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Dunkin' Brands Is Positioned for Mouthwatering Growth

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Dunkin' Brands (NASDAQ: DNKN  ) announced earnings for the fourth quarter of 2013 on Thursday, and the numbers were remarkably strong considering the challenging conditions affecting many companies in the industry lately. Even better, Dunkin' Brands looks positioned for sustained growth in the years ahead.

Sweet profits
The company announced a strong increase of 13.3% in revenues for the fourth quarter of 2013, to $183.2 million from $161.7 million in the same quarter of the previous year. The number was above Wall Street estimates of $179.5 million. Adjusted earnings per share increased by an even higher 26.5% annually to $0.43 versus an average estimate of $0.40 per share.

Performance was particularly encouraging in the U.S., with Dunkin' Donuts same-store sales rising by 3.5% and comparable sales at Baskin-Robbins U.S. increasing by 2.2% during the quarter. Harsh weather conditions and lackluster consumer spending have hurt other companies in the industry during the December quarter, but Dunkin' Brands seems to be doing remarkably well in spite of these difficult conditions.

Management is quite optimistic about the future; the company estimates U.S. same-store sales will grow between 3% and 4% at Dunkin' Donuts and 1% to 3% at Baskin-Robbins during 2014. In addition, the company increased dividends by 21% to $0.23 quarterly, which could be interpreted as a sign of financial strength and confidence about the future of the business.

A challenging environment
(NASDAQ: SBUX  ) is the undisputed high-quality leader in the coffee business, and the company continues delivering outstanding financial performance on a global basis. However, U. S. comparable-store sales came in below analysts' estimates during the December quarter, a rare miss coming from a company like Starbucks.

Starbucks investors have nothing to worry about; the company still delivered a healthy increase of 5% in same-store sales in the Americas region. But when a top-notch player like Starbucks delivers lower-than-expected growth, that's clear indication of weak conditions for the industry.

McDonald's (NYSE: MCD  ) has been trying to gain market share in the coffee business with its McCafe concept, but the company has not been able to generate much traction so far. McDonald's could certainly benefit from some successful product innovation, as weak customer demand and rising competitive pressures have produced stagnant growth rates for the fast-food giant over the last several quarters.

Dunkin' Brands is not only performing strongly on a stand-alone basis; it is delivering sound growth in spite of industry headwinds, and that says a lot about the company's fundamental qualities and management team.

Growth initiatives
Dunkin' Brands introduced more than 40 products in 2013, according to CEO Nigel Travis: "Simply put, consumers crave, and I really do mean crave ... and love our beverages and food." So management is receiving encouraging responses from customers to recent product innovation.

The company has abundant room for expansion in underpenetrated regions like the U.S. Southeast, Midwest, and West. California seems to be an especially promising market in the medium term; Dunkin' Brands began selling franchises at the beginning of 2013 and it now has commitments for more than 100 restaurants in that market. Management expects to start opening its first restaurants in California during 2015.

In international markets, the company is refocusing its efforts on countries with higher per-capita average weekly sales, like Germany and the U.K. Dunkin' Brands recently announced a multiyear marketing partnership with Liverpool Football Club, one of the world's most historic and renowned football (American soccer) clubs, in order to increase engagement and brand awareness among European and global consumers.

The company is still benefiting from healthy demand in its main U.S. markets, and it has plenty of room for expansion both in the U.S. and in international locations. As long as management continues executing as expected, there is no slowdown in sight for Dunkin' Brands.

Bottom line
Dunkin' Brands is performing well under challenging industry conditions, and that's a strong reflection of its competitive strengths and management team. In addition, it has a lot of room for expansion, both in the U.S. and internationally. This tasty company looks well positioned to continue delivering mouthwatering growth rates in the long term.

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Andrés Cardenal

Andres Cardenal, CFA is a tenacious researcher of the best investment opportunities around the world. Andres is an economist and CFA Charterholder living in Buenos Aires, Argentina. Naturally flavored. Follow me on Twitter for more investment ideas:

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Related Tickers

8/28/2015 3:59 PM
DNKN $51.69 Up +0.16 +0.31%
Dunkin' Brands Gro… CAPS Rating: ***
MCD $96.25 Down -0.23 -0.24%
McDonald's CAPS Rating: ***
SBUX $55.63 Down -0.32 -0.57%
Starbucks CAPS Rating: ****