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Denny’s Corporation Reports Results For Second Quarter 2023
Источник: Nasdaq GlobeNewswire / 01 авг 2023 15:05:01 America/Chicago
SPARTANBURG, S.C., Aug. 01, 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 second quarter ended June 28, 2023 and provided a business update on the Company’s operations.
Kelli Valade, Chief Executive Officer, stated, "We were pleased to report 3.0% Denny's domestic system-wide same-restaurant sales**, expansion of restaurant-level margins, and even higher growth in adjusted EBITDA for the quarter. We also nearly doubled adjusted free cash flow compared to the year-ago period, supporting our ability to repurchase shares under our authorization. As we continue to gain rich insights about our guests, we are excited about the opportunities to execute focused, long-term brand revitalization strategies at Denny's while also expanding the reach of Keke's."
Second Quarter 2023 Highlights
- Total operating revenue grew 1.7% to $116.9 million compared to the prior year quarter.
- Denny's domestic system-wide same-restaurant sales** grew 3.0% compared to the equivalent fiscal period in 2022, including increases of 3.0% at domestic franchised restaurants and 3.0% at company restaurants.
- Opened 10 franchised restaurants, including 4 international Denny's locations and 1 Keke's location.
- Completed four Denny's remodels, including three franchised restaurant remodels.
- Operating income was $14.9 million compared to $13.9 million in the prior year quarter.
- Franchise Operating Margin* was $31.6 million, or 50.9% of franchise and license revenue, and Company Restaurant Operating Margin* was $8.3 million, or 15.1% of company restaurant sales.
- Net income was $8.5 million, or $0.15 per diluted share.
- Adjusted Net Income* and Adjusted Net Income Per Share* were $8.2 million and $0.14, respectively.
- Adjusted EBITDA* was $22.3 million.
- Cash provided by (used in) operating, investing, and financing activities was $19.5 million, ($0.6) million, and ($26.7) million, respectively.
- Adjusted Free Cash Flow* was $12.7 million.
- Repurchased $10.4 million of common stock.
Second Quarter 2023 Results
Total operating revenue increased 1.7% to $116.9 million compared to $115.0 million in the prior year quarter.
Franchise and license revenue was $62.0 million compared to $65.9 million in the prior year quarter. This change was primarily driven by a $5.2 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 $1.7 million of Keke's franchise revenue in the current quarter.
Company restaurant sales were $54.9 million compared to $49.2 million in the prior year quarter. This growth was primarily due to $3.7 million of Keke's company restaurant sales in the current quarter and benefits from Denny's price increases compared to the prior year quarter.
Franchise Operating Margin* was $31.6 million, or 50.9% of franchise and license revenue, compared to $30.6 million, or 46.4%, in the prior year quarter. Approximately 440 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 $8.3 million, or 15.1% of company restaurant sales, compared to $4.3 million, or 8.8%, in the prior year quarter. This margin change was primarily due to approximately $2.3 million of unfavorable legal reserve adjustments in the prior year quarter, as well as the improvement in sales performance at company restaurants in the current year quarter.
Total general and administrative expenses were $20.2 million, compared to $16.6 million in the prior year quarter. This change was primarily due to increases in deferred compensation valuation adjustments, corporate administration expenses, and performance-based incentive compensation, partially offset by a reduction in share-based compensation expense.
The provision for income taxes was $2.7 million, reflecting an effective tax rate of 23.8% for the quarter. Approximately $3.4 million in cash taxes were paid during the quarter.
Net income was $8.5 million, or $0.15 per diluted share, compared to $23.0 million, or $0.37 per diluted share, in the prior year quarter. This change in net income was primarily due to $21.7 million of gains related to dedesignated interest rate swap valuation adjustments in the prior year quarter. Adjusted Net Income* per share was $0.14 compared to $0.11 in the prior year quarter.
The Company ended the quarter with $257.8 million of total debt outstanding, including $247.0 million of borrowings under its credit facility.
Adjusted Free Cash Flow* and Capital AllocationAdjusted Free Cash Flow* in the quarter was $12.7 million after investing $2.0 million in cash capital expenditures, including one company restaurant remodel and facilities maintenance.
