Good day. And welcome to the Denny’s Corporation Second Quarter 2020 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Curt Nichols, Vice President, Investor Relations and Financial Planning and Analysis. Please go ahead, sir..

Thank you, Jenny, and good afternoon, everyone. Thank you for joining us for Denny’s second quarter 2020 earnings conference call. With me today from management are John Miller, Denny’s Chief Executive Officer; Mark Wolfinger, Denny’s President; and Robert Verostek, Denny’s Senior Vice President and Chief Financial Officer.

Please refer to our website at investor.dennys.com to find our second quarter earnings press release along with any reconciliation of non-GAAP financial measures mentioned on the call today. This call is being webcast and an archive of the webcast will be available on our website later today. John will begin today’s call with a business update.

Mark will then provide some comments about our franchisees and development. Then Robert will provide a recap of our second quarter results and current trends before commenting on our liquidity position. After that, we will open it up for questions.

Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements.

Management urges caution in considering its current trends and any outlook on earnings provided on this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny’s to be materially different from the performance indicated or implied by such statements.

Such risks and factors are set forth in the company’s most recent annual report on Form 10-K for the year ended December 25, 2019, and in any subsequent Forms 8-K and quarterly reports on Form 10-Q. With that, I will now turn the call over to John Miller, Denny’s Chief Executive Officer..

Thanks, Curt, and good afternoon, everyone. This quarter has proven to be one of the most difficult quarters to this country and especially the food service restaurant industry has ever seen. However, I’m so proud of what Denny’s has been able to accomplish during this unprecedented time.

When states and local jurisdictions began to impose restrictions at the onset of the COVID-19 pandemic, guests and franchisees, were entering uncharted waters.

I’m impressed with how our devoted team and resilient network of franchisees work so well together to quickly implement changes, so we can continue doing what we love to do most, feeding people.

In addition to implementing enhanced cleanliness and sanitation standards to ensure the safety and well being of our restaurant staff and guests, our team works diligently to provide all possible options for guests to continue enjoying Denny’s craveable products.

These options including -- included our well established Denny’s on Demand platform, Dine-Thru curbside ordering and even converting portions of our parking lots and sidewalks into outdoor dining rooms.

Average weekly sales for all of off-premise have almost doubled since the beginning of the pandemic going from approximately 4,000 per week in February to approximately $7,900 in July.

As the dining experience shifted for guests, it was important for us to develop a streamlined menu that was optimized to feature some of our more popular products and allow for greater kitchen speed and efficiency. We also introduced a new platform of Shareable Family Meal Packs, offering a delicious and can be a way to feed the whole family.

We have continued to evolve this platform and now offer desserts and milkshakes, along with our popular Grand Slam, burgers and Chicken Dinner meals for feeding a family of four.

As states and local jurisdictions began to lift restrictions during the quarter, restaurant teams were trained in our enhanced health and safety measures became well prepared to reopen dining rooms and welcome back our guests in safe environment.

Our guests were ready to dine in with us as domestic system wide in states same-store sales sequentially improved from the decline of 76% in April to decline of 41% in June. Well, a few states have recently reverted to more restrictive dine in service limitations, our guests have adjusted and are utilizing our off-premise and outdoor dining options.

Though reduced operating hours continued impact same-store sales, with approximately 30% of our domestic units currently operating a full 24 hours, preliminary July system wide same-store sales were similar to June at down approximately 39%.

This is despite including a partial month of the dine in shut down across California, a key state for Denny’s that encompasses approximately 25% of our domestic restaurants.

Furthermore, we are very encouraged by the preliminary system-wide same-store sales results about approximately 41% for the last fiscal week of July, which included the full impact of the California dine in shutdown.

These sales results are a significant improvement from the low point of negative 80% in the final week of March and lead us to believe that we have already seen the lowest sales levels of this pandemic. In closing, these last few months have been challenging for our guests, restaurant teams, franchisees, employees, both financially and personally.

However, one thing has always remained constant, our passion for feeding people. Our teams and franchise community have worked tirelessly to ensure that no matter what the circumstances are, we will continue to do what we love most by providing a welcoming coming to our dining experience is safe and clean for our guests.

