Breakfast Value Sales Drive Revenues For Dunkin’ Brands In Q3 2017

Dunkin’ Brands (NASDAQ:DNKN)announced its Q3 2017 results on October 26^th 2017 and the company reported a more than 8% increase in revenues, beating analyst expectations. This growth was primarily due to an increase in sales in the mornings driven by breakfast sandwich sales and promotions around value wake-up wraps. Comparable sales of Dunkin’ Donuts U.S. increased by 0.6% in this quarter, driven by an increase in average ticket size, which was offset by a decline in guest count. The company estimated a 50 basis points negative impact due to the recent storms on the comparable sales of this segment. Same store sales of the Baskin- Robbins U.S. segment were negatively impacted by 120 basis points due to the cool and wet weather in several parts of the U.S. and the recent hurricanes.

Below is a segment-wise summary of the company’s comparable sales growth in the past five quarters:

The company’s highest revenue generating segment Dunkin’ Donuts – U.S. continues to struggle to grow traffic and comparable sales in 2017. It has registered a much lower same store sales growth this year (less than 1% compared to nearly 2% last year) due to declining guest traffic.

Below is a summary of the company’s financial performance for Q3 2017:

Despite a significant increase in revenues and operating income in this quarter, the company’s net income did not increase materially due to higher tax related expense pertaining to its recent debt refinancing transaction.

Below is a summary of the company’s segment-wise revenues in Q3 2017:

Going Forward:

• Dunkin’ Brands expects a low single digit growth in comparable sales for its Dunkin’ Donuts U.S. segment and a slightly negative comp growth for Baskin-Robbins U.S.
• The company now expects to add around 300-320 net new restaurants, against the previous guidance of 330-350 restaurants, due to the impact of the recent hurricanes.
• Dunkin’ Brands is looking to use technology and customer data captured via online orders effectively to drive sales in the future.
• Menu innovation and focus on its loyal “Perk” members are likely to be the two key growth drivers for Dunkin’ Brands going forward.

We have a $54 price estimate for Dunkin’ Brands’ stock, which is near the current market price.  We will be updating our model for Dunkin’ Brands based on these results which might lead to a change in our price estimate for the company.

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