Denny’s Corporation Reports Results for Third Quarter 2023

Rhea-AI Summary

Denny's Corporation (NASDAQ: DENN) reported a 1.8% increase in Denny's domestic system-wide same-restaurant sales and 15.5% growth in Adjusted EBITDA during Q3 2023. The company opened eight franchised restaurants and completed four Denny's franchised restaurant remodels. Total operating revenue was $114.2 million, and net income was $7.9 million. The company repurchased $16.5 million of common stock. The full-year 2023 guidance includes a projected same-restaurant sales growth of 2.75% to 3.50% and consolidated Adjusted EBITDA between $85 million and $87 million.

Positive

• Denny's reported a 1.8% increase in Denny's domestic system-wide same-restaurant sales during Q3 2023.
• The company achieved 15.5% growth in Adjusted EBITDA during the same period.
• Denny's opened eight franchised restaurants and completed four Denny's franchised restaurant remodels.
• Total operating revenue for Q3 2023 was $114.2 million.
• Net income for the quarter was $7.9 million.
• The company repurchased $16.5 million of common stock.
• The full-year 2023 guidance includes a projected same-restaurant sales growth of 2.75% to 3.50% and consolidated Adjusted EBITDA between $85 million and $87 million.

Negative

• None.

Secures Development Agreements for 100 Keke's Cafés

SPARTANBURG, S.C., Oct. 30, 2023 (GLOBE NEWSWIRE) -- Denny’s Corporation (the "Company") (NASDAQ: DENN), owner and operator of Denny's Inc. ("Denny's") and Keke's Inc. ("Keke's") today reported results for its third quarter ended September 27, 2023 and provided a business update on the Company’s operations.

Kelli Valade, Chief Executive Officer, stated, "We were pleased to have generated a 1.8% increase in Denny’s domestic system-wide same-restaurant sales** and 15.5% growth in Adjusted EBITDA* during the third quarter. Despite a persistently challenging operating environment, we remain laser-focused on providing best-in-class breakfast, an unbeatable value proposition, and convenience through off-premises options.”

Ms. Valade continued, “We are pleased to announce a meaningful number of Keke’s development agreements as we welcome Denny’s franchisees into the Keke’s system. Additionally, we are excited by the progress we are making with our CRAVE strategies and positive momentum with the Keke’s brand, which combined should translate into a long-term winning proposition for many years to come.”

Third Quarter 2023 Highlights

• Total operating revenue was $114.2 million compared to $117.5 million in the prior year quarter.
• Denny's domestic system-wide same-restaurant sales** were 1.8% compared to the equivalent fiscal period in 2022, including 2.1% at domestic franchised restaurants and (1.4)% at company restaurants.
• Opened eight franchised restaurants, including two international Denny's locations and one Keke's location.
• Completed four Denny's franchised restaurant remodels.
• Operating income was $14.0 million compared to $15.8 million in the prior year quarter.
• Franchise Operating Margin* was $31.2 million, or 51.2% of franchise and license revenue, and Company Restaurant Operating Margin* was $7.3 million, or 13.7% of company restaurant sales.
• Net income was $7.9 million, or $0.14 per diluted share.
• Adjusted Net Income* and Adjusted Net Income Per Share* were $9.4 million and $0.17, respectively.
• Adjusted EBITDA* was $22.2 million.
• Cash provided by (used in) operating, investing, and financing activities was $15.1 million, ($1.9) million, and ($13.4) million, respectively.
• Adjusted Free Cash Flow* was $12.0 million.
• Repurchased $16.5 million of common stock.
  
  

Third Quarter 2023 Results

Total operating revenue was $114.2 million compared to $117.5 million in the prior year quarter.

Franchise and license revenue was $61.0 million compared to $65.2 million in the prior year quarter. This change was primarily driven by a $4.4 million decrease in initial and other fees associated with the sale of kitchen equipment in the prior year quarter. These impacts were partially offset by Denny's franchised restaurants same-restaurant sales** growth and a full quarter of Keke's franchise revenue contribution in the current quarter compared to a partial contribution in the prior year quarter.