I want to thank our leadership teams and franchise partners for their unwavering commitment and dedication to this brand, to our guests and to our Denny’s family. With that, I’ll turn the call over to Mark Wolfinger, Denny’s President to discuss more about our franchisees and development..

Thank you, John. I want to echo John and express how extremely proud I am of our franchise community for the resiliency and determination during this pandemic. Their commitment to the success of this brand is truly remarkable and invigorating.

While new restrictions and pause reopening plans are not what we had hoped for, our franchisees are much more prepared than they were in March and are utilizing every option possible to serve Denny’s guests. Virtually all of our domestic franchisees took advantage of the Paycheck Protection Program.

They have received funding that has assisted them with navigating through these tough times.

In addition to these funds, we have provided relief to franchisees in the form of deferrals for abatements of royalty and advertising fees, as well as rents where we either own the property or have been able to secure relief from the landlord where we sublease to franchisees.

We’ve also deferred all remodels until the end of Q1 2021 and extended most of our domestic development commitments for one year from their original due date to allow greater, sorry, original due date to allow greater balance sheet flexibility for our franchisees. We will continue to monitor these dates and adjust as necessary.

Franchisees were proven with these funds and relief efforts and made sure the restaurants were prepared to reopen in a safe and clean environment with appropriate staffing levels. Despite tremendous efforts, the unfortunate realities some of our franchisees had to make tough decisions during the quarter.

This led to the closure of 15 franchise restaurants, bringing the June year-to-date total to 31 closures. The AUVs or average unit volumes of these restaurants were well below the franchise average prior to COVID-19 and with increasing topline pressure, these restaurants unfortunately could not sustain in the current environment.

The pandemic’s impact accelerated these closings as we had anticipated them closing in the next several years, anyway due to lower sales volumes and continued inflationary pressures. As a reminder, the average restaurant requires approximately 70% of its 2019 sales in order to cover both fixed and variable cost items.

With recent restrictions and postponement of reopening plans, we expect to have additional closures in the near-term. However, we anticipate most of these situations will prove to be an acceleration of future period closures and remain confident and the sustainability and longevity of our portfolio.

Our confidence is further supported by an increasing number of franchisees or franchisee transactions, as some franchisees have ultimately decided to discontinue operations in the restaurants for a variety of reasons our development team has been working diligently to market these restaurants to well capitalized development focused franchisees that wish to expand their ownership within Denny’s.

There have been 11 restaurants including nine in New York either purchased or ready to be purchased since the beginning of the pandemic, which has provided additional growth opportunities for some of our existing franchisees.

These nine restaurants in New York are part of the 15 restaurants that were previously reported by local media as having closed, but will be reopening under another franchisees ownership.

These transactions along with three franchise restaurants that open during the quarter, brought our total number of restaurants to 1,683 to speak to the competence and future opportunities our franchisees see within the brand.

As of last week, we had 55 restaurants temporarily closed including 47 domestic franchise restaurants and eight international franchise restaurants. Additionally, 1,035 domestic restaurants were operating with open dining rooms with capacity limitations across 28 states.

We also completed three remodels during the quarter including one company restaurant. These remodels began prior to the COVID-19 pandemic and we do not expect any more remodels to be completed this year.

We look forward to returning to net restaurant growth in the future and are confident we will do so back for over 75 restaurant -- refranchising development commitments along with our existing domestic and international benefits. We also believe opportunities will exist to expand through conversions as we emerge from the pandemic.

I’ll now turn the call over to Robert Verostek, Denny’s Chief Financial Officer to discuss the quarterly performance.

Robert?.

Thank you, Mark, and good afternoon, everyone. I will start with a brief review of our second quarter results then share an update on our strong liquidity position.

Franchise and license revenues decreased 55.6% to $25 million, primarily due to the impact of COVID-19 on sales of the fresh franchise restaurants and the related one-time $3 million royalty abatement during the second quarter.

Franchise operating margin was $9.8 million or 39.1% of franchise and licensed revenue, compared to $26 million or 48.8% in the prior year quarter.

