What Happened?

Shares of diner restaurant chain Denny’s (NASDAQ:DENN) fell 17.6% in the afternoon session after the company reported weak third-quarter earnings results, with revenue, adjusted EPS, and EBITDA falling short of Wall Street's estimates. Guidance was also weak, with EBITDA guidance for the full year falling below consensus estimates. Management doesn't expect material improvement in the consumer and economic environment and continued to close restaurants with low volumes. Overall, this was a softer quarter.

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What The Market Is Telling Us

Denny’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. But moves this big are rare even for Denny's and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 3 months ago when the stock dropped 10% on the news that the company reported second-quarter earnings results, with its EPS and revenue missing Wall Street's estimates. Management hinted at competitive concerns, adding, "Despite these results and staying ahead of the competition, we know the overall industry is pressured, and therefore, we have updated our guidance accordingly." 

As a result, the company lowered domestic system-wide same-restaurant sales forecast for the full year to between (1%) and 1% (vs. previous projection of between 0% and 3%). Similarly, adjusted EBITDA was lowered to between $83 million and $87 million (vs. the previous estimate of between $87 million and $91 million). Overall, this quarter could have been better.

Denny's is down 49.2% since the beginning of the year, and at $5.50 per share, it is trading 50.7% below its 52-week high of $11.14 from January 2024. Investors who bought $1,000 worth of Denny’s shares 5 years ago would now be looking at an investment worth $253.66.

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