Denny's Announces Preliminary Comps Figures For Q4 & 2017

Denny's Corporation (NASDAQ:DENN) , like most other U.S. full-service restaurant chains, has been bearing the brunt of soft consumer spending and sluggish sales owing to the recent hurricanes. However, the company has undertaken various initiatives to navigate the challenging restaurant industry.

Toward this end, Denny’s banks on four strategies which include deliverance of differentiated brands to achieve consistent comps growth, carrying out operations of famous restaurants, fortifying its franchise position by expanding globally and focusing on cost and capital allocation that would drive profitable growth and enhance shareholders’ value.

Denny's recently reported its initial domestic comps figures for fourth quarter and fiscal 2017, which ended on Dec 27, 2017. Despite the macro woes plaguing the restaurant space, the company’s reported comps figures make us ever more optimistic about the final results.

Shares of Denny's have rallied 18.7% in the past six months, outperforming the industry’s gain of 6.2%.

Comps Figures in Details

Denny’s fourth-quarter domestic system-wide comps grew 2.2%. This included an increase in comps of 2.2% and 2.1% in the company’s domestic franchised restaurants and company restaurants, respectively. The Zacks Consensus Estimate for fourth-quarter comps growth at the company restaurants is 2%.

For 2017, domestic system-wide comps increased 1.1%, including 1.1% growth at domestic franchised restaurants and 1% growth at company restaurants.

On a two-year basis, comps at the domestic system grew 1.9%. This comprised 1.9% and 2.1% increase in comps at domestic franchised restaurants and company restaurants, respectively.

Openings in 2017

Denny’s opened 39 restaurants in fiscal 2017. Out of these, seven restaurants were opened internationally, reaching the company restaurant count to 1,735. This falls slightly short of the consensus estimate of 1,737 restaurants. Notably, 2017 marked the ninth consecutive year of positive net system growth for the brand. Moreover, during fiscal 2017, 250 restaurants were remodeled, which included three company restaurants.

2017 EBITDA & Cash Flow Views Stay

Based on the preliminary comps growth results for the fourth quarter and full year, Denny’s reinstated its 2017 guidance for adjusted EBITDA at the range of $101 million to $103 million and adjusted free cash flow between $48 million and $50 million.

Wrapping Up

The company’s initial comps growth results are reflective of its top-line potential. In order to boost sales, Denny’s, along with expanding its brand, focuses on menu innovation to drive traffic. The company is also making solid progress in its web and mobile order and payment platform for To Go services.

The Denny’s On Demand platform initiative has resulted in an increase in off-premise sales, which currently represent about 8% of total sales. The company plans to partner with Olo for expanding its off-premise business.

Notably, Denny’s has a 90% franchise business model, which allows it to reduce costs and generate strong cash flow. However, a choppy sales environment and effects of the hurricanes may continue to impede the company’s operations.

Zacks Rank & Stocks to Consider

Denny’s carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the restaurant space are Darden Restaurants, Inc. (NYSE:DRI) , Domino's Pizza, Inc. (NYSE:DPZ) and McDonald's Corporation (NYSE:MCD) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darden, Domino's and McDonald's 2018 earnings are expected to improve 13.4%, 23.9% and 9.9%, respectively.

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