This margin decrease was primarily driven by the impact of COVID-19 on sales and the related one-time $3 million royalty abatement, partially offset by an increase in occupancy margin from additional leases and subleases to franchisees, as a result of a refranchising and development strategy in 2019.

As a reminder, franchisees paying rent on properties we own received the 12-week lease payment deferral. However, the income and expense are still recorded in the current period, with cash expected to be received over Q4 of this year and Q1 of next year.

Company restaurant sales of $15.1 million were down 84.2% due to the impact of COVID-19, as well as a 94 equivalent unit decline in our portfolio as a result of our 2019 refranchising and development strategy.

Company restaurant operating margin was negative $4.5 million or negative 29.6%, compared to a positive $15.6 million or 16.4% in the prior year quarter. This was due to the sales and related deleveraging impact of COVID-19, as well as the reduced company restaurant portfolio achieved throughout 2019 refranchising and development strategy.

Total general and administrative expenses were $13.2 million, compared to $18.5 million in the prior year quarter.

The decrease was due to revise achievement expectations in both our short-term incentive plan and long-term share-based compensation, as well as both temporary and permanent reductions in personnel costs due to COVID-19 and our 2019 refranchising and development strategy.

This was partially offset by market valuation changes in the company’s deferred compensation plan liabilities. The results collectively contributed to adjusted EBITDA of negative $5.1 million.

Depreciation and amortization expense was approximately $1 million lower at $4.1 million, primarily resulting from a lower number of equivalent company restaurants due to our 2019 refranchising and development strategy.

Interest expense was approximately $4.9 million, compared to $5.4 million in the prior year quarter, primarily due to a reduction in financing leases. During the quarter, we recorded $11.5 million of other non-cash non-operating expenses related to the discontinuance of hedge accounting for a portion of our interest rate hedges.

This was due to several factors and circumstances that were identified during the quarter and has significant impacts on the forecasted transactions, which ultimately resulted in this accounting treatment.

The other non-cash non-operating expenses include a $7.4 million reclassification of amounts previously recorded in accumulated other comprehensive loss to expense, $3.9 -- $3.8 million related to changes in fair value associated with a portion of interest rate hedges for which hedge accounting was discontinued and the $0.3 million of expense recognized related to amounts remaining in accumulated other comprehensive loss, which will be recognized in other non-operating expense over the remaining term of the interest rate hedges for which hedge accounting was discontinued.

This resulted in reclassification from the accumulated other comprehensive loss to the statement of operations, but with no impact to cash, adjusted EBITDA or adjusted loss per share -- adjusted net loss per share.

Our hedge accounting treatment remained effective, all accounting transactions related to our interest rate swap, with remaining accumulated other comprehensive loss and flow-through equity rather than through the statement of operations as previously described.

The benefit from income taxes was $5.1 billion, yielding an effective income tax rate of 18.1%. Adjusted net loss per share was $0.25, compared to adjusted net income per share of $0.23 in the prior year quarter.

Adjusted free cash flow after cash interest, cash taxes and cash capital expenditures was a negative $11.5 million, compared to a positive $6.8 million in the prior year quarter, primarily due to reduction in adjusted EBITDA.

Cash capital expenditures, which included maintenance capital and remodels was $1.7 million, compared to $3.7 billion in the prior year quarter.

As previously announced during our first quarter earnings, we entered into a second amendment to our existing credit facility, which waives certain financial covenants including the consolidated fixed charge coverage ratio.

However, even though the leverage covenant is waived, it is important to mention our leverage ratio as of June 24, 2020 was 5.4 times and we had approximately $323 million of total debt outstanding, including $307 million under our credit facility.

During these uncertain times, we set forth to further fortify one of the strongest balance sheets in the industry. Most recently we raised $69.6 million in net proceeds from a public offering of common stock, which we subsequently use to pay down the credit facility.

Immediately following these events, we had approximately $12 million cash on hand and $237 million outstanding on the credit facility, yielding approximately $100 million of total available liquidity after considering the current liquidity covenant.

We also went to the underwriters a 30-day option to purchase up to an additional 1.2 million shares of common stock, which we current expect -- currently expect will expire unexercised. It is important to note that the same-store sales improved sequentially throughout the quarter, so did free cash flow.

