Dunkin' Brands Group, Inc. DNKN posted strong first-quarter 2015 results wherein earnings and revenues beat the Zacks Consensus Estimate. Shares of Dunkin’ rose 7.9% in response to the company’s results and the upped guidance.
The company's adjusted earnings of 40 cents per share beat the Zacks Consensus Estimate by 11.1%. However, the figure was higher than the prior-year figure of 43 cents by 7%, mainly due to higher revenues.
Dunkin' Brands Group Inc. - Earnings Surprise | FindTheCompany
The restaurateur's revenues increased 8.1% year over year to $185.9 million, driven primarily by revenue recognized in connection with the Dunkin' K-Cup pack licensing agreement with Keurig Green Mountain, Inc. GMCR and The J. M. Smucker Company SJM, along with increased royalty income as a result of system-wide sales growth, offset by a decrease in sales of ice cream products. Further, it beat the Zacks Consensus Estimate of $190.0 million by 2.4%.
Inside the Headline Numbers
Dunkin' Brands operates through its Dunkin’ Donuts and Baskin-Robbins brands.
System-wide comps increased 6.2%, primarily due to global store development and Dunkin' Donuts U.S. comparable store sales growth. comps growth. Further, it was much higher than the year-ago quarter’s increase of 4.3%.
Dunkin’ Donuts
Comps increased 2.7% in Dunkin’ Donuts U.S. division, driven by higher traffic and increased average ticket resulting from the company’s continued focus on product and marketing innovation. Comps growth was better than the 1.2% improvement in the prior-year period. However, traffic growth was significantly disrupted by severe weather in the first quarter. The company announced that weather resulted in approximately 60 basis points of negative impact in the quarter.
In Dunkin’ Donuts International division, comps increased 1.7%, better than a decline of 2.4% in the prior-year quarter. Comps growth was driven by sales growth in the Middle East and Asia, offset by weak performance in South Korea.
Baskin Robbins
Comps increased 8.0% in the Baskin Robbins U.S. division, far better than the 0.5% growth in the prior-year period, thanks to strong sales in the Cups & Cones, Desserts, Beverages, and Sundaes as a result of news on flavors and increased sales of cakes, stimulated by online cake ordering.
At the Baskin Robbins International division, comps increased 0.3%, which compared unfavorably with 1.4 % improvement a year ago. Poor performance in Japan and Europe led to the comps decline.
Expense and Margins Details
Total operating cost and expenses increased 4.7% year over year to $105.1 million, due to higher occupancy expenses and higher company-owned restaurant costs partly offset by lower general and administrative expenses and cost of ice cream products.
Adjusted operating income increased 8% to $87.6 million, primarily as a result of increases in royalty income and the revenue recognized in connection with the Dunkin' K-Cup pack licensing agreement.
Adjusted operating income margin climbed 120 basis points year over year to 48.9%
Store Update
In the first quarter, Dunkin' Brands’ franchisees and licensees opened 79 restaurants worldwide. This includes 78 Dunkin' Donuts U.S. locations, 22 Baskin-Robbins International outlets. Also, 21 Baskin-Robbins international locations were closed. Additionally, Dunkin' Donuts U.S. franchisees remodeled 95 restaurants during the quarter.
2015 Guidance Upped
The company expects adjusted earnings per share to be in the range of $1.87 to $1.91, up from the prior guidance of $1.83 to $1.87. Revenue growth is expected to be between 6%-8%, up from 5% and 7%.
Adjusted operating income growth is expected to range within 7-8%, up from the prior range of 6–8%. The company is updating these targets to reflect the financial impact of the agreement with The J. M. Smucker and Keurig to make Dunkin' K-Cup packs available at additional retail outlets in U.S.
The company expects both Dunkin Donuts and Baskin Robbins U.S. comps to grow in the 1–3% range in 2015.
The company expects that Dunkin' Donuts U.S. will add 410 to 440 net new restaurants, while Baskin-Robbins U.S. to add 5 to 10 units.
Internationally, the company is targeting 200 to 300 net new restaurant openings across the two brands. In total, globally, the company expects to open between 615 and 750 net new units.
Our Take
Dunkin’ Brands’ has been working to expand its doughnut-and-coffee brand in the U.S. and improve performance globally. Additionally, menu innovation and addition of healthier items will perk up sales in the coming quarters.
However, we are concerned by a saturated fast food restaurant segment, especially in the U.S. Also, a major share of the company’s revenues comes from the breakfast segment, where is stands the risk of losing market share to companies like McDonald's Corp. MCD, Starbucks and Yum! Brands, Inc.’s Taco Bell.
Dunkin’ Brands currently has a Zacks Rank #3 (Hold).
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