Denny’s(DENN) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis, market risk, and controls Item 1. Financial Statements (Unaudited) This section presents Denny's Corporation's unaudited consolidated financial statements and detailed explanatory notes Consolidated Balance Sheets Consolidated balance sheets show slight asset and liability decreases, with a marginal increase in total shareholders' deficit Consolidated Balance Sheet Summary | Metric | June 25, 2025 (In thousands) | December 25, 2024 (In thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $491,150 | $496,274 | | Total liabilities | $525,729 | $530,299 | | Total shareholders' deficit | $(34,579) | $(34,025) | Consolidated Statements of Income Operating revenue slightly increased, but net income and diluted EPS significantly decreased for the quarter and year-to-date Consolidated Statements of Income Summary | Metric | Quarter Ended June 25, 2025 (In thousands) | Quarter Ended June 26, 2024 (In thousands) | Two Quarters Ended June 25, 2025 (In thousands) | Two Quarters Ended June 26, 2024 (In thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Total operating revenue | $117,657 | $115,927 | $229,294 | $225,901 | | Operating income | $8,572 | $9,115 | $13,782 | $19,121 | | Net income | $2,470 | $3,568 | $2,796 | $8,259 | | Net income per share - diluted | $0.05 | $0.07 | $0.05 | $0.16 | Consolidated Statements of Comprehensive Income (Loss) The company reported a total comprehensive loss for the quarter and year-to-date, driven by negative cash flow hedge fair values Consolidated Statements of Comprehensive Income (Loss) Summary | Metric | Quarter Ended June 25, 2025 (In thousands) | Quarter Ended June 26, 2024 (In thousands) | Two Quarters Ended June 25, 2025 (In thousands) | Two Quarters Ended June 26, 2024 (In thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $2,470 | $3,568 | $2,796 | $8,259 | | Other comprehensive income (loss) | $(2,627) | $1,034 | $(5,936) | $7,198 | | Total comprehensive income (loss) | $(157) | $4,602 | $(3,140) | $15,457 | Consolidated Statements of Shareholders' Deficit Shareholders' deficit increased due to comprehensive loss and treasury stock purchases, offset by net income and share-based compensation Consolidated Statements of Shareholders' Deficit Summary | Metric | December 25, 2024 (In thousands) | June 25, 2025 (In thousands) | | :-------------------------------- | :------------------------------- | :----------------------------- | | Total Shareholders' Deficit | $(34,025) | $(34,579) | | Net income | N/A | $2,796 | | Other comprehensive loss | N/A | $(5,936) | | Purchase of treasury stock | N/A | $(1,595) | Consolidated Statements of Cash Flows Operating cash flow was stable, investing activities increased cash usage, and financing activities provided cash from long-term debt Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Two Quarters Ended June 25, 2025 (In thousands) | Two Quarters Ended June 26, 2024 (In thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $14,368 | $14,396 | | Net cash used in investing activities | $(17,536) | $(10,349) | | Net cash provided by (used in) financing activities | $2,636 | $(7,774) | | Decrease in cash and cash equivalents | $(532) | $(3,727) | Notes to Consolidated Financial Statements These notes detail accounting policies, financial instrument fair values, debt, revenue, operating charges, and segment information Note 1. Introduction and Basis of Presentation Denny's Corporation operates 1,558 restaurants across two brands, mostly franchised - As of June 25, 2025, Denny's Corporation operated 1,558 restaurants, comprising 1,474 franchised/licensed and 84 company-operated units[20] - The company's portfolio includes the Denny's brand (1,484 restaurants) and the Keke's Breakfast Cafe brand (74 restaurants)[21] Note 2. Summary of Significant Accounting Policies The company is evaluating new accounting standards, ASU 2023-09 and ASU 2024-03, on its financial statements - ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," is effective for annual periods beginning after December 15, 2024 (fiscal 2025)[25] - ASU 2024-03, "Disaggregation of Income Statement Expenses (Subtopic 220-40)," is effective for annual periods beginning after December 15, 2026 (fiscal 2027)[26] Note 3. Receivables Total net receivables decreased, primarily due to reductions in trade accounts, vendor, and credit card receivables Receivables, Net | Receivables, net (In thousands) | June 25, 2025 | December 25, 2024 | | :------------------------------ | :------------ | :---------------- | | Trade accounts receivable from franchisees | $13,564 | $15,798 | | Vendor receivables | $1,703 | $3,632 | | Credit card receivables | $822 | $1,815 | | Total receivables, net | $19,074 | $24,433 | Note 4. Goodwill and Intangible Assets Goodwill increased from franchise acquisitions, while net intangible assets slightly decreased, with trade names as the largest component Goodwill and Intangible Assets Summary | Metric (In thousands) | June 25, 2025 | December 25, 2024 | | :-------------------- | :------------ | :---------------- | | Total goodwill | $68,526 | $66,357 | | Intangible assets, net | $89,630 | $91,739 | | Trade names | $79,687 | $79,687 | - Goodwill additions included $2,157 thousand from the acquisition of five Keke's franchise units and $404 thousand from one Denny's franchise unit[29] Note 5. Other Current Liabilities Other current liabilities decreased, mainly due to reductions in accrued advertising and gift card liabilities Other Current Liabilities Summary | Other Current Liabilities (In thousands) | June 25, 2025 | December 25, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Accrued payroll | $14,516 | $15,434 | | Accrued advertising | $6,686 | $11,785 | | Gift cards | $6,786 | $8,382 | | Other current liabilities | $53,701 | $58,842 | Note 6. Fair Value of Financial Instruments Fair value of financial instruments decreased due to interest rate swaps, with $3.3 million in impairment charges recognized Fair Value Measurements | Fair Value Measurements (In thousands) | June 25, 2025 | December 25, 2024 | | :------------------------------------- | :------------ | :---------------- | | Deferred compensation plan investments | $10,227 | $10,400 | | Interest rate swaps | $11,745 | $20,841 | | Total recurring fair value | $21,972 | $32,347 | - Impairment charges of $3.3 million were recognized for assets held and used during the year-to-date period ended June 25, 2025[35] Note 7. Long-Term Debt The $400 million credit facility has $268.6 million outstanding, with covenant compliance and interest rate swaps hedging floating debt - Outstanding revolver loans were $268.6 million with $15.9 million in outstanding letters of credit, leaving $115.5 million in unused commitments as of June 25, 2025[39] Financial Covenant Compliance | Financial Covenant | June 25, 2025 | | :----------------- | :------------ | | Consolidated leverage ratio | 3.98 times | | Consolidated fixed charge coverage ratio | 2.05 times | - Interest rate swaps designated as cash flow hedges had a fair value asset of $11.7 million as of June 25, 2025, and are expected to reduce interest expense by $3.6 million in the next 12 months[44] Note 8. Revenues Operating revenue slightly increased from company restaurant sales, while franchise revenue decreased, with $5.3 million in deferred revenue Revenue by Type | Revenue Type (In thousands) | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Company restaurant sales | $58,395 | $54,348 | $112,295 | $106,690 | | Franchise and license revenue | $59,262 | $61,579 | $116,999 | $119,211 | | Total operating revenue | $117,657 | $115,927 | $229,294 | $225,901 | - Deferred franchise revenue, net of contract asset amortization, expected to be recognized in the future totals $5.3 million[52] Note 9. Operating (Gains), Losses and Other Charges, Net Operating (gains), losses and other charges significantly increased year-to-date due to higher impairment and restructuring costs Operating Charges Summary | Charge Type (In thousands) | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | (Gains) losses on sales of assets and other, net | $425 | $526 | $(1,317) | $(94) | | Impairment charges | $49 | $619 | $3,265 | $714 | | Restructuring charges and exit costs | $1,226 | $420 | $3,663 | $618 | | Total operating (gains), losses and other charges, net | $1,700 | $1,565 | $5,611 | $1,238 | - Severance and other restructuring charges for the year-to-date period ended June 25, 2025, resulted from the elimination of 66 positions as part of a cost savings initiative[58] Note 10. Share-Based Compensation Share-based compensation increased, with 0.9 million PSUs and 1.4 million RSUs granted, and $19.2 million unrecognized cost Share-Based Compensation Summary | Share-Based Compensation (In thousands) | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Employee share awards | $2,772 | $2,409 | $5,324 | $4,980 | | Restricted stock units for board members | $210 | $215 | $443 | $420 | | Total share-based