After Smashing Earnings, Is Dunkin' Scorching Hot?

After the company reported earnings on Feb. 6, shareholders of Dunkin' Brands Group (NASDAQ: DNKN  ) are probably asking which is hotter, Dunkin's coffee or its stock. In the two trading days following its earnings release for the fourth quarter of its 2013 fiscal year Dunkin', the parent company of Dunkin' Donuts and Baskin-Robbins, saw its shares rise nearly 4%. Despite how steaming this company might be, there has to be a limit to how much investors are willing to pay for it. Has Dunkin' hit this point or is there more room to run before it hits fair value?

Earnings and revenue were strong!
For the quarter, Dunkin' reported revenue of $183.2 million. This was roughly 3% higher than the $178.5 million that analysts anticipated and a whopping 13% above the $161.7 million the company reported for the same quarter a year earlier. In its earnings release, Dunkin's management attributed the rise in sales to two things; greater store count and improved comparable-store sales.

During the fourth quarter alone, Dunkin' opened a total of 309 locations globally. Of these, 193 were under the Dunkin' Donuts brand, while the remaining 116 fell under the company's Baskin-Robbins brand. For the year, this rise in store count increased the company's locations to 790, which implies a 4.5% jump in the number of locations in operation.

On top of new additions, Dunkin' boasted rises in comparable-store sales across three of its four operating segments. In its Dunkin' Donuts U.S. segment, comparable-store sales rose 3.5%. This was higher than the 2.2% rise in comparable-store sales experienced by its Baskin-Robbins U.S. segment or the 1.6% rise in the company's Baskin-Robbins international segment. Only its Dunkin' Donuts International segment disappointed, with comparable-store sales declining by 0.3%.

These two factors allowed Dunkin' to report earnings per share that exceeded the forecasts provided by analysts. For the quarter, management reported that earnings came in at $0.39, beating out last year's result of $0.32. Adjusting for expenses that the company believes to misrepresent the business, its earnings came out to $0.43. This was three cents higher than forecast and 26.5% more than the $0.34 the company reported for the same quarter last year.

Dunkin' still falls short of the competition!
Over the past five years, Dunkin' has had quite a run. Between 2009 and 2013, the company's revenue has jumped 33% from $538.1 million to $713.8 million. Over that time frame, the company's net income soared 320% from $35 million to $146.9 million. The disparity between Dunkin's top-line and bottom-line growth primarily came from the drop in the company's operating expenses (inclusive of cost of goods sold), which fell from 65.7% of sales in 2009 to 57.3% in 2013.

Although this performance was impressive, how does Dunkin' measure up to peers like Starbucks (NASDAQ: SBUX  ) and Green Mountain Coffee Roasters (NASDAQ: GMCR  ) ? Surprisingly, despite Dunkin's extraordinary growth, it doesn't compare to the metrics reported by both of these rivals.

Over the past five years, for instance, Starbucks saw its top line grow 52% from $9.8 billion to $14.9 billion. Like Dunkin', the company benefited from a greater number of locations in operation and a jump in comparable-store sales. In terms of net income, however, Starbucks' performance wasn't quite so straightforward.

Despite improved revenue, Starbucks has seen its net income fall 98% from $390.8 million to $8.3 million. However, if you remove the negative effect which resulted from the $2.8 billion judgment won by Kraft against Starbucks (which can be justified since it was a one-time expense), the company's net income would have grown 325% to $1.7 billion.

The growth experienced by Green Mountain has been even more impressive. Over this time horizon, the business saw its revenue grow a whopping 454% from $786.1 million to $4.4 billion. From a profitability perspective, the company's performance has been even stronger.

Over the past five years, Green Mountain has seen its net income rise 788% from $54.4 million to $483.2 million. Higher revenue was partially to thank for the rise in profitability but the company also benefited from a decrease in costs, which fell from 88.1% of sales to 82.4%.

Foolish takeaway
Based on Dunkin's performance for the quarter as well as its five-year performance, it's quite easy to say that the company has a lot to offer. While this likely implies that Dunkin' could be an attractive opportunity for the Foolish investor, it's important to know that both Starbucks and Green Mountain have stronger histories of performance. For this reason alone, investors would be wise to consider a stake in either of Dunkin's rivals before jumping into the fray, as they could potentially offer more attractive prospects.

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