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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.
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.
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.
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