Company restaurant sales were $53.2 million compared to $52.2 million in the prior year quarter. This growth was primarily due to an increase of $0.8 million at Keke's company restaurant sales in the current quarter compared to the prior year quarter.

Franchise Operating Margin* was $31.2 million, or 51.2% of franchise and license revenue, compared to $30.7 million, or 47.0%, in the prior year quarter. Approximately 330 basis points of the favorable change in margin rate resulted from a lower kitchen modernization rollout impact in the current year quarter.

Company Restaurant Operating Margin* was $7.3 million, or 13.7% of company restaurant sales, compared to $3.8 million, or 7.2%, in the prior year quarter. This margin change was primarily due to lower legal settlement expense, improvements in product costs, and more equivalent units compared to the prior year quarter.

Total general and administrative expenses were $18.2 million, compared to $16.6 million in the prior year quarter. This change was primarily due to increases in share-based compensation expense and corporate administration expenses, partially offset by a reduction in performance-based incentive compensation.

The provision for income taxes was $1.7 million, reflecting an effective tax rate of 17.6% for the quarter. Approximately $2.6 million in cash taxes were paid during the quarter.

Net income was $7.9 million, or $0.14 per diluted share, compared to $17.1 million, or $0.29 per diluted share, in the prior year quarter. This change in net income was primarily due to $10.8 million of gains related to dedesignated interest rate swap valuation adjustments in the prior year quarter. Adjusted Net Income* per share was $0.17 compared to $0.12 in the prior year quarter.

The Company ended the quarter with $258.6 million of total debt outstanding, including $248.1 million of borrowings under its credit facility.

Adjusted Free Cash Flow* and Capital Allocation

Adjusted Free Cash Flow* in the quarter was $12.0 million after investing $3.4 million in cash capital expenditures, including one company restaurant remodel and facilities maintenance.

During the quarter, the Company allocated $16.5 million to share repurchases resulting in approximately $116.6 million remaining under its existing repurchase authorization.

Business Outlook

The Company updated its full year 2023 guidance reflecting management's expectations that the current consumer and economic environment will not change materially:

• Denny's domestic system-wide same-restaurant sales** between 2.75% and 3.50% (vs. between 3% and 6%).
• Consolidated restaurant openings of 35 to 45, including 4 to 6 new Keke's restaurants (vs. 8 to 12), with a consolidated net decline of 10 to 20 (vs. a consolidated net decline of 15 to 25).
• Commodity inflation between 1% and 2% (vs. between 1% and 3%).
• Labor inflation of approximately 4%.
• Consolidated total general and administrative expenses between $75 million and $77 million (vs. between $78 million and $80 million), including approximately $11 million (vs. approximately $12 million) related to share-based compensation expense which does not impact Consolidated Adjusted EBITDA*.
• Consolidated Adjusted EBITDA* between $85 million and $87 million (vs. between $86 million and $90 million).
  
  

*	Please refer to the Reconciliation of Net Income and Net Cash Provided by Operating Activities to Non-GAAP Financial Measures, as well as the Reconciliation of Operating Income to Non-GAAP Financial Measures included in the tables below. The Company is not able to reconcile the forward-looking non-GAAP estimates set forth above to their most directly comparable U.S. generally accepted accounting principles (GAAP) estimates without unreasonable efforts because it is unable to predict, forecast or determine the probable significance of the items impacting these estimates, including gains, losses and other charges, with a reasonable degree of accuracy. Accordingly, the most directly comparable forward-looking GAAP estimates are not provided.
**	Same-restaurant sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, initial and other fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-restaurant sales and domestic system-wide same-restaurant 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

The Company will provide further commentary on the results for the third quarter ended September 27, 2023 on its quarterly investor conference call today, Monday, October 30, 2023 at 4:30 p.m. Eastern Time. Interested parties are invited to listen to a live broadcast of the conference call accessible through the Company's investor relations website at investor.dennys.com.

About Denny's Corporation

Denny’s Corporation is one of America’s largest full-service restaurant chains based on number of restaurants. As of September 27, 2023, the Company consisted of 1,644 restaurants, 1,570 of which were franchised and licensed restaurants and 74 of which were company operated.