During the quarter, the Company allocated $10.4 million to share repurchases resulting in approximately $133.1 million remaining under its existing repurchase authorization.
Business Outlook
The following full year 2023 guidance reflects management's expectations that the current consumer and economic environment will not change materially:
- Denny's domestic system-wide same-restaurant sales** between 3% and 6%.
- Consolidated restaurant openings of 35 to 45, including 8 to 12 new Keke's restaurants, with a consolidated net decline of 15 to 25.
- Commodity inflation between 1% and 3% (vs. between 4% and 6%).
- Labor inflation of approximately 4% (vs. approximately 5%).
- Consolidated total general and administrative expenses between $78 million and $80 million (vs. between $79 million and $82 million), including approximately $12 million (vs. approximately $14 million) related to share-based compensation expense which does not impact Consolidated Adjusted EBITDA*.
- Consolidated Adjusted EBITDA* 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 second quarter ended June 28, 2023 on its quarterly investor conference call today, Tuesday, August 1, 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 June 28, 2023, the Company consisted of 1,646 restaurants, 1,572 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 June 28, 2023, the Denny's brand consisted of 1,591 global restaurants, 1,525 of which were franchised and licensed restaurants and 66 of which were company operated. As of June 28, 2023, the Keke's brand consisted of 55 restaurants, 47 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; 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) 6/28/23 12/28/22 Assets Current assets Cash and cash equivalents $ 1,130 $ 3,523 Investments 3,075 1,746 Receivables, net 18,469 25,576 Inventories 2,534 5,538 Assets held for sale 1,551 1,403 Prepaid and other current assets 10,043 12,529 Total current assets 36,802 50,315 Property, net 91,407 94,469 Finance lease right-of-use assets, net 6,239 6,499 Operating lease right-of-use assets, net 120,136 126,065 Goodwill 72,142 72,740 Intangible assets, net 94,220 95,034 Deferred financing costs, net 2,020 2,337 Other noncurrent assets 42,659 50,876 Total assets $ 465,625 $ 498,335 Liabilities Current liabilities Current finance lease liabilities $ 1,449 $ 1,683 Current operating lease liabilities 15,179 15,310 Accounts payable 13,079 19,896 Other current liabilities 56,968 56,762 Total current liabilities 86,675 93,651 Long-term liabilities Long-term debt 247,000 261,500 Noncurrent finance lease liabilities 9,355 9,555 Noncurrent operating lease liabilities 117,218 123,404 Liability for insurance claims, less current portion 7,020 7,324 Deferred income taxes, net 8,937 7,419 Other noncurrent liabilities 32,038 32,598 Total long-term liabilities 421,568 441,800 Total liabilities 508,243 535,451 Shareholders' deficit Common stock 657 650 Paid-in capital 144,506 142,136 Deficit (32,594 ) (41,729 ) Accumulated other comprehensive loss, net (40,321 ) (42,697 ) Treasury stock (114,866 ) (95,476 ) Total shareholders' deficit (42,618 ) (37,116 ) Total liabilities and shareholders' deficit $ 465,625 $ 498,335 Debt Balances Credit facility revolver due 2026 $ 247,000 $ 261,500 Finance lease liabilities 10,804 11,238 Total debt $ 257,804 $ 272,738 DENNY’S CORPORATION Condensed Consolidated Statements of Operations (Unaudited) Quarter Ended ($ in thousands, except per share amounts) 6/28/23 6/29/22 Revenue: Company