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Denny’s Corporation Reports Results for Second Quarter 2024
来源: Nasdaq GlobeNewswire / 30 7月 2024 15:05:01 America/Chicago
SPARTANBURG, S.C., July 30, 2024 (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 26, 2024 and provided a business update on the Company’s operations.
Kelli Valade, Chief Executive Officer, stated, "I am very pleased that for the second quarter in a row Denny's outperformed BBI Family Dining same-restaurant sales, and Keke's continued to close the gap in Florida all while navigating a very competitive environment. We are also encouraged to see these trends continuing into July, which is being bolstered by our incremental advertising investments and the expansion of our third virtual brand. Additionally, we opened our second Keke's cafe in Tennessee, as well as completed our first remodel test at our highest volume Keke's corporate location. Despite these results and staying ahead of the competition, we know the overall industry is pressured and therefore we have updated our guidance accordingly and remain confident in our strategies and initiatives.”
Second Quarter 2024 Highlights(1)
- Total operating revenue was $115.9 million compared to $116.9 million for the prior year quarter.
- Denny's domestic system-wide same-restaurant sales** were (0.6%) compared to the equivalent fiscal period in 2023, including (0.4%) at domestic franchised restaurants and (2.6%) at company restaurants.
- Opened four restaurants, including one Keke's company location.
- Operating income was $9.1 million compared to $14.9 million for the prior year quarter.
- Adjusted franchise operating margin* was $30.8 million, or 50.0% of franchise and license revenue, and Adjusted company restaurant operating margin* was $7.2 million, or 13.2% of company restaurant sales.
- Net income was $3.6 million, or $0.07 per diluted share.
- Adjusted net income* and adjusted net income per share* were $6.9 million and $0.13, respectively.
- Adjusted EBITDA* was $20.3 million.
(1) Beginning fiscal 2024, the Company has evolved its definition of non-GAAP measures. Please see the definitions, explanations, and reconciliations further in this release.
Second Quarter 2024 Results
Total operating revenue was $115.9 million compared to $116.9 million for the prior year quarter.
Franchise and license revenue was $61.6 million compared to $62.0 million for the prior year quarter. This change was driven by decreases in franchise occupancy revenue and franchise sales, partially offset by an increase in franchise advertising revenue primarily related to higher local advertising co-op contributions for the current quarter.
Company restaurant sales were $54.3 million compared to $54.9 million for the prior year quarter primarily driven by a decrease in same-restaurant sales, partially offset by three additional Keke's equivalent units for the current quarter.
Adjusted franchise operating margin* was $30.8 million, or 50.0% of franchise and license revenue, compared to $31.6 million, or 50.9% for the prior year quarter. This margin change was primarily driven by the impact of lower sales on royalty and advertising revenues and lease terminations.
Adjusted company restaurant operating margin* was $7.2 million, or 13.2% of company restaurant sales, compared to $8.5 million, or 15.4% for the prior year quarter. This margin change was primarily due to a decrease in same-restaurant sales and increases in marketing and general liability insurance costs for the current quarter.
Total general and administrative expenses were $20.5 million compared to $20.2 million in the prior year quarter. This change was primarily due to an increase in corporate administration expense.
The provision for income taxes was $1.2 million, reflecting an effective tax rate of 25.1% for the current quarter.
Net income was $3.6 million, or $0.07 per diluted share. Adjusted net income* per share was $0.13.
The Company ended the quarter with $267.4 million of total debt outstanding, including $257.5 million of borrowings under its credit facility.
Capital Allocation
The Company invested $5.0 million in cash capital expenditures, primarily related to Keke's development.
During the quarter, the Company allocated $4.7 million to share repurchases resulting in approximately $91.0 million remaining under its existing repurchase authorization.
Business Outlook
The following full year 2024 expectations reflect management's expectations that the current consumer and economic environment will not change materially.
- Denny's domestic system-wide same-restaurant sales** between (1%) and 1% (vs. between 0% and 3%).
- Consolidated restaurant openings of 30 to 40 (vs. 40 to 50), including 12 to 16 new Keke's restaurants, with a consolidated net decline of 20 to 30 (vs. 10 to 20).
- Commodity inflation between 0% and 2%.
- Labor inflation between 3% and 4% (vs. between 4% and 5%).
