Dunkin’ Brands (NASDAQ:DNKN) announced solid first quarter results, although harsh weather conditions affected its sales negatively. Total revenues still managed to grow 6.2% to $161.9 million, aided by new store openings. However, net income dropped 8.3% to $23.8 million, primarily due to charges related to debt repricing to the tune of $5 million in February this year. 
Weather was a dampener this quarter as storms in the Northeast, one of Dunkin’s core markets, impacted the customer traffic negatively. The restaurant chain’s same-store sales stood at a tepid 1.7%, lower than the management’s long term guidance of 3.5-4%. Comparable sales, or same-store sales, is an important measure to gauge a restaurant’s performance since it only includes the restaurants open for more than a year and excludes the effect of currency fluctuation.
A number of restaurant chains including Chipotle Mexican Grill (NYSE:CMG) and McDonald’s (NYSE:MCD) are struggling to post strong same-store sales since a warmer winter last year resulted in better-than-expected sales. Dunkin’s comparable sales were up 7.2% in the previous year quarter so the result comes on top of a high base.
Due to one-time events affecting the results this quarter, we estimate the remainder of the year to be much stronger. Dunkin’ Donuts’ American operations contribute more than 75% to the stock price, as per our estimates.
Most importantly, the company sustained its margins. When the comparable sales slow down, there is a concern that the margins might also get dragged lower. The company-reported operating margins widened 60 basis points to 72.6%. Almost all of the restaurants operating under the Dunkin’ brand are franchised and is the reason why the margins are that high.
The company opened 78 new Dunkin’ Donuts stores across the United States. The full-year target set by management is between 330-360. Overall, the bigger picture for the brand is to double the number of stores in the U.S. to 15,000 within the next twenty years.
In total, the results look solid provided the guest count rebounds, now that the weather has normalized. The restaurant chain will also be looking to attract more customers with the help of new introductions such as Turkey Sausage Breakfast Sandwich, Angus Steak and Egg Breakfast Sandwich etc, scheduled to debut in 2013. There is an opportunity for the restaurant chain to attract more footfalls during the afternoons since Dunkin’ Donuts is typically associated with breakfast meal. Adding new sandwich and bakery products should boost their post-noon sales.
We have a $39 price estimate for Dunkin Brands, but we are in the process of revising our estimates in order to incorporate the latest earnings.