Iconic fast-casual restaurant chain Denny’s Corp (NASDAQ:{{15899|DENN})) stock has rallied off its last earning sell-off as it bumps up against the $16.66 resistance level setting up a daily make or break resolution. The iconic diner franchise was hit hard with the rest of the travel and hospitality industry as an epicenter during the pandemic. The acceleration of COVID vaccinations has enabled reopenings and a recovery for the restaurants that survived the lockdowns. In fact, one can argue these restaurants emerged from the pandemic with more market share, greater margins, and enhanced digital and e-commerce capabilities as less financed mom and pop operations went out of business. The pandemic accentuated the war of attrition leaving the survivors stronger as a result. The recent Q2 2021 earnings report underscores this point as business normalized close to 2019 pre-pandemic levels. Prudent investors seeking to get back into restaurant stocks can watch for opportunistic pullbacks in shares of Denny’s.
Q2 FY 2021 Earnings Release
On Aug. 3, 2021, Denny’s reported its Q2 2021 earnings for the quarter ended in June 2020. The Company reported earnings of $0.34 per share versus consensus analyst estimates of $0.12 per share, a $0.22 beat. Revenues rose 164.3% year-over-year (YoY) to $106.17 million versus $99.71 million analyst estimates. Domestic same-store-sales (SSS) fell (-1.2%) compared to 2019 and grew 117% compared to Q2 2020. Keep in mind, the 2020 comparisons included extreme lowered revenues due to the stay-at-home mandate from COVID-19. The Company opened 2 new franchised domestic and 1 international restaurant in the quarter. Denny’s CEO John Miller commented;
“We are simply delighted to welcome guests back now that all of our operating domestic dining rooms are open while still providing them with the convenience of our off-premises options. With the easing of restrictions, the rollout of our two new virtual brands, The Burger Den and The Meltdown, along with the perseverance of our entire organization, both June and July domestic system-wide same-store sales** surpassed 2019 pre-pandemic levels. We are encouraged by the potential for additional sales growth as we overcome staffing challenges and return to 24/7 operations across our system."
Conference Call Takeaways
CEO Miller set the tone:
“Our first virtual brand The Burger Den is live in over 1,100 locations and allows us to focus on one of our strength, great burgers, with new varieties using ingredients that are already in the pantry. Our second virtual brand called The Meltdown is a Door Dash exclusive brand that features handcrafted sandwich melts with fresh ingredients and unique flavor combinations. While this brand can utilize approximately 70% of the items currently in our pantry, our innovative culinary teams have crafted new craveable products with the addition of some new premium ingredients. We started the rollout of The Meltdown in April to approximately half of our domestic system and expect to be substantially complete during the third quarter, and Robert will give more specifics on the performance of these brands. However, we believe these transactions are highly incremental, and leverage underutilized labor to maximize kitchen efficiency.”
He concluded:
“In closing, it's amazing how far we have come since the beginning of the pandemic. Many things have changed in the restaurant industry, but one thing remains the same, we're still the place where people come in sit down and connect with one another over great food. And despite near-term labor challenges that will subside in due course, our sales have now surpassed pre-pandemic levels, we have launched two new virtual brands driving incremental traffic during underutilized dayparts, and we still believe there are market share opportunities on the horizon. We have an extraordinary group of dedicated franchises, and an exceptional Denny's team, which makes me very optimistic about the future of this brand."
Denny’s Price Trajectories
Using the rifle charts on the weekly and daily times frames enable a precision view on the price action for DENN stock. The weekly rifle chart formed a market structure high (MSH) sell trigger on the breakdown under $17.14. Since then, shares have managed to rally back up from mid 13s to forma breakout attempt as the weekly 5-period moving average (MA) sits at the $16.23 Fibonacci (fib) level. The weekly stochastic is attempting a mini pup to continue the weekly market structure low (MSL) momentum that triggered on the breakout above $15.54. The weekly upper Bollinger Bands (BBs) sit near the $19.33 fib. The daily rifle chart is losing steam as it continues to reject off the $16.66 fib. This could be a basing attempt above the $16.23 fib setting up for a make or break resolution. The daily stochastic formed a mini inverse pup as shares fell under the 5-period MA. Upside daily pup breakout can lead to the daily upper BBs at $17.27 while a bearish mini inverse pup leads to the daily lower BBs under the $14.99 fib. Prudent investors can watch for opportunistic pullback levels at the $15.97 fib, $15.54 weekly MSL trigger, $14.99 fib, $14.47 fib, $14.01 fib, $13.30 fib, and the $12.69 fib. Upside trajectories range from the $19.33 fib to the $24.49 level.