- Total general and administrative expenses between $82 million and $85 million (vs. between $83 million and $86 million), including approximately $11 million (vs. $12 million) related to share-based compensation expense which does not impact Adjusted EBITDA*.
- Adjusted EBITDA* between $83 million and $87 million (vs. between $87 million and $91 million).
* Please refer to the Reconciliation of Net Income 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 estimate set forth above to its 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 estimate is 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 26, 2024 on its quarterly investor conference call today, Tuesday, July 30, 2024 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 26, 2024, the Company consisted of 1,603 restaurants, 1,528 of which were franchised and licensed restaurants and 75 of which were company operated.
Denny's Corporation consists of the Denny’s brand and the Keke’s brand. As of June 26, 2024, the Denny's brand consisted of 1,541 global restaurants, 1,477 of which were franchised and licensed restaurants and 64 of which were company operated. As of June 26, 2024, the Keke's brand consisted of 62 restaurants, 51 of which were franchised restaurants and 11 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.
Non-GAAP Definition Changes
The Company has evolved its definition of non-GAAP financial measures starting in fiscal 2024 to provide more clarity and comparability relative to peers. Denny's Corporation management uses certain non-GAAP measures in analyzing operating performance and believes that the presentation of these measures provides investors and analysts with information that is beneficial to gaining an understanding of the Company's financial results. Non-GAAP disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP.
The Company will begin excluding legal settlement expenses, pre-opening expenses, and other items management does not consider in the evaluation of its ongoing core operating performance from adjusted operating margin*, adjusted net income*, adjusted net income per share*, and adjusted EBITDA*. In addition, the Company will no longer deduct cash payments for restructuring and exit costs, or cash payments for share-based compensation from adjusted EBITDA*. Lastly, the Company will transition to utilizing GAAP cash flows included in its SEC filed documents in lieu of a non-GAAP financial measure.
Reconciliations of these non-GAAP measures are included in the tables of this press release and a recast of historical non-GAAP financial measures can be found on the Company's website, or its most recent investor presentation.
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 and support personnel; 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 27, 2023 (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) 6/26/24 12/27/23 Assets Current assets Cash and cash equivalents $ 1,166 $ 4,893 Investments 2,796 1,281 Receivables, net 19,784 21,391 Inventories 1,895 2,175 Assets held for sale 350 1,455 Prepaid and other current assets 9,215 12,855 Total current assets 35,206 44,050 Property, net 96,957 93,494 Finance lease right-of-use assets, net 5,499 6,098 Operating lease right-of-use assets, net 110,554 116,795 Goodwill 66,357 65,908 Intangible assets, net 92,563 93,428 Deferred financing costs, net 1,384 1,702 Other noncurrent assets 51,418 43,343 Total assets $ 459,938 $ 464,818 Liabilities Current liabilities Current finance lease liabilities $ 1,372 $ 1,383 Current operating lease liabilities 14,931 14,779 Accounts payable 17,224 24,070 Other current liabilities 62,600 63,068 Total current liabilities 96,127 103,300 Long-term liabilities Long-term debt 257,500 255,500 Noncurrent finance lease liabilities 8,552 9,150 Noncurrent operating lease liabilities 107,168 114,451 Liability for insurance claims, less current portion 7,069 6,929 Deferred income taxes, net 7,029 6,582 Other noncurrent liabilities 29,736 31,592 Total long-term liabilities 417,054 424,204 Total liabilities 513,181 527,504 Shareholders' deficit Common stock 533 529 Paid-in capital 10,135 6,688 Deficit (13,525 ) (21,784 ) Accumulated other comprehensive loss, net (34,461 ) (41,659 ) Treasury stock (15,925 ) (6,460 ) Total shareholders' deficit (53,243 ) (62,686 ) Total liabilities and shareholders' deficit $ 459,938 $ 464,818 Debt Balances Credit facility revolver due 2026 $ 257,500 $ 255,500 Finance lease liabilities 9,924 10,533 Total debt $ 267,424 $ 266,033 DENNY’S CORPORATION Condensed Consolidated Statements of Income (Unaudited) Quarter Ended ($ in thousands, except per share amounts) 6/26/24 6/28/23 Revenue: Company restaurant sales $ 54,348 $ 54,881 Franchise and license revenue 61,579 62,034 Total operating revenue 115,927 116,915 Costs of company restaurant sales, excluding depreciation and amortization 47,578 46,568 Costs of franchise and license revenue, excluding depreciation and amortization 33,428 30,460 General and administrative expenses 20,486 20,160 Depreciation and amortization 3,735 3,617 Goodwill impairment charges 20 — Operating (gains), losses and other charges, net 1,565 1,176 Total operating costs and expenses, net 106,812 101,981 Operating income 9,115 14,934 Interest expense, net 4,573 4,402 Other nonoperating income, net (224 ) (666 ) Income before income taxes 4,766 11,198 Provision for income taxes 1,198 2,660 Net income $ 3,568 $ 8,538 Net income per share - basic $ 0.07 $ 0.15 Net income per share - diluted $ 0.07 $ 0.15 Basic weighted average shares outstanding 52,689 56,787 Diluted weighted average shares outstanding 52,787 57,051 Comprehensive income $ 4,602 $ 10,557 General and Administrative Expenses Corporate administrative expenses $ 15,776 $ 15,160 Share-based compensation 2,624 2,519 Incentive compensation 1,898 1,899 Deferred compensation valuation adjustments 188 582 Total general and administrative expenses $ 20,486 $ 20,160 DENNY’S CORPORATION Condensed Consolidated Statements of Income (Unaudited) Two Quarters Ended ($ in thousands, except per share amounts) 6/26/24 6/28/23 Revenue: Company restaurant sales $ 106,690 $ 108,333 Franchise and license revenue 119,211 126,053 Total operating revenue 225,901 234,386 Costs of company restaurant sales, excluding depreciation and amortization 95,696 93,060 Costs of franchise and license revenue, excluding depreciation and amortization 60,802 62,847 General and administrative expenses 41,708 40,278 Depreciation and amortization 7,316 7,273 Goodwill impairment charges 20 — Operating (gains), losses and other charges, net 1,238 (153 ) Total operating costs and expenses, net 206,780 203,305 Operating income 19,121 31,081 Interest expense, net 8,993 8,907 Other nonoperating (income) expense, net (861 ) 9,427 Income before income taxes 10,989 12,747 Provision for income taxes 2,730 3,612 Net income $ 8,259 $ 9,135 Net income per share - basic $ 0.16 $ 0.16 Net income per share - diluted $ 0.16 $ 0.16 Basic weighted average shares outstanding 52,879 57,212 Diluted weighted average shares outstanding 53,002 57,423 Comprehensive income $ 15,457 $ 11,511 General and Administrative Expenses Corporate administrative expenses $ 30,968 $ 29,339 Share-based compensation 5,400 5,613 Incentive compensation 4,421 4,286 Deferred compensation valuation adjustments 919 1,040 Total general and administrative expenses $ 41,708 $ 40,278 DENNY’S CORPORATION Reconciliation of Net Income to Non-GAAP Financial Measures (Unaudited) The Company believes that, in addition to GAAP measures, certain non-GAAP financial measures are useful information to investors and analysts to assist in the evaluation of operating performance on a period-to-period basis. However, non-GAAP measures should be considered as a supplement to, not a substitute for, operating income, net income, and net income per share, or other financial performance measures prepared in accordance with GAAP. The Company uses adjusted EBITDA, 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. These non-GAAP measures are adjusted for certain items the Company does not consider in the evaluation of its ongoing core operating performance. These adjustments are either non-recurring in nature or vary from period to period without correlation to the Company's ongoing core operating performance.
