Digital Trends And Demographic Tailwinds Will Spark All-Day Dining

Key Takeaways

• Digital enhancements, loyalty platform, and menu innovation are expected to drive higher traffic, larger check sizes, and sustained margin expansion.
  
• Accelerated cost-saving measures, off-premise growth, and Keke's market expansion position the company for robust profitability and lower operating risk.
  
• Ongoing sales softness, cost pressures, heavy discounting, franchisee struggles, and brand stagnation threaten Denny's growth, profitability, and ability to attract younger customers.

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.

• Analyst consensus expects digital enhancements and the upcoming loyalty platform to drive incremental engagement, but given the average loyalty guest visits twice as often as others and spends more, this shift to one-to-one CRM could yield a much larger boost to traffic, guest frequency, and digital check size, potentially driving high single-digit revenue growth and substantial margin expansion as digital mix grows.
  
• While analyst consensus projects modest improvements from rationalizing underperforming units and Diner 2.0 remodels, the combination of accelerated closures, aggressive cost-saving measures (up to 200 basis points of savings), and test markets with sustained 6.5% traffic lifts suggests overall net margins could expand faster and more meaningfully, with AUVs and system profitability rebasing higher in 2026 and beyond.
  
• Denny's is exceptionally well-positioned to capture sustained outperformance from the ongoing shift toward off-premise, digital ordering, and value-seeking behaviors, as demonstrated by off-premise sales representing 21% of system-wide revenue and still growing, which supports long-term sales resilience and gross margin improvement even in uncertain economic environments.
  
• Keke's rapid expansion into high-growth, non-Florida markets (like Nashville, where units are enjoying 15% higher AUVs versus system average and accelerating margin ramp) signals a powerful new leg of growth; as these markets mature and the concept refranchises, this could drive outsized system-wide sales and margin upside versus analyst expectations.
  
• The company's ongoing digital investments, menu innovation programs, and asset-light franchising approach position Denny's to benefit from urbanization, 24/7 dining demand, and senior demographic shifts-all factors likely to fuel further increases in traffic, check size, and sustainable free cash flow growth, while reducing capital intensity and direct operating risk.

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 4.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.5% today to 5.2% in 3 years time.
• The bullish analysts expect earnings to reach $27.3 million (and earnings per share of $0.61) by about August 2028, up from $16.1 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 15.9x on those 2028 earnings, up from 11.4x today. This future PE is lower than the current PE for the US Hospitality industry at 22.2x.
• Analysts expect the number of shares outstanding to grow 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 12.32%, as per the Simply Wall St company report.

Denny's Future Earnings Per Share Growth

Risks

• Softness in same-store sales at Denny's legacy restaurants, driven by declining consumer foot traffic, ongoing macroeconomic volatility, and a high reliance on key metro markets like Los Angeles, San Francisco, Houston, and Phoenix, threatens both near-term and long-term revenue and earnings growth.
  
• Rising labor and input costs, including persistent wage inflation and commodity pressures, continue to squeeze operating margins and limit profitability for both company-owned locations and franchisees.
  
• Denny's ongoing need to attract guests through heavy promotions and episodic discounting, such as buy-one-get-one deals and value slams, risks eroding average check size and undermining sustainable margin expansion.
  
• Financial pressure and low profitability among franchisees, as evidenced by the strategic closure of underperforming restaurants and a reliance on rehabilitating weak locations, could cause further store attrition and reduce royalty and franchise fee income over time.
  
• Long-term challenges related to aging brand perception and limited progress in updating menu offerings for younger, health-conscious consumers may restrict market share growth, put downward pressure on traffic, and cap the company's ability to improve net revenues.

Valuation

• The assumed bullish price target for Denny's is $6.0, 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 $6.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $526.1 million, earnings will come to $27.3 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $3.58, the bullish analyst price target of $6.0 is 40.3% 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.