| Snowflake Score | |
|---|---|
| Valuation | 6/6 |
| Future Growth | 0/6 |
| Past Performance | 4/6 |
| Financial Health | 2/6 |
| Dividends | 0/6 |
DENN Stock Overview
Denny's Corporation, through its subsidiary, Denny's, Inc., owns and operates full-service restaurant chains under the Denny's brand.
Rewards
Trading at good value vs. peer average Price-To-Earnings ratio
Trading at good value vs. industry average Price-To-Earnings ratio
Analysts in good agreement that stock price will rise by 24.7%
Risk Analysis
Earnings are forecast to decline by an average of 43% per year for the next 3 years
+ 1 more risk
Denny's Corporation Competitors
Price History & Performance
| Historical stock prices | |
|---|---|
| Current Share Price | US$10.08 |
| 52 Week High | US$17.40 |
| 52 Week Low | US$8.46 |
| Beta | 1.6 |
| 1 Month Change | 4.89% |
| 3 Month Change | 10.41% |
| 1 Year Change | -37.78% |
| 3 Year Change | -54.77% |
| 5 Year Change | -22.46% |
| Change since IPO | 6.11% |
Recent News & Updates
What Does Denny's Corporation's (NASDAQ:DENN) Share Price Indicate?
Denny's Corporation ( NASDAQ:DENN ), is not the largest company out there, but it saw a significant share price rise of...
Denny's: Patience Required
Summary Denny's released its Q2 results last month, reporting quarterly revenue of $115.0 million, an 8% increase from the year-ago period. While this was a decent result given the negative traffic trend in casual dining, margin performance left much to be desired, even if there was a sharp one-time negative impact. The good news is that Denny's completed its acquisition of Keke's Cafe, which should be margin accretive, has provided an immediate sales boost, and the brand has considerable whitespace. That said, while the future looks brighter after two very tough years, I still don't see enough of a margin of safety with DENN trading at ~16x forward earnings. I wrote on Denny's (DENN) just over nine months ago, noting that while the valuation was only moderately attractive and there was further downside risk if we saw industry-wide multiple compression, the technical picture had improved considerably. This is because the stock was trading just above a critical support level at $13.65 and had become oversold on its daily chart, suggesting dips below $13.70 would present a buying opportunity. While DENN did rally 24% from this buy zone over the next two months, it failed to hold above its 200-day moving average. This technical failure, combined with much worse industry-wide traffic trends this year in casual dining, has led to a waterfall decline over the next several months. Let's look at the technical damage and recent developments now that the stock is 30% lower: DENN Daily Chart (TC2000.com) Q2 Results Denny's released its Q2 results last month, reporting quarterly revenue of $115.0 million, an 8% increase from the year-ago period. This was driven by 2.5% domestic same-store sales growth, with company-owned restaurants outperforming franchised locations by 140 basis points. Denny's also noted that it opened four new restaurants in the period and completed 11 remodels, ending the quarter with 1,631 restaurants, a 4% decline from pre-COVID-19 levels (Q2 2019). Denny's Restaurant (Denny's, Delish.com) Denny's noted that, similar to its peers, the quarter started decently, but sales weakened in the back half of the quarter due to industry-wide headwinds. This included sharply rising gas prices, which impact consumers' likeliness to dine out, combined with already depleted savings rates due to higher mortgage rates, rising grocery prices, and rising energy bills in some cases. The good news is that Denny's outperformed the Black Box Family Index by 700 basis points with its 24/7 stores and outperformed on a consolidated basis by 40 basis points. Unfortunately, while the sales performance was satisfactory given the challenging environment, margins took a major hit, sliding from 20.5% in Q2 2021 to 8.8% in Q2 2022. It's important to note that there was a one-time 500-point headwind in this margin compression, but even after adjusting this, it's still a nearly 700 basis point decline year-over-year. This was related to inflationary pressures (wages, commodities), with commodity inflation up 18% and wage inflation up 8%. The silver lining is that the company noted that commodities may have peaked in some cases, and they see turnover and wage growth moderating, suggesting less pressure from a labor standpoint on the bottom line in the future. So, what's the good news? The major news was its acquisition of Keke's Cafe, a Florida restaurant chain with average unit volumes of ~$1.9 million despite fewer operating hours with 52 stores (84% franchised). This acquisition was announced earlier this year and was completed with cash/debt, meaning it will be accretive to Denny's annual EPS post-2022. The deal is also positive from a staffing standpoint, given that the attractive operating hours for Keke's could make it easier to hire/retain staff, with one of the unattractive features of working in the industry being the lack of work-life balance. In addition to adding Keke's, Denny's has a new CEO, Kelli Valade, who was previously the CEO of Black Box Intelligence and held various roles at Brinker International (EAT), which operates Chili's and Maggiano's, among other brands. Sometimes, the key ingredient for a company turnaround is a fresh look with a new set of eyes by new management. To summarise, while Keke's represents just ~3% of its consolidated store count and we haven't yet seen much from the new leadership, I see the deal and new appointment as positive developments. Industry-Wide Trends & Earnings Trend While restaurants have been working hard to maintain market share in a challenging environment, from discounting to limited-time offers and menu innovation, multiple headwinds have continued to impact industry-wide sales. In fact, Black Box Intelligence reported