Perks Loyalty Programs & Innovative New Items Drive Dunkin’ Brands’ 2014 Sales Growth

-1.84%
Downside
106
Market
105
Trefis
DNKN: Dunkin' Brands Group logo
DNKN
Dunkin' Brands Group

Dunkin’ Brands (NASDAQ: DNKN) delivered strong numbers in its fourth quarter of the fiscal 2014, as it reported positive comparable store sales in the U.S.  In Q4, comparable store sales for Dunkin’ Donuts U.S. increased 1.4%, whereas comparable store sales for Baskin-Robbins U.S. grew 9.3%. The company’s  net revenues grew 5.5% y-o-y in the fourth quarter. As a result, for the fiscal 2014, the company’s net revenues rose 4.9% compared to the previous year, with 1.6% y-o-y comparable store sales growth for Dunkin’ Donuts U.S. and 4.7% y-o-y comparable store sales growth for Baskin-Robbins U.S. [1]

The highlights of the company’s performance in 2014 were: strong growth of both brands in the U.S., the increase in number of transactions despite the economic headwinds, the launch of the DD Perks Loyalty program, and the international expansion and developments in countries, such as Sweden, Austria,  and China. However, 2014 was marked with stiff competition in the breakfast and coffee segment for the restaurant industry in the U.S. The company’s net income for the fiscal 2014 grew 20% y-o-y to $176 million and nearly 25% for the fourth quarter. Dunkin’s food and beverage growth was led by Iced coffee, Dark Roast Coffee, Hot and Iced Espresso, Spicy Smoked Sausage Sandwiches, and the Breakfast Burrito. However, the growth of single serve coffee segment (K-Cups) and packaged coffee in the domestic market had a negative impact on the company’s comparable sales. Pricing for the fourth quarter was more than 150 basis points with overall price hikes, partially offset with special discounts in key product areas, and at particular day parts. This led to an increase in traffic and transactions in both the morning and rest of the day.

To drive growth in 2015, the company launched several new items in the fourth quarter, including Dark Roast Coffee, Croissant Donuts, and Steak Sandwiches, all of which were off to a good start. Moreover, later this year, the company is planning to launch the blender platform, which will offer high quality frozen beverages, including real fruit smoothies with low-fat yogurt, as well as Coolatta Lite.

Relevant Articles
  1. Is Dunkin’ Brands’ Stock Overvalued?
  2. 20% Upside For BJ’s Restaurants’ Stock When Pandemic Subsides?
  3. Can Dunkin’ Brands Survive A Covid Recession?
  4. Donuts Over Burgers: Why Dunkin’ Brands Stock Looks More Attractive Than McDonald’s
  5. Dunkin’ Brands Stock Looks Undervalued At $58
  6. Dunkin’ Brands To Meet Consensus Estimates For FY 2019?

We have a $43 estimate for Dunkin’ Brands, which is approximately 9% below the current market price.

See full analysis for Dunkin’ Brands

Mobile Platform & DD Perks Loyalty Program Improves Customer Experience & Traffic

According to the recent NPD’s food-service market research, customer traffic growth in QSRs was considerably flat during the year ending June 2014, whereas the visits to fine dining restaurants rose 3% during the same period. [2] People in the U.S. are gradually changing their dining preferences and shifting towards organic food items. Fast casual restaurants, such as Chipotle Mexican Grill (NYSE:CMG) and Panera Bread, are stealing away the customer traffic from traditional QSRs.

To sustain its customer count, Dunkin’ Donuts introduced a mobile platform and perks loyalty program. Both the initiatives are quite successful, as the perks loyalty program now has more than 2.5 million members. The program, along with the mobile app, helps the company to track the complete customer journey of the perks member and as a result, the company uses this data to deliver targeted offers to these customers and thus helps to change guest behavior. Moreover, the DD Perks Program helps the company to track and study the spending patterns of its customers in a controlled manner. Because of this, the company witnessed a slight improvement in customer traffic in the latter half of the quarter. In Q4, DD Perks members spent nearly 40% more on  average in a week compared to that of a year ago, whereas their visits increased by 30% over the same period. The company estimates that these programs contributed about 50 basis points to the comparable sales in 2014, and accounted for approximately 3% of the transactions.

