Dunkin’ Brands Reports Strong Q3 With Wider Global Presence And Moderate Sales Growth

Dunkin’ Brands (NASDAQ:DNKN) announced strong Q3 earnings as the precarious global economy could not prevent the company from upping its full year profit guidance. The company now forecasts its full year profit in the region of $1.25 to $1.27 per share, up from the previous estimate of $1.22 to $1.25. ^[1] Dunkin’ Brands owns Dunkin’ Donuts as well as Baskin-Robbins.

Revenues for the quarter climbed 5% to $171.7 million while net income quadrupled to $29.5 million. This is in stark contrast to other fast food chains such as McDonald’s (NYSE:MCD) and Chipotle Mexican Grill (NYSE:CMG), whose shares were punished for posting weak earnings.

See full analysis for Dunkin’ Brands

Accelerated Expansion

Revenues for Dunkin’ Donuts U.S. jumped 5.8% to $123.6 million. Dunkin’ Donuts’ U.S. operations contribute around 77% to the overall stock price, according to our estimates. The restaurant chain has more than 7,000 outlets in the U.S. and the company plans to double that number to around 15,000 within the next 20 years. The fast food chain added 78 new Dunkin’ Donuts outlets across the U.S. in the third quarter. It now plans to add a total 280 to 300 Dunkin’ Donuts outlets in the U.S. in 2012 (up from the previous estimate of 260 to 280).

The company still has no presence in California, where it is working on building infrastructure to support its operations. The western part of the U.S., in general, represents a significant growth opportunity for Dunkin’ since its penetration is only 1 store for one million people (as of 2011 end).

Comparable sales growth, or comp sales, rose 2.8% for Dunkin’ Donuts’ U.S. operations, which are below the previous quarter’s 4.0%. However, the restaurant chain is still on track to meet its full year comp sales forecast of 4% since the figure stood at 7.2% in Q1. Sales in the third quarter were helped by the introduction of Angus steak & egg sandwich at the start of 2012 and continued expansion of Dunkin’ branded K-cups coffee packs in Dunkin’ Donuts outlets. Note that all of Dunkin’ Donuts restaurants are franchised and therefore the restaurant chain derives its income by fees and royalties earned through its franchisees, which are a function of franchise sales.

Baskin-Robbins Impresses

Baskin-Robbins international’s revenues jumped 7.2% to $29.7 million helped by new restaurant additions and comparable sales growth of 3%. This moderate comparable sales figure helped increase royalty income and franchisee fees, which enabled the company to widen its operating margin to 54.1% from 51.5% a year earlier.

In the U.S., Baskin-Robbins has different dynamics however. The company plans to close down 40 to 60 outlets in 2012. Closing down the under-performing outlets has been one of the measures taken by the company to revive the brand. In 2011, 90 Baskin-Robbin outlets were closed across the U.S. With the help of store closures and increased advertisements, comparable sales growth of 0.5% in 2011 was the first time since 2007 that the figure was positive. Comparable sales for Baskin-Robbins U.S. are up 1.1% in Q3.

We have a $34 price estimate for Dunkin Brands, but we are in the process of revising our estimates to incorporate the Q3 earnings.

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