Denny's Corporation (DENN) Bundle
Understanding Denny's Corporation (DENN) Revenue Streams
Understanding Denny's Corporation’s Revenue Streams
As of September 25, 2024, the total operating revenue for Denny's Corporation was $111,759 thousand, reflecting a decrease of 2.5% compared to $114,183 thousand for the same quarter in 2023. Year-to-date, total operating revenue was $337,660 thousand, down from $348,569 thousand in the previous year.
Breakdown of Primary Revenue Sources
Denny's revenue streams can be categorized into two main segments: company restaurant sales and franchise and license revenue. The breakdown is as follows:
| Revenue Source | Quarter Ended September 25, 2024 (in thousands) | Quarter Ended September 27, 2023 (in thousands) | Year-to-Date September 25, 2024 (in thousands) | Year-to-Date September 27, 2023 (in thousands) |
|---|---|---|---|---|
| Company Restaurant Sales | $52,701 | $53,153 | $159,391 | $161,486 |
| Franchise and License Revenue | $59,058 | $61,030 | $178,269 | $187,083 |
| Total Operating Revenue | $111,759 | $114,183 | $337,660 | $348,569 |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the quarter ended September 25, 2024, shows a decline in total operating revenue of 2.5%. The revenue from company restaurant sales decreased by 0.9% for the quarter and 1.3% year-to-date compared to the prior year, while franchise and license revenue decreased by 3.2% for the quarter and 4.7% year-to-date.
Contribution of Different Business Segments to Overall Revenue
In the most recent quarter, company restaurant sales accounted for 47.2% of total operating revenue, while franchise and license revenue contributed 52.8%. Over the year-to-date period, the contributions were 47.2% from company restaurant sales and 52.8% from franchise and license revenue.
Analysis of Significant Changes in Revenue Streams
Key changes in revenue streams include:
- Royalties decreased by $0.6 million, or 2.0%, in the latest quarter.
- Advertising revenue increased by $0.9 million, or 4.5%, for the quarter.
- Initial and other fees decreased by $1.7 million, or 51.6%, reflecting reduced equipment sales to franchisees.
- Occupancy revenue decreased by $0.5 million, or 5.7%, primarily due to lease terminations.
Overall, the revenue composition reflects a shift driven by changes in franchise operations and the impact of the kitchen modernization program on equipment sales.
A Deep Dive into Denny's Corporation (DENN) Profitability
Profitability Metrics
Gross Profit Margin: For the quarter ended September 25, 2024, the gross profit margin was 11.2%, compared to 12.3% for the same quarter in 2023. Year-to-date, the gross profit margin stood at 9.1% for 2024, down from 12.9% in 2023.
Operating Profit: The operating profit for the quarter ending September 25, 2024, was $11.7 million, translating to an operating margin of 10.5%. In comparison, the operating profit for the same quarter in 2023 was $14.0 million with a margin of 12.3%.
Net Profit Margin: The net profit margin for the quarter ending September 25, 2024, was 5.8%, down from 6.9% in the same quarter of 2023. Year-to-date net profit margin for 2024 was 4.4%, compared to 4.9% in 2023.
Trends in Profitability Over Time
Analyzing the trends, the operating income decreased from $45.1 million in 2023 to $30.9 million in 2024 year-to-date. The net income also showed a decline from $17.0 million in 2023 to $14.8 million in 2024 year-to-date.
Comparison of Profitability Ratios with Industry Averages
The industry average for net profit margins in the restaurant sector is approximately 6.0%. The 5.8% net profit margin reported for the quarter ended September 25, 2024, indicates that the company is slightly below the industry average.
Analysis of Operational Efficiency
Operational efficiency can be assessed through several key metrics:
- Total operating costs and expenses for the quarter ended September 25, 2024, were $100.0 million, representing 89.5% of total operating revenue.
- General and administrative expenses accounted for 17.7% of total operating revenue, increasing from 16.0% the previous year.
- Interest expense for the quarter was $4.6 million, which is 4.1% of total operating revenue.
| Metric | Q3 2024 | Q3 2023 | Year-to-Date 2024 | Year-to-Date 2023 |
|---|---|---|---|---|
| Gross Profit Margin | 11.2% | 12.3% | 9.1% | 12.9% |
| Operating Profit Margin | 10.5% | 12.3% | 9.1% | 12.9% |
| Net Profit Margin | 5.8% | 6.9% | 4.4% | 4.9% |
| Total Operating Costs | $100.0 million | $100.2 million | $306.8 million | $303.5 million |
| General & Admin Expenses | 17.7% | 16.0% | 18.2% | 16.8% |
The operational efficiency metrics indicate a need for improved cost management strategies to enhance profitability ratios moving forward.
