SPARTANBURG, May 14, 2020 (GLOBE NEWSWIRE via COMTEX) -- Denny's Corporation /zigman2/quotes/206956394/composite DENN -7.16% , franchisor and operator of one of America's largest franchised full-service restaurant chains, today reported results for its first quarter ended March 25, 2020 and provided a business update on the impact of the COVID-19 pandemic on the Company's operations.
John Miller, Chief Executive Officer, stated, "While the Denny's brand had a positive start to the year delivering solid sales results through February, the dramatic and sudden impact of COVID-19 and related restrictive government mandates weighed on the final weeks of the fiscal first quarter. Despite this unprecedented challenge, we and our franchise partners adapted quickly with a primary focus on further protecting our guests, restaurant teams, employees, and suppliers through enhanced health and safety training and protocols. As restaurant operations were being limited to off-premise sales channels, we implemented streamlined menus, 'Dine-Thru' curbside service programs, and shareable family meal packs in a matter of days. I am especially proud of how well our seasoned management team and network of franchisees are working together in these extremely difficult times with an enduring resolve to continue safely serving our guests and the communities in which we live."
Miller continued, "At the same time, we have fortified our balance sheet, made disciplined cost savings decisions, and worked aggressively on multiple fronts to secure various forms of financial relief for our franchisees. As we look ahead, we are well-positioned to reopen dining rooms, focus on recovery, and create value for our stakeholders."
First Quarter 2020 Highlights
-- Total Operating Revenue was $96.7 million.
-- Domestic system-wide same-store sales** decreased 6.3%.
-- Completed 13 remodels, including 12 at franchised restaurants.
-- Operating Income was $18.0 million.
-- Franchise Operating Margin* was $25.2 million, or 46.4% of franchise and license revenue, and Company Restaurant Operating Margin* was $6.2 million, or 14.6% of company restaurant sales.
-- Net Income was $9.0 million, or $0.16 per diluted share.
-- Adjusted Net Income* was $9.9 million, or $0.17 per diluted share.
-- Adjusted EBITDA* was $15.7 million.
-- Adjusted Free Cash Flow* was $9.0 million.
-- Repurchased $34.2 million of common stock.
COVID-19 Business Update
Domestic and international operations of Denny's Corporation (the "Company") and its franchisees have been significantly disrupted by the global COVID-19 pandemic due to related federal, state and local government responses that include "stay at home" directives and mandated dining room closures. The Company remains focused on the safety and wellbeing of its guests, restaurant teams, franchisees, employees, and suppliers. Retraining materials and communications have been distributed to the entire system of restaurants, reinforcing strict food safety procedures, handwashing and personal hygiene standards, and enhanced daily deep cleaning protocols. These enhanced health and safety measures were developed in anticipation of dine-in service restrictions starting to ease and as Denny's restaurants prepare for new social-distancing standards in their dining rooms. The Company has remained in close contact with public health officials and government agencies to ensure all public health concerns are appropriately addressed.
The Company has also worked closely with its suppliers to address contingency plans and has not experienced any significant supply chain issues.
Domestic system-wide same-store sales** have sequentially improved over the last few weeks of April, as compared to the equivalent weeks of 2019, from the low of -80% experienced in the final week of the first fiscal quarter, which ended on March 25, 2020. The following table presents second quarter weekly results compared to the equivalent fiscal weeks in 2019:
Second Quarter 2020 Weekly Domestic System-Wide Same-Store Sales
Week Ended 4/1 Week Ended 4/8 Week Ended 4/15 Week Ended 4/22 Week Ended 4/29 Week Ended 5/6 -79 % -78 % -76 % -72 % -72 % -68 %
Average unit volumes of off-premise sales have more than doubled from February 2020 to April 2020, supported by temporarily waived delivery fees, new "Dine-Thru" curbside service programs, and recently launched shareable family meal packs. Pick-up sales in April 2020 accounted for 57% of total sales, while delivery sales accounted for 39%.
