Why Denny’s Stock Was in the Dumpster Today

Stocks of American restaurant chains dennis (because -8.07%) The confusion came Wednesday after the company reported its fourth quarter 2023 financial results. Growth is meager, costs rise and, as a result, profits fall. That’s why Denny’s stock was down 7% as of 10:30 a.m. ET and down 10.5% earlier in the session.

It’s difficult to do business now.

Although more than 95% of Denny’s more than 1,600 stores are franchises, sales from company-owned restaurants still accounted for 46% of the company’s revenue in 2023. So wage and food inflation is hurting profits. Denny’s had net income of just $2.9 million in the fourth quarter, compared to net income of $12.8 million a year earlier.

It didn’t help that sales were slower than management expected. Management guidelines were issued to increase same-restaurant sales from 2.75% to 3.50%. However, same-restaurant sales increased only 1.3% in the fourth quarter.

Many restaurant companies are in the same boat as Denny’s, especially in the casual dining space. In good times, restaurant margins can be thin. But ongoing inflation headwinds are making things especially difficult for companies like Denny’s right now.

What’s in store for 2024?

Unfortunately for investors, Denny’s 2024 guidance isn’t very encouraging. Management expects same-restaurant sales to increase only 0 to 3 percent. However, it is forecasting raw material inflation of up to 2% and labor inflation of 4%, pointing to a possible decline in annual profits.

The silver lining is that even though profits are down, Denny’s is still profitable. Moreover, since the company doesn’t have many pressing needs, it can return a lot of cash to shareholders through share buybacks. In 2023 alone, it repurchased $52.1 million worth of stock, which is more than 10% of its current market capitalization.

Ultimately, Denny’s needs better growth and profitability to achieve better stock market performance. However, as such substantial management improvement does not appear imminent, it is a stock worth watching for the time being.