Quarter Ended Two Quarters Ended ($ in thousands, except per share amounts) 6/26/24 6/28/23 6/26/24 6/28/23 Net income $ 3,568 $ 8,538 $ 8,259 $ 9,135 Provision for income taxes 1,198 2,660 2,730 3,612 Goodwill impairment charges 20 — 20 — Operating (gains), losses and other charges, net 1,565 1,176 1,238 (153 ) Other nonoperating (income) expense, net (224 ) (666 ) (861 ) 9,427 Share-based compensation expense 2,624 2,519 5,400 5,613 Deferred compensation plan valuation adjustments 188 582 919 1,040 Interest expense, net 4,573 4,402 8,993 8,907 Depreciation and amortization 3,735 3,617 7,316 7,273 Legal settlement expenses 208 121 1,657 230 Pre-opening expenses 191 25 557 25 Other adjustments 2,640 11 2,492 3 Adjusted EBITDA $ 20,286 $ 22,985 $ 38,720 $ 45,112 Net income $ 3,568 $ 8,538 $ 8,259 $ 9,135 Losses and amortization on interest rate swap derivatives, net 167 82 308 10,744 Losses (gains) on sales of assets and other charges, net 526 (522 ) (94 ) (2,044 ) Impairment charges (1) 639 — 734 129 Legal settlement expenses 208 121 1,657 230 Pre-opening expenses 191 25 557 25 Other adjustments 2,640 11 2,492 3 Tax effect (2) (1,086 ) 92 (1,402 ) (2,344 ) Adjusted net income $ 6,853 $ 8,347 $ 12,511 $ 15,878 Diluted weighted average shares outstanding 52,787 57,051 53,002 57,423 Net income per share - diluted $ 0.07 $ 0.15 $ 0.16 $ 0.16 Adjustments per share 0.06 — 0.08 0.12 Adjusted net income per share $ 0.13 $ 0.15 $ 0.24 $ 0.28 (1) Impairment charges include goodwill impairment charges of less than $0.1 million for the quarter and year-to-date period ended June 26, 2024. (2) Tax adjustments for the quarter and year-to-date period ended June 26, 2024 reflect effective tax rates of 24.8%. Tax adjustments for the quarter and year-to-date period ended June 28, 2023 reflect effective tax rates of 32.5% and 25.8%, 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 useful information to investors and analysts to assist in the evaluation of restaurant-level operating efficiency and performance of ongoing restaurant-level operations. However, non-GAAP measures should be considered as a supplement to, not a substitute for, operating income, net income, and net income per share, or other financial performance measures prepared in accordance with GAAP. 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 for compensation purposes, including incentive compensation for certain employees.
Restaurant-level operating margin is the total of company restaurant operating margin and franchise operating margin and excludes: (i) 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; (ii) 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; (iii) 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.
Company restaurant operating margin is defined 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. Adjusted company operating restaurant margin is defined as company restaurant operating margin less certain items such as legal settlement expenses, pre-opening expenses, and other items the Company does not consider in the evaluation of its ongoing core operating performance.
Franchise operating margin is defined 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. Adjusted franchise operating margin is defined as franchise operating margin less certain items the Company does not consider in the evaluation of its ongoing core operating performance.
Adjusted restaurant-level operating margin is the total of adjusted company restaurant operating margin and adjusted franchise operating margin and is defined as restaurant-level operating margin adjusted for certain items the Company does not consider in the evaluation of its ongoing core operating performance. These adjustments are either non-recurring in nature or vary from period to period without correlation to the Company's ongoing core operating performance.
