Baskin-Robbins Brand Might Decide The Fate Of Dunkin’ Brands in Q2 Earnings

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Trefis
DNKN: Dunkin' Brands Group logo
DNKN
Dunkin' Brands Group

Dunkin’ Brands (NASDAQ: DNKN) is all set to report its second quarter fiscal 2015 earnings results on July 23. [1] DNKN stock rose roughly 17% over the last 6 months. The company delivered strong numbers in its first fiscal quarter earnings report for the fiscal 2015, as the company reported an 8.1% year-over-year (y-o-y) increase in its net revenues, despite the severe weather conditions in many parts of the country. Amid the stiff competition in the U.S. restaurant industry for the breakfast and coffee market share, Dunkin’ Brands is one of the few food and beverage chains to report an increase in customer traffic and transactions in all the dayparts. Apart from reporting strong positive comparable store sales in all its reporting segments, the company reported an increase in customer count and transactions in all the dayparts, amid the stiff competition in the U.S. restaurant industry for the breakfast market share. [2]

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We have a $48 estimate for Dunkin’ Brands, which is roughly 10% below the current market price.

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See full analysis for Dunkin’ Brands

Baskin-Robbins: Still The Deciding Factor

In 2014, Dunkin’ Brands reported approximately 5% increase in the net revenues, with positive revenue growth in all the segments. However, the tremendous revenue and comparable sales growth in Dunkin’ Donuts segments was partially offset by the sluggish performance of the Baskin-Robbins segments. According to Trefis estimates, the contribution of Baskin-Robbins U.S. to the company’s net revenues declined to 5.8% in 2014 from 6.9% in 2011, whereas the revenue contribution of Baskin-Robbins International has declined to 16.4% in 2014 from 17% in 2011. Thinning margins of Baskin-Robbins International and slow growth in Baskin-Robbins U.S. slowed down the company’s top-line growth.

Dunkin-Donuts: Focus On Coffee Portfolio Expansion

On the other hand, stiff competition in the U.S. restaurant industry is a major concern factor for the Dunkin’ Donuts U.S. segment. Fast casual restaurants, such as Chipotle Mexican Grill’s (NYSE:CMG) and Panera Bread, with their healthier and fresher food menu items are stealing away the customer traffic from the fast food restaurants. As a result, the only battle left among the fast food restaurants is that for the breakfast market. Dunkin’ Donuts, as mentioned before, has not lately faced any pressure in terms of customer traffic. Moreover, the company also has an upper hand over its counterparts with its market share in coffee.

Earlier in February 2015, Dunkin’ Brands and Keurig Green Mountain (NASDAQ:GMCR) announced the decision to expand their partnership for the manufacturing, marketing, and distribution of Dunkin’ K-Cups available in retail stores in the U.S. and Canada; and on online platforms. [3] This deal also included that the J.M. Smucker Company will distribute and market Dunkin’ K-Cup packs to grocery stores and other retail locations. On May 27, 2015, the Dunkin’ Donuts K-Cup Packs were made available in retail stores nationwide. [4] With Dunkin’ coffee spreading more widely among the customers, the incremental revenues will provide a positive boost to the average net revenue for the Dunkin’ Donuts U.S. segment.

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Expansion Plans To Continue Strong With Western Markets In Focus

Being one of the fastest growing companies in terms of unit count, Dunkin’ Brands plans to expand in the non-targeted areas domestically, western markets being the primary focus. In the first quarter, the company opened 79 net new restaurants worldwide, with 78 net new Dunkin’ Donuts stores in the U.S. Among these new developments, 8% growth was in the core markets, 45% in the established markets, 23% in emerging markets, and 24% in western markets.

Earlier this year, 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. [5]

These new store openings in different geographies will expand the company’s reach and should be a positive in the long term.

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Notes:
  1. Dunkin’ Brands, earnings conference call []
  2. Dunkin’ Brands Q1 2015, earnings call transcript []
  3. Dunkin’ Brands, The J.M. Smucker company and Keurig expand partnership to make Dunkin’ K-Cup packs available at retail outlets nationwide and online []
  4. Dunkin’ Donuts K-Cup pods now available in retail outlets nationwide []
  5. Dunkin’ Donuts announces expansion plans in China with signing of largest development agreement in company history []