 8.8%, respectively. Tax adjustments for the gains on sales of assets and other, net for the quarter and year-to-date periods ended June 26, 2019 are calculated using an effective tax rate of 25.8%.

DENNY’S CORPORATION

Reconciliation of Operating Income (Loss) to Non-GAAP Financial Measures

(Unaudited)

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 Total 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 Total 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. Total 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.

Total 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 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 (loss), net income (loss) or other financial performance measures prepared in accordance with U.S. generally accepted accounting principles. Total 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.

	Quarter Ended								Two Quarters Ended
(In thousands)	6/24/20				6/26/19				6/24/20			6/26/19
Operating income (loss)	$	(13,527	)		$	46,115			$	4,519		$	70,246
General and administrative expenses	13,153				18,453				20,895			37,264
Depreciation and amortization	4,058				5,048				8,204			11,281
Operating (gains), losses and other charges, net	1,627				(26,433		)		3,100			(35,368		)
Total Operating Margin	$	5,311			$	43,183			$	36,718		$	83,423
Total Operating Margin consists of:
Company Restaurant Operating Margin (1)	$	(4,478	)		$	15,617			$	1,695		$	30,049
Franchise Operating Margin (2)	9,789				27,566				35,023			53,374
Total Operating Margin	$	5,311			$	43,183			$	36,718		$	83,423

