5 Surprising Facts About Denny's

When most people think about Denny's (NASDAQ: DENN  ) , they probably conjure up late-night memories from early adulthood or perhaps Sunday-morning breakfasts after church with the family. Indeed, the last thing one thinks about is financial performance, growth, or business models.

But if there's one story that explains Denny's today, it's the latter. With this in mind, I dug through the chain's regulatory filings to uncover five of the most interesting things that you (and, for that matter, I) probably didn't know about Denny's.

1. It's one of the largest full-service restaurant chains in America.
If you're under the impression that there are Denny's everywhere, then you're on to something.

At the end of last year, it had a total of 1,700 locations. By unit count, this made it the second-largest full-service restaurant chain in America, after only Applebee's -- the latter is owned by restaurant conglomerate DineEquity.

2. Most locations aren't owned by the company.
One reason Denny's has been able to grow so much is that it uses a franchise-based business model. This obligates franchisees to bring capital to the table, so to speak, and thereby finance expansion.

As of Dec. 31, 2013, nine out of 10 Denny's locations were owned and operated by franchisees. The only chain that operates a smaller proportion of locations is Applebee's, which owns only 23 out of 2,014 units.

3. Denny's highest-volume store matters a lot.
At a company like McDonald's, the closure of a single location for remodeling wouldn't be noticeable. But this isn't the case with Denny's, and particularly when it comes to the chain's restaurant on the Las Vegas Strip.

In 2013, this one location reported sales of $7.9 million. That equated to 2.4% of the company's revenue from its 163 company-owned stores.

No big deal, right? Wrong. As Denny's explained in its latest earnings release:"The highest volume company operated restaurant located on the Las Vegas Strip is closed for reconstruction and expected to reopen in early 2015. The landlord is redeveloping the location to include a completely rebuilt Denny's restaurant to be funded by the landlord."

In other words, Denny's revenue for the 2014 fiscal year seems almost predetermined to fall.

4. Denny's is expanding internationally.
It doesn't get much more American than a franchised restaurant chain modeled after a classic diner. But this isn't stopping Denny's from expanding overseas.

At the end of 2013, there were 101 Denny's locations in Canada, Costa Rica, Mexico, Honduras, Guam, Curacao, Puerto Rico, the Dominican Republic, El Salvador, Chile, and New Zealand.

And there will soon be more, as the company recently signed a development agreement to open 30 restaurants in the Middle East over the next 10 years.

5. Denny's is actually doing pretty well.
It's a tough time to be a casual-dining restaurant chain.

As I've recently discussed, Denny's competitors like Olive Garden and Red Lobster are struggling to compete with fast-casual upstarts such as Chipotle Mexican Grill and Panera Bread.

You can see this in the former chains' numbers. Over the last two years alone, same-store sales are down by a cumulative estimate of 10% at Olive Garden, and 15% at Red Lobster.

By comparison, Denny's has seen its comparable sales increase in an uninterrupted manner since the beginning of 2011.

The foolish bottom line
While a list like this doesn't necessarily lend itself to a single, unified takeaway, let me steer you toward one nonetheless. Many of these facts suggest that Denny's remains a viable and growing business. And if it can continue down this path, then shareholders in the company are likely to be well rewarded for their loyalty.

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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8/31/2015 3:59 PM
DENN $11.23 Down -0.25 -2.18%
Denny's CAPS Rating: ***