Denny’s Corporation

Denny's Corporation (NASDAQ: DENN) is a franchised full-service restaurant brand. The Company owns and operates the Denny’s brand (Denny’s) and the Keke’s Breakfast Cafe brand (Keke’s). It operates in two segments: Denny’s and Keke’s. The Company has approximately 1,631 restaurants, 1,558 of which were franchised/licensed restaurants and 73 of which were company operated. Denny’s brand consists of approximately 1,573 franchised, licensed and company restaurants around the world, including 1,445 restaurants in the United States and 166 international restaurant locations.

Recent Business and Financial Updates:

• First Quarter 2024 Financial Performance: Total operating revenue for Denny's in the first quarter of 2024 amounted to USD 110.0 million, a slight decline from USD 117.5 million reported in the corresponding period of the prior year. Domestic system-wide same-restaurant sales experienced a decrease of 1.3% compared to the first quarter of 2023, with franchised restaurants witnessing a decline of 1.2% and company restaurants experiencing a more significant decline of 3.0%. The quarter saw the opening of eight new restaurants, including international Denny's locations and Keke's company outlets. Operating income for the quarter was reported at USD 10.0 million, a decrease from USD 16.1 million in the prior year's quarter.
• Detailed Financial Results: Franchise and license revenue stood at USD 57.6 million, down from USD 64.0 million in the prior year quarter. This decrease was primarily attributed to a decline in initial and other fees associated with the sale of kitchen equipment and a reduction in advertising revenue. Company restaurant sales amounted to USD 52.3 million, slightly lower than the USD 53.5 million reported in the prior year quarter, mainly due to the decline in same-restaurant sales offset partially by the addition of one Keke's equivalent unit. Adjusted franchise operating margin was reported at USD 30.1 million, equivalent to 52.2% of franchise and license revenue, compared to USD 31.6 million, or 49.4%, in the prior year quarter. Adjusted company restaurant operating margin was USD 6.0 million, or 11.5% of company restaurant sales, compared to USD 7.1 million, or 13.2%, in the prior year quarter, primarily due to higher worker's compensation and general liability expenses.
• Financial Outlook and Capital Allocation: Denny's expects to maintain its full-year 2024 outlook based on the prevailing consumer and economic conditions. Key expectations include domestic system-wide same-restaurant sales between 0% and 3%, the opening of 40 to 50 new restaurants with a net decline of 10 to 20, and commodity inflation between 0% and 2%. Labor inflation is projected to range between 4% and 5%. Total general and administrative expenses are anticipated to be between USD 83 million and USD 86 million, with adjusted EBITDA expected to range between USD 87 million and USD 91 million, primarily due to changes in the non-GAAP definition. Additionally, the company invested USD 4.9 million in cash capital expenditures during the quarter, primarily focused on new Keke's café openings, and allocated USD 4.8 million to share repurchases, leaving approximately USD 95.7 million remaining under its existing repurchase authorization.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands upward trending with a value of 46.64, with expectations of a consolidation or an upward momentum in the stock price. Additionally, the stock's current positioning is below the 50-period SMA and 200-period SMA, which may serve as dynamic short to medium-term resistance levels.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘BUY’ rating has been given to Denny's Corporation (NASDAQ: DENN) at the closing market price of USD 8.17 as of May 14, 2024. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is May 14, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.