(1				)	Company Restaurant Operating Margin is calculated as operating income (loss) plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of franchise and license revenue; less franchise and license revenue.
(2				)	Franchise Operating Margin is calculated as operating income (loss) plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of company restaurant sales; less company restaurant sales.
DENNY’S CORPORATION
Operating Margins
(Unaudited)
							Quarter Ended
(In thousands)							6/24/20							6/26/19
Company restaurant operations: (1)
	Company restaurant sales						$	15,128			100.0	%		$	95,447			100.0		%
	Costs of company restaurant sales:
			Product costs				4,305				28.5	%		23,363				24.5		%
			Payroll and benefits				8,039				53.1	%		36,866				38.6		%
			Occupancy				2,728				18.0	%		5,498				5.8		%
			Other operating costs:
						Utilities	1,098				7.3	%		3,106				3.3		%
						Repairs and maintenance	428				2.8	%		2,080				2.2		%
						Marketing	607				4.0	%		3,239				3.4		%
						Other direct costs	2,401				15.9	%		5,678				5.9		%
	Total costs of company restaurant sales						$	19,606			129.6	%		$	79,830			83.6		%
	Company restaurant operating margin (non-GAAP) (2)						$	(4,478	)		(29.6	)%		$	15,617			16.4		%
Franchise operations: (3)
	Franchise and license revenue:
	Royalties						$	6,719			26.8	%		$	26,672			47.3		%
	Advertising revenue						7,232				28.9	%		19,884				35.2		%
	Initial and other fees						1,346				5.4	%		1,755				3.1		%
	Occupancy revenue						9,736				38.9	%		8,126				14.4		%
	Total franchise and license revenue						$	25,033			100.0	%		$	56,437			100.0		%
	Costs of franchise and license revenue:
	Advertising costs						$	7,232			28.9	%		$	19,884			35.2		%
	Occupancy costs						5,829				23.3	%		5,512				9.8		%
	Other direct costs						2,183				8.7	%		3,475				6.2		%
	Total costs of franchise and license revenue						$	15,244			60.9	%		$	28,871			51.2		%
	Franchise operating margin (non-GAAP) (2)						$	9,789			39.1	%		$	27,566			48.8		%
Total operating revenue (4)							$	40,161			100.0	%		$	151,884			100.0		%
Total costs of operating revenue (4)							34,850				86.8	%		108,701				71.6		%
Total operating margin (non-GAAP) (4)(2)							$	5,311			13.2	%		$	43,183			28.4		%
Other operating expenses: (4)(2)
	General and administrative expenses						$	13,153			32.8	%		$	18,453			12.1		%
	Depreciation and amortization						4,058				10.1	%		5,048				3.3		%
	Operating (gains), losses and other charges, net						1,627				4.1	%		(26,433		)		(17.4		)%
	Total other operating expenses						$	18,838			46.9	%		$	(2,932	)		(1.9		)%
Operating income (loss) (4)							$	(13,527	)		(33.7	)%		$	46,115			30.4		%
(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 (loss), net income (loss) 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
Operating Margins
(Unaudited)
					Two Quarters Ended
(In thousands)					6/24/20						6/26/19
Company restaurant operations: (1)
	Company restaurant sales				$	57,419		100.0	%		$	193,992			100.0	%
	Costs of company restaurant sales:
			Product costs		14,435			25.1	%		47,268				24.4	%
			Payroll and benefits		25,145			43.8	%		76,698				39.5	%
			Occupancy		5,891			10.3	%		11,282				5.8	%
			Other operating costs:
				Utilities	2,534			4.4	%		6,478				3.3	%
				Repairs and maintenance	1,217			2.1	%		3,968				2.0	%
				Marketing	1,726			3.0	%		6,946				3.6	%
				Other direct costs	4,776			8.3	%		11,303				5.8	%
	Total costs of company restaurant sales				$	55,724		97.0	%		$	163,943			84.5	%
	Company restaurant operating margin (non-GAAP) (2)				$	1,695		3.0	%		$	30,049			15.5	%
Franchise operations: (3)
	Franchise and license revenue:
	Royalties				$	30,566		38.5	%		$	51,912			47.5	%
	Advertising revenue				24,758			31.2	%		38,826				35.5	%
	Initial and other fees				3,043			3.8	%		2,894				2.6	%
	Occupancy revenue				21,070			26.5	%		15,671				14.3	%
	Total franchise and license revenue				$	79,437		100.0	%		$	109,303			100.0	%
	Costs of franchise and license revenue:
	Advertising costs				$	24,758		31.2	%		$	38,826			35.5	%
	Occupancy costs				13,238			16.7	%		10,761				9.8	%
	Other direct costs				6,418			8.1	%		6,342				5.8	%
	Total costs of franchise and license revenue				$	44,414		55.9	%		$	55,929			51.2	%
	Franchise operating margin (non-GAAP) (2)				$	35,023		44.1	%		$	53,374			48.8	%
Total operating revenue (4)					$	136,856		100.0	%		$	303,295			100.0	%
Total costs of operating revenue (4)					100,138			73.2	%		219,872				72.5	%
Total operating margin (non-GAAP) (4)(2)					$	36,718		26.8	%		$	83,423			27.5	%
Other operating expenses: (4)(2)
	General and administrative expenses				$	20,895		15.3	%		$	37,264			12.3	%
	Depreciation and amortization				8,204			6.0	%		11,281				3.7	%
	Operating (gains), losses and other charges, net				3,100			2.3	%		(35,368		)		(11.7	)%
	Total other operating expenses				$	32,199		23.5	%		$	13,177			4.3	%
Operating income (4)					$	4,519		3.3	%		$	70,246			23.2	%
(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 margin should be considered as a supplement to, not as a substitute for, operating income (loss), net income (loss) 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)
Changes in Same-Store Sales (1)				Quarter Ended								Two Quarters Ended
(increase (decrease) vs. prior year)				6/24/20				6/26/19				6/24/20				6/26/19
	Company Restaurants			(64.9		)%		4.4		%		(35.9		)%		2.9		%
	Domestic Franchised Restaurants			(56.1		)%		3.7		%		(28.4		)%		2.5		%
	Domestic System-wide Restaurants			(56.9		)%		3.8		%		(29.1		)%		2.5		%
Average Unit Sales				Quarter Ended								Two Quarters Ended
(In thousands)				6/24/20				6/26/19				6/24/20				6/26/19
	Company Restaurants			$	246			$	612			$	890			$	1,193
	Franchised Restaurants			$	183			$	419			$	589			$	821
								Franchised
Restaurant Unit Activity				Company				& Licensed				Total
Ending Units March 25, 2020				67				1,628				1,695
	Units Opened			—				3				3
	Units Closed			—				(15		)		(15		)
			Net Change	—				(12		)		(12		)
Ending Units June 24, 2020				67				1,616				1,683
Equivalent Units
	Second Quarter 2020			62				1,622				1,684
	Second Quarter 2019			156				1,543				1,699
			Net Change	(94		)		79				(15		)
								Franchised
Restaurant Unit Activity				Company				& Licensed				Total
Ending Units December 25, 2019				68				1,635				1,703
	Units Opened			—				11				11
	Units Closed			(1		)		(30		)		(31		)
			Net Change	(1		)		(19		)		(20		)
Ending Units June 24, 2020				67				1,616				1,683
Equivalent Units
	Year-to-Date 2020			64				1,627				1,691
	Year-to-Date 2019			163				1,539				1,702
			Net Change	(99		)		88				(11		)
(1		)	Same-store sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open the same period in the prior year. 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.

FAQ

What were Denny's second quarter results for 2020?

Denny's reported total operating revenue of $40.2 million and a net loss of $23.0 million for the second quarter ended June 24, 2020.

How did COVID-19 impact Denny's sales?

Denny's experienced a 56.9% decrease in same-store sales due to COVID-19 restrictions but saw sequential improvements over the quarter.

What capital raise did Denny's complete in July 2020?

On July 6, 2020, Denny's raised $69.6 million through the issuance of 8.0 million shares of common stock.

What was the financial performance of Denny's in Q2 2020?

Denny's reported an operating loss of $13.5 million and an adjusted net loss of $13.7 million.

What is the outlook for Denny's following the Q2 results?

Denny's has withdrawn its fiscal guidance for 2020 due to the uncertainty caused by the COVID-19 pandemic.