Denny's Corporation consists of the Denny’s brand and the Keke’s brand. As of September 27, 2023, the Denny's brand consisted of 1,588 global restaurants, 1,522 of which were franchised and licensed restaurants and 66 of which were company operated. As of September 27, 2023, the Keke's brand consisted of 56 restaurants, 48 of which were franchised restaurants and 8 of which were company operated.

For further information on Denny's Corporation, including news releases, links to SEC filings, and other financial information, please visit 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: economic, public health and political conditions that impact consumer confidence and spending, commodity and labor inflation; the ability to effectively staff restaurants and support personnel; the Company's ability to maintain adequate levels of liquidity for its cash needs, including debt obligations, payment of dividends, planned share repurchases and capital expenditures as well as the ability of its customers, suppliers, franchisees and lenders to access sources of liquidity to provide for their own cash needs; competitive pressures from within the restaurant industry; the Company's ability to integrate and derive the expected benefits from its acquisition of Keke's Breakfast Cafe; 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 and geopolitical events (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 28, 2022 (and in the Company’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K).

DENNY’S CORPORATION
Consolidated Balance Sheets
(Unaudited)
($ in thousands)	9/27/23				12/28/22
Assets
Current assets
Cash and cash equivalents	$	1,022			$	3,523
Investments		1,255				1,746
Receivables, net		16,950				25,576
Inventories		2,354				5,538
Assets held for sale		1,557				1,403
Prepaid and other current assets		11,816				12,529
Total current assets		34,954				50,315
Property, net		91,248				94,469
Finance lease right-of-use assets, net		5,988				6,499
Operating lease right-of-use assets, net		119,436				126,065
Goodwill		72,142				72,740
Intangible assets, net		93,845				95,034
Deferred financing costs, net		1,861				2,337
Other noncurrent assets		60,361				50,876
Total assets	$	479,835			$	498,335
Liabilities
Current liabilities
Current finance lease liabilities	$	1,393			$	1,683
Current operating lease liabilities		14,917				15,310
Accounts payable		15,560				19,896
Other current liabilities		59,071				56,762
Total current liabilities		90,941				93,651
Long-term liabilities
Long-term debt		248,100				261,500
Noncurrent finance lease liabilities		9,094				9,555
Noncurrent operating lease liabilities		117,027				123,404
Liability for insurance claims, less current portion		6,693				7,324
Deferred income taxes, net		12,867				7,419
Other noncurrent liabilities		30,911				32,598
Total long-term liabilities		424,692				441,800
Total liabilities		515,633				535,451
Shareholders' deficit
Common stock		657				650
Paid-in capital		147,393				142,136
Deficit		(24,686	)			(41,729	)
Accumulated other comprehensive loss, net		(27,760	)			(42,697	)
Treasury stock		(131,402	)			(95,476	)
Total shareholders' deficit		(35,798	)			(37,116	)
Total liabilities and shareholders' deficit	$	479,835			$	498,335
Debt Balances
Credit facility revolver due 2026	$	248,100			$	261,500
Finance lease liabilities		10,487				11,238
Total debt	$	258,587			$	272,738

DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
	Quarter Ended
($ in thousands, except per share amounts)	9/27/23				9/28/22
Revenue:
Company restaurant sales	$	53,153			$	52,211
Franchise and license revenue		61,030				65,245
Total operating revenue		114,183				117,456
Costs of company restaurant sales, excluding depreciation and amortization		45,893				48,451
Costs of franchise and license revenue, excluding depreciation and amortization		29,810				34,579
General and administrative expenses		18,237				16,607
Depreciation and amortization		3,605				3,914
Operating (gains), losses and other charges, net		2,620				(1,897	)
Total operating costs and expenses, net		100,165				101,654
Operating income		14,018				15,802
Interest expense, net		4,381				3,691
Other nonoperating expense (income), net		43				(10,461	)
Income before income taxes		9,594				22,572
Provision for income taxes		1,686				5,489
Net income	$	7,908			$	17,083
Net income per share - basic	$	0.14			$	0.29
Net income per share - diluted	$	0.14			$	0.29
Basic weighted average shares outstanding		55,869				59,020
Diluted weighted average shares outstanding		56,082				59,040
Comprehensive income	$	20,469			$	20,061
General and Administrative Expenses
Corporate administrative expenses	$	14,580			$	13,758
Share-based compensation		2,864				1,947
Incentive compensation		1,049				1,187
Deferred compensation valuation adjustments		(256	)			(285	)
Total general and administrative expenses	$	18,237			$	16,607

