- Webusch Analyst Nick Setyan reiterated a Neutral rating on shares of Denny’s Corp THEN And raised the target price to $13.50 from $12.50.
- The analyst said the company’s adjusted earnings per share came in above $0.17 for the fourth quarter of $0.18. on the Company’s previously announced SSS growth of 6.0% and Franchise SSS growth of 1.7%.
- Commodity and wage inflation were 13.0% and 5.0%, respectively, for the quarter.
- System SSS 2023 growth forecast of 3-6% was above the consensus of 2.6%, with management comment suggesting Q1 could turn into double digits, the analyst said.
- Given the strength of the first quarter, it is difficult to foresee a scenario where 2023 SSS growth comes in below the lower end of guidance, even if there is a slowdown in consumer spending in 2H:23, the analyst noted.
- In addition to first quarter strength, the analyst sees management’s emphasis on value, menu pricing, continued restoration of 24/7 operations across the system, stability of off-premises sales and effective LTOs/marketing as drivers of SSS growth in the year 2023.
- Additionally, the analyst is raising the growth estimate for captive SSS to 4.9% from 3.0% and the growth estimate for franchise SSS from 2.8% to 5.6% for 2023.
- The analyst added that despite revenue momentum, ongoing inflation and G&A spending lead to lower AEBITDA guidance.
- Management expects commodity inflation to come in at 4-6% in FY23, surprising analysts as the family hospitality industry is well-positioned to benefit from the fall in egg prices in 2023.
- Management expects 8-12 net openings from Denny’s in 2023, ahead of the analyst’s estimate of a 13 net decline.
- price action: DENN shares are trading up 1.40% at $12.31 on the latest check Tuesday.
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