Denny's Serves Up Solid Guidance Despite Industry-Wide Challenges

Wedbush reiterated its Outperform rating on Denny's Corporation (NASDAQ: DENN) after the restaurant chain provided a solid guidance in a tough operating environment.

Denny’s, which reported in-line quarterly EPS of $0.13, expects 2017 adj. EBITDA of $101 million–$103 million (vs. $103.6 million consensus), on 0–2 percent SSS growth (2.2 percent cons.) and 17.5–18 percent UL margins (17.5 percent cons.).

“We believe upside exists to current consensus expectations, driven by expense control, accretive acquisitions and share repurchases,” analyst Nick Setyan wrote in a note.

Despite acknowledging slightly below consensus SSS growth guidance, the analyst believes the company would benefit from 2.5 percent pricing, compelling menu innovation, easing comparisons, and potential wage and employment tailwinds.

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Setyan also said the UL margin guidance could prove conservative given expectations for benign commodity inflation and lower labor headwinds. Further, remodels and increasing royalties remain meaningful near- and medium-term catalysts.

That said, the analyst cut his 2017 EPS estimate to $0.56 from $0.58 to reflect guidance commentary. But, Setyan reaffirmed his $14 price target on the stock.

Shares of Denny’s closed Wednesday’s trading at $12.30. At last check, shares of Denny's were up 0.81 percent at $12.40.