Denny's Corporation reported results for its second quarter ended June 25, 2014.

Second Quarter Summary

  • Domestic system-wide same-store sales increased 1.9 percent, comprised of a 3.7 percent increase at company restaurants and 1.7 percent increase at domestic franchised restaurants.
  • 43 remodels were completed at company and franchise restaurants, including 30 in the new Heritage image.
  • Net Income of $8.3 million increased 33.5 percent compared with the prior year quarter
  • Generated $11.6 million of Free Cash Flow* after remodel investments at company restaurants.

"We generated another quarter of growing franchise and company same-store sales as we continue to build on the positive momentum from our brand revitalization," says John Miller, president and CEO. "Our America's diner strategy, supported by our newly launched Heritage remodel program, continues to resonate with our guests and our franchisees. 

"The investments we are making in our remodel program contributed to our company restaurants growing same-store guest traffic for the second consecutive quarter. We remain focused on driving long-term shareholder value through our brand revitalization strategy."

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

  • 2014 will 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 expected to reopen in early 2015. In 2013, this restaurant generated $7.9 million of sales and $2.9 million of pre-tax operating income. The new retail development will include a completely reconstructed Denny's restaurant, funded by the landlord, where Denny's will have a new long-term lease.

Second Quarter Results

Denny's total operating revenue, including company restaurant sales and franchise and license revenue, was $114.6 million, resulting from a reduction in both company restaurant sales and franchise and license revenue. 

Franchise and license revenue was $33.5 million compared with $33.7 million due to a decrease in occupancy revenue, partially offset by an increase in royalty revenue from nine additional equivalent franchised restaurants. Company restaurant sales were $81.1 million compared with $82.8 million due to five 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 3.7 percent increase in same-store sales during the quarter.


Denny's opened three franchised restaurants in the second quarter of this year and closed six system restaurants (five franchised and one company), bringing the total restaurant count to 1,693, comprised of 160 company restaurants and 1,533 franchised restaurants.

Franchise operating margin was $22.8 million, or 68.2 percent of franchise and license revenue, an increase of 2.5 percentage points. This improvement was primarily due to an increase in royalties. 

Company restaurant operating margin of $11.5 million, or 14.2 percent of company restaurant sales, expanded 0.5 percentage points. The increase in company margin was primarily driven by a reduction in payroll and benefits and occupancy costs, which were partially offset by higher product costs and the previously mentioned temporary restaurant closure in Las Vegas. 

In the second quarter of 2013, this high volume restaurant generated pre-tax operating income of $0.8 million on sales of $2.1 million.

Total general and administrative expenses of $14.1 million and depreciation and amortization expense of $5.3 million were both 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, decreased $1.4 million in the quarter. 

Interest expense improved $0.3 million to $2.3 million as a result of lower interest rates under the Company's refinanced credit facility. In the second quarter, the provision for income taxes was $4.7 million, reflecting an effective tax rate of 36.4 percent. Due to the use of net operating loss and tax credit carry forwards, the Company paid $0.8 million in cash taxes during the second quarter.

Denny's second quarter net income of $8.3 million increased 33.5 percent compared to prior year quarter net income of $6.2 million. Adjusted net income of $8.3 million grew 9.2 percent compared to prior year quarter adjusted net income of $7.6 million. 

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