Dunkin Brands Group Inc (NASDAQ:DNKN), the parent company of Dunkin’ Donuts and Baskin-Robins, reported its fourth quarter earnings on Thursday before the market opened. The company reported EPS of $0.34 with $161.7 million in revenue. Analysts were expecting the company to report $0.33 with $171.7 million in revenue. Shares traded higher after the announcement and closed the day up $0.73, or 2.04%. In this article I will highlight some specifics from the
report and conference call as well as take a look at the future prospects domestically and internationally for the company.
Fourth quarter highlights:
1). 3.2% Dunkin’ Donuts U.S. comparable store sales growth
2). Added 256 net new restaurants worldwide including 149 net new Dunkin’ Donuts in the U.S.
3). Adjusted operating income up 16.1% on a 13-week basis
4). Adjusted operating income margin to 47.6%
5). Adjusted EPS up approximately 21% to $0.34 on a 13-week basis
6). Board of Directors declare $0.19 first quarter dividend for a 27% increase over the company’s fourth quarter 2012 dividend
In the report, Nigel Travis, Chief Executive Officer and President of Dunkin’ Donuts U.S., had this to say about the quarter:
“We have the unique combination of strong brand heritage and significant U.S. and global restaurant expansion opportunities, which we are capitalizing on to drive profitable growth for both our franchisees and shareholders. Our contiguous, strategic development approach is working, and we’re excited to begin selling Dunkin’ Donuts franchises in California. Despite macro-economic instability and a tough competitive environment, consumer and franchisee demand for Dunkin’ Donuts is high, our franchisee relationships are strong, and we continue to leverage our asset-light business model giving us confidence to target 15 percent plus adjusted earnings per share growth in 2013.”
The company reported it now has 7,306 points of distribution, which is 291 points higher than last year. The company recently announcedits plans for westward expansion into the previously untapped markets of Southern California by 2015. I currently live in California myself but attend school on the east coast. Since making the transition to the east coast, I have become a daily Dunkin’ Donuts patron myself due to the fast service and the many locations that surround my campus. I am very confident that the brand will thrive in California as the company has built a strong U.S. brand and offers high quality options for a reasonable price.
In addition, the western climate will benefit the cold coffee items which dominate the current menu. The company wants to add 330 to 360 new stores this year in both its new markets and existing markets. The long term goal is to grow the distribution points by 5% yearly up to a total of 15,000 locations. I will be looking to see if the company can expand its distribution points while meeting analyst expectations of strong same store sales growth. The company seems to be controlling its expansion to reasonable rates as I am sure they have learned from
Starbucks Corporation (NASDAQ:SBUX)’s past overexpansion problems. Previously, Starbucks saturated the market by expanding its store base far too quickly. However, I still remain concerned that growth could be slowed by Starbucks’s plans to increase its U.S. store count by 1,500 locations. I believe the U.S coffee market will absorb the additional stores as I have confidence that Howard Schultz, president and chief exective officer, won’t allow the company to overexpand again. Lastly, Starbucks will be adding drive through options to many of its new and old stores which will compete directly with Dunkin’ Donuts.