Investors witnessed a significant downturn in the stock prices of Denny’s (NASDAQ: DENN) on Wednesday following the release of the company’s financial results for the fourth quarter of 2024 and a troubling business update. By 3:15 p.m. ET, Denny’s stock had plummeted by 22%, hovering close to its lowest price in over a decade.
Denny’s, once a popular dining destination, has been grappling with underperforming locations, culminating in the closure of 88 restaurants in 2024. These shuttered establishments had an average annual sales volume of less than $1.1 million, which is considered low for a restaurant company, posing challenges for franchisees to generate profits. The company’s management has now announced plans to shut down an additional 70 to 90 restaurants in 2025, a higher number than initially anticipated.
Despite the financial results not painting an entirely bleak picture for Denny’s, with same-store sales for its flagship brand showing a drop of less than 1%, the exclusion of the closed locations tells a different story. The remaining top-performing stores failed to achieve incremental sales, contributing to concerns among investors.
Furthermore, the trend of declining same-store sales has persisted into 2025, with a 5% decrease recorded in the first two weeks of February. Management forecasts a potential 2% decline in same-store sales for the year, disappointing investors and leading to the current downturn in the stock price.
In response to these challenges, Denny’s management has acknowledged the need for strategic adjustments, citing shifts in population and economic dynamics over time. The company aims to reposition itself in more favorable locations, having opened 14 new Denny’s locations in 2024 and planning to introduce 25 to 40 additional locations this year, including outlets for its smaller Keke’s brand.
While these efforts may contribute to a turnaround, Denny’s is in need of sustainable sales growth and improved profit margins to regain investor confidence. It is advisable to monitor the progress closely before considering an investment in the stock at this time.
For potential investors contemplating allocating $1,000 to Denny’s, it is worth noting that the Motley Fool Stock Advisor analyst team has identified the top 10 stocks they believe offer significant growth opportunities, with Denny’s not making the cut. Past recommendations from the Stock Advisor service have yielded substantial returns for investors, underscoring the value of informed decision-making in the stock market landscape.
Disclosure: This commentary is not a recommendation to buy or sell any securities mentioned. It is intended for informational purposes only.
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