Denny's (DENN) Q2 EPS Falls 31%

Denny's (DENN -2.75%), a nationwide diner chain known for its all-day breakfasts and value-driven menu, released its second quarter 2025 results on August 4, 2025. The report signaled ongoing pressures at the core Denny’s brand, even as newer brand Keke’s showed strong momentum. Earnings per share (Non-GAAP) were $0.09 for Q2 FY2025, missing the estimated $0.11 non-GAAP EPS. Revenue (GAAP) was $117.7 million for Q2 FY2025, slightly under the $118.09 million GAAP analyst target but up compared to Q2 2024. Overall, the quarter offered a mixed view, with negative same-restaurant sales in the Denny’s brand for Q2 FY2025 and margin pressures, partially offset by growth at Keke’s and signs of cost discipline.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Focus Areas

Denny's operates as a leading full-service family dining restaurant chain, with its most recognizable "America's Diner" concept focusing on all-day breakfast and value offerings. The company relies on a heavily franchise-driven business model, with more than 96% of its locations operated by franchisees as of December 25, 2024.

In recent years, Denny's has leaned into menu innovation and digital engagement while managing cost structure and capital allocation. The company’s ability to sustain and grow its franchise base, continually update its menu, and maintain strong brand recognition are essential factors behind its performance. These areas, coupled with disciplined expense management and expansion of Keke’s, a newer breakfast and lunch brand, remain at the forefront of its strategy.

Quarter in Review: Sales, Margins, and Operations

Same-restaurant sales, a key measure of comparable location performance, were mixed across Denny's brands. System-wide, Denny’s same-restaurant sales dropped (1.3%) in Q2 FY2025 while Keke’s domestic system-wide same-restaurant sales increased 4.0%. Denny’s recorded a net decrease in total franchise and company units, opening three and closing ten during the quarter. This strategy of closing lower-volume stores aims to strengthen system health in the long run. Keke’s opened eight new cafes and saw strong sales growth, expanding outside its core Florida market.

Margins remain under pressure. Adjusted franchise operating margin slipped to $30.0 million, or 50.7% of franchise revenue, from $30.8 million (50.0%) in the prior year. Adjusted company restaurant operating margin was $6.7 million, or 11.5% of company restaurant sales, reflecting rising ingredient costs—especially eggs—and additional marketing expenditures tied to recent promotions and new store ramp-ups. The cost of eggs, which spiked in the previous quarter due to supply chain issues, remained about two times higher than prior periods and was a significant factor affecting profitability.

General and administrative expenses, including corporate administration, were held in check. Total general and administrative expenses (GAAP) were $21.4 million, up only modestly from the prior year. Within this figure, pure administration costs fell about 3.5%, though higher incentive and share-based compensation offset some savings. These results underscore the company’s focus on expense discipline against a backdrop of slow sales growth and input inflation.

Denny’s continued to emphasize menu innovation and promotional activity during the quarter. Value-focused limited-time offers, such as the buy-one-get-one (BOGO) Grand Slam breakfast, brought in more lapsed and new customers than prior campaigns, according to management commentary. Off-premise (to-go and delivery) sales made up about 22% of total business, which helped cushion some traffic shifts in core dine-in. Leveraging digital channels and high-profile partnerships, like the NVIDIA Breakfast Bites event, helped boost the brand’s social reach and engage new customer cohorts.

While Keke’s showed notable comp sales and unit expansion, some new openings exerted additional margin pressures due to the time needed for new locations to become efficient. The mix of newer, lower-margin outlets and the costs associated with onboarding these units are expected executional risks in an asset-light growth strategy.

Looking Ahead: Guidance and Investor Considerations

Management maintained its overall guidance for fiscal 2025. Projections include domestic system-wide same-restaurant sales in a range from (2.0%) to 1.0% for FY2025, consolidated restaurant openings between 25 and 40, and closures between 70 and 90. For inflation, the company expects commodity inflation of 3.0%–5.0%, and labor costs are expected to grow 2.5%–3.5%. Adjusted EBITDA is forecast between $80 million and $85 million, factoring in a 53-week year. Share repurchase activity is targeted in the $15 million to $25 million range. Management described the consumer demand environment as "choppy," but noted signs of stabilization, particularly through digital initiatives and planned loyalty program launches in the second half of the year.

The company continues to balance investments in remodels, new Keke’s locations, and selective share buybacks, supported by capital flexibility and consistent credit facility access. Still, margin improvement timing is uncertain, with executives stating that ongoing promotions and market volatility could delay a return to previous levels. Key areas to monitor are the performance of new stores, the health of the core Denny’s franchise system, and expense control effectiveness as competitive value offers persist.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.