restaurant sales $ 54,881 $ 49,167 Franchise and license revenue 62,034 65,850 Total operating revenue 116,915 115,017 Costs of company restaurant sales, excluding depreciation and amortization 46,568 44,828 Costs of franchise and license revenue, excluding depreciation and amortization 30,460 35,265 General and administrative expenses 20,160 16,623 Depreciation and amortization 3,617 3,590 Operating (gains), losses and other charges, net 1,176 846 Total operating costs and expenses, net 101,981 101,152 Operating income 14,934 13,865 Interest expense, net 4,402 2,878 Other nonoperating income, net (666 ) (19,795 ) Income before income taxes 11,198 30,782 Provision for income taxes 2,660 7,779 Net income $ 8,538 $ 23,003 Net income per share - basic $ 0.15 $ 0.37 Net income per share - diluted $ 0.15 $ 0.37 Basic weighted average shares outstanding 56,787 62,306 Diluted weighted average shares outstanding 57,051 62,430 Comprehensive income $ 10,557 $ 25,411 General and Administrative Expenses Corporate administrative expenses $ 15,160 $ 13,162 Share-based compensation 2,519 3,505 Incentive compensation 1,899 1,639 Deferred compensation valuation adjustments 582 (1,683 ) Total general and administrative expenses $ 20,160 $ 16,623 DENNY’S CORPORATION Condensed Consolidated Statements of Operations (Unaudited) Two Quarters Ended ($ in thousands, except per share amounts) 6/28/23 6/29/22 Revenue: Company restaurant sales $ 108,333 $ 93,143 Franchise and license revenue 126,053 124,981 Total operating revenue 234,386 218,124 Costs of company restaurant sales, excluding depreciation and amortization 93,060 83,453 Costs of franchise and license revenue, excluding depreciation and amortization 62,847 65,934 General and administrative expenses 40,278 33,581 Depreciation and amortization 7,273 7,138 Operating (gains), losses and other charges, net (153 ) 846 Total operating costs and expenses, net 203,305 190,952 Operating income 31,081 27,172 Interest expense, net 8,907 5,838 Other nonoperating expense (income), net 9,427 (39,410 ) Income before income taxes 12,747 60,744 Provision for income taxes 3,612 15,886 Net income $ 9,135 $ 44,858 Net income per share - basic $ 0.16 $ 0.71 Net income per share - diluted $ 0.16 $ 0.71 Basic weighted average shares outstanding 57,212 62,822 Diluted weighted average shares outstanding 57,423 63,003 Comprehensive income $ 11,511 $ 53,047 General and Administrative Expenses Corporate administrative expenses $ 29,339 $ 24,545 Share-based compensation 5,613 7,520 Incentive compensation 4,286 3,758 Deferred compensation valuation adjustments 1,040 (2,242 ) Total general and administrative expenses $ 40,278 $ 33,581 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 Two Quarters Ended ($ in thousands) 6/28/23 6/29/22 6/28/23 6/29/22 Net income $ 8,538 $ 23,003 $ 9,135 $ 44,858 Provision for income taxes 2,660 7,779 3,612 15,886 Operating (gains), losses and other charges, net 1,176 846 (153 ) 846 Other nonoperating expense (income), net (666 ) (19,795 ) 9,427 (39,410 ) Share-based compensation expense 2,519 3,505 5,613 7,520 Deferred compensation plan valuation adjustments 582 (1,683 ) 1,040 (2,242 ) Interest expense, net 4,402 2,878 8,907 5,838 Depreciation and amortization 3,617 3,590 7,273 7,138 Cash payments for restructuring charges and exit costs (408 ) (208 ) (998 ) (381 ) Cash payments for share-based compensation (159 ) (2,693 ) (3,122 ) (5,147 ) Adjusted EBITDA $ 22,261 $ 17,222 $ 40,734 $ 34,906 DENNY’S CORPORATION Reconciliation of Net Income and Net Cash Provided by Operating Activities