Improved Comparable Sales

  • Baskin-Robbins U.S.

Comparable store sales growth for Baskin-Robbins U.S. was 9.3% in the fourth quarter and 4.7% for the entire fiscal 2014. This strong performance was primarily driven by growth in 4 categories: Cups and Cones, Desserts, Beverages, and Take Home. Moreover, a new initiative – One Plus Up marketing program, where a customer gets a free waffle cone on every purchase of a second scoop, drove sales and profitability. On the other hand, the online ordering initiative by Baskin-Robbins U.S. is reaping huge profits for the brand while still being in the infant stage, as it accounted for 5% of all the cake sales in 2014. The company believes that these initiatives, with more improvement and advancements, might attract more customers in 2015.

  • Baskin-Robbins International

Baskin-Robbins international had a tough quarter, as it reported a negative comparable store sales of negative 2.2%. This lowered the segment’s comparable sales growth for the entire year to negative 1.2%. The sluggish performance of the segment was driven by poor performance in Japan, slightly offset by positive growth in the Middle East and Southeast Asian countries, especially its new market, the  Philippines.

  • Dunkin’ Donuts U.S.

The segment reported comparable store sales growth of 1.4% in the fourth quarter and 1.6% for the entire fiscal 2014, driven by increased average check and increases in customer traffic, partially offset by stiff competition and increased demand for packaged coffee. The company remains positive to deliver 3-4% comparable store sales for the segment in 2015.

  • Dunkin’ Donuts International

Dunkin’ Donuts International delivered almost flat comparable sales growth (0.3%) in the fourth quarter, and has negative 2% comparable sales growth for the entire year. The Middle East continued to show improvement, and Korea showed positive growth after many quarters.

Accelerating New Store Openings

Dunkin’ Brands is one of the fastest growing companies by unit count among the quick service restaurants. On January 12, the company released its domestic growth report for the year 2014, in which it mentioned that the company opened a total of 422 net new Dunkin’ Donuts and Baskin-Robbins, out of which 405 were Dunkin’ Donuts stores and the rest were Baskin-Robbins outlets. [3] Internationally, the company opened 282 net new stores, taking the total count of new store openings for the company to 704.

In the fourth quarter, Dunkin’ Donuts U.S. opened 141 net new outlets compared to 149 last year. However, it was enough to take the net new openings for the segment to 405 versus 371 last year. Out of these, 24% of the development was in the core markets, 345 in established markets, 25% in the emerging market, and 16% in the western markets. Most of the Dunkin’ brands’ stores in the U.S. are concentrated in the eastern part of the country, and the company has accelerated its expansion process in the western markets. One of the company’s main focus regions in the western markets is California. Baskin-Robbins U.S. had net 2 closures compared to 4 closures last year in the fourth quarter. Internationally, Baskin-Robbins opened net 75 stores compared to 120 last year, whereas Dunkin’ Donuts opened 46 net new stores.

On January 8, Dunkin’ Brands announced its intent to expand Dunkin’ Donuts in China. The company has signed a long-term franchise agreement with Golden Cup Pte. Ltd, as wholly owned subsidiary of RRJ Capital Master Fund II, which will serve as the franchise partners to open and operate nearly 1,400 Dunkin’ Donuts stores in the country. [4] Dunkin’s expansion activity has increased over the last few months, indicating the company’s intent to increase its customer base and test new markets. For the fiscal 2015, the company expects to open between 410-440 Dunkin’ Donuts outlets and 5-10 Baskin-Robbins outlets in the U.S.  Internationally, the company plans to open 200-300 net new stores across  both brands.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

More Trefis Research

Notes:
  1. Dunkin’ Brands Q4 2014 earnings call transcript []
  2. Income gap and shrinking middle class take a toll on restaurant industry []
  3. Dunkin’ Brands announces 2014 domestic restaurant growth []
  4. Dunkin’ Donuts announces expansion plans in China with signing of largest development agreement in company history []