Dunkin’ Reports Growth In Top Line In Q4’16, Driven By Higher Comps

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

Dunkin’ Brands (NASDAQ: DNKN) reported its fourth quarter and full year 2016 results on 9th February, 2017, beating the consensus for earnings. The first three quarters had been lukewarm for Dunkin’, showcasing only slight growth. The weakness in the top line was expected due to the tough environment for the restaurant industry, which was struggling amidst a deceleration in traffic and decline in comparable sales. However, in the fourth quarter of 2016, the company did a u-turn, growing its revenues at roughly 6% y-o-y. Furthermore, the company impressed by increasing its segment revenues across all divisions. In terms of bottom line, Dunkin’ grew its EPS to 0.61 per share, supported by the company’s share buyback program, and fiscal discipline the company had been practicing to curtail its expenses.
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The strength in Dunkin’s top line for consecutive quarters can be accounted through the growth in comps at Dunkin’ U.S. and Baskin International. While Dunkin’ U.S. comp store sales growth came in strong from higher sales of cold brew, donuts, and breakfast sandwiches (Sweet Black Pepper Bacon), Baskin’s U.S. comps were negative in the quarter, likely due to declining traffic, slightly offset by the new offering of Polar Pizza. The trend internationally was completely the reverse for both Dunkin’ and Baskin-Robbins, with Dunkin’ showing a decline in comps (likely due to a shutdown in openings) and Baskin growing.
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Furthermore, in terms of revenues, an increase was seen in all segments, barring Dunkin’ International. The main revenue driver was Dunkin’ U.S., mainly due to higher franchisee fees charged by the company and higher royalty income from an additional week in the quarter. On the other hand, Dunkin’ International witnessed a decline in franchise fees, despite sales growth in the Middle East, Asia, South Korea, and South America. Talking now about Baskin, the U.S. and International division, both saw higher revenues as licensing income grew. However, the trend in terms of sales of ice cream and other products was reverse in the two geographies, declining in U.S. and rising internationally.16032017160320172

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Going Forward

The company has successfully adopted a 100% franchisee model, selling and converting all its restaurants into franchisees. It expects to open approximately 385 new Dunkin’ outlets and 10 Baskin’ outlets in the U.S. by the end of 2017, while internationally the store openings will be limited to 200 for both the brands. Furthermore, it expects its full year revenues to come in the low to mid-single digit range, while it expects the comps in the U.S. to grow in the low single digit range.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Dunkin’ Brands

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