Dunkin’ Brands Misses Q1 2017 Sales Estimates, Comps Remain Flat

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

Dunkin’ Brands (NASDAQ: DNKN) announced its Q1 2017 results on May 4th 2017 and amidst a challenging restaurant environment the company reported revenues which were lower that the consensus estimates. Comparative sales growth for its most important segment — Dunkin’ Donuts U.S. was flat and Baskin-Robbins U.S. reported a 2.4% decline in comp store sales. While Q4 2016 was a strong quarter for the company, expectations around its top line were not very high among analysts for this quarter. However, the company failed to meet these expectations and registered only a 0.5% year on year increase in revenues. EPS continues to remain strong as the company adopted new accounting standards for reporting stock based compensation.

Dunkin E1

The increase in global system-wide sales was primarily due to store development, however comparable sales for its most significant segment, Dunkin’ Donuts U.S., remained flat for this quarter. While the average ticket size increased and menu innovations such as breakfast sandwiches registered higher sales, these gains were offset by an overall decline in traffic, leading to lower comps. The company’s core North East markets were hit badly due to weather conditions in March, which accounted for a 60 basis points headwind in comparable sales. Going forward, the company believes that brand differentiation will be key to attract and retain demanding customers in a challenging retail industry. To create this differentiation the company is working on several products such as frozen coffee (which will be launched in the coming months) and ready to drink bottled iced coffee which was launched during Q1 2017.

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Dunkin E2

The company’s Dunkin’ Donuts U.S. segment, which accounts for a significant portion of its revenues, drove the minor increase in revenues this quarter. This segment reported a 2.3% increase in revenues driven primarily by an increase in royalty incomes as the company grows its restaurants in this brand. International segments continue to face headwinds as the company struggles to establish itself in several regions including the Middle East and South Korea.

Dunkin E3

The significant decline in revenues of Dunkin’ International was because the prior period included a significant market development fee which was recognized upon entry into a new market.

Dunkin’ Brands continues to develop new restaurants which were a key driver of growth in revenues during this quarter.

Dunkin E4

However, in the international segment, this growth appears to be slowing down as both its brands saw net openings negative for this quarter.

Q1 2017 was disappointing for Dunkin’ Brands as the company struggled to grow revenues in a challenging retail environment as it loses traffic to competition. However the company has a strong growth strategy in place to create brand differentiation. Its asset light, 100% franchised model is likely to work in its favor as it works towards creating value for its customers via its technology and menu innovation initiatives in the long term.

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