Our cash burn in fiscal June was in the $1 million to $3 million range, which is an improvement from our cash burn of 5 million to $7 million in fiscal April. And since the $3 million royalty abatement recorded in fiscal June, we wouldn’t been cash flow positive for the month.

Given the dynamic and evolving impact of COVID -- of the COVID-19 pandemic on our operations and substantial uncertainty about future performance, we cannot reasonably provide an updated business outlook. However, in these challenging times, our management team remains focused on managing business cost while supporting Denny’s recovery.

In doing so, we will leverage the strength of our asset light business model and fortify balance sheet to ensure the success of our franchisees and this brand. That wraps up our prepared remarks. I will now turn the call over to the operator to begin the Q&A portion of our call..

Thank you. [Operator Instructions] And at this time, we will go to Nick Setyan of Wedbush Securities..

Hello. Thanks for taking the question.

Thanks for the cash flow commentary on June, any way to parse out what margin, the margin might look like -- might have look like in June just so we can have an idea of how to think about going forward trends and what margins may look like even with the recent downtick in comps?.

Hey, Nick. This is Robert. Yeah. I was looking over the curve with regard to that. We really haven’t parsed out June in any public way. I can tell you that the reality is that margin is not going to improve dramatically until we can get there closer have those same-store sales improve.

The -- if you notice in the release -- in the earnings release, we quoted, I think, down 41% in fiscal June and then again down 39% in fiscal July. So I will point out to you the one benefit is while the trending has gone, June was improving and July saw somewhat of a hiccup with some of the states closing, particularly California.

We did mention that absence of royalty abatement we would have been cash flow positive in June. My suspicion, although, we haven’t mentioned is that that trend will continue into July. But the reality is those margins are going to be under pressure until that topline gets back in shape..

Fair enough.

The downtick in July, have you seen any kind of a downtick in state where we haven’t seen closures of dining rooms?.

Yeah. Nick, this john. That’s a great question. It’s really the region, it’s really follows the capacity, if you have good weather and can beat people on the parking lot that helps. But basically if you takeout only you are performing on the averages worse than somebody at 75% to 25%, 50% option [ph] in takeout only.

We have, as we said in the script here, done quite a few scrappy things to set up tents flags, curbside dine through hostess on the parking lot. Those things that really helped, some bright news and this is sort of Texas outperformed the average of the brand.

There was a reversal from 15% to 25% lift and so you sort of took it on the chin for a few days, but it seems to have behaviors if it’s still at 50%. Part of that is, we’re having on weekends and part of it is some of those are well parked stores may be willing to sit in the parking lot waiting for a table to be available. There is any numbers.

The weather has been milder in the morning. Just it’s been hot there, but in the 90s instead of the 100s. So those things could be a little bit of a break for us.

But what we -- the optimism really, the regular conversations we have with our franchisees is around the fact that so much momentum was being built before the reversal and the restrictions and we do believe that those will reverse again in due time, it won’t be forever that the big lifts are in place..

The other thing to add, Nick, with regard to the same-store sales, I think, it was in the earnings release also is that, right now approximately 30% of the units are open 24x7. So these comps that we’re quoting are being impacted by the fact that still nearly two-thirds -- three quarters of the brand are not open 24x7.

In large part what we’re hearing with regard to that is that is staffing related, just hearing back up and getting employees to come back to work to be able to staff those day park.

But those are weighed on those comps that I just quoted that 49% in June and that 39% in fiscal July, those are being weighed down by the fact that we only have about a third or so units open 24x7..

Understood. Okay. And just last question, the unit closures kind of space that you have 15 with Q1.

I’m wondering how you’re thinking about the closure rate going forward, is sort of the 15-ish number each quarter kind of the right way to think about or will that pick up in the near-term?.

Yes. Nick, it’s John again. The 30 franchise one company year-to-date. This day you usually stores are really below the average prior to COVID and so they are likely not going to make it through the next remodel cycle or the next lease renewal and this just accelerated. So what do we expect next is sort of the modeling question.

And I would say, we anticipate there will be additional closures in the near-term, but they’re really most likely to be also accelerations that would have come anyway. So at this point, there is not this running to the franchise who are saying, we’re shutting down, we require notice in conversations about that.