Quarter Ended Two Quarters Ended ($ in thousands) 6/26/24 6/28/23 6/26/24 6/28/23 Operating income $ 9,115 $ 14,934 $ 19,121 $ 31,081 General and administrative expenses 20,486 20,160 41,708 40,278 Depreciation and amortization 3,735 3,617 7,316 7,273 Goodwill impairment charges 20 — 20 — Operating (gains), losses and other charges, net 1,565 1,176 1,238 (153 ) Restaurant-level operating margin $ 34,921 $ 39,887 $ 69,403 $ 78,479 Restaurant-level operating margin consists of: Company restaurant operating margin (1) $ 6,770 $ 8,313 $ 10,994 $ 15,273 Franchise operating margin (2) 28,151 31,574 58,409 63,206 Restaurant-level operating margin $ 34,921 $ 39,887 $ 69,403 $ 78,479 Adjustments (3) 3,039 157 4,706 258 Adjusted restaurant-level operating margin $ 37,960 $ 40,044 $ 74,109 $ 78,737 (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. (3) Adjustments include legal settlement expenses, pre-opening costs, and other adjustments the Company does not consider in the evaluation of its ongoing core operating performance. Adjustments for the quarter and year-to-date period ended June 26, 2024 include a $2.6 million distribution to franchisees related to a review of advertising costs. DENNY’S CORPORATION Operating Margins (Unaudited) Quarter Ended ($ in thousands) 6/26/24 6/28/23 Company restaurant operations: (1) Company restaurant sales $ 54,348 100.0 % $ 54,881 100.0 % Costs of company restaurant sales, excluding depreciation and amortization: Product costs 13,632 25.1 % 14,170 25.8 % Payroll and benefits 20,493 37.7 % 20,488 37.3 % Occupancy 4,671 8.6 % 4,080 7.4 % Other operating costs: Utilities 1,695 3.1 % 1,860 3.4 % Repairs and maintenance 1,008 1.9 % 782 1.4 % Marketing 1,876 3.5 % 1,419 2.6 % Legal settlements 208 0.4 % 121 0.2 % Pre-opening costs 191 0.4 % 25 0.0 % Other direct costs 3,804 7.0 % 3,623 6.6 % Total costs of company restaurant sales, excluding depreciation and amortization $ 47,578 87.5 % $ 46,568 84.9 % Company restaurant operating margin (non-GAAP) (2) $ 6,770 12.5 % $ 8,313 15.1 % Adjustments (3) 399 0.7 % 146 0.3 % Adjusted company restaurant operating margin (non-GAAP) (2) $ 7,169 13.2 % $ 8,459 15.4 % Franchise operations: (4) Franchise and license revenue: Royalties $ 30,014 48.7 % $ 30,376 49.0 % Advertising revenue 20,788 33.8 % 19,853 32.0 % Initial and other fees 2,448 4.0 % 2,616 4.2 % Occupancy revenue 8,329 13.5 % 9,189 14.8 % Total franchise and license revenue $ 61,579 100.0 % $ 62,034 100.0 % Costs of franchise and license revenue, excluding depreciation and amortization: Advertising costs $ 20,788 33.8 % $ 19,853 32.0 % Occupancy costs 5,094 8.3 % 5,792 9.3 % Other direct costs 7,546 12.3 % 4,815 7.8 % Total costs of franchise and license revenue, excluding depreciation and amortization $ 33,428 54.3 % $ 30,460 49.1 % Franchise operating margin (non-GAAP) (2) $ 28,151 45.7 % $ 31,574 50.9 % Adjustments (3) 2,640 4.3 % 11 0.0 % Adjusted franchise operating margin (non-GAAP) (2) $ 30,791 50.0 % $ 31,585 50.9 % Total operating revenue (5) $ 115,927 100.0 % $ 116,915 100.0 % Total costs of operating revenue (5) 81,006 69.9 % 77,028 65.9 % Restaurant-level operating margin (non-GAAP) (5) $ 34,921 30.1 % $ 39,887 34.1 % (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 and adjusted operating margin are considered non-GAAP financial measures and 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) Adjustments include legal settlement expenses, pre-opening costs, and other adjustments the Company does not consider in the evaluation of its ongoing core operating performance. Adjustments for the quarter ended June 26, 2024 include a $2.6 million distribution to franchisees related to a review of advertising costs. (4) As a percentage of franchise and license revenue. (5) As a percentage of total operating revenue. DENNY’S CORPORATION Operating Margins (Unaudited) Two Quarters Ended ($ in thousands) 6/26/24 6/28/23 Company restaurant operations: (1) Company restaurant sales $ 106,690 100.0 % $ 108,333 100.0 % Costs of company restaurant sales, excluding depreciation and amortization: Product costs 26,943 25.3 % 