Denny’s Closes 2016 Strong, Predicts a Decent 2017

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In a business where not going backwards has counted as success lately, causal restaurant chain Denny’s (NASDAQ: DENN) has proven surprisingly resilient.

This week, the company posted solid fourth-quarter numbers, delivering systemwide same-store sales increases of 0.5%. It also grew its margins at company-owned locations 22.3% to $16.6 million while franchise operating margin grew 3.7% to $25.2 million. Overall net income for Q4 increased 28.7% to $11.3 million, or $0.15 per diluted share.

Those numbers capped a decent year in which the company’s domestic systemwide same-store sales increased 0.9%. The chain also opened 50 new restaurants, including 14 international franchised locations, and completed remodeling 27 company-owned locations. In addition, margin rose 11.1% for the full year at company-owned locations while franchise operating margin grew 4.2%. Adjusted income for 2016 grew 15.2% to $42.3 million while adjusted Net Income per Share* grew 26.5% to $0.55.

It was a very strong performance that marks a turnaround for the chain. CEO John Miller shared his thoughts on the results in the company’s Q4 earnings release.

“We are pleased with our performance during the fourth quarter and full year, particularly in light of the pervasive challenges within the restaurant industry,” he said. “Throughout the year, we continued to successfully execute our brand revitalization strategy and delivered an improved and differentiated experience for our guests across food, service, and atmosphere. These efforts resulted in market share gains and impressive growth in company and franchise margins. In addition, we delivered our best year of unit expansion in the past five years.”

What’s next for Denny’s?

While the climate in the restaurant industry — particularly in the United States — is likely to remain challenging, Denny’s is forecasting another decent year. The anticipates same-store sales growth at company and domestic franchised restaurants of between 0% and 2% for 2017. It also expects to open 45 to 50 new locations, though it will also close others, leading to a net gain of 10 to 20 eateries. For the year, the chain expects total operating revenue of between $523 million and $532 million, including franchise and licensing revenue between $140 million and $142 million.

“Moving forward, despite an uncertain industry outlook, Denny’s remains committed to further elevating the guest experience, consistently growing same-store sales, and expanding the brand across the globe, leading to value creation for all franchisees and shareholders,” said Miller.

These are strong results given market conditions, but also are very impressive numbers based on where the company was just a couple of years ago. Denny’s has stabilized, become a strong business, and while its growth won’t be huge, at least it won’t be shrinking.

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Daniel Kline has no position in any stocks mentioned.

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