to Non-GAAP Financial Measures (Continued)(Unaudited) Quarter Ended Two Quarters Ended ($ in thousands) 6/28/23 6/29/22 6/28/23 6/29/22 Net cash provided by operating activities $ 19,498 $ 16,673 $ 35,651 $ 9,609 Capital expenditures (2,003 ) (2,993 ) (3,307 ) (5,771 ) Cash payments for restructuring charges and exit costs (408 ) (208 ) (998 ) (381 ) Cash payments for share-based compensation (159 ) (2,693 ) (3,122 ) (5,147 ) Deferred compensation plan valuation adjustments 582 (1,683 ) 1,040 (2,242 ) Other nonoperating expense (income), net (666 ) (19,795 ) 9,427 (39,410 ) Gains (losses) on investments 24 (158 ) 29 (223 ) Losses on early termination of debt and leases — — — (24 ) Amortization of deferred financing costs (158 ) (159 ) (317 ) (317 ) Gains (losses) and amortization on interest rate swap derivatives, net (82 ) 21,671 (10,744 ) 41,924 Interest expense, net 4,402 2,878 8,907 5,838 Cash interest expense, net(1) (4,161 ) (3,449 ) (8,264 ) (7,175 ) Deferred income tax expense (577 ) (6,330 ) (710 ) (10,766 ) Provision for income taxes 2,660 7,779 3,612 15,886 Income taxes paid, net (3,421 ) (4,195 ) (3,910 ) (4,644 ) Changes in operating assets and liabilities, excluding acquisitions and dispositions Receivables (4,946 ) (148 ) (6,760 ) 3,419 Inventories (720 ) 2,380 (3,004 ) 7,148 Other current assets 164 (112 ) (2,488 ) (3,563 ) Other noncurrent assets 872 (2,040 ) (247 ) (6,125 ) Operating lease assets and liabilities 113 222 359 466 Accounts payable 6,623 (864 ) 7,754 1,541 Other accrued liabilities (4,888 ) (3,902 ) 1,646 11,062 Other noncurrent liabilities (73 ) 3,711 699 6,211 Adjusted Free Cash Flow $ 12,676 $ 6,585 $ 25,253 $ 17,316 (1 ) Includes cash interest income, net and cash receipts of approximately $0.2 million for dedesignated interest rate swap derivatives for the year-to-date period ended June 28, 2023. Includes cash interest expense, net and cash payments of approximately $0.7 and $1.7 million for dedesignated interest rate swap derivatives for the quarter and year-to-date period ended June 29, 2022, respectively. DENNY’S CORPORATION Reconciliation of Net Income and Net Cash Provided by Operating Activities
to Non-GAAP Financial Measures (Continued)(Unaudited) Quarter Ended Two Quarters Ended ($ in thousands, except per share amounts) 6/28/23 6/29/22 6/28/23 6/29/22 Adjusted EBITDA $ 22,261 $ 17,222 $ 40,734 $ 34,906 Cash interest expense, net(1) (4,161 ) (3,449 ) (8,264 ) (7,175 ) Cash paid for income taxes, net (3,421 ) (4,195 ) (3,910 ) (4,644 ) Cash paid for capital expenditures (2,003 ) (2,993 ) (3,307 ) (5,771 ) Adjusted Free Cash Flow $ 12,676 $ 6,585 $ 25,253 $ 17,316 Net income $ 8,538 $ 23,003 $ 9,135 $ 44,858 (Gains) losses and amortization on interest rate swap derivatives, net 82 (21,671 ) 10,744 (41,924 ) Gains on sales of assets and other charges, net (522 ) (99 ) (2,044 ) (245 ) Impairment charges — 266 129 266 Tax effect(2) 132 5,451 (2,278 ) 10,979 Adjusted Net Income $ 8,230 $ 6,950 $ 15,686 $ 13,934 Diluted weighted average shares outstanding 57,051 62,430 57,423 63,003 Net Income Per Share - Diluted $ 0.15 $ 0.37 $ 0.16 $ 0.71 Adjustments Per Share (0.01 ) (0.26 ) 0.11 (0.49 ) Adjusted Net Income Per Share $ 0.14 $ 0.11 $ 0.27 $ 0.22 (1 ) Includes cash interest income, net and cash receipts of approximately $0.2 million for dedesignated interest rate swap derivatives for the year-to-date period ended June 28, 2023. Includes cash