DENNY’S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
	Three Quarters Ended
($ in thousands, except per share amounts)	9/27/23				9/28/22
Revenue:
Company restaurant sales	$	161,486			$	145,354
Franchise and license revenue		187,083				190,226
Total operating revenue		348,569				335,580
Costs of company restaurant sales, excluding depreciation and amortization		138,953				131,904
Costs of franchise and license revenue, excluding depreciation and amortization		92,657				100,513
General and administrative expenses		58,515				50,188
Depreciation and amortization		10,878				11,052
Operating (gains), losses and other charges, net		2,467				(1,051	)
Total operating costs and expenses, net		303,470				292,606
Operating income		45,099				42,974
Interest expense, net		13,288				9,529
Other nonoperating expense (income), net		9,470				(49,871	)
Income before income taxes		22,341				83,316
Provision for income taxes		5,298				21,375
Net income	$	17,043			$	61,941
Net income per share - basic	$	0.30			$	1.01
Net income per share - diluted	$	0.30			$	1.00
Basic weighted average shares outstanding		56,764				61,558
Diluted weighted average shares outstanding		56,973				61,686
Comprehensive income	$	31,980			$	73,108
General and Administrative Expenses
Corporate administrative expenses	$	43,919			$	38,303
Share-based compensation		8,477				9,467
Incentive compensation		5,335				4,945
Deferred compensation valuation adjustments		784				(2,527	)
Total general and administrative expenses	$	58,515			$	50,188

DENNY’S CORPORATION

Reconciliation of Net Income and Net Cash Provided by Operating Activities to Non-GAAP Financial Measures

(Unaudited)

The Company believes that, in addition to GAAP measures, certain non-GAAP financial measures are appropriate indicators to assist in the evaluation of operating performance and liquidity on a period-to-period basis. The Company uses Adjusted EBITDA, Adjusted Free Cash Flow, Adjusted Net Income and Adjusted Net Income Per Share internally as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes, including incentive compensation for certain employees. Adjusted EBITDA is also used in the calculation of financial covenant ratios in accordance with the Company’s credit facility. Adjusted Free Cash Flow is also used as a non-GAAP liquidity measure by Management to assess the Company’s ability to generate cash and plan for future operating and capital actions. Management believes that the presentation of Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Share and Adjusted Free Cash Flow provide useful information to investors and analysts about the Company’s operating results, financial condition or cash flows. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income, net income per share, net cash provided by operating activities, or other financial performance and liquidity measures prepared in accordance with GAAP.

	Quarter Ended								Three Quarters Ended
($ in thousands)	9/27/23				9/28/22				9/27/23				9/28/22
Net income	$	7,908			$	17,083			$	17,043			$	61,941
Provision for income taxes		1,686				5,489				5,298				21,375
Operating (gains), losses and other charges, net		2,620				(1,897	)			2,467				(1,051	)
Other nonoperating expense (income), net		43				(10,461	)			9,470				(49,871	)
Share-based compensation expense		2,864				1,947				8,477				9,467
Deferred compensation plan valuation adjustments		(256	)			(285	)			784				(2,527	)
Interest expense, net		4,381				3,691				13,288				9,529
Depreciation and amortization		3,605				3,914				10,878				11,052
Cash payments for restructuring charges and exit costs		(667	)			(284	)			(1,665	)			(665	)
Cash payments for share-based compensation		(9	)			—				(3,131	)			(5,147	)
Adjusted EBITDA	$	22,175			$	19,197			$	62,909			$	54,103

