Industry News | November 3, 2000
Advantica Reports 3Q Results
The company's revenue from continuing operationsdecreased to $303 million versus $314 million in the prior year's third quarter as a result of an 85-unit reduction in company-owned stores due to Denny's aggressive refranchising efforts. Revenue benefited from a 1.4% increase in same-store sales at Denny's. The company reported EBITDA from continuing operations of $52.0 million for the third quarter, compared with $45.1 million in the prior year quarter. The EBITDA increase is primarily attributable to gains from the successful refranchising efforts at Denny's.
During the quarter, the company continued to market for divestiture FRD Acquisition Co., the parent company of Coco's and Carrows. FRD has been classified as a discontinued operation for financial reporting purposes since the second quarter. FRD has entered into an amendment with the lenders under the FRD senior secured credit facility which, among other things, provides for a waiver of compliance with certain third quarter financial covenants until January 8, 2001.
Commenting on the company's results for the third quarter, James B. Adamson, Advantica's chairman and chief executive officer, said, "We are pleased to report that Denny's maintained its positive same-store sales momentum during the quarter by posting a sales gain for the tenth consecutive quarter. The strength of the brand is evident as Denny's reached record levels for both number of units and systemwide sales. Regarding our progress in the Denny's refranchising program, we have already exceeded our first-year expectations to refranchise approximately 100 restaurants. During the third quarter, we sold 42 restaurants to franchisees which increases the year-to-date total to 105. We expect to continue refranchising about 100 units per year over the next several years.''
Commenting on the Denny's reimaging program, Adamson said, "We made significant progress in the development and testing of a lower cost 'Denny's Diner' prototype with the reimaging of 22 restaurants during the third quarter, bringing to 25 the year-to-date total. We reimaged an additional 8 units in October and expect to have completed a total of 35-40 lower cost reimages by year end.''
The company reported a loss from continuing operations for the quarter of $7.3 million, or $0.18 per common share, compared with last year's third quarter loss of $34.5 million, or $0.86 per share. This year's third quarter results include amortization of excess reorganization value of approximately $10.3 million, or $0.26 per share, compared with $22.2 million or $0.56 per share in last year's third quarter. This amortization is a noncash charge related to the implementation of fresh start reporting required upon the company's emergence from bankruptcy in January 1998.
Due to the significant noncash depreciation and amortization charges related to fresh start reporting, the company reports EBITDA as a measure of financial performance. The fresh start reporting amortization will discontinue on the fifth anniversary of the company's emergence from bankruptcy reorganization in January 1998.
During the third quarter, Denny's same-store sales for company-owned restaurants increased 1.4 percent while franchised units increased 0.6 percent. Denny's EBITDA, including corporate and other expenses, improved to $52.0 million from $45.1 million in the prior year quarter. The increase in EBITDA was primarily attributable to higher gains on refranchising as compared to the prior year quarter, offset by lower operating margins. Higher operating costs as a percentage of sales were attributable to increased payroll, commodity and repairs and maintenance expenses, partially offset by reduced general and administrative expenses. Franchise and licensing revenue increased approximately 24 percent to $20.0 million compared with $16.2 million in the prior year quarter, while franchise operating income increased by 24 percent to $11.0 million from $8.9 million in last year's quarter. These favorable franchise results are primarily attributable to a 136-unit increase in franchised and licensed units compared to the prior year quarter. The Denny's system opened 38 new restaurants during the quarter resulting in a total of 70 restaurants opened year-to-date and increasing the total system to 1,816 restaurants.
During the third quarter, revenue at FRD declined to $91 million from $98 million in the prior year quarter, resulting from decreases in same-store sales and in the number of company-owned restaurants. EBITDA at FRD decreased to $7.1 million versus $12.0 million in the prior year quarter. Coco's third quarter EBITDA declined to $3.8 million from $6.4 million in the prior year quarter. This decrease in EBITDA primarily resulted from a 5.1 percent decline in company-owned same-store sales. Carrows' third quarter EBITDA decreased to $3.3 million from $5.6 million in the prior year quarter. The decrease in EBITDA primarily resulted from a 4.7 percent decline in company-owned same-store sales.
Denny's systemwide sales for the three quarters ending September 27, 2000 increased by over 4 percent to $1.68 billion compared with $1.61 billion in the prior year period. This increase is attributable to continued growth in the Denny's brand which has added a net 51 restaurants since the end of the same period last year.
Denny's revenue declined to $883 million versus $910 million in the prior year period. Same-store sales growth was offset by a lower number of company-owned stores attributable to Denny's refranchising efforts. Denny's, including corporate and other expenses, reported an increase in EBITDA year-to-date to $129.0 million compared with $110.0 million in the prior year period. The increase was principally attributable to gains from the refranchising of company-owned Denny's units.
Revenue at Coco's and Carrows declined to $279 million year-to-date from $292 million in the prior year period, resulting from decreases in both same-store sales and the number of company-owned restaurants. EBITDA at Coco's and Carrows decreased to $26.7 million versus $32.4 million in the prior year period.
Investors and interested parties are invited to listen to a live broadcast of Advantica's third quarter 2000 conference call with senior management. The call may be accessed through the company's website, http://www.advantica-dine.com on November 3 at 1:00 pm EST. From the main page follow the link to "Investor Info'' and then click the "Webcast'' icon. A replay of the call may be accessed at the same location later in the day.
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