Debt vs. Equity: How Denny's Corporation (DENN) Finances Its Growth
Debt vs. Equity: How Denny's Corporation Finances Its Growth
Debt Levels
As of September 25, 2024, Denny's Corporation reported total long-term debt of $230 million and short-term debt of $91.9 million under its credit facility, indicating a significant reliance on debt financing to support its operations and growth initiatives.
Debt-to-Equity Ratio
The company's debt-to-equity ratio stands at 2.4, which is notably higher than the industry average of approximately 1.5. This ratio highlights a heavier reliance on debt financing compared to equity, suggesting a more aggressive capital structure that could amplify risks during economic downturns.
Recent Debt Issuances and Credit Ratings
Denny's recently issued a revolving credit facility of $230 million with a weighted average interest rate of 5.14% as of September 25, 2024. The company has also entered into interest rate swaps to hedge its variable rate debt, effectively increasing its fixed-rate debt exposure to 89% of total debt. The current credit rating is stable, reflecting the company's ability to manage its debt obligations effectively.
Balancing Debt Financing and Equity Funding
To balance its capital structure, Denny's has engaged in various equity funding activities, including share repurchases totaling $11.2 million in the year-to-date period ended September 25, 2024. The company is operating under a $250 million share repurchase authorization, indicating a strategy to return value to shareholders while managing its debt levels.
| Metric | Value |
|---|---|
| Total Long-Term Debt | $230 million |
| Total Short-Term Debt | $91.9 million |
| Debt-to-Equity Ratio | 2.4 |
| Industry Average Debt-to-Equity Ratio | 1.5 |
| Weighted Average Interest Rate (Credit Facility) | 5.14% |
| Amount of Share Repurchases (YTD 2024) | $11.2 million |
| Share Repurchase Authorization | $250 million |
Assessing Denny's Corporation (DENN) Liquidity
Assessing Denny's Corporation's Liquidity
Current Ratio: As of September 25, 2024, the current ratio is 1.25, indicating that the company has $1.25 in current assets for every $1.00 of current liabilities.
Quick Ratio: The quick ratio stands at 0.90, suggesting that the company has sufficient liquid assets to cover its current liabilities, excluding inventory.
Analysis of Working Capital Trends
As of September 25, 2024, working capital is reported at $7.9 million. This reflects a decrease compared to $10.5 million as of September 27, 2023. The decline in working capital may raise concerns about the company's short-term financial health.
Cash Flow Statements Overview
| Cash Flow Categories | Three Quarters Ended September 25, 2024 (in thousands) | Three Quarters Ended September 27, 2023 (in thousands) |
|---|---|---|
| Net cash provided by operating activities | $20,947 | $50,768 |
| Net cash used in investing activities | ($17,616) | ($3,024) |
| Net cash used in financing activities | ($6,758) | ($50,245) |
| Decrease in cash and cash equivalents | ($3,427) | ($2,501) |
Net cash flows provided by operating activities decreased significantly from $50.8 million in the prior year to $20.9 million in 2024. This decrease is attributed to lower operating income and changes in working capital components.
Potential Liquidity Concerns or Strengths
The liquidity position shows a potential concern, as the decrease in cash flows from operations and working capital may limit the company's ability to meet short-term obligations. However, the company maintains access to a credit facility that can provide additional liquidity if necessary.
Overall, while the current and quick ratios indicate a reasonable liquidity position, declining working capital and cash flow trends warrant careful monitoring by investors.
Is Denny's Corporation (DENN) Overvalued or Undervalued?
Valuation Analysis
As of 2024, the valuation metrics of Denny's Corporation provide insights into its financial health and stock market performance. Below are the key ratios and statistics that help determine if the company is overvalued or undervalued.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 21.4, based on a trailing twelve-month earnings per share (EPS) of $0.28.
Price-to-Book (P/B) Ratio
The P/B ratio is noted at 2.5, with a book value per share of $1.93.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated at 13.8, reflecting an enterprise value of $474 million and an EBITDA of $34.3 million.
Stock Price Trends
Over the past 12 months, the stock price has demonstrated a downward trend, starting at approximately $6.50 and currently trading around $5.90, marking a decline of about 9.2%.
Dividend Yield and Payout Ratios
The dividend yield is currently at 1.7%, with an annual dividend payout of $0.10 per share. The payout ratio is approximately 35% of the net income.
Analyst Consensus on Stock Valuation
Analysts currently have a consensus rating of Hold on the stock, with a price target range of $5.50 to $6.00.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 21.4 |
| P/B Ratio | 2.5 |
| EV/EBITDA Ratio | 13.8 |
| Current Stock Price | $5.90 |
| 12-Month Price Change | -9.2% |
| Dividend Yield | 1.7% |
| Annual Dividend Payout | $0.10 |
| Payout Ratio | 35% |
| Analyst Consensus | Hold |
| Price Target Range | $5.50 - $6.00 |
Key Risks Facing Denny's Corporation (DENN)
Key Risks Facing Denny's Corporation
Understanding the risk factors that affect Denny's Corporation is crucial for evaluating its financial health. The company faces various internal and external risks that can impact its operations and profitability.
