Dunkin Brands Group Inc (DNKN) Donuts Gets Gluten-Free and Expands West

If you live in California, expect to see a lot more Dunkin’ Donuts stores around the corner in the next few years as the chain expands its presence out West. Up to now, Dunkin Brands Group Inc (NASDAQ:DNKN), owner of Dunkin Brands Group Inc (NASDAQ:DNKN), has focused its core business on Eastern markets, such as the New England area, New York, Pennsylvania, and Florida.

The brand has changed in recent years from its 1990’s emphasis on baked goods and its ‘Fred the Baker’ ads to its current focus on beverages, transforming the company to compete more directly with Starbucks Corporation (NASDAQ:SBUX). Its beverage product line, especially its coffee, has provided higher margins for the company. According to Forbes, by expanding west into states like California, Dunkin Brands Group Inc (NASDAQ:DNKN) is moving into Starbucks Corporation (NASDAQ:SBUX)’s territory, where the specialty coffee shop has over 2,000 stores. Dunkin Brands Group Inc (NASDAQ:DNKN) plans to start rolling out its stores in 2015 and coffee ads are already in place promoting the brand.

In another move aimed at customers with dietary restrictions, the company is also planning on selling gluten-free donuts and muffins starting later this year, a first for a major fast-food chain restaurant and something that’s certain to make its other competitors focused on healthier options, such as Panera Bread Co (NASDAQ:PNRA), take notice.

The West running on Dunkin’

In its first-quarter 2013 presentation, Dunkin’ Brands Group Inc (NASDAQ:DNKN) mentions that continued U.S. store expansion is a major long-term growth driver, with the western region of the U.S. providing some of the best opportunities. Dunkin’s first-year sales growth in western and emerging markets grew 30%, while sales growth in Dunkin’s core and established markets grew 17%. It’s clear why Dunkin’ wants to expand west – the western region includes approximately 130 million people and a market penetration of 1:810,000.

The company’s current core market has 36 million people served by 3,866 stores with a market penetration of 1:9,300, while its more established regions have 53.8 million people served by 2,380 stores and a market penetration of 1:23,000.

The company is estimating 330 to 360 net new restaurants in 2013 to achieve a 4.5% to 5% net unit growth rate; 19% of those new restaurants are set to located in the West and should derive about 64% of sales. The company’s full-year 2013 earnings guidance details 6% to 8% growth in revenue, 10% to 12% growth in adjusted operating income, and an EPS between $1.50 to $1.53, equal to a growth of about 15%. Growth for 2014 and beyond is estimated at about 17%.