Digital Transformation And US Demographics Will Energize Dining Experiences

Key Takeaways

• Digital investments and efficiency upgrades, along with a strong virtual brand strategy, position Denny's to accelerate revenue, margins, and market leadership in off-premise dining.
  
• Favorable guest sentiment, demographic positioning, and Keke's expansion provide tailwinds for lasting sales growth and franchise stability beyond current market expectations.
  
• Shifting consumer preferences, operational inconsistencies, and industry trends threaten Denny's long-term profitability and brand relevance amid mounting pressure on margins and guest traffic.

Catalysts

Through its subsidiaries, owns and operates franchised full-service restaurant chains under the Denny's and Keke’s Breakfast Cafe brand names in the United States and internationally.

• Analysts broadly agree that digital and off-premise initiatives are set to improve revenue and net margins, but the current trajectory of 22% sales mix from off-premise could prove conservative-as Denny's full-throttle digital investment and virtual brand strategy targets a younger, more delivery-oriented demographic, the company could exceed prior peaks in same-store sales and sustain structural margin gains as a national leader in the off-premise category.
  
• Analyst consensus expects positive momentum from the Diner 2.0 remodel rollout and digital enhancements, but is likely understating the benefit from persistently high net promoter and guest sentiment scores, which are outpacing category peers and should accelerate traffic recovery, especially as labor and commodity cost pressures subside-potentially resulting in a faster and more pronounced rebound in both revenue and operating margins.
  
• Denny's underappreciated exposure to America's aging population positions it for significant long-term traffic and frequency tailwinds, as the chain's accessibility, familiarity, and value focus uniquely align with older diners-this supports more durable sales growth and franchise economics than currently modeled by the market.
  
• Efficiency improvements driven by menu simplification, labor optimization, and new restaurant technologies are being tested for launch later in the year; this accelerated adoption of automation and labor-saving tools could meaningfully lift net margins through better labor control and reduced operating volatility, especially as minimum wage and benefit pressures persist industrywide.
  
• The proven success and rapid expansion of the Keke's Breakfast Cafe brand beyond Florida-particularly with 4.8+ Google ratings and strong non-Denny's franchisee interest-indicates a powerful "second engine" for systemwide revenue and margin growth, with current development, refranchising, and company-owned initiatives enabling a faster-than-expected scaling in the fastest-growing segment of daytime dining.

Denny's Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Denny's compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Denny's's revenue will grow by 5.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.8% today to 5.1% in 3 years time.
• The bullish analysts expect earnings to reach $26.8 million (and earnings per share of $0.55) by about July 2028, up from $17.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, up from 12.3x today. This future PE is lower than the current PE for the US Hospitality industry at 24.5x.
• Analysts expect the number of shares outstanding to decline by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Denny's Future Earnings Per Share Growth

Risks

• The long-term consumer trend toward health and wellness poses a risk to Denny's traditional diner-style, calorie-heavy menu, putting sustained pressure on guest traffic and revenue as more consumers seek healthier dining options.
  
• The aggressive and ongoing reliance on deep value promotions, such as buy-one-get-one deals that are only marginally profitable, could erode operating margins and signal difficulty in driving profitable sales growth outside of discounts, impacting long-term earnings quality.
  
• Persistent commodity inflation and heightened exposure to extreme price shocks-such as the recent quadrupling of egg prices and ongoing labor cost pressures-threaten Denny's ability to protect net margins, particularly as menu pricing power may be limited in a highly value-driven market.
  
• Denny's heavy reliance on its franchise model makes it challenging to enforce consistent operational standards, rapidly implement digital capabilities, or maintain high-quality guest experiences, which can lead to brand dilution, lower guest satisfaction, and weaker same-store sales growth over time.
  
• The continued industry-wide shift away from traditional full-service dining toward fast-casual and convenience-first formats, combined with Denny's aging restaurant base and slow pace of remodels, risks a structural decline in competitive relevance, compressing both revenue and profit growth prospects.

Valuation

• The assumed bullish price target for Denny's is $8.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Denny's's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $5.75.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $531.5 million, earnings will come to $26.8 million, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 11.6%.
• Given the current share price of $4.13, the bullish analyst price target of $8.0 is 48.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.