DENNY’S CORPORATION
Reconciliation of Net Income and Net Cash Provided by Operating Activities
to Non-GAAP Financial Measures (Continued)
(Unaudited)
	Quarter Ended								Three Quarters Ended
($ in thousands)	9/27/23				9/28/22				9/27/23				9/28/22
Net cash provided by operating activities	$	15,117			$	15,341			$	50,768			$	24,950
Capital expenditures		(2,192	)			(4,375	)			(5,499	)			(10,146	)
Acquisition of real estate and restaurant(1)		(1,227	)			(750	)			(1,227	)			(750	)
Cash payments for restructuring charges and exit costs		(667	)			(284	)			(1,665	)			(665	)
Cash payments for share-based compensation		(9	)			—				(3,131	)			(5,147	)
Deferred compensation plan valuation adjustments		(256	)			(285	)			784				(2,527	)
Other nonoperating expense (income), net		43				(10,461	)			9,470				(49,871	)
Gains (losses) on investments		30				(66	)			59				(289	)
Gains on early termination of debt and leases		—				53				—				29
Amortization of deferred financing costs		(159	)			(158	)			(476	)			(475	)
Gains (losses) and amortization on interest rate swap derivatives, net		(94	)			10,754				(10,838	)			52,678
Interest expense, net		4,381				3,691				13,288				9,529
Cash interest expense, net (2)		(4,128	)			(3,823	)			(12,392	)			(10,998	)
Deferred income tax expense		341				(4,903	)			(369	)			(15,669	)
Provision for income taxes		1,686				5,489				5,298				21,375
Income taxes paid, net		(2,621	)			(1,517	)			(6,531	)			(6,161	)
Changes in operating assets and liabilities, excluding acquisitions and dispositions
Receivables		(1,475	)			1,369				(8,235	)			4,788
Inventories		(180	)			(3,282	)			(3,184	)			3,866
Other current assets		1,776				1,880				(712	)			(1,683	)
Other noncurrent assets		1,149				2,936				902				(3,189	)
Operating lease assets and liabilities		120				94				479				560
Accounts payable		(675	)			1,574				7,079				3,115
Other accrued liabilities		(327	)			(7,579	)			1,319				3,483
Other noncurrent liabilities		1,374				3,034				2,073				9,245
Adjusted Free Cash Flow	$	12,007			$	8,732			$	37,260			$	26,048

(1)	For the quarter and year-to-date period ended September 27, 2023, amounts include cash paid for the acquisition of a piece of real estate. For the quarter and year-to-date period ended September 28, 2022, amounts include cash paid for the acquisition of a Denny's franchise restaurant and exclude capital paid for the acquisition of Keke's.
(2)	Includes cash interest income, net for the quarter and year-to-date period ended September 27, 2023, and cash receipts of approximately $0.2 million for dedesignated interest rate swap derivatives for the year-to-date period ended September 27, 2023. Includes cash interest expense, net and cash payments of approximately $0.3 and $2.0 million for dedesignated interest rate swap derivatives for the quarter and year-to-date period ended September 28, 2022, respectively.

DENNY’S CORPORATION
Reconciliation of Net Income and Net Cash Provided by Operating Activities
to Non-GAAP Financial Measures (Continued)
(Unaudited)
	Quarter Ended								Three Quarters Ended
($ in thousands, except per share amounts)	9/27/23				9/28/22				9/27/23				9/28/22
Adjusted EBITDA	$	22,175			$	19,197			$	62,909			$	54,103
Cash interest expense, net (1)		(4,128	)			(3,823	)			(12,392	)			(10,998	)
Cash paid for income taxes, net		(2,621	)			(1,517	)			(6,531	)			(6,161	)
Cash paid for capital expenditures (2)		(3,419	)			(5,125	)			(6,726	)			(10,896	)
Adjusted Free Cash Flow	$	12,007			$	8,732			$	37,260			$	26,048
Net income	$	7,908			$	17,083			$	17,043			$	61,941
(Gains) losses and amortization on interest rate swap derivatives, net		94				(10,754	)			10,838				(52,678	)
Gains on sales of assets and other charges, net		(88	)			(3,066	)			(2,132	)			(3,311	)
Impairment charges		1,711				697				1,840				963
Tax effect (3)		(179	)			3,163				(2,457	)			14,142
Adjusted Net Income	$	9,446			$	7,123			$	25,132			$	21,057
Diluted weighted average shares outstanding		56,082				59,040				56,973				61,686
Net Income Per Share - Diluted	$	0.14			$	0.29			$	0.30			$	1.00
Adjustments Per Share		0.03				(0.17	)			0.14				(0.66	)
Adjusted Net Income Per Share	$	0.17			$	0.12			$	0.44			$	0.34