interest expense, net and cash payments of approximately $0.7 million and $1.7 million for dedesignated interest rate swap derivatives for the quarter and year-to-date period ended June 29, 2022, respectively. (2 ) Tax adjustments for the quarter and year-to-date period ended June 28, 2023 reflect effective tax rates of 30.0% and 25.8%, respectively. Tax adjustments for the quarter and year-to-date period ended June 29, 2022 reflect effective tax rates of 25.3% and 26.2%, 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 Two Quarters Ended ($ in thousands) 6/28/23 6/29/22 6/28/23 6/29/22 Operating income $ 14,934 $ 13,865 $ 31,081 $ 27,172 General and administrative expenses 20,160 16,623 40,278 33,581 Depreciation and amortization 3,617 3,590 7,273 7,138 Operating (gains), losses and other charges, net 1,176 846 (153 ) 846 Restaurant-level Operating Margin $ 39,887 $ 34,924 $ 78,479 $ 68,737 Restaurant-level Operating Margin consists of: Company Restaurant Operating Margin (1) $ 8,313 $ 4,339 $ 15,273 $ 9,690 Franchise Operating Margin (2) 31,574 30,585 63,206 59,047 Restaurant-level Operating Margin $ 39,887 $ 34,924 $ 78,479 $ 68,737 (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) 6/28/23 6/29/22 Company restaurant operations: (1) Company restaurant sales $ 54,881 100.0 % $ 49,167 100.0 % Costs of company restaurant sales, excluding depreciation and amortization: Product costs 14,170 25.8 % 13,168 26.8 % Payroll and benefits 20,488 37.3 % 18,336 37.3 % Occupancy 4,105 7.5 % 3,782 7.7 % Other operating costs: Utilities 1,860 3.4 % 1,650 3.4 % Repairs and maintenance 782 1.4 % 889 1.8 % Marketing 1,419 2.6 % 1,330 2.7 % Legal settlements 121 0.2 % 2,379 4.8 % Other direct costs 3,623 6.6 % 3,294 6.7 % Total costs of company restaurant sales, excluding depreciation and amortization $ 46,568 84.9 % $ 44,828 91.2 % Company restaurant operating margin (non-GAAP) (2) $ 8,313 15.1 % $ 4,339 8.8 % Franchise operations: (3) Franchise and license revenue: Royalties $ 30,376 49.0 % $ 28,759 43.7 % Advertising revenue 19,853 32.0 % 19,486 29.6 % Initial and other fees 2,616 4.2 % 7,779 11.8 % Occupancy revenue 9,189 14.8 % 9,826 14.9 % Total franchise and license revenue $ 62,034 100.0 % $ 65,850 100.0 % Costs of franchise and license revenue, excluding depreciation and amortization: Advertising costs $ 19,853 32.0 % $ 19,486 29.6 % Occupancy costs 5,792 9.3 % 6,064 9.2 % Other direct costs 4,815 7.8 % 9,715 14.8 % Total costs of franchise and license revenue, excluding depreciation and amortization $ 30,460 49.1 % $ 35,265 53.6 % Franchise operating margin (non-GAAP) (2) $ 31,574 50.9 % $ 30,585 46.4 % Total operating revenue (4) $ 116,915 100.0 % $ 115,017 100.0 % Total costs of operating revenue (4) 77,028 65.9 % 80,093 69.6 % Restaurant-level operating margin (non-GAAP) (4)(2) $ 39,887 34.1 % $ 34,924 30.4 % Other operating expenses: (4)(2) General and administrative expenses $ 20,160 17.2 % $ 16,623 14.5 % Depreciation and amortization 3,617 3.1 % 3,590 3.1 % Operating losses and other charges, net 1,176 1.0 % 846 0.7 % Total other operating expenses $ 24,953 21.3 % $ 21,059 18.3 % Operating income (4) $ 14,934 12.8 % $ 13,865 12.1 % (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) Two Quarters Ended ($ in thousands) 6/28/23 6/29/22 Company restaurant operations: (1) Company restaurant sales $ 108,333 100.0 % $ 93,143 100.0 % Costs of company restaurant sales, excluding depreciation and amortization: Product costs 28,209 26.0 % 24,412 26.2 % Payroll and benefits 40,728 37.6 % 35,422 38.0 % Occupancy 8,199 7.6 % 7,022 7.5 % Other operating costs: Utilities 3,917 3.6 % 3,227 3.5 % Repairs and maintenance 1,671 1.5 % 1,714 1.8 % Marketing 2,814 2.6 % 2,537 2.7 % Legal settlements 230 0.2 % 2,656 2.9 % Other direct costs 7,292 6.7 % 6,463 6.9 % Total costs of company restaurant sales, excluding depreciation and amortization $ 93,060 85.9 % $ 83,453 89.6 % Company restaurant operating margin (non-GAAP)(2) $ 15,273 14.1 % $ 9,690 10.4 % Franchise operations:(3) Franchise and license revenue: Royalties $ 60,403 47.9 % $ 55,284 44.2 % Advertising revenue 39,521 31.4 % 37,692 30.2 % Initial and other fees 7,606 6.0 % 12,286 9.8 % Occupancy revenue 18,523 14.7 % 19,719 15.8 % Total franchise and license revenue $ 126,053 100.0 % $ 124,981 100.0 % Costs of franchise and license revenue, excluding depreciation and amortization: Advertising costs $ 39,521 31.4 % $ 37,692 30.2 % Occupancy costs 11,464 9.1 % 12,441 10.0 % Other direct costs 11,862 9.4 % 15,801 12.6 % Total costs of franchise and license revenue, excluding depreciation and amortization $ 62,847 49.9 % $ 65,934 52.8 % Franchise operating margin (non-GAAP)(2) $ 63,206 50.1 % $ 59,047 47.2 % Total operating revenue(4) $ 234,386 100.0 % $ 218,124 100.0 % Total costs of operating revenue(4) 155,907 66.5 % 149,387 68.5 % Restaurant-level operating margin (non-GAAP)(4)(2) $ 78,479 33.5 % $ 68,737 31.5 % Other operating expenses:(4)(2) General and administrative expenses $ 40,278 17.2 % $ 33,581 15.4 % Depreciation and amortization 7,273 3.1 % 7,138 3.3 % Operating (gains), losses and other charges, net (153 ) (0.1) % 846 0.4 % Total other operating expenses $ 47,398 20.2 % $ 41,565 19.1 % Operating income(4) $ 31,081 13.3 % $ 27,172 12.5 % (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 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 Two Quarters Ended Quarter Ended Two Quarters Ended (Increase vs. prior year) 6/28/23 6/29/22 6/28/23 6/29/22 6/28/23 6/29/22 6/28/23 6/29/22 Company Restaurants 3.0 % 3.8 % 7.0 % 14.9 % N/A N/A N/A N/A Domestic Franchise Restaurants 3.0 % 2.4 % 5.5 % 11.2 % N/A N/A N/A N/A Domestic System-wide Restaurants 3.0 % 2.5 % 5.6 % 11.5 % N/A N/A N/A N/A Average Unit Sales ($ in thousands) Company Restaurants $ 786 $ 761 $ 1,548 $ 1,443 $ 459 N/A $ 925 N/A Franchised Restaurants $ 466 $ 442 $ 918 $ 846 $ 476 N/A $ 967 N/A (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. Keke's comparable same-restaurant sales will not be reported for the first year following the acquisition. (2) Effective July 20, 2022, the Company acquired Keke's, as such the data represents post-acquisition results. Restaurant Unit Activity Denny's Keke's Franchised Franchised Company & Licensed Total Company & Licensed Total Ending Units March 29, 2023 66 1,528 1,594 8 46 54 Units Opened — 9 9 — 1 1 Units Closed — (12) (12) — — — Net Change — (3) (3) — 1 1 Ending Units June 28, 2023 66 1,525 1,591 8 47 55 Equivalent Units Second Quarter 2023 65 1,525 1,590 8 47 55 Second Quarter 2022 64 1,567 1,631 — — — Net Change 1 (42) (41) 8 47 55 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 — 14 14 — 1 1 Units Closed — (25) (25) — — — Net Change — (11) (11) — 1 1 Ending Units June 28, 2023 66 1,525 1,591 8 47 55 Equivalent Units Year-to-Date 2023 65 1,527 1,592 8 46 54 Year-to-Date 2022 64 1,570 1,634 — — — Net Change 1 (43) (42) 8 46 54 Investor Contact: Curt Nichols 877-784-7167 Media Contact: Hadas Streit, Allison+Partners 646-428-0629