28,209 26.0 % Payroll and benefits 40,967 38.4 % 40,728 37.6 % Occupancy 9,244 8.7 % 8,174 7.5 % Other operating costs: Utilities 3,350 3.1 % 3,917 3.6 % Repairs and maintenance 2,013 1.9 % 1,671 1.5 % Marketing 3,480 3.3 % 2,814 2.6 % Legal settlements 1,657 1.6 % 230 0.2 % Pre-opening costs 557 0.5 % 25 0.0 % Other direct costs 7,485 7.0 % 7,292 6.7 % Total costs of company restaurant sales, excluding depreciation and amortization $ 95,696 89.7 % $ 93,060 85.9 % Company restaurant operating margin (non-GAAP) (2) $ 10,994 10.3 % $ 15,273 14.1 % Adjustments (3) 2,214 2.1 % 255 0.2 % Adjusted company restaurant operating margin (non-GAAP) (2) $ 13,208 12.4 % $ 15,528 14.3 % Franchise operations: (4) Franchise and license revenue: Royalties $ 59,320 49.8 % $ 60,403 47.9 % Advertising revenue 38,926 32.7 % 39,521 31.4 % Initial and other fees 4,264 3.6 % 7,606 6.0 % Occupancy revenue 16,701 14.0 % 18,523 14.7 % Total franchise and license revenue $ 119,211 100.0 % $ 126,053 100.0 % Costs of franchise and license revenue, excluding depreciation and amortization: Advertising costs $ 38,926 32.7 % $ 39,521 31.4 % Occupancy costs 10,226 8.6 % 11,464 9.1 % Other direct costs 11,650 9.8 % 11,862 9.4 % Total costs of franchise and license revenue, excluding depreciation and amortization $ 60,802 51.0 % $ 62,847 49.9 % Franchise operating margin (non-GAAP) (2) $ 58,409 49.0 % $ 63,206 50.1 % Adjustments (3) 2,492 2.1 % 3 0.0 % Adjusted franchise operating margin (non-GAAP) (2) $ 60,901 51.1 % $ 63,209 50.1 % Total operating revenue (5) $ 225,901 100.0 % $ 234,386 100.0 % Total costs of operating revenue (5) 156,498 69.3 % 155,907 66.5 % Restaurant-level operating margin (non-GAAP) (5) $ 69,403 30.7 % $ 78,479 33.5 % (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 and adjusted operating margin are considered non-GAAP financial measures and 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) Adjustments include legal settlement expenses, pre-opening costs, and other adjustments the Company does not consider in the evaluation of its ongoing core operating performance. Adjustments for the year-to-date period ended June 26, 2024 include a $2.6 million distribution to franchisees related to a review of advertising costs. (4) As a percentage of franchise and license revenue. (5) As a percentage of total operating revenue. DENNY’S CORPORATION Statistical Data (Unaudited) Denny's Keke's Changes in Same-Restaurant Sales (1) Quarter Ended Two Quarters Ended Quarter Ended Two Quarters Ended (Increase (decrease) vs. prior year) 6/26/24 6/28/23 6/26/24 6/28/23 6/26/24 6/28/23 6/26/24 6/28/23 Company Restaurants (2.6 )% 3.0 % (2.8 %) 7.0 % (4.4 )% N/A (2.7 %) N/A Domestic Franchise Restaurants (0.4 )% 3.0 % (0.8 %) 5.5 % (4.6 )% N/A (4.3 %) N/A Domestic System-wide Restaurants (0.6 )% 3.0 % (0.9 %) 5.6 % (4.6 )% N/A (4.1 %) N/A Average Unit Sales ($ in thousands) Company Restaurants $ 774 $ 786 $ 1,517 $ 1,548 $ 447 $ 459 $ 902 $ 925 Franchised Restaurants $ 473 $ 466 $ 930 $ 918 $ 457 $ 476 $ 929 $ 967 (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. Restaurant Unit Activity Denny's Keke's Company Franchised & Licensed Total Company Franchised & Licensed Total Ending Units March 27, 2024 64 1,489 1,553 11 50 61 Units Opened — 3 3 1 — 1 Units Refranchised — — — (1 ) 1 — Units Closed — (15 ) (15 ) — — — Net Change — (12 ) (12 ) — 1 1 Ending Units June 26, 2024 64 1,477 1,541 11 51 62 Equivalent Units Second Quarter 2024 64 1,485 1,549 11 51 62 Second Quarter 2023 65 1,525 1,590 8 47 55 Net Change (1 ) (40 ) (41 ) 3 4 7 Ending Units December 27, 2023 65 1,508 1,573 8 50 58 Units Opened — 8 8 4 — 4 Units Refranchised — — — (1 ) 1 — Units Closed (1 ) (39 ) (40 ) — — — Net Change (1 ) (31 ) (32 ) 3 1 4 Ending Units June 26, 2024 64 1,477 1,541 11 51 62 Equivalent Units Year-to-Date 2024 64 1,493 1,557 10 50 60 Year-to-Date 2023 65 1,527 1,592 8 46 54 Net Change (1 ) (34 ) (35 ) 2 4 6 
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