(1)	Includes cash interest income, net for the quarter and year-to-date period ended September 27, 2023, and cash receipts of approximately $0.2 million for dedesignated interest rate swap derivatives for the year-to-date period ended September 27, 2023. Includes cash interest expense, net and cash payments of approximately $0.3 million and $2.0 million for dedesignated interest rate swap derivatives for the quarter and year-to-date period ended September 28, 2022, respectively.
(2)	For the quarter and year-to-date period ended September 27, 2023, amounts include cash paid for capital expenditures and the acquisition of a piece of real estate. For the quarter and year-to-date period ended September 28, 2022, amounts include cash paid for capital expenditures and the acquisition of a Denny's franchise restaurant, and exclude capital paid for the acquisition of Keke's.
(3)	Tax adjustments for the quarter and year-to-date period ended September 27, 2023 reflect effective tax rates of 10.4% and 23.3%, respectively. Tax adjustments for the quarter and year-to-date period ended September 28, 2022 reflect effective tax rates of 24.1% and 25.7%, respectively.

DENNY’S CORPORATION

Reconciliation of Operating Income 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 Restaurant-level 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 Restaurant-level 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. Restaurant-level 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.

Restaurant-level 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 and other 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, net income or other financial performance measures prepared in accordance with GAAP. Restaurant-level 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								Three Quarters Ended
($ in thousands)	9/27/23				9/28/22				9/27/23				9/28/22
Operating income	$	14,018			$	15,802			$	45,099			$	42,974
General and administrative expenses		18,237				16,607				58,515				50,188
Depreciation and amortization		3,605				3,914				10,878				11,052
Operating (gains), losses and other charges, net		2,620				(1,897	)			2,467				(1,051	)
Restaurant-level Operating Margin	$	38,480			$	34,426			$	116,959			$	103,163
Restaurant-level Operating Margin consists of:
Company Restaurant Operating Margin (1)	$	7,260			$	3,760			$	22,533			$	13,450
Franchise Operating Margin (2)		31,220				30,666				94,426				89,713
Restaurant-level Operating Margin	$	38,480			$	34,426			$	116,959			$	103,163

(1)	Company Restaurant Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges, net; and costs of franchise and license revenue, excluding depreciation and amortization; less franchise and license revenue.
(2)	Franchise Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges, net; and costs of company restaurant sales, excluding depreciation and amortization; less company restaurant sales.

DENNY’S CORPORATION
Operating Margins
(Unaudited)
			Quarter Ended
($ in thousands)			9/27/23							9/28/22
Company restaurant operations: (1)
Company restaurant sales			$	53,153		100.0		%		$	52,211		100.0		%
Costs of company restaurant sales, excluding depreciation and amortization:
Product costs				13,587		25.6		%			14,462		27.7		%
Payroll and benefits				19,754		37.2		%			20,176		38.6		%
Occupancy				4,182		7.9		%			4,294		8.2		%
Other operating costs:
Utilities				2,120		4.0		%			1,984		3.8		%
Repairs and maintenance				996		1.9		%			1,089		2.1		%
Marketing				1,393		2.6		%			1,340		2.6		%
Legal settlements				245		0.5		%			1,567		3.0		%
Other direct costs				3,616		6.8		%			3,539		6.8		%
Total costs of company restaurant sales, excluding depreciation and amortization			$	45,893		86.3		%		$	48,451		92.8		%
Company restaurant operating margin (non-GAAP) (2)			$	7,260		13.7		%		$	3,760		7.2		%
Franchise operations: (3)
Franchise and license revenue:
Royalties			$	29,703		48.7		%		$	28,992		44.4		%
Advertising revenue				19,297		31.6		%			18,950		29.0		%
Initial and other fees				3,388		5.6		%			7,749		11.9		%
Occupancy revenue				8,642		14.2		%			9,554		14.6		%
Total franchise and license revenue			$	61,030		100.0		%		$	65,245		100.0		%
Costs of franchise and license revenue, excluding depreciation and amortization:
Advertising costs			$	19,297		31.6		%		$	18,950		29.0		%
Occupancy costs				5,389		8.8		%			5,910		9.1		%
Other direct costs				5,124		8.4		%			9,719		14.9		%
Total costs of franchise and license revenue, excluding depreciation and amortization			$	29,810		48.8		%		$	34,579		53.0		%
Franchise operating margin (non-GAAP) (2)			$	31,220		51.2		%		$	30,666		47.0		%
Total operating revenue (4)			$	114,183		100.0		%		$	117,456		100.0		%
Total costs of operating revenue (4)				75,703		66.3		%			83,030		70.7		%
Restaurant-level operating margin (non-GAAP) (4)(2)			$	38,480		33.7		%		$	34,426		29.3		%
Other operating expenses: (4)(2)
General and administrative expenses			$	18,237		16.0		%		$	16,607		14.1		%
Depreciation and amortization				3,605		3.2		%			3,914		3.3		%
Operating losses and other charges, net				2,620		2.3		%			(1,897	)	(1.6	)	%
Total other operating expenses			$	24,462		21.4		%		$	18,624		15.9		%
Operating income (4)			$	14,018		12.3		%		$	15,802		13.5		%