compensation | $2,982 | $2,624 | $5,767 | $5,400 | - As of June 25, 2025, $19.2 million of unrecognized compensation cost related to unvested PSU and RSU awards remained, with a weighted average remaining contractual term of 2.0 years[63] Note 11. Income Taxes Effective income tax rate significantly increased due to share-based compensation discrete items; OBBBA impact is being assessed Effective Income Tax Rate | Effective Income Tax Rate | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Effective tax rate | 34.3% | 25.1% | 36.2% | 24.8% | - The effective income tax rate for the quarter and year-to-date periods ended June 25, 2025, included discrete items relating to share-based compensation of 9.0% and 11.5%, respectively[66] - The company is currently assessing the impact of the One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, on its consolidated financial statements[67] Note 12. Net Income Per Share Basic and diluted net income per share decreased for the quarter and year-to-date, reflecting lower net income Net Income Per Share Summary | Net Income Per Share | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Basic EPS | $0.05 | $0.07 | $0.05 | $0.16 | | Diluted EPS | $0.05 | $0.07 | $0.05 | $0.16 | Note 13. Shareholders' Deficit The company repurchased 0.4 million shares for $1.6 million, and accumulated other comprehensive loss increased from cash flow hedge changes - During the year-to-date period ended June 25, 2025, the company repurchased 0.4 million shares of common stock for $1.6 million, with $87.6 million remaining under the current authorization[70] Accumulated Other Comprehensive Loss, Net | Component of Accumulated Other Comprehensive Loss, Net (In thousands) | December 25, 2024 | June 25, 2025 | | :-------------------------------------------------------------------- | :---------------- | :------------ | | Defined Benefit Plans | $(209) | $(192) | | Derivatives | $(31,830) | $(37,783) | | Total Accumulated Other Comprehensive Loss, Net | $(32,039) | $(37,975) | Note 14. Commitments and Contingencies Management believes legal proceedings will not materially affect the company's consolidated results or financial position - Management's opinion is that the ultimate liability from legal proceedings will not materially affect consolidated results of operations or financial position[74] Note 15. Supplemental Cash Flow Information Supplemental cash flow includes $2.25 million in income taxes paid and $8.411 million in interest paid, plus noncash activities Supplemental Cash Flow Information | Supplemental Cash Flow (In thousands) | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Income taxes paid, net | $2,250 | $3,668 | | Interest paid | $8,411 | $8,185 | | Restaurant acquisition payable | $300 | $0 | | Accrued purchase of property | $549 | $229 | Note 16. Segment Information The company operates two segments, Denny's and Keke's, with Denny's generating $106.0 million and Keke's $11.6 million in quarterly revenue - The company manages its business by two operating segments: Denny's (reportable segment) and Keke's (included in Other)[76] Segment Revenue and Margin | Segment Revenue (Quarter Ended June 25, 2025, In thousands) | Denny's | Other (Keke's) | Total | | :---------------------------------------------------------- | :------ | :------------- | :---- | | Company restaurant sales | $48,474 | $9,921 | $58,395 | | Franchise and license revenue | $57,545 | $1,717 | $59,262 | | Total operating revenue | $106,019 | $11,638 | $117,657 | | Restaurant-level operating margin | $35,389 | $706 | $36,095 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial performance, condition, and results, covering revenue, costs, segments, liquidity, and capital Overview Denny's Corporation operates two segments, Denny's (1,484 restaurants) and Keke's (74 restaurants), as of June 25, 2025 - As of June 25, 2025, the Denny's brand comprised 1,484 restaurants (1,422 franchised/licensed, 62 company-operated), and the Keke's brand had 74 restaurants (52 franchised, 22 company-operated)[84] - Keke's operating segment revenues represented less than 10% of total consolidated revenues for the reported periods, leading to its inclusion in 'Other' for segment reporting[85] Statements of Income Operating revenue slightly increased, but net income and diluted EPS significantly decreased due to higher costs, interest, and tax Key Income Statement Metrics | Metric | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Total operating revenue | $117,657 | $115,927 | $229,294 | $225,901 | | Operating income | $8,572 | $9,115 | $13,782 | $19,121 | | Net income | $2,470 | $3,568 | $2,796 | $8,259 | | Net income per share - diluted | $0.05 | $0.07 | $0.05 | $0.16 | Same-Store Sales Change (YoY) | Same-Store Sales Change (YoY) | Quarter Ended June 25, 2025 | Two Quarters Ended June 25, 2025 | | :------------------------------ | :-------------------------- | :------------------------------- | | Denny's Company | 0.0% | (0.4%) | | Denny's Domestic Franchise | (1.4%) | (2.3%) | | Keke's Company | 3.4% | 2.0% | | Keke's Franchise | 4.2% | 4.2% | Company Restaurant Operations Company restaurant sales increased from Keke's unit growth and same-store sales, but costs as a percentage of sales rose due to higher commodity and occupancy - Company restaurant sales increased by $4.0 million (7.4%) for the quarter and $5.6 million (5.3%) year-to-date, primarily due to a 12-unit increase in Keke's equivalent units and Keke's same-store sales growth of 3.4% for the quarter[93] Company Restaurant Cost as % of Sales | Cost as % of Company Restaurant Sales | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Product costs | 25.8% | 25.1% | 26.1% | 25.3% | | Payroll and benefits | 37.5% | 37.7% | 38.3% | 38.4% | | Occupancy | 8.9% | 8.6% | 9.1% | 8.7% | | Other operating expenses | 17.5% | 16.2% | 17.7% | 17.4% | - Product costs as a percentage of sales increased primarily due to higher commodity costs, particularly egg prices[95] Franchise Operations Franchise and license revenue decreased from lower Denny's units and same-store sales, though initial and other fees significantly increased Franchise Revenue by Type | Franchise Revenue Type (In thousands) | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Royalties | $29,091 | $30,014 | $56,928 | $59,320 | | Advertising revenue | $19,490 | $20,788 | $38,563 | $38,926 | | Initial and other fees | $2,804 | $2,448 | $5,678 | $4,264 | | Occupancy revenue | $7,877 | $8,329 | $15,830 | $16,701 | | Total franchise and license revenue | $59,262 | $61,579 | $116,999 | $119,211 | - Initial and other fees increased by 14.6% for the quarter and 33.2% year-to-date, driven by increased revenue from equipment sales to franchisees and a $0.6 million early franchise termination fee[101][102] - Costs of franchise and license revenue decreased by 12.6% for the quarter and 5.3% year-to-date, primarily due to a $2.6 million distribution to franchisees related to an advertising cost review in the prior year[103] Other Operating Costs and Expenses G&A expenses varied, depreciation increased, and operating charges significantly rose year-to-date from impairment and restructuring costs Other Operating Costs and Expenses Summary | Expense Type (In thousands) | Quarter Ended June 25, 2025 | Quarter Ended June 26, 2024 | Two Quarters Ended June 25, 2025 | Two Quarters Ended June 26, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | General and administrative expenses | $21,445 | $20,486 | $41,475 | $41,708 | | Depreciation and amortization | $4,378 | $3,735 | $8,485 | $7,316 | | Operating (gains), losses and other charges, net | $1,700 | $1,565 | $5,611 | $1,238 | - Corporate administrative expenses decreased due to the elimination of positions, while share-based compensation and incentive compensation increased due to plan performance adjustments and performance against plan metrics[106] - Restructuring charges and exit costs for the year-to-date period ended June 25, 2025, primarily consisted of severance costs from the elimination of 66 positions as part of a cost savings initiative[110] Liquidity and Capital Resources Operating cash flow was stable, investing activities increased cash usage, and financing activities provided cash from long-term debt Cash Flow Activities | Cash Flow Activity (Two Quarters Ended, In thousands) | June 25, 2025 | June 26, 2024 | | :---------------------------------------------------- | :------------ | :------------ | | Net cash provided by operating activities | $14,368 | $14,396 | | Net cash used in investing activities | $(17,536) | $(10,349) | | Net cash provided by (used in) financing activities | $2,636 | $(7,774) | | Decrease in cash and cash equivalents | $(532) | $(3,727) | Capital Expenditures and Acquisitions | Capital Expenditures (Two Quarters Ended, In thousands) | June 25, 2025 | June 26, 2024 | | :------------------------------------------------------ | :------------ | :------------ | | Capital expenditures | $16,384 | $9,948 | | Acquisitions of restaurants | $4,082 | $0 | - The working capital deficit was $55.7 million at June 25, 2025, compared to $55.6 million at December 25, 2024, which is manageable due to cash-based restaurant operations and rapid inventory turnover[122] Credit Facility The $400 million credit facility has $268.6 million outstanding, with covenant compliance and 89% fixed-rate debt from interest rate swaps - The credit facility has a $400 million senior secured revolver, with $268.6 million outstanding and $115.5 million in unused commitments as of June 25, 2025[125] Financial Covenant Compliance | Financial Covenant | June 25, 2025 | | :----------------- | :------------ | | Consolidated leverage ratio | 3.98 times | | Consolidated fixed charge coverage ratio | 2.05 times | - Interest rate swaps increased the ratio of fixed rate debt from 4% to 89% of total debt as of June 25, 2025[133] Technology Transformation Initiatives The company is investing $4 million in a new cloud-based restaurant technology platform for domestic franchise restaurants, rolling out through 2026 - The company is investing approximately $4 million in a new cloud-based restaurant technology platform for domestic franchise restaurants, with rollout continuing through 2026[128] Critical Accounting Policies and Estimates Critical accounting policies and estimates are incorporated by reference from the company's latest Annual Report on Form 10-K - Critical Accounting Policies and Estimates are referenced from the Annual Report on Form 10-K for the fiscal year ended December 25, 2024[129] Implementation of New Accounting Standards New accounting standards implementation information is incorporated by reference from Note 2 of the financial statements - Information on new accounting standards implementation is incorporated by reference from Note 2 of the financial statements[130] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its variable-rate credit facility, hedged by swaps, with a 100 basis point change impacting annual cash flow by $0.2 million - The company's credit facility borrowings bear variable interest rates based on Adjusted Daily Simple SOFR plus 2.25% per annum[131] - Interest rate swaps effectively increased the ratio of fixed rate debt from 4% to 89% of total debt as of June 25, 2025[133] - A hypothetical 100 basis point change in interest rates would result in a $0.2 million change in annual cash flow and income before taxes[133] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[135] - No material changes in internal control over financial reporting were identified during the fiscal quarter ended June 25, 2025[136] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings Legal proceedings information is referenced from Note 14, with management expecting no material adverse effects on financial position or results - Information on legal proceedings is incorporated by reference from Note 14 of the financial statements[137] Item 1A. Risk Factors No material changes to risk factors have occurred since the Annual Report on Form 10-K for fiscal year 2024 - No material changes in risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 25, 2024[138] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 0.2 million shares for $0.6 million under its $250 million program, with $87.6 million remaining Share Repurchases | Period | Total Number of Shares Purchased (In thousands) | Average Price Paid Per Share | | :-------------------------------- | :-------------------------------------------- | :--------------------------- | | March 27, 2025 - April 23, 2025 | 143 | $3.34 | | April 24, 2025 - May 21, 2025 | 37 | $3.56 | | May 22, 2025 - June 25, 2025 | — | — | | Total | 180 | $3.39 | - During the quarter ended June 25, 2025, the company purchased 0.2 million shares for $0.6 million under its $250 million share repurchase program, with $87.6 million remaining[141] Item 5. Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter ended June 25, 2025[142] Item 6. Exhibits This section lists all exhibits filed, including the Amended and Restated 2021 Omnibus Incentive Plan and CEO/CFO certifications - Exhibits include the Amended and Restated 2021 Omnibus Incentive Plan, certifications (31.1, 31.2, 32.1) from the CEO and CFO, and Inline XBRL documents[143] Signatures The report was signed by Robert P. Verostek, EVP & CFO, and Jay C. Gilmore, SVP, CAO & Corporate Controller, on August 4, 2025 - The report was signed by Robert P. Verostek (EVP & CFO) and Jay C. Gilmore (SVP, CAO & Corporate Controller) on August 4, 2025[147]