Will Expansion Of Stores Be Key For Dunkin’ Brands In 2019?

by Trefis Team
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Dunkin’ Brands (NASDAQ:DNKN) announced its 4th quarter and full year results recently. For Quarter 4 the company beat consensus estimates for earnings but missed consensus revenue expectations for the quarter by $10.23 million. Overall, for the Fiscal Year 2018 the company posted $1.32 billion in revenue and $239 million as Net Income. The company added a net new 392 stores (278 in US). The comparable sales growth for Dunkin’ US was 0.6%, Baskin-Robbins US was down by 0.6%, while the International segments for Dunkin’ and Baskin-Robbins was up by 2.2% and 3.8%, respectively.

 

We have a $76 price estimate for Dunkin’ Brands. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard Our Outlook for Dunkin’ Brands in FY 2019 and Estimate Its Fair Price by modifying different drivers, and see their impact on the net income and price estimate for the company. In addition, all Trefis Consumer Discretionary Data is here.

Key Factors That May Impact Results Going Forward:

Simplified Menu: In the first quarter, DNKN completed the national rollout of its menu simplification, which resulted in a 10% reduction of required menu items. This step is expected to help in the long run by reducing the complexity, which should help deliver a better guest experience, improve order accuracy, drive franchisee profitability, and ultimately, increase restaurant level margins.

 

Expanding Its Footprint: Dunkin’ Brands is looking to expand the footprint of Dunkin’ U.S. at a 3% annual rate, adding around 1,000 new restaurants by 2020. The company is also on track to convert its existing restaurants into NextGen stores to offer better customer service.  At the end of the fiscal year 2018, 392 net new locations were added in the country, and the company now has 132 new and remodeled NextGen restaurants. The company remains on track to deliver 90% of net restaurant growth outside of its core markets by the end of 2020. New restaurants add to revenue growth, and should positively impact the company’s valuation.

 

Branded CPG Products: DNKN’s total portfolio of CPG products across both brands in retail sales delivered 5% of retail stores growth for the fiscal year 2018. New and innovative product launches, such as the new ready-to-drink flavor, Cookies & Cream, should help to ensure continued growth from this avenue.

 

Convenience To Customers: Dunkin’ Brands is looking to increase the conveniences it offers to its guests with several initiatives such as a focus on its loyalty program, testing a digital catering platform, and tying up with third-party delivery options with a goal of creating a strong delivery and catering platform by the end of next year. The company has grown its partnership with DoorDash, who now covers over 70% of Baskin-Robbins stores across the U.S. which is a 40% increase in coverage year on year.  The consumer response to this remains positive, with delivery orders on average carrying a ticket that is 50% higher than that of the restaurant. The company is also working on building a dedicated mobile order drive-thru lane to ensure speed of service to its digital customers.

 

Investment Into Dunkin’ U.S.: Earlier this year, the company announced its intention to invest approximately $100 million into the Dunkin’ U.S. business, with about 65% of this investment allocated toward equipment that would accelerate its beverage-led strategy. In this regard, the company noted solid growth across its beverage portfolio, led by Espresso, Cold Brew, and Frozen categories. The management also stated that a significant portion of these funds will go toward new espresso equipment and consequently, revitalizing a critical, high-growth category for its business.

 

Launch Of Value Platforms: In April 2018 DNKN launched its national value platform, Go2s, and the company noted that more than 75% of these breakfast sandwich transactions contained a beverage, and the average check size was roughly $8-$9. The company took a break to test different national value iterations, but beginning in January they are back with a  similar Go2s platform and an afternoon beverage break offer.

 

In conclusion, Dunkin’ Brands had a strong 2018 and is on the path to continue the growth momentum in 2019. We believe expanding presence, value platforms, and digitization will lead the way for a strong fiscal year 2019.

 

 

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