Is it Time to Buy Back into Denny’s Stock Down Here?

Iconic diner chain Denny’s, Inc. NASDAQ: DENN stock saw growth slow in the latter part of the year with the rise in COVID and supply chain disruptions. The Company has 70% of its domestic stores operating on average 18 hours per day and 45% operating at 24 hours per day, seven days a week. The Company opened seven franchise restaurants  including four in Canada in Q3 2021. Over 90% of its franchise restaurants exceeded the 70% of 2019 sales threshold covering fixed and variable costs. Dine in sales were the highest since January 2021. Despite a flat forecast for full-year 2021, shares again it a bottom off the $13.32 level as it attempts to turn back up. Prudent investors seeking exposure in one of the most durable leading diner franchises can watch for opportunistic pullbacks in shares of Denny’s.

Q3 FY 2021 Earnings Release

On August 3, 2021, Denny’s reported its Q3 2021 earnings for the quarter ended in Sept 2021. The Company reported earnings of $0.16 per share versus consensus analyst estimates of $0.15 per share, a $0.01 beat. Revenues rose 45% year-over-year (YoY) to $103.8 million versus $110.52 million analyst estimates. Domestic same-store-sales (SSS) fell (-0.1%) compared to 2019. Franchise operating margin was $29.9 million or 52.1% of franchise and license revenue and company restaurant operating margin was $7.9 million or 17% of company restaurant sales. For full-year 2021, system-wide sales fell (-5%) compared to 2019 and expects adjusted EBITDA between $84 million to $86 million. Denny’s CEO John Miller commented, "Our third-quarter domestic system-wide same-store sales were impacted due to increasing COVID-19 case counts during the period, however we are encouraged to see sales returning in October as cases have improved. Additionally, we gained great momentum through the launch of our revamped Dennys.com website and Denny's mobile app, our multicultural recruitment tour and the successful refinancing of our credit facility. Looking ahead, we are excited about initiating the next phase of our technology transformation with the rollout out of a new restaurant technology platform, in addition to beginning our new kitchen modernization initiative that will propel our menu innovation."”

Conference Call Takeaways

CEO Miller said, “The new equipment allows us to accomplish three main goals. First, the new equipment package will reduce complexity in the kitchen, both improving efficiency and reducing waste. This simplifies execution for our cooks and results in more consistency for our guests. Second, the oven delivers improvements to our current core items, impacting over 4.5 million plates every week and allows for improved quality and consistency for our breakfast proteins. Our bacon is crispier, sausage is more evenly ground. And third, investing in this new equipment provides the ability to enhance our menu offerings across all dayparts, but especially further elevating the dinner daypart with new accompanying entrees, sides and baked desserts. The rollout is expected to begin during the first quarter of 2022 and be substantially completed by the end of 2022.The total domestic franchise system investment for the new cloud-based technology platform and kitchen equipment package is approximately $65 million. To assist franchisees, we will be allocating approximately $10 million toward the cost of installation and have also negotiated favorable financing terms on their behalf for the remaining cost.”

He concluded, “In closing, we have a lot of energy in this iconic brand. We are very encouraged to see our October sales results once again surpass 2019 levels. We're also excited to be kickstarting our revitalization strategies again. Our new technology transformation, including our revamped website and mobile app, the new restaurant technology package that will greatly enhance our operations and guest experience, the new kitchen equipment package, which will propel menu innovation, and the impending relaunch of our Heritage 2.0 remodel program and all of this together should ultimately drive incremental traffic. This enthusiasm is bolstered by our extraordinary group of dedicated franchisees and their confidence in the long-term vision of the brand. Their excitement around these initiatives and the investments we are making gives me great confidence 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 double top at the $17.38 Fibonacci (fib) level. The weekly rifle chart triggered a market structure sell (MSH) sell signal on the fall under $17.14. The weekly rifle chart is attempting a channel tightening and potential breakout on a rising 5-period moving average (MA) at the $15.28 fib. The weekly stochastic has coiled back up through the 40-band. The weekly market structure low (MSL) buy triggered at the $15.56 breakout. The daily rifle chart uptrend is starting to slow down with a flattening 5-period MA at $15.78 and 15-period MA at $15.23. The daily upper Bollinger Bands are starting to compress at $16.42. The daily stochastic peaked and slipped at the 90-band. Prudent investors can look for opportunistic pullback levels at the $15.28 fib, $14.35 fib, $13.43 fib, $12.59 fib, and the $12.15 fib. Upside trajectories range from the $18.27 fib up towards the $23.11 fib level.