The conversations have been what we do to fight for transactions breakfast, lunch, dinner late night? How can we get staff those more extended hours. The conversations have really been on the other side of this and we have franchisees that are pretty astute of cash management.

They’re capable of coming to their own conclusions and they’ve concluded they’re better off, fighting for the business and rolling over or playing defense..

That’s great color. Thank you very much..

Thanks, Nick..

And we will go next to Michael Thomas of Oppenheimer & Company..

Great. Thanks. Hope everyone is doing well. You just mentioned that there is a big chunk of units still not doing 24x7 hours. So can you talk about maybe what is that miss sales opportunity, if those units were to turn that on, how much we’re sort of foregoing by not having those open? Thanks..

Yeah. Michael, this is Robert again. So the -- just roughly speaking and I imagine we can pull it up specifically. But that day park is somewhere around 18% to 20% and the simple math would suggest that if you take 70% of that, that 18% to 20%, that’s probably weighing on the comp 12 percentage points to 14 percentage points, just rough math..

Got you. Thank you. That’s great.

And then in the units that you’ve had the sort of reclose or restrictions and tightened again, can you talk about maybe what the off-premise sales trend look like before you had the dining rooms open there? Then once you open them again, what did that look like, and then now have as a reclosed, have you seen those customers and I assume sort of went to dine in as they reverted back to off-premise?.

Yeah. So, Michael, this is Robert again. The reality is that off premise business has been really kind of the silver lining in a very traumatic pandemic situation. I think, we double, I think, within one of the scripts here that we’ve doubled, I think, was John that we went from $4,000 to nearly $8,000, and 95% of that health.

Even as we pointed out in that last week of July when California went back to off-prem only, we held those sales results.

So, that’s been somewhat of a stalwart throughout the entire time once we -- in April through the last number -- that last week of July that we reported it about doubled and that’s been held most of that, so that’s a good thing for us..

Perfect. Thanks. And one last quick one, I know you guys, obviously, went pretty hard in the value with the $2468 reintroduction.

Just wondering what other sales levers do you have in your back pocket that you’re thinking about over the next couple of quarters? And I know you probably want to be too specific, but just anything that we can sort of point to about claims that you guys are looking at that we should be thinking about? Thanks..

Sure. Well, we get near-term, of course, was to sort of pull the menu down inside. There’s -- it’s practically impossible to determine what impact that has on transactions if a guest isn’t looking for their favorite.

But clearly the top selling items we focused on with fewer cooks on the line and limited service capabilities, we want to make sure the experience was a reasonable ticket time and hospitality experience. And so like so many brands that you’ve seen, we did pull the menu back to some degree.

So one of the things that we’ve been talking about is how that will continue to expand, grab the balance of the year, not getting into specific promotion ideas. And then, of course, to reiterate what we have made public so far is we did focus on to go with free delivery and some other support programs along those lines.

We did have a 10-year anniversary launch of the $2468 Menu. We did not see that all the way through the promotion based on some of these pull backs, but it did sort of kick that up as we sort of pulled Super Slam out. The Super Slam in a quarter accounted for about 10% of sales.

But that’s a little bit of a mixed bag that fell off toward the end of the quarter to force a ramp and then all of those ramps back down as we pull those promotions to focus more on delivery in the final closeout quarter..

Got it. Thanks so much..

Thanks, Michael..

The short answer is an expanded -- the menu expanding again about a year and there will be some menus too..

And we will go next….

Okay..

…to Todd Brooks of C.L. King & Associates..

Hi. Good afternoon, everyone. I hope you’re all doing well..

Hi, Todd..

A couple of follow-up question. Hi, guys. A couple follow-up questions. One on the late night day park the 70% of stores that are not offering it yet.

Are we -- have we established a trigger where franchisees will be required to be open 24x7 again once staffing is available or is it still something that’s optional for them for the foreseeable future?.

What we have established with our franchise community and our franchisee association leaders and our brand advisory councils is that there is no change in brand requirement or brand offering to consumers and all are in agreement this is not a negotiation.

What we’ve done then per franchisee per region is lifted a little bit loose as to when that requirement will come back. Our sensitivity is around the ability to staff.

