Dunkin’ Brands Earnings Preview: Sales Growth And Expansion Plans In Focus

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106
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Trefis
DNKN: Dunkin' Brands Group logo
DNKN
Dunkin' Brands Group

Dunkin’ Brands (NASDAQ:DNKN) is scheduled to announce its Q4 earnings on January 31. The stock has gained nearly 20% since the last earnings call when the company raised its guidance. Note that Dunkin’ Brands owns Dunkin’ Donuts as well as Baskin-Robbins. [1] In this earnings report, we look for updates on its same store sales growth, which has slowed in recent quarters, and its expansion plans in both the U.S. and abroad for Dunkin’ Donuts and Baskin-Robbins.

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The U.S. operations of Dunkin’ Donuts contribute around 75% to our overall stock price estimate, as per our estimates. The top line is being driven by same-store sales growth and the addition of new restaurants.

Dunkin’ Donuts added 291 new restaurants in 2012 in the U.S. and plans to add another 330-360 in 2013. Overall, Dunkin’ plans to double the number of its outlets to 15,000 in the next 20 years. To lure franchisees, the company is offering special incentives such as reduced royalty rates in the initial stages and a $10,000 store marketing contribution. [2]

Dunkin’ Donuts’ same-stores have grown 4.5% in the first nine months of the year, but the sales have been slowing down in recent quarters (2.8% in Q3). [1] We expect the same-store sales growth to average about 4% in the long run.

Apart from regular menu additions, the company is looking to introduce a new lunch dedicated menu. Dunkin still has an opportunity to grow in the afternoon segment, a part of the day in which it traditionally has had a limited presence. For example, in 2012, the restaurant chain added breakfast menu of burritos and other items such as Undercover Black Cocoa Donut, Chocolate Lunarmax Donut and Black Cocoa Crème Iced Coffee to its menu.

Since all of Dunkin’ Donuts restaurants are franchised, the restaurant chain derives its income by fees and royalties earned through its franchisees, which are a function of franchise sales. Also, the margins are pretty high (~60%) due to the franchising nature of the business.

Baskin-Robbins International Expansion To Continue

Although Baskin-Robbins’ image in the U.S. has taken a beating, the ice cream chain is doing well internationally. Same-store sales were up 3.6% in the first three quarters of 2012, and the company added 74 new stores in the third quarter alone. [1] The target markets include China, the Middle East, the U.K and Vietnam. The company has also made popular NBA (National Basketball Association) player LeBron James, the brand ambassador of its Asian operations to spur sales in the region. Overall, we estimate there is scope to easily add 250-300 new stores annually for the next few years.

We have a $35 price estimate for Dunkin Brands, which is slightly lower than the current market price.

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Notes:
  1. DNKN 8-k [] [] []
  2. Dunkin’ Donuts moves into Southern California, January 16, 2013, nrn.com []