Denny's Corporation Reports Results for Second Quarter 2024

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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