Denny's Continues to Bring Home the Bacon

Denny’s is flourishing along with DineEquity’s IHOP while Bob Evans continues to lag.

Jan 25, 2014 at 7:30AM

Rain or shine, every quarter Denny's (NASDAQ:DENN) has been producing steady results for shareholders. There seems to be three things you can rely on: solid earnings, growth, and aggressive stock buybacks. Those three ingredients sound as yummy as the company's Grand Slam meals, and Denny's appears to be successfully taking market share from competitors such as Bob Evans Farms (NASDAQ:BOBE). Meanwhile, IDineEquity's (NYSE:DIN) IHOP is growing even more quickly.

Denny's preliminary results
On Jan. 13, Denny's issued a preliminary report regarding its fourth-quarter results. Same-store sales climbed 0.9%. It consisted of a 0.8% increase among franchisees and a 1.5% increase among company-owned restaurants. It was the 10th quarter out of the last 11 and the third year in a row of positive same-store sales.

Denny's continues to expand the chain. It added 13 restaurants in the quarter, which brought the total restaurant count up to 1,700. It was the fifth year in a row of restaurant growth.

For the full year, Denny's expects to report adjusted earnings before interest, taxes, depreciation, and amortization of between $76 million and $78 million. This implies fourth-quarter EBITDA of between $18.5 million and $20.5 million, compared to $19.2 million in the third quarter and also $19.2 million average for the first three quarters of 2013. In other words, the fourth quarter was more of the same consistent, sustainable, and reliable earnings. In each of those quarters, Denny's reported $0.08 in earnings per share, so the fourth quarter will likely be similar as well, before any effect from share buybacks.

Share buybacks
Denny's has yet to reveal how many shares it bought back in the fourth quarter, but it has a recent history of being aggressive in doing so. In the third quarter, it used almost all of its free cash flow on stock buybacks. This returned around 2% of the shares outstanding back to the treasury. As the company buys back more and more shares, the earnings per share will rise from that alone. Additionally, Denny's expects 2014 to show cheaper commodity prices for its restaurants, which, if true, should translate to higher net income and earnings per share if sales continue to stay steady or grow.

Bob Evans Farms
For Bob Evans' last quarter, things have looked a lot less rosy than at Denny's, suggesting that perhaps the Grand Slam chain might be taking a bit of market share. Bob Evans saw same-store sales fall by 2.4% and its earnings per share collapse by 32.7%. In contrast to Denny's optimism about cheaper commodity costs, Bob Evans claimed they are high costs and are the reason for its woes, citing specifically "bacon and other pork-related items." Bob Evans also blamed the "uncertain economic environment," but it's the same environment that Denny's and IHOP have been successfully growing in.

DineEquity's IHOP
Meanwhile, IHOP, owned by DineEquity, has been trailblazing ahead. Last quarter, IHOP's same-store sales zoomed by 3.6%. While DineEquity still believes we are in a "challenging economic environment," it raised its full-year 2013 same-store sales outlook from between negative 1.5% and positive 1.5% to between positive 2% and 3%. Its third quarter showed the biggest same-store sales increase DineEquity has seen since 2008. The company credited the success with simple changes in its menu at IHOP.

Foolish final thoughts
As judged by its consistent operating results, Denny's is a great company with an optimistic future. However, that consistency doesn't necessarily come cheap. Denny's trades at roughly 19 times 2014's estimated earnings. While growth has been consistent and nice, 19 times earnings may be a bit rich.

Fools considering Denny's for the long term may want to see if there's a pullback first or evidence of better growth when it reports its official earnings results next month. If you can get a cheaper entry, Denny's may prove to be a great long-term winner as it continues to bring home the bacon.

Speaking of steady, reliable gains...
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.


Fool contributor Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information