As of May 13, 2020, 82% of domestic Denny's restaurants were operating, most with take-out and delivery options, streamlined menus, and reduced operating hours, which impacted same-store sales** results. Currently, 312 Denny's restaurants remain temporarily closed, including 272 domestic franchise restaurants and 40 international franchise restaurants. Additionally, with easing restrictions for dine-in service, 521 Denny's restaurants have reopened dining rooms with capacity limitations in 21 states. As dining room restrictions continue to ease and sales begin to improve, some labor inefficiencies and increased cleaning and supply costs are anticipated as Company operated restaurants adjust to improved sales volumes and enhanced health and safety protocols.
As previously disclosed, direct financial relief to Denny's franchise partners has included: deferral of remodels until further notice, deferral of royalty and advertising fees for week 11 of the 2020 fiscal year, abatement of such fees for weeks 12 and 13 of the 2020 fiscal year, and a 12-week lease deferral for franchisees operating in properties owned by the Company.
Additionally, the Company has secured rent relief in the form of abatements or deferrals for approximately 75% of the leases in which the Company is a lessee, including those instances in which the Company subleases to franchisees and will be extending the same relief as a pass through.
Furthermore, the Company has worked closely with key vendors and primary third-party franchise lenders to help secure additional relief on behalf of franchisees. Denny's franchisees are pursuing available forms of relief under recent federal stimulus programs, and franchisees representing over 82% of total domestic franchise restaurants have received funding under the Paycheck Protection Program, with another 7% approved and awaiting funding.
Cost Savings Initiatives and Capital Allocation
The Company has implemented cost savings measures, including suspended travel, canceled in-person field meetings, placed holds on all open corporate and field positions, significantly reduced restaurant level staffing across the company portfolio, meaningfully reduced compensation for the Board of Directors and multiple levels of management, and furloughed over 25% of the employees at its corporate office. The Company is also analyzing whether federal tax credits available in connection with the COVID-19 pandemic apply to wages paid to retained employees during the crisis. In addition, the Company suspended share repurchases as of February 27, 2020, and terminated its 10b5-1 Plan effective March 16, 2020, in light of uncertain market conditions arising from the COVID-19 pandemic.
Prior to the end of the quarter ended March 25, 2020, the Company borrowed $40.5 million under its existing credit facility to provide enhanced financial flexibility in light of uncertain market conditions arising from the COVID-19 pandemic. As of March 25, 2020, the Company had approximately $39.2 million of cash and cash equivalents, outstanding borrowings under its credit facility of $318 million, and availability of $62.7 million.
For the quarter ended March 25, 2020, the Company was in compliance with its financial covenants related to its credit facility, but projected that it would not be in compliance with certain financial covenants beginning for the quarter ending June 24, 2020. Subsequent to the quarter ended March 25, 2020, the Company and certain of its subsidiaries entered into a second amendment to the current credit agreement (the "Second Amendment") dated as of May 13, 2020 (the "Effective Date") which amends the current credit agreement dated as of October 26, 2017.
The Second Amendment temporarily waives certain financial covenants. The consolidated fixed charge coverage ratio is waived until the fiscal quarter ending March 31, 2021, at which point the covenant level will revert to a minimum of 1.50x. The consolidated leverage ratio covenant is waived until the fiscal quarter ending March 31, 2021, at which point the covenant level will increase from 4.00x to 4.50x, stepping down to 4.25x in the second fiscal quarter of 2021 and 4.00x in the third fiscal quarter of 2021 and thereafter. Effective May 13, 2020, the Second Amendment adds a monthly minimum liquidity covenant, defined as the sum of unrestricted cash and revolver availability. We project that we will be in compliance with the financial covenants, as amended, over the next twelve months.
Commencing with the Second Amendment until the date of delivery of our financial statements for the fiscal quarter ending June 30, 2021, the interest rate of the Amended Credit Agreement shall be increased to LIBOR plus 3.00%. During this period, the Company will be prohibited from paying dividends and making stock repurchases and other general investments. Additionally, capital expenditures will be restricted to $10 million in the aggregate, beginning on the Effective Date through the fiscal quarter ending March 31, 2021.
First Quarter Results