Dunkin' Earnings Preview: Same-Store Sales, Margins Under Spotlight

Feb 5 2014, 12:59pm CST | by

Dunkin' Earnings Preview: Same-Store Sales, Margins Under Spotlight

Dunkin’ Brands is scheduled to announce its Q4 and full-year earnings on February 6. In addition to the Dunkin’ Donuts brand, the company also runs the Baskin-Robbins chain. Through the three quarters, Dunkin’ generated an income of 97 cents a share. For the full year, the company’s management expects the earnings to be at the lower end of its guidance of $1.50-$1.53 per share. Shares of the company gained almost 50% in 2013 on the back of two solid quarterly earnings.

We have a $48 price estimate for Dunkin Brands, which is in line with the current market price. Stores operating under the Dunkin’ Donuts brand in the U.S. contribute more than 75% to the company’s valuation, as per our estimates.

Here are some of the things to watch out for in the upcoming earnings:

a) Comparable Sales Growth

The same-store sales figure for the first three quarters for Dunkin’ Donuts stores in the U.S. stood at 1.7%, 4% and 4.2% respectively. Harsh weather in the first quarter impacted its sales during the first quarter, but the company has done well otherwise. In the long term, we estimate that Dunkin’ Donuts will be able to grow its comparable sales by 3.5-4% annually. This is primarily because there is a scope to increase sales during the afternoon segments. Till last year, Dunkin’ Donuts generated only 40% of the sales after 11am.

The company has upped its focus on sandwiches and pretzels – items that the diners are likely to consume during the daytime and in the evening. Dunkin’ is also refurbishing its existing restaurants to incorporate cushion seating and TVs in order to attract more customers during the daytime.

Comparable sales, or same-store sales, is an important measure to gauge a restaurant’s performance since it only includes the restaurants open for more than a year and excludes the effect of currency fluctuation.

b) Operating Margins

Since Dunkin’ Donuts is a near 100% franchised brand, it has very high margins. During the third quarter, Dunkin’ Donuts U.S.’ reported margins stayed relatively stable at 74.7%, up 100 basis points compared to the margins in Q3 2012.

Back in 2012, the company announced it was ready to offer incentives such as reduced fee and royalty to its franchisees in order to fulfill its expansion drive. As a result, there could be some deterioration in the long term margins of the company.

Margins will also depend on the magnitude of the comparable sales growth. The majority of the expenses involved in franchising a restaurant brand are fixed (since Dunkin’ doesn’t have to incur labor, occupancy or raw material costs). Therefore, higher franchisee sales spread out the expenses over a bigger revenue base and widen the overall margins.

c) Store Expansion

In 2013, the company added 790 new stores globally, out of which 371 were Dunkin’ Donuts stores in the U.S. In 2014, the company plans to add another 380-410 stores. The Western part of the U.S. is a major focus area for the company since it has little presence in the region. At the start of 2013, there were only 191 Dunkin’ Donuts stores in the Western half of the country.

The company eventually plans to raise that figure to 5,000 stores, including 1,000 in California. Dunkin’ entered into Denver last year and also signed agreements with franchisees to open nearly 90 stores across states such as California, Utah and Colorado by 2014-2015. Overall, Dunkin’ plans to almost double the number of stores in the U.S. to 15,000 within the next 18-20 years.

See full analysis for Dunkin’ Brands

See More at Trefis | View Interactive S&P Capital IQ Analyses (Powered by Trefis)

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Korea Ship Tragedy: Parents Go From Anger To Acceptance While Nation Wallows In Shame
On the crowded floor of the gymnasium in the incredibly pleasant town of Jindo, on the southwestern Korean coast, hundreds of people are going through all the stages of grief. There has been anger, denial, bargaining...
 
 
How To Choose The Right Medium For Your Message
From music streaming services to magazine mobile apps, the last few years have brought us an array of options when it comes to choosing a message’s medium. New platforms, like Vine, have even reinvented publishing...
 
 
New Medicare Data Reveal Startling $496 Million Wasted On Chiropractors
Ten days ago, the federal government released a huge data set detailing how it spent $77 billion in Medicare funds in 2012 to over 880,000 health care providers. The release of this data is part of a new transparency...
 
 
Vault-Like Services Could Be Next Fantasy Sports Success Stories
Billions of dollars are being exchanged among fantasy sports participants, which has led to the rise of subsectors within the fantasy gaming industry.  The most well-known subsector is the rapidly rising daily fantasy...
 
 
 

Latest from the Network

How To Choose The Right Medium For Your Message
From music streaming services to magazine mobile apps, the last few years have brought us an array of options when it comes to choosing a message’s medium. New platforms, like Vine, have even reinvented publishing...
Read more on Business Balla
 
New Medicare Data Reveal Startling $496 Million Wasted On Chiropractors
Ten days ago, the federal government released a huge data set detailing how it spent $77 billion in Medicare funds in 2012 to over 880,000 health care providers. The release of this data is part of a new transparency...
Read more on Business Balla
 
Vault-Like Services Could Be Next Fantasy Sports Success Stories
Billions of dollars are being exchanged among fantasy sports participants, which has led to the rise of subsectors within the fantasy gaming industry.  The most well-known subsector is the rapidly rising daily fantasy...
Read more on Business Balla
 
The Pain & Pleasure Of Branded Social Media
During a recent Bulldog webinar on the subject of media relations 2.0, a senior communications professional from the Public Broadcasting System (PBS) noted that when the organization wanted to announce news, it simply...
Read more on Business Balla
 
Counting Jack Ma's $5 Billion Shopping Spree In 2014
So, how is your 2014 going? For Jack Ma, the past five months were one crazy shopping spree. The 49-year-old billionaire founder and executive chairman of Alibaba Group has been involved in eight major deals with a...
Read more on Business Balla
 
The Weekly Oil & Gas Follies
The Weekly Oil and Gas Follies – Volume 42, April 21, 2014 In which we drill down into the @GDBlackmon Twitter feed to briefly chronicle the week’s silliness, shenanigans, fake news and real news related to the oil and...
Read more on Business Balla
 
The Challenges Of Remote Management: One Manager's Perspective
Sometimes it seems you can learn more about management from sitting at a bar than from reading a textbook. I was recently sitting at a bar at a resort with my wife, and began to chat with the man sitting next to me. ...
Read more on Business Balla
 
Weekend Box Office: Johnny Depp's 'Transcendence' Flops, 'Heaven Is For Real' Soars
Heaven Is For Real is to The Grudge as God’s Not Dead is to The Ring. As the first major Christian-centric film to drop after the surprisingly successful God’s Not Dead, Heaven Is For Real got to capitalize on being the...
Read more on Business Balla
 
How Michael Jordan Outsmarted Robert Johnson And Herb Kohl
The agreed to sale of the Milwaukee Bucks last week by Herb Kohl to Marc Lasry and Wesley Edens for $550 million shows how Michael Jordan outsmarted a billionaire and a U.S. senator. In June 2003, Jordan was considering...
Read more on Business Balla
 
Whatever Happened To Volvo: New York Auto Show Has Answers
NEW YORK — Volvo Cars of North America is on the rebound, neatly symbolized by the new 2015 Volvo V60 station wagon, on display at the New York International Auto Show. “We brought back the wagon – but not the old kind...
Read more on Auto Balla
 
 
Auto Balla Sexy Balla Sport Balla TV Balla Politics Balla Movie Balla Apple Balla Business Balla Ad Balla Celebrity Balla