Denny’s(US:DENN)2020-02-12 03:30Financial Data and Key Metrics Changes - Denny's reported a 27.6% increase in adjusted net income per share to $0.23, up from $0.18 in the prior year quarter [31] - Adjusted free cash flow was $12.1 million, compared to $17.7 million in the prior year quarter [38] - Total general and administrative expenses were $15.4 million, impacted by a decrease in share-based compensation expense [35] Business Line Data and Key Metrics Changes - Franchise and license revenue increased by 17.9% to $65.0 million, driven by the refranchising and development strategy [32] - Company restaurant sales were $48.4 million for the quarter, down approximately 53.2% due to a lower number of equivalent company restaurants [33] - Company restaurant operating margin improved to 17.7% from 16.2% in the prior year quarter, primarily due to decreases in payroll and benefit costs [34] Market Data and Key Metrics Changes - Domestic system-wide same-store sales grew by $1.7 million, with a 1.8% increase in domestic same-store sales [31][32] - Off-premise business grew by 67%, increasing from nearly 7% of sales to approximately 12% of sales in the fourth quarter [12] - Approximately 89% of the domestic system is now engaged with at least one delivery partner [12] Company Strategy and Development Direction - Denny's aims to become the world's largest and most admired family of local restaurants, focusing on four strategic pillars: brand differentiation, operational excellence, geographic expansion, and profitable growth [9][10] - The company is transitioning to a more highly franchised model, with a goal of reaching 96% to 97% franchised by the end of 2019 [41] - The Heritage Remodel program continues to perform well, with a new prototype, Heritage 2.0, being rolled out based on consumer research [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth potential of the Denny's brand, particularly in breakfast, lunch, dinner, and late-night segments [57] - The company anticipates domestic same-store sales growth of 0% to 2% for fiscal year 2020, with total operating revenue expected between $453 million and $459 million [48][49] - Management highlighted the importance of balancing value and premium offerings in response to consumer preferences and competitive pressures [70][75] Other Important Information - Denny's completed the sale of nine restaurants in the fourth quarter, totaling 113 restaurants sold since the refranchising strategy began [17][42] - The company has secured commitments to develop 78 new domestic restaurants, with openings expected to begin in 2021 [19] - Cash capital expenditures are expected to range from $28 million to $33 million for fiscal year 2020 [52] Q&A Session Summary Question: Opportunities for cash beyond share purchases - Management acknowledged the consideration of various strategic alternatives but emphasized a focus on brand growth and share repurchases for the time being [56][58] Question: Expected number of remodels in 2020 - Management indicated that while specific guidance on the number of remodels was not provided, they are optimistic about the returns from the Heritage 2.0 rollout [59] Question: Potential for franchise margin improvement - Management noted that as franchise units grow, there is potential for margin improvement, particularly through the development commitments secured [60] Question: Same-store sales outlook for 2020 - Management highlighted the importance of promotional efforts and improvements in service standards as key drivers for sales growth in 2020 [63][65] Question: Company-owned margin guidance - Management clarified that the current guidance reflects a more accurate representation of the operating margin, excluding district manager costs [66] Question: Consumer trends and competitive landscape - Management observed a growing consumer interest in unique and differentiated menu items, indicating a competitive environment focused on culinary standards [87][88]