(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 GAAP.
(3)	As a percentage of franchise and license revenue.
(4)	As a percentage of total operating revenue.

DENNY’S CORPORATION
Operating Margins
(Unaudited)
			Three Quarters Ended
($ in thousands)			9/27/23							9/28/22
Company restaurant operations: (1)
Company restaurant sales			$	161,486		100.0		%		$	145,354		100.0		%
Costs of company restaurant sales, excluding depreciation and amortization:
Product costs				41,796		25.9		%			38,874		26.7		%
Payroll and benefits				60,482		37.5		%			55,598		38.3		%
Occupancy				12,381		7.7		%			11,316		7.8		%
Other operating costs:
Utilities				6,037		3.7		%			5,211		3.6		%
Repairs and maintenance				2,667		1.7		%			2,803		1.9		%
Marketing				4,207		2.6		%			3,877		2.7		%
Legal settlements				475		0.3		%			4,223		2.9		%
Other direct costs				10,908		6.8		%			10,002		6.9		%
Total costs of company restaurant sales, excluding depreciation and amortization			$	138,953		86.0		%		$	131,904		90.7		%
Company restaurant operating margin (non-GAAP) (2)			$	22,533		14.0		%		$	13,450		9.3		%
Franchise operations: (3)
Franchise and license revenue:
Royalties			$	90,106		48.2		%		$	84,276		44.3		%
Advertising revenue				58,818		31.4		%			56,642		29.8		%
Initial and other fees				10,994		5.9		%			20,035		10.5		%
Occupancy revenue				27,165		14.5		%			29,273		15.4		%
Total franchise and license revenue			$	187,083		100.0		%		$	190,226		100.0		%
Costs of franchise and license revenue, excluding depreciation and amortization:
Advertising costs			$	58,818		31.4		%		$	56,642		29.8		%
Occupancy costs				16,853		9.0		%			18,351		9.6		%
Other direct costs				16,986		9.1		%			25,520		13.4		%
Total costs of franchise and license revenue, excluding depreciation and amortization			$	92,657		49.5		%		$	100,513		52.8		%
Franchise operating margin (non-GAAP) (2)			$	94,426		50.5		%		$	89,713		47.2		%
Total operating revenue (4)			$	348,569		100.0		%		$	335,580		100.0		%
Total costs of operating revenue (4)				231,610		66.4		%			232,417		69.3		%
Restaurant-level operating margin (non-GAAP) (4)(2)			$	116,959		33.6		%		$	103,163		30.7		%
Other operating expenses: (4)(2)
General and administrative expenses			$	58,515		16.8		%		$	50,188		15.0		%
Depreciation and amortization				10,878		3.1		%			11,052		3.3		%
Operating (gains), losses and other charges, net				2,467		0.7		%			(1,051	)	(0.3	)	%
Total other operating expenses			$	71,860		20.6		%		$	60,189		17.9		%
Operating income (4)			$	45,099		12.9		%		$	42,974		12.8		%

(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, net income or other financial measures prepared in accordance with GAAP.
(3)	As a percentage of franchise and license revenue.
(4)	As a percentage of total operating revenue.

