Diner Denny's Could Be A Grand Slam Starting In 2015

Aug.28.14 | About: Denny's Corporation (DENN)


Denny's same-store sales for company locations are growing at the fastest rate in 9 years.

The remodeling strategy and new marketing is driving growth.

International expansion is just barely starting, but is slated to have tremendous growth opportunity that is underway.

I'm surprised there hasn't been a Denny's (NASDAQ:DENN) focus article on Seeking Alpha in over a year considering how well the chain is doing lately. Last quarter, for example, Denny's reported same-store sales increase of 3.7% at company-owned locations and 1.9% among franchisees. Earnings per diluted share popped 29% to $0.09, while Denny's continues to aggressively buy back shares.

Maybe investors have a perception that Denny's is an old-school mature chain with little growth potential. I disagree. According to CEO John Miller, Denny's is seeing renewed growth from its America's Diner marketing strategy, as well as its Heritage remodel program, which is literally changing the face of the restaurants.

The increasing results are even despite Denny's largest volume restaurant in Las Vegas being temporarily closed for remodeling. One restaurant may not sound like a lot, but that one restaurant generated $2.1 million in sales in the year-ago quarter alone, along with $0.8 million in pre-tax operating income. It is expected to reopen in early 2015.

During the conference call, Miller pointed out that its current guidance of same-store sales of between 2.5% and 3.5% for company-owned locations will be the highest growth, if achieved, that Denny's has seen since 2005. Part of the reason for this is the successful remodeling program tends to see an immediate sales lift on average for each restaurant. It should be exciting to see what the Las Vegas restaurant contributes post-remodel, considering it did $2.9 million in operating income for full-year 2013, which was 6.1% of the company-wide operating income that year.

Denny's may seem somewhat tapped out in the United States (though not really), but internationally it's still fairly wide open. Of the 1,700 restaurants at the end of last year, only around 100 of them were outside of the United States. Denny's expects that number to increase by 70 this year alone, a 70% increase, as the company is just now starting to tap the vast opportunity around the world. Count me in as a likely buyer later this year, perhaps just ahead of the next earnings report expected in late October.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.