Denny’s Latest Earnings Show that Full-Service Chains Are Struggling to Compete Against the Likes of Chipotle Mexican Grill

By at least one measure, things appear to be on the up and up at Denny's Corp. (NASDAQ: DENN  ) . On Monday, America's self-proclaimed favorite diner reported that first-quarter same-store sales grew by 1.8% at domestic locations compared to the year-ago period.

"We are pleased to start the year with another quarter of systemwide same-store sales growth highlighted by our strongest quarter of same-store sales at company restaurants in over seven years," said president and CEO John Miller. "We continue to strengthen our position as a leader in our segment, as we make improvements in our food, service and atmosphere to evolve the business to meet the expectations of our guests."

This success aside, a deeper examination of Denny's earnings reveals multiple issues. Compared to the same quarter last year, total sales fell by $2.6 million while expenses decreased only $391,000. The net result was a 9.9% decline in net income. The saving grace for shareholders was Denny's share repurchase program, which kept diluted earnings per share roughly even on a year-over-year basis.

These issues offer a clear illustration of the reality facing full-service restaurant operators like Denny's. According to research from The NPD Group, a consulting company that caters to the industry, the only restaurant group to experience traffic growth in 2013 was the fast-casual segment, made up of companies like Chipotle Mexican Grill and Panera Bread. Meanwhile, there was no growth whatsoever for the restaurant industry as a whole; the implication being that traffic declined at full-service operators like Denny's.

It's for this reason that the diner-themed chain has doubled-down over the last few years to revitalize its brand and strengthen its balance sheet. It's increasing the proportion of franchised locations, is updating the appearance and atmosphere at existing locations, and continues to constantly adjust its menu. Most recently, it introduced a new "adventure menu" for children, which includes a "selection of customizable dishes and National Geographic kids content."

Will Denny's strategies enable it to compete with fast-casual upstarts like Chipotle Mexican Grill and Panera Bread going forward? That ultimately remains to be seen. In the meantime, at least according to its same-store sales, it certainly appears as if Denny's is headed in the right direction.

Will this stock be your next multi-bagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2933610, ~/Articles/ArticleHandler.aspx, 9/2/2015 8:05:32 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

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.

Today's Market

updated Moments ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 3:59 PM
DENN $11.28 Up +0.27 +2.45%
Denny's CAPS Rating: ***