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Olvin Analysis: ($DENN) Denny’s fast foot traffic recovery shows America is hungry to be ‘Always Open’ once more.

Olvin - 25/10/2021

Key Points

  • Denny’s has been struggling to recover after the pandemic, with revenue in Q2 still only at 70% of pre-pandemic levels, strongly underperforming industry peers due to its inability to transition to models alternative to in-person dining;
  • The American diners chain has experienced a rapid increase in foot traffic in Q3 and the trend will continue in Q4, giving the company a chance to bring revenue close to pre-pandemic levels;
  • The company’s Q3 2021 earnings could report revenue close or even in excess of Q3 2019, representing a complete recovery from the pandemic.

New data from Olvin, a New York and London-based retail analytics firm shows that Denny’s, the American diner brand, has seen its foot traffic reach around 80% of pre-pandemic levels in Q3. The company is experiencing one of the fastest recoveries in foot fall in the hospitality sector and this trend will continue through Q4.

On 25 October Denny’s (NYSE:DENN) will report its earnings for the third quarter of 2021. With the company’s revenue still far from pre-pandemic levels, investors are looking for strong signs of recovery. In this report, we look at Denny’s foot traffic performance over the past 3 years by looking at 681 of its restaurants in the U.S. and look at the predictions for the 3rd and 4th quarter of 2021.

Looking at the pandemic

Similar to all other quick serve restaurants, Denny’s has been hit by the COVID-19 pandemic, mainly due to the numerous lockdowns and regulations regarding the hospitality sector.

The chart below displays this impact with the cumulative number of visits for the aforementioned restaurants from the beginning of Q1 2019 to the end of Q3 2021.

Chart 1: monthly foot traffic over the last 11 quarters  [data source: olvin.com]

At the beginning of the pandemic in Q1 2020 visits started to drop drastically, hitting their lowest point in Q2 2021 at 4.8 million visits (compared to 59.9 million the previous year). Ever since then, the company’s performance has suffered heavily from the decrease in visits.

In Comparison To The Industry

Even though foot traffic in Q2 was still only 64.8% of the equivalent pre-pandemic level the company is actually experiencing one of the fastest recoveries in the quick-serve industry. When compared with Chipotle Mexican Grill, McDonald’s and Texas Roadhouse, Denny’s has the highest level of visits in Q2 2021 with respect to Q2 2019. In particular, Chipotle experienced 50.8% of pre-pandemic traffic, Mcdonald’s 59.5% and Texas Roadhouse 51.2%.

When analysing the recovery of foot traffic in comparison with the financial performance of each company we can actually see how Denny’s is an underperformer between its peers. In Q1 2021 all of the 3 comparable companies had already grown past pre-pandemic levels, while Denny’s was still generating only 53.2% of the revenue generated in Q1 2019. The same happened in Q2 2021, when Chipotle generated 30.3% more revenue than in Q2 2019, McDonald’s 10.23% and Texas Roadhouse 30.29%. Denny’s instead reported an unsatisfying 30.1% decrease compared to revenue in Q2 2019.

It’s clear how the diner’s inability to shift the business to models that don’t require physical presence in the restaurant is hindering its revenue recovery: despite one of the highest levels of foot traffic compared to pre-pandemic between its peers, the company is lagging behind on revenue recovery.

Chart 2: foot traffic & revenue in Q1–4 2021 compared with Q1–4 2019

Q3 Visits Analysis

Despite the poor performance in comparison to the industry, Denny’s might be able to recover from the pandemic soon, as foot traffic growth doesn’t appear to be slowing down. In Q3 the restaurants that are present in the Almanac Platform accumulated a total of 50.3 Million visits. This represents a 20.1% growth in foot traffic compared to Q2 2021. This continued growth brings visits to around 80% of pre-pandemic levels and we believe that this recovery will be reflected in the revenue reported, and it could be enough to bring revenue in the neighbourhood of  95% to 105% of Q3 2019 revenue.

Chart 3: graph with comparison of Q3 2019, Q3 2020, Q3 2021.

This quarter could be the first since Q2 2020 in which the company breaks past pre-pandemic revenue, finally entering the roster of restaurant chains that already achieved this goal.

Q4 predictions – Looking ahead

Thanks to Olvin’s platform we can assess the foot traffic performance of Denny’s restaurants in the U.S. for the first 17 days of October and the prediction for visits throughout the quarter. In Q4 we predict that the chain will experience continued growth of foot traffic. More precisely, in the first 17 days of October we have registered visits in excess of 10 million: only 10.3% lower than pre-pandemic levels. While the first half of October looks extremely promising, our Q4 foot traffic forecast positions the company at 15.6% deficit on Q4 2019. To put this in perspective the forecast for Chipotle is a 38.3% deficit with respect to Q4 2019, for McDonald’s 26.4% and for Texas Roadhouse 42.4%.

Independently of the actual result, Denny’s Q3 earnings release will shed a light on the company’s ability to capitalize on foot traffic growth. If the results reported will be positive, then we can only expect Q4 positive foot traffic trend to further help the company beat pre-pandemic levels.

Notes on methodology and data sources

  • Foot traffic data used in this analysis regards 681 restaurants which is around 45% of Denny’s diners present in the United States. Being present in each state and distributed across 65 metropolitan areas, we believe this sample to be representative of the company’s overall performance.
  • Olvin collects data points from more than 240 million devices all over the U.S. and analyzed by Olvin. Users can access the data through our platform: Almanac.

Olvin Limited (“Olvin”), the Almanac platform (“Almanac”) and any subsidiaries or parent organizations do not provide financial advice. Olvin’s aim is to simplify and forecast information about foot traffic, enabling each user to make educated decisions on the future behavior and demand of consumers. We do not take responsibility for individual investment decisions, profits, or losses.

 

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Olvin is an AI-powered solution focussed on predicting consumer intent. It leverages billions of real-world data points in a powerful yet easy to use platform. This enables businesses of all sizes to understand what drives their customers in the real world.

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