Shares of restaurant company Denny's (DENN +0.00%) crashed on Wednesday after reporting financial results for the fourth quarter of 2024 and providing a business update -- an update that greatly troubled investors. As of 3:15 p.m. ET, Denny's stock was down 22% and was within a few percentage points of hitting its lowest price in over a decade.
Denny's isn't as popular as it once was
The big-picture problem is that many Denny's locations aren't performing well, leading to closures. The company closed 88 underperforming restaurants in 2024. These averaged annual sales volume of under $1.1 million, which is quite low for a restaurant company and makes it hard for franchisees to profit. But there are unfortunately many other poor performers in the system. That's motivating management to close another 70 to 90 restaurants in 2025, which is more than expected.
NASDAQ: DENN
Key Data Points
Turning to the financial results, the numbers in isolation didn't necessarily look dire for Denny's. Same-store sales for its flagship brand were down less than 1% -- I've seen worse. But then again, this excluded the closures. In other words, the company's best remaining locations failed to gain incremental sales.
Moreover, same-store sales trends have started slipping for Denny's in 2025, dropping 5% through the first two weeks of February. Management consequently expects up to a 2% drop in same-store sales for the year, which wasn't what investors wanted to hear and explains why the stock is down in the dumps today.
Can Denny's turn its business around?
Denny's management pointed out that, in 2024, it closed restaurants that had been open for about 30 years on average. It believes that population and economic trends have simply changed over time, which is why it's a company that's essentially trying to reposition itself in better areas. It opened 14 new Denny's locations during the year and plans to open 25 to 40 new locations this year, although this includes locations for its smaller Keke's brand.
That could help. But suffice it to say that Denny's is a brand that needs a way to stimulate better sales growth and unlock higher profit margins. I believe there's plenty of time to see better progress before investing in this stock today.
