Denny's Corporation Reports Results for Third Quarter 2014

- Domestic System-Wide Same-Store Sales Increases 2.4% with Company Same-Store Sales Growing 4.1% -
- Generated $12.8 million of Free Cash Flow* and Repurchased 1.2 Million Shares -
- Raises 2014 Annual Guidance -

SPARTANBURG, S.C., Oct. 27, 2014 (GLOBE NEWSWIRE) -- Denny's Corporation DENN, franchisor and operator of one of America's largest franchised full-service restaurant chains, today reported results for its third quarter ended September 24, 2014.

Third Quarter Summary

• Domestic system-wide same-store sales increased 2.4%, comprised of a 4.1% increase at company restaurants and 2.1% increase at domestic franchised restaurants.
   
• Opened nine franchised restaurants including one non-traditional and two international locations.
   
• Completed 35 remodels including five at company restaurants.
   
• Adjusted EBITDA* of $20.6 million, or 17.6% of total operating revenue, increased $1.4 million compared with the prior year quarter.
   
• Net Income of $8.3 million, or $0.10 per diluted share, increased 18.7% compared with the prior year.
   
• Adjusted Net Income per Share* of $0.10 increased 29.2% compared with the prior year quarter.
   
• Generated $12.8 million of Free Cash Flow* after remodel investments at company restaurants.
   
• Repurchased 1.2 million shares for $8.0 million with 4.3 million authorized shares remaining.

John Miller, President and Chief Executive Officer, stated, "We are pleased to achieve our strongest quarter of system-wide same-store sales in the last two and a half years. In addition, our company restaurants achieved the highest quarterly same-store sales increase in the last eight years. Given the strength of our results and the solid start to the fourth quarter, we are positioned to produce our highest annual system-wide same-store sales growth since 2006. Our brand revitalization continues to drive improvements in our menu, service and atmosphere as we evolve the business to meet the expectations of our guests. The impact of our newly launched Heritage remodel program contributed to our company restaurants ability to grow sustainable same-store guest traffic for a third consecutive quarter. As we look to the balance of the year, we remain focused on driving long-term shareholder value through our brand revitalization strategy and are energized about growing the Denny's brand."

Third Quarter Results

Denny's total operating revenue, including company restaurant sales and franchise and license revenue, was $117.0 million resulting from a reduction in company restaurant sales offset by higher franchise and license revenue. Franchise and license revenue was $34.2 million compared with $33.9 million due to an increase in royalty revenue resulting from the increase in same-store sales and twelve additional equivalent franchised restaurants, partially offset by a decrease in occupancy revenue. Company restaurant sales were $82.8 million compared with $83.4 million due to four fewer equivalent company restaurants. The reduction in equivalent company restaurants includes the impact of the previously announced temporary closure for the reconstruction of the highest volume restaurant located in Las Vegas and temporary closures for remodeling restaurants. The decrease in company restaurant sales was partially offset by a 4.1% increase in same-store sales during the quarter.

Denny's opened nine franchised restaurants in the third quarter of this year, including two international locations and one non-traditional location. Denny's closed thirteen franchised restaurants bringing the total restaurant count to 1,689, comprised of 160 company restaurants and 1,529 franchised restaurants.

Franchise operating margin was $22.9 million, or 66.9% of franchise and license revenue, an increase of 1.1 percentage points. This improvement was primarily due to an increase in royalties. Company restaurant operating margin of $11.0 million, or 13.3% of company restaurant sales, increased 1.0 percentage point. The increase in company margin was primarily driven by a reduction in payroll and benefits and product costs, which were partially offset by an increase in other operating costs and the previously mentioned temporary restaurant closure in Las Vegas. In the third quarter of 2013, this high volume restaurant generated pre-tax operating income of $0.7 million on sales of $2.1 million.

Total general and administrative expenses of $13.4 million improved by $0.3 million compared to the prior year. Depreciation and amortization expense of $5.2 million was flat to the prior year. Net operating gains, losses and other charges, which include restructuring charges, exit costs, impairment charges and gains or losses on the sale of assets, increased $0.4 million in the quarter. Interest expense of $2.3 million decreased $0.2 million primarily due to the expiration of capital leases. In the third quarter, the provision for income taxes was $4.1 million, reflecting an effective tax rate of 33.0%. Due to the use of net operating loss and tax credit carryforwards, the Company paid $1.4 million in cash taxes during the third quarter.

Denny's third quarter net income of $8.3 million, or $0.10 per diluted share, increased 18.7% compared to prior year quarter net income of $7.0 million, or $0.08 per diluted share. Adjusted net income* of $8.5 million grew 22.2% compared to prior year quarter adjusted net income* of $7.0 million. Adjusted Net Income per Share* of $0.10 increased 29.2% compared with the prior year quarter Adjusted Net Income per Share* of $0.08.

Denny's generated $12.8 million of Free Cash Flow* in the third quarter, after spending $4.4 million on capital expenditures, including five remodels at company restaurants. During the quarter, the Company repurchased 1.2 million shares for $8.0 million. At the end of the third quarter, the Company had 4.3 million shares under the current authorized share repurchase program remaining to be purchased. Denny's ended the third quarter with $171.7 million of total debt outstanding, including $97.0 million of borrowings under the revolving line of credit and $55.5 million of term loan debt outstanding.

Business Outlook

Mark Wolfinger, Executive Vice President, Chief Administrative Officer and Chief Financial Officer, commented, "We are pleased with our ability to grow our earnings per share as we overcame the temporary closing of our highest volume restaurant. The revitalization of our highly franchised business has enabled us to grow profitability while generating significant Free Cash Flow* to support reinvestment in the brand and our company restaurants, as well as return value to our shareholders. The Company has repurchased 20.7 million shares since initiating its share repurchase strategy in November 2010. We look forward to continuing to accelerate remodels in our company restaurants as well as reopening our highest volume restaurant on the Las Vegas Strip. Due to our strong performance, we are raising our annual guidance again for company same-store sales and Adjusted EBITDA. "

Key considerations impacting the Company's outlook for 2014 include:

• 53 operating weeks (14 in the fourth quarter) compared to 52 operating weeks in 2013.
   
• The highest volume company operated restaurant, located on the Las Vegas Strip, is closed for reconstruction and is expected to reopen by the end of 2014. During the year ended December 25, 2013, this restaurant generated $7.9 million of sales and $2.9 million of pre-tax operating income.

Based on year-to-date results and management's expectations at this time, Denny's is updating the Company's financial guidance for full year 2014, including increasing expectations for Company Same-Store Sales and Adjusted EBITDA*, in addition to updating expectations for other selected components.

Conference Call and Webcast Information

Denny's will provide further commentary on the results for the third quarter ended September 24, 2014 on its quarterly investor conference call today, Monday, October 27, 2014 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. Denny's currently has 1,689 franchised, licensed, and company restaurants around the world with combined sales of $2.5 billion including 1,586 restaurants in the United States and 103 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curaçao, Puerto Rico, Dominican Republic, El Salvador, Chile and New Zealand. As of September 24, 2014, 1,529 of Denny's restaurants were franchised and 160 restaurants were company operated. 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 25, 2013 (and in the Company's subsequent quarterly reports on Form 10-Q).