“Time to make the doughnuts, time to make the doughnuts”
This was the famous line that introduced millions to the Dunkin’ Donuts brand years ago. Dunkin’ Donuts is owned by Dunkin Brands Group Inc (NASDAQ:DNKN), and the company also owns the Baskin-Robbins chain as well. While in the past making doughnuts is what made the company dough, today maybe the line should be changed to, “time to make the coffee and sandwiches.” The company’s focus on drinks and food expands their appeal, and the way they run the business could make the stock a tasty treat.
The Biggest Misconception About This Company
Unfortunately, some analysts still believe that Dunkin Brands Group Inc (NASDAQ:DNKN) is all about doughnuts. However, if you know the real story of this company, you know that a comparison to a competing doughnut maker like Krispy Kreme is completely unfair.
The vision of Dunkin Brands Group Inc (NASDAQ:DNKN) management is clear. Dunkin’ hopes to become a destination for customers looking for hot and cold beverages and great food. The company is continually introducing new breakfast and lunch sandwiches, as well as expanding the variety of their hot and cold beverage offerings. If this sounds like a familiar strategy, it should, because this is the same type of evolution going on at Starbucks Corporation (NASDAQ:SBUX) and Panera Bread Co (NASDAQ:PNRA).
While Starbucks Corporation (NASDAQ:SBUX) expands its food offerings through La Boulange, and Panera Bread Co (NASDAQ:PNRA) constantly adds new items to its menu, Dunkin Brands Group Inc (NASDAQ:DNKN) is determined to keep up. With items like egg white sandwiches, iced hot coffee, and a constant array of new coffee options, this old school doughnut maker is constantly giving customers a reason to come back to the chain.
What Is Okay For Others Is Terrific For Dunkin’ Brands
In the last several quarters, popular growth stocks like Chipotle and Panera Bread Co (NASDAQ:PNRA) have witnessed their stock prices take a dive because of seemingly sub-par same-store sales results. By the same token, Starbucks Corporation (NASDAQ:SBUX) recently saw their stock price take off when they reported that same-store sales were up 8%. Investors need to understand that same-store sales growth at Dunkin Brands Group Inc (NASDAQ:DNKN) is worth more than growth at other companies.
The simple reason Dunkin’ Brands can make more from less growth is that their business model is all about using franchisees instead of company-owned restaurants. In the most recent quarter, Dunkin’ Brands reported an operating margin of 42.1%. To say that this led their peers is a vast understatement, as Green Mountain reported a 20% margin, Starbucks Corporation (NASDAQ:SBUX) came in at 16.4%, and Panera Bread Co (NASDAQ:PNRA) reported a margin of 14.17 %.
Since Dunkin Brands Group Inc (NASDAQ:DNKN) stores are nearly 100% franchised, the company gets a percentage from sales at each store, but doesn’t have the capital expenditures to maintain each location. This is why a same-store sales increase of 4% at Dunkin’ Brands is worth more than a 3.8% increase at Panera Bread Co (NASDAQ:PNRA), and is worth nearly the same as the previously mentioned 8% increase at Starbucks Corporation (NASDAQ:SBUX). Dunkin’ Brands has higher margins, which lead to better EPS growth.