Dunkin Brands Group (DNKN) sales and profits have spiked higher and higher even as traffic has leveled off at its Dunkin’ Donuts and Baskin-Robbins restaurants.
The company’s latest quarterly results show revenue of $359.3 million as compared to $350.6 million in the same quarter from the year prior. The company’s operating income increased nearly 8% in this period of time. Dunkin’s adjusted earnings per share spiked just under 12% from one quarter to the next. It appears as though the picture is quite rosy for Dunkin at the moment. The question is whether the momentum will continue across the short-term and in the years ahead.
Dunkin’s Expansion
Dunkin is expanding across the globe, bringing its donuts, bagels and coffee to an array of new locations. Franchisees launched 46 new stores in the United States and 109 total Dunkin/Baskin-Robbins restaurants across the world. All in all, Dunkin ended the most recent financial quarter with 21,000 sites. Dunkin stores numbers add up to just under 13,000 while the company has nearly 8,100 Baskin-Robbins stores.
Sales Trends
Dunkin’s comparable store sales are up nearly 2%, helping push revenue up about 2.5% or $359.3 million in aggregate dollars. The same-store sales figures are partially attributable to the spike in consumer demand for the company’s espresso drinks. In fact, espresso is the company’s fastest-growing sales category. All in all, Dunkin’s espresso sales for the most recent quarter are up 40% compared to the same period a year ago.
Dunkin Brands Group’s most recent quarterly numbers reveal the company’s Baskin-Robbins comparable store numbers are down nearly 1.5%. Traffic was down for the ice cream chain across the quarter. Even Dunkin Donuts’ stores in the United States had a traffic dip in the most recent quarter. Despite the fact that traffic is down to both restaurants, the Dunkin Brands Group has become that much more profitable. The company’s operating income spiked by nearly 8% to $122 million.
What Does the Future Hold for Dunkin Brands Group?
Dunkin executives have boosted the profit forecast for fiscal 2019 to an adjusted earnings per share of $3.05 as opposed to the former expectation of $3.02. This is quite the increase from the previous guidance range between $2.94 and $2.99. Dunkin executives reiterated their plan to open 250 new Dunkin locations in the United States in the year ahead. Company leaders also revealed comparable store sales for its Baskin-Robbins locations in the United States will likely level off or even end up negative in the quarter to come. This is an important prediction as Dunkin leaders had previously anticipated Baskin-Robbins comparable store sales growth to be in the low single digits.
The company will also expand deliveries to new markets outside of New York City. Boston, Philadelphia and Chicago are next in line for Dunkin’s new delivery service. The company considers its delivery service to be an accelerator of sales yet there is no guarantee it will prove successful across posterity. At the moment, Dunkin’s delivery sales account for merely 3% of the company’s yearly sales. In other words, delivery will not have much of an impact on the company’s bottom line for the foreseeable future.
Buy, Sell or Hold?
Sell or hold. It is clear Dunkin Brands Group has some intelligent leadership. However, smarts at the executive level will only carry this company so far. Walk into a Dunkin’ Donuts or a Baskin-Robbins and you will likely be slightly unimpressed with the experience. Dunkin stores have a few tasty offerings yet most cities have superior breakfast options. Baskin-Robbins is a brand favored by older customers as opposed to the much-desired millennial customers. The bottom line is Dunkin Donuts and Baskin-Robbins do not do anything particularly well. The food is a bit above average, the coffee is ho-hum and the service often leaves much to be desired. Do not assume a spike in espresso sales will be enough to maintain customer interest. Both restaurants are struggling to increase their comps at the desired rate. You can find better places to park your money for the short or long-term.
If you own Dunkin Brands Group, consider selling some of your shares.
Regards,
Ethan Warrick
Editor
Wealth Authority