We have weekly calls with our steering body that runs our franchise system -- franchise volunteers and basically they are recommending to themselves without the assistance of corporate leaders to get extended hours back as quickly as they can staff. So all appreciate the benefits of those hours and are working toward it.

Part of the challenge, of course, coming from COVID is people’s fears about being exposed or exposing a loved one at home and/or a stimulus in the form of a check or employment benefits. And perhaps, made the job market more challenging than it would with higher unemployment, those things are all temporary and evaporate soon.

So the idea is to get open later, faster as soon as we can..

Yeah. Perfect. Thank you. And then, secondly, can you just review what the California operators are doing, because I think we’d returning to that mandated closure posture again. I would have expected, same-store sales to maybe fallen off a little more over the course of June.

So, on top of off-premise efforts that were in place during the first mandatory closures as far as the rollout of curbside and third-party delivery and et cetera.

Can you talk about maybe outdoor dining and that’s been a driver that’s near to sales a little stickier here?.

Sure. There is a number of things that made it stickier and I would never -- we’ve never thought that I would be excited about down 41. But the -- but there is a couple things going on.

If you look at the breakdown in the tail of the sort of the latest results, we’re about 63% dine in across the country, 22% dine in through, so these people come into the parking lot to pick up food or have curbside delivery or sit in under a tent in a table this out on the parking lots, we’re calling it to go.

And they call it 15%, 30% through third party delivery, 2% dennys.com are third-party. Of all of that take out, the Q1 to Q2 change has been driven by younger people using the brand more to go, so 80 to 24 year olds were up 14% versus Q1 and just overall usage of our takeout, 25 to 34 year olds were up 9, 35 to 44 of 8.

The oldest customers we have a slightly down. They’re the most concerned about getting out.

So as things lift these are promising and that one these things to retain and then dine in will give us that capacity back, and two that it’s a younger audience that might have been otherwise hard to reach through typical forms of broadcast or media but the fact there’s trial through online ordering and pick up or they prefer to sit on a parking lot this colorful with seating where the competitor down the block doesn’t have that.

Not all stores have deployed these methods, but more and more adopting it every week, but because of the great weather in California has been quite easy for them to sort of lead the way with parking lot apparatuses of some sort..

Okay. Great. That’s very helpful. And then my final question. I know you pointed the $3 million in franchisee abatements in Q2. I know it’s hard to predict the future.

But as far as visibility on further franchisee support, would it be more along the lines of further deferrals from this point out at these sort of sales trends or would you expect that there could be another round of abatements?.

Yes. That’s a great question. I think we all have skin in the game as the point from deferrals to abatements over the course of the onset of the pandemic through today.

I think when you look at the math, with a highly franchise system, it’s not like we’re 10% franchised and sort of cover for franchisees are underway, like our franchisees understand, as well as we do that these things in the brand scheme of things are nominal overall.

And so, we’re proud of the fact that near 100% of our system participate in the PPP program. We have our franchisees fast adopting plexiglass shields between tables were permitted to increase capacity, dining on the parking lot, dine-thru drive-thru curbside, text me went on here, all touch less payment on the parking lot.

All the kinds of things to create competence to our consumers and to show that we’re a brand that’s trying to pay very close attention to what our consumers are looking for. I don’t leave that there is an expectation. But I think it’s -- I just can’t guide, I mean, we don’t know what the circumstances might all this we unfold.

But I think right now we’re of the view. We’ve done what we should..

Yeah. Todd, this is Robert. So if you think about the last $3 million abatement that was fairly blanket approach. It went evenly -- pretty spread evenly to each of the franchise units on approximately $2,000 a unit, a little bit more in some circumstances, but in general, 2000.

I never say never, and to John’s point, you don’t have this crystal ball of what’s happening. But internally, I think, the conversation has pivoted more to just bolstering liquidity to potentially utilizing if we were to do the next step of this, to do it in a way that may incense behavior that would drive sales.

So to use those resources again, if you participate and do X, which will likely drive sales, we may offer you this benefit. Now, again, nothing concrete says that we’re announcing today, but I think that would be more of the tone that it might take going forward..