DENNY’S CORPORATION
Statistical Data
(Unaudited)
			Denny's								Keke's (2)
Changes in Same-Restaurant Sales (1)			Quarter Ended				Three Quarters Ended				Quarter Ended				Three Quarters Ended
(Increase vs. prior year)			9/27/23		9/28/22		9/27/23		9/28/22		9/27/23		9/28/22		9/27/23		9/28/22
Company Restaurants			(1.4)%		7.1%		4.1%		12.1%		(3.4)%		N/A		(3.4)%		N/A
Domestic Franchise Restaurants			2.1%		1.1%		4.3%		7.6%		(5.3)%		N/A		(5.3)%		N/A
Domestic System-wide Restaurants			1.8%		1.5%		4.3%		7.9%		(5.0)%		N/A		(5.0)%		N/A
Average Unit Sales
($ in thousands)
Company Restaurants			$755		$766		$2,303		$2,209		$429		$334		$1,354		$334
Franchised Restaurants			$458		$435		$1,376		$1,281		$430		$349		$1,397		$349

(1)	Same-restaurant sales include sales at company restaurants and non-consolidated franchised and licensed restaurants that were open during the comparable periods noted. Total operating revenue is limited to company restaurant sales and royalties, advertising revenue, initial and other fees and occupancy revenue from non-consolidated franchised and licensed restaurants. Accordingly, domestic franchise same-restaurant sales and domestic system-wide same-restaurant sales should be considered as a supplement to, not a substitute for, the Company's results as reported under GAAP.
(2)	Effective July 20, 2022, the Company acquired Keke's, as such data for the quarter and year-to-date period ended September 28, 2022 only represent post-acquisition results.

Restaurant Unit Activity	Denny's									Keke's
				Franchised									Franchised
	Company			& Licensed			Total			Company			& Licensed			Total
Ending Units June 28, 2023	66			1,525			1,591			8			47			55
Units Opened	—			7			7			—			1			1
Units Closed	—			(10	)		(10	)		—			—			—
Net Change	—			(3	)		(3	)		—			1			1
Ending Units September 27, 2023	66			1,522			1,588			8			48			56
Equivalent Units
Third Quarter 2023	66			1,523			1,589			8			48			56
Third Quarter 2022	65			1,560			1,625			6			34			40
Net Change	1			(37	)		(36	)		2			14			16
	Denny's									Keke's
				Franchised									Franchised
Restaurant Unit Activity	Company			& Licensed			Total			Company			& Licensed			Total
Ending Units December 28, 2022	66			1,536			1,602			8			46			54
Units Opened	—			21			21			—			2			2
Units Closed	—			(35	)		(35	)		—			—			—
Net Change	—			(14	)		(14	)		—			2			2
Ending Units September 27, 2023	66			1,522			1,588			8			48			56
Equivalent Units
Year-to-Date 2023	65			1,525			1,590			8			47			55
Year-to-Date 2022	64			1,566			1,630			2			11			13
Net Change	1			(41	)		(40	)		6			36			42

 

FAQ

What was the increase in Denny's domestic system-wide same-restaurant sales during Q3 2023?

Denny's reported a 1.8% increase in domestic system-wide same-restaurant sales during Q3 2023.

What was the growth in Adjusted EBITDA during Q3 2023?

Denny's achieved 15.5% growth in Adjusted EBITDA during Q3 2023.

How many franchised restaurants did Denny's open during Q3 2023?

Denny's opened eight franchised restaurants during Q3 2023.

What was the total operating revenue for Q3 2023?

Total operating revenue for Q3 2023 was $114.2 million.

What was the net income for Q3 2023?

Net income for Q3 2023 was $7.9 million.

How much common stock did the company repurchase?

The company repurchased $16.5 million of common stock.

What is the projected same-restaurant sales growth for the full year 2023?

The full-year 2023 guidance includes a projected same-restaurant sales growth of 2.75% to 3.50%.

What is the projected consolidated Adjusted EBITDA for the full year 2023?

The full-year 2023 guidance includes projected consolidated Adjusted EBITDA between $85 million and $87 million.