that restaurant traffic growth remained negative year-over-year and that the early August numbers suggested that this trend wasn't likely to swing back in the other direction just yet. Denny's Endless Breakfast (Company Video) If we look at specific numbers, July traffic growth was (-) 5.1% industry-wide, a further sequential decline of 0.40% from June figures. Meanwhile, looking at three-year sales growth rates (July 2022 vs. July 2019), the brands most immune were quick-service, fine-dining, and fast-casual. This makes sense as consumers trade down as their wallets are pinched, and higher-end consumers are less impacted by declining discretionary income. Unfortunately, this doesn't bode well for Denny's, a full-service family dining restaurant that continues to underperform quick-service from a traffic standpoint this year. National Gas Prices (AAA Gas Prices) Fortunately, gas prices have plummeted from their highs above $5.00/gallon in June, so while mortgage rates have remained elevated and grocery inflation certainly isn't helping, there is a little bit of relief for consumers. At the same time, Denny's is working to provide value and is being more conservative with pricing when we're seeing some brands in fast-casual arguably take advantage of loyal customers with aggressive menu price increases. Meanwhile, Denny's has added another leg to its stool, Keke's Cafe. This brand has phenomenal average unit volumes considering its hours of operation (7:00 AM - 2:30 PM) and over-indexes to higher-income Gen Z and younger customers with 20% higher price points than Denny's. In addition to a ~15% increase in its company-owned store count and continued growth for the brand, which has doubled its store count since 2016 (52 stores vs. 26) and a low single-digit increase in franchised stores, Keke's should be margin accretive. So, while FY2022 earnings may be set for another sluggish year, we should see a solid year in FY2023 based on current estimates. DENN Earnings Trend & Forward Estimates (YCharts.com, FactSet, Author's Chart) Looking at Denny's earnings trend above, the company has seen a massive slowdown in annual EPS growth since FY2019, which has slid from a 16.1% CAGR (2019 vs. 2014) to a double-digit decline in compound annual EPS growth since the pandemic hit. This can be attributed mostly to significant margin compression, fewer stores operating 24/7, inflationary pressures, and a ~5% decline in its store count. It's worth noting that this margin compression is partially due to Denny's being a little more conservative with pricing than some of its peers, which would have otherwise helped to lessen the margin hit. However, while FY2022 annual EPS is projected to flatline with estimates currently sitting at $0.50, annual EPS is expected to improve to $0.59 - $0.62 in FY2023, benefiting from the acquisition of Keke's, which was completed with no share dilution. I have purposely used the low end of estimates, which would translate to 18% growth, a step in the right direction. Assuming Keke's can grow units at double-digit levels post-2023, this could help Denny's to get back near its all-time highs for annual EPS, benefiting from the robust margins at Keke's and the fact that it's a very unsaturated brand, giving it considerable white space opportunity. Let's look at the valuation: Valuation & Technical Picture Looking at the below chart, Denny's has historically traded at ~20.0x earnings, but this was with an 18% earnings growth rate (15-year average pre-2019), which made it easier to justify this higher multiple. Given the unprecedented industry-wide headwinds, margin compression, and the fact that we're in a recessionary environment, I think it's more difficult to justify this earnings multiple today. Instead, with annual EPS still down sharply from its peak with a slow recovery on deck, I think a more reasonable multiple is 18x earnings or a 10% discount to its historical multiple.
Shareholder Returns
| DENN | US Hospitality | US Market | |
|---|---|---|---|
| 7D | 3.5% | 1.4% | 1.9% |
| 1Y | -37.8% | -28.4% | -18.8% |
Return vs Industry: DENN underperformed the US Hospitality industry which returned -28.4% over the past year.
Return vs Market: DENN underperformed the US Market which returned -18.2% over the past year.
Price Volatility
| DENN volatility | |
|---|---|
| DENN Average Weekly Movement | 6.4% |
| Hospitality Industry Average Movement | 7.5% |
| Market Average Movement | 7.0% |
| 10% most volatile stocks in US Market | 15.5% |
| 10% least volatile stocks in US Market | 2.9% |
Stable Share Price: DENN is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 6% a week.
Volatility Over Time: DENN's weekly volatility (6%) has been stable over the past year.
About the Company
| Founded | Employees | CEO | Website |
|---|---|---|---|
| 1953 | 3,300 | Kelli Valade | https://www.dennys.com |
Denny's Corporation, through its subsidiary, Denny's, Inc., owns and operates full-service restaurant chains under the Denny's brand. As of December 29, 2021, it had 1,640 franchised, licensed, and company restaurants worldwide. The company was formerly known as Advantica Restaurant Group, Inc. and changed its name to Denny's Corporation in 2002.
Denny's Corporation Fundamentals Summary
| DENN fundamental statistics | |
|---|---|
| Market Cap | US$622.06m |
| Earnings (TTM) | US$100.58m |
| Revenue (TTM) | US$429.56m |
6.2x
P/E Ratio1.4x
P/S RatioIs DENN overvalued?
See Fair Value and valuation analysisEarnings & Revenue
| DENN income statement (TTM) | |
|---|---|
| Revenue | US$429.56m |
| Cost of Revenue | US$260.78m |
| Gross Profit | US$168.78m |
| Other Expenses | US$68.20m |
| Earnings | US$100.58m |
Last Reported Earnings
Jun 29, 2022
Next Earnings Date
n/a
| Earnings per share (EPS) | 1.63 |
| Gross Margin | 39.29% |
| Net Profit Margin | 23.41% |
| Debt/Equity Ratio | -318.5% |
How did DENN perform over the long term?
See historical performance and comparison