Denny’s Corporation, franchisor and operator of one of America’s largest franchised full-service restaurant chains, reported results for its fourth quarter and full year ended December 28, 2016.
Full Year 2016 Highlights
- Domestic system-wide same-store sales increased 0.9 percent, including an increase of 1.1 percent at company restaurants and an increase of 0.8 percent at domestic franchised restaurants.
- Opened 50 system restaurants including 14 international franchised locations.
- Completed 240 remodels including 27 at company restaurants.
- Company restaurant operating margin grew 11.1 percent to $65.2 million while franchise operating margin grew 4.2 percent to $98.8 million.
Fourth Quarter Highlights
- Domestic system-wide same-store sales increased 0.5 percent, including an increase of 0.1 percent at company restaurants and an increase of 0.6 percent at domestic franchised restaurants.
- Opened 12 system restaurants including four international franchised locations.
- Completed 51 remodels including 10 at company restaurants.
- Company restaurant operating margin expanded 22.3 percent to $16.6 million while franchise operating margin grew 3.7 percent to $25.2 million.
“We are pleased with our performance during the fourth quarter and full year, particularly in light of the pervasive challenges within the restaurant industry,” says John Miller, Denny’s president and chief executive officer. “Throughout the year, we continued to successfully execute our brand revitalization strategy and delivered an improved and differentiated experience for our guests across food, service, and atmosphere. These efforts resulted in market share gains and impressive growth in company and franchise margins. In addition, we delivered our best year of unit expansion in the past five years. Moving forward, despite an uncertain industry outlook, Denny’s remains committed to further elevating the guest experience, consistently growing same-store sales, and expanding the brand across the globe, leading to value creation for all franchisees and shareholders.”
Fourth Quarter Results
Denny’s domestic system-wide same-store sales increased 0.5 percent, including a 0.1 percent increase at company restaurants and a 0.6 percent increase at domestic franchised restaurants. During the quarter, the company acquired one franchised restaurant. Denny’s franchisees opened 12 restaurants and closed seven restaurants, bringing the total number of restaurants to 1,733.
Denny’s total operating revenue grew 4.5 percent to $129.6 million due to an increase in both company restaurant sales and franchise royalties. Company restaurant sales improved 6.1 percent to $94.6 million due to a greater number of company restaurants compared to the prior year quarter and same-store sales growth. Franchise and licensing revenue grew 0.5 percent to $35.0 million primarily due to higher royalty revenue, partially offset by a decrease in occupancy revenue.
Total general and administrative expenses were $17.3 million compared to $16.8 million in the prior year quarter as lower incentive compensation was offset by higher stock-based compensation. Interest expense of $3.3 million increased $0.7 million due to higher borrowings compared to the prior year quarter. Denny’s ended the quarter with $245.6 million of total debt outstanding, including $218.5 million of borrowings under its revolving credit facility. Depreciation and amortization expense of $6.0 million increased $0.3 million.
The provision for income taxes was $1.9 million, reflecting an effective tax rate of 14.4 percent. During the quarter, amended federal tax returns for prior years were filed in order to claim foreign tax credits in lieu of foreign tax deductions. These returns generated $1.7 million in additional tax credits and $0.9 million in federal income tax refunds. The company paid $1.9 million in cash taxes during the quarter.
The following full year 2017 estimates are based on management’s expectations at this time.
Same-store sales growth at company and domestic franchised restaurants between 0 percent and 2 percent.
45 to 50 new restaurant openings, with net restaurant growth of 10 to 20 restaurants.
Total operating revenue between $523 and $532 million including franchise and licensing revenue between $140 and $142 million.
Company restaurant margin between 17.5 percent and 18 percent and franchise restaurant margin between 71 percent and 71.5 percent.