Okay. Thanks very helpful, guys. Appreciate it..

And moving on we’ll go to a question from James Rutherford of Stephens, Inc..

Hi. Thank you all for taking the questions. Actually, just one for me and taking another crack at the July trend, I was curious was if you all can give additional color on the kind of weekly sales levels.

I think the California stores before and after indoor dining was closed, even if it’s directionally and I asked because I’m trying to reconcile the commentary in the earnings release about sales levels not declining in July, even when those closures happened or closures of the dining happen with a statement that off-premise sales are still around $8,000 per week, which would always be meaningfully below the kind of pre-pandemic levels.

Just trying to clarify what the cops are seeing for the stores reopen dining rooms versus the ones that are kind of closed again today? Thank you..

Hey, James. This is Robert. Yeah. Trying to kind of get the question in my head and I’m looking at the chart that we put into the earnings release. And you can see the markdown as units reopened, if you look at the first fiscal week of June at the 55% and we were marching through down -- in the last week of fiscal June down about 29%.

As more and more units opened, and we got more to socially distance in California came online and then you saw Texas back up, I think, it was from 75 to 50 and then you saw the California then in that week of July 8, I think, it was earlier a week or so go with his head first, it was 19 counties, and then they went to the entire state.

So it kind of phased through there. And we got to that 41%.

So it likely backed up 10%, but California was performing really quite well for us and as the units were opened up and we were sad to see that they had to revert back to that point, but really actually quite pleased to see that they -- as John just described in his previous answer that they became even more scrappy and the weather out there allowed them to move more of those sales to the parking lot in dine throughs and tents and in various seating apparatus.

So not sure I’m answering your exact question. Again, clearly, they had more sales in California when they had on premise sales. But the fact that the July looked -- the month of July, in the last week of July looked very similar is very reassuring to us at this point..

Okay. Thank you.

We’ll go next to -- a question from Jake Bartlett of SunTrust..

Great. Thanks for taking the question. I want to start with that last question or maybe asked a little more explicitly, which is a number of other concepts have given same-store sales at stores that have dining being offered or dining being offered in stores with only off-premise.

So can you share what the same-store sales have been at stores that are offering dine in versus the same-store sales at stores that are not offering dining..

Yeah. I think in saying the answer on the averages if you’re 70 again, if you blend all the 24-hour restaurants fully open together, they’re going to have many of those are ahead of last year, a few of them anyway and then and then the 75% little less and the 50% of the less.

The trouble with the question is there’s so many classes of units that are highly varied. There is stores 3 miles apart in California that are ahead of last year and all the way to down half of last year.

So but the average is the story holds true along the more dine in, drive-thru combined that you have the more sale and the extended hours of the better utility..

Okay..

So the story is as lifts improve sales will improve, as restriction will lag..

Yeah. Got it.

One part reason for that question is, I believe the statement earlier was that your franchisees would cover fixed and variable costs with sales down about 30% I think was framed just recovering 70% of prior year sales, so I mean is it’s fair to say that stores that have been able to open their dine in their dining rooms are free cash flow positive or achieving that level in driving positive margins or new or they still come under water?.

Hey. Jake, this is Robert. So, I guess, the question I see where exactly where you’re going. And we were working, we’re trying to better understand that and we do have a good insight to our franchisees with regard to their P&L. We have a new tool that talks about this a lot, maybe even talked on the last tool. It’s a woman tool where we get information.

It’s monthly, but we receive it the even only quarterly. So the insight into that as we’ve moved through this is, again, we capture it, but it’s not necessarily real time like we would have a company P&L. So to make statements specifically about what percentage may be cash flow positive.

Again, we believe in the averages, we can work with the averages, but to quote a specific number that might be cash flow positive is difficult.

Again, I do hold to the 70% average being accurate and again to what John just said, that the higher the on-prem business and for us that social distancing is the most amount of on-prem that you would get, the more likely that you would be surpassing that down 30% or 70% plus of the sales.

So, again, I’m really not trying to be evasive in the question. I’m just not sure we have the data points that will tell that I could relate to you have, how many units or exactly how many franchise units are exactly cash flow positive right now..

Okay.