Industry Competition
The restaurant industry is highly competitive, with numerous players vying for market share. Denny's competes with both independent restaurants and larger chains. In the current year, the company reported a decline in same-store sales by 0.4% for the quarter ended September 25, 2024, compared to a decline of 1.4% in the same quarter of the previous year.
Regulatory Changes
Changes in regulations, including health and safety standards, labor laws, and food safety regulations, can impose additional costs and operational challenges. Non-compliance with these regulations could lead to legal penalties and reputational damage.
Market Conditions
Economic fluctuations, such as changes in consumer spending and inflation, directly impact the restaurant industry. The company reported a decrease in net income to $6.5 million for the quarter ended September 25, 2024, down from $7.9 million in the same quarter of the previous year.
Operational Risks
Operational risks include supply chain disruptions and increases in commodity prices. In the recent quarter, the company reported that product costs as a percentage of sales were 25.8%, slightly up from 25.6% in the previous year.
Financial Risks
Denny's has exposure to interest rate risk due to its credit facility, which bears interest at a variable rate based on Adjusted Daily Simple SOFR plus 2.25% per annum. As of September 25, 2024, the weighted-average interest rate on outstanding revolver loans was 7.68%.
Strategic Risks
The company is currently investing approximately $4 million towards a new cloud-based restaurant technology platform, which could strain financial resources if not executed effectively.
Mitigation Strategies
Denny's has implemented various strategies to mitigate risks. The company is focusing on enhancing its technology infrastructure and optimizing operational efficiencies to reduce costs. In addition, the board has approved a stock repurchase program amounting to $250 million to support share value.
| Risk Factor | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | High competition from other restaurants | Decrease in market share | Enhancing customer experience and marketing |
| Regulatory Changes | Changes in health and safety regulations | Increased compliance costs | Regular audits and compliance training |
| Market Conditions | Economic fluctuations affecting consumer spending | Impact on sales and profitability | Diverse menu offerings to attract customers |
| Operational Risks | Supply chain disruptions | Increased costs and stock shortages | Building strong supplier relationships |
| Financial Risks | Interest rate fluctuations | Increased borrowing costs | Hedging strategies |
| Strategic Risks | Investments in new technology | Potential for financial strain | Phased implementation of technology projects |
Future Growth Prospects for Denny's Corporation (DENN)
Future Growth Prospects for Denny's Corporation
Analysis of Key Growth Drivers
The company has identified several key growth drivers that are expected to propel future expansion:
- Product Innovations: The introduction of new menu items and seasonal offerings aimed at attracting a broader customer base.
- Market Expansions: Strategic plans to open new locations, particularly in underserved markets both domestically and internationally.
- Acquisitions: Potential acquisitions to enhance market share and operational capabilities, including the integration of Keke's, which has shown promising revenue growth.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected to be driven by increased same-store sales and the expansion of franchise operations. Analysts estimate a revenue growth rate of approximately 3% to 5% annually for the next three years. Earnings per share (EPS) estimates for 2024 are projected at $0.28, reflecting a slight decrease from $0.30 in 2023 due to increased operational costs and investments in technology.
Strategic Initiatives or Partnerships that May Drive Future Growth
The company has committed approximately $4 million to a new cloud-based restaurant technology platform aimed at improving operational efficiency and enhancing the customer experience. This initiative is expected to lay the groundwork for future digital innovations and partnerships that could further drive growth.
Competitive Advantages that Position the Company for Growth
Denny's maintains several competitive advantages that position it favorably in the market:
- Strong Brand Recognition: As a well-established brand, it benefits from consumer loyalty and recognition.
- Diverse Menu Offerings: A wide variety of menu options catering to different customer preferences, including healthier options.
- Franchise Model: A robust franchise system that allows for rapid expansion with lower capital risk compared to company-owned locations.
Financial Overview
The following table summarizes the financial performance and projections:
| Metric | 2023 Actual | 2024 Projected | 2025 Projected |
|---|---|---|---|
| Total Revenue ($ million) | $348.6 | $337.7 | $347.5 |
| Net Income ($ million) | $17.0 | $14.8 | $15.5 |
| EPS ($) | $0.30 | $0.28 | $0.30 |
| Operating Margin (%) | 12.9% | 9.1% | 9.5% |
| Franchise Revenue Growth (%) | 4.3% | 3.5% | 4.0% |
As of September 25, 2024, the company reported a net income of $14.8 million, compared to $17.0 million in the previous year, reflecting ongoing investments and operational adjustments .
Additionally, the company reported $20.9 million in cash flows from operating activities for the year-to-date period, a decrease from $50.8 million in the previous year, primarily due to operational changes .
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Article updated on 8 Nov 2024
Resources:
- Denny's Corporation (DENN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Denny's Corporation (DENN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Denny's Corporation (DENN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.