And just to actually think about your -- the company own stores that you have is -- should we think of restaurant level margins that’s being flat at negative 30% comp? Is that the right math?.

It’s probably, yeah, probably, rightly, yeah, I think, that’s probably a rough fair assumption, Jake, that if you’re about down 30, you would price, your operating margin would probably be about zero. I think that’s the converse of way of saying.

Okay. And then the last question just to try to get a handle there is so many moving parts in G&A and in terms of including this deferred comp valuation impact. But how should we think about G&A for the rest of the year, it was higher ultimately in the second quarter even before stock comps than the first quarter.

How should we think about it going forward? Just give me rough, should we -- should -- is this second quarter the right run rate or potentially lower higher, just to give us a rough guideposts?.

Yeah. Jake, that’s an excellent question. And we’ll get the 10-Q out here soon. I’m not sure if it’s in the press. It’s in the press release. I’ll quote the press release. When you look at the various pieces here that the corporate administrative expenses is the $9.7 million. So again, you can do the quick math there.

That’s a $2.7 million improvement versus prior year. The share-based compensation at $1.5 million is also another improvement and then the incentive comp is what we have -- you can see that we booked that’s the short-term incentive compensation that I spoke to in virtually nothing and then this deferred compensation valuation adjustment.

That’s just a market change of that liability that comes out in other non-OpEx really a -- in and out number. So when you look at the real cash components of G&A, you really have to look at the other three and the reality is in the share based compensation, the two components both long-term and the short-term are a function of performance.

The top one is really what we kind of internally call the core G&A and that’s down year-over-year. We spoke to it and we spoke to it, I think, it was the Q1 earnings call that we had at one point in time 100 people furloughed. Ultimately, it sadly to say that 50 of those 100 became permanent displacements for us, which is a sad day.

We don’t have a ton of people here in the home office, it’s less than 250. So that’s a significant number for us. But I think that you will see that that core number will continue to trend in this fashion down from prior year.

But there will likely be some volatility and particular that deferred comp is really just market driven, again, non-cash, and then some volatility against performance in the other two pieces. But with that core number, that number will trend lower than prior year..

Great. I appreciate it. Thank you..

[Operator Instructions] And we’ll hear next from Brett Levy of MKM Partners..

Okay. Thank you. I apologize these -- if these questions are a little redundant. But aside from what you’re seeing on a macro level capacity that’s being restricted from openings and closings.

What else do you think you can and needs to do to re-engage with the consumers? And also, what more do you think you’re hearing from the franchisees that they want and need you to do at this point? Thank you..

Well, of course, there is a lot of conversation about new normals.

And we’re in this -- the typical spot of conjecture versus guidance versus what has been disclosed, right? But sort of the big industry questions are, there will be some purge, there will be some consolidation of large bouncy franchisees, there will be conversion opportunities down the road, there will be different kinds of footprints being entertained, you see a different uses of technology and pace which they might be adopted.

There is -- the discussion of a number of people downsizing their headquarters and making more positions permanently at home positions or elective you have your office where you work at home, a good portion of the time. So if you’re working at home and opting out of certain meals, make a peanut butter sandwich for lunch.

Do you have to step-up your to go appeal. Do you alter your packaging. Do you find ways to do more beverage sales to go. Do you exploit late night even more. There is all kinds of conversations about the opportunities that are presented and the challenges that are presented.

It does call attention to the advantages some brands that are well positioned for to get on delivery have at this present time and the disadvantages brands that have built all their equities for dining in. But I think it’s a unique time to explore those and good brands will.

We won’t be the only one that talks about these things in the coming quarters and months. But there is a lot of excitement around the possibilities. It’s too early to talk about anything specific. But I do think as consumers and marketplaces evolve, brands must do and you’d expect this to be in the middle of all that..

And with no further questions in the queue, I will at this time turn the call back to Curt Nichols for any additional or concluding comments..

Thank you, Jenny. I’d like to thank everyone for joining us on today’s call. We look forward to our next earnings conference call in late October to discuss our third quarter 2020 results. Thank you all and have a great evening..

Again, that does conclude this call. We would like to thank everyone for your participation. You may now disconnect..