Starbucks (NASDAQ: SBUX ) and Dunkin' Brands (NASDAQ: DNKN ) are two of the largest owners, operators, and franchisers of quick-serve restaurants in the world, with over 38,000 locations between the two of them. Both companies released their earnings on April 24, so let's break down the reports to determine which had the better quarter and could provide the highest returns for investors going forward.
Breaking down the quarterly results
On April 24, Starbucks released record-setting second-quarter results, but they were mixed in comparison with analysts' expectations; here's a breakdown and a year-over-year comparison:
|Earnings Per Share||$0.56||$0.56|
|Revenue||$3.87 billion||$3.95 billion|
- Earnings per share increased 17%
- Revenue increased 9.1%
- Comparable-store sales data by region:
- The Americas: 6% growth
- Europe, the Middle East, & Africa: 6% growth
- China & the Asian Pacific: 7% growth
- Overall: 6% growth
- Operating income increased 18.4% to $644.1 million
- Operating margin expanded 130 basis points to 16.6%
- Maintained its quarterly dividend of $0.26 per share
- Opened 335 net new stores, bringing its total count to 20,519 worldwide
On the same day of Starbucks' release, April 24, Dunkin' Brands released its first-quarter report and the results missed analysts' expectations; here's a breakdown and a year-over-year comparison:
|Earnings Per Share||$0.33||$0.36|
|Revenue||$171.90 million||$172.66 million|
- Earnings per share increased 13.8%
- Revenue increased 6.2%
- Comparable-store sales data by brand and segment:
- Dunkin' Donuts U.S.: 1.2% growth
- Dunkin' Donuts International: 2.4% decrease
- Baskin-Robbins U.S.: 0.5% growth
- Baskin-Robbins International: 1.4% growth
- Operating income increased 7% to $75.6 million
- Operating margin expanded 30 basis points to 44%
- Maintained its quarterly dividend of $0.23 per share
- Opened 96 net new stores, brining its total to 18,254 worldwide
What will the remainder of the year hold?
As a result of its strong second quarter, Starbucks reaffirmed its growth projections and raised its earnings per share guidance for the full year of fiscal 2014; here's what the company now expects the year will hold:
- Earnings per share in the range of $2.62-$2.68, an increase of 15.9%-18.6% from fiscal 2013
- Revenue growth of 10% or more
- Global comparable-store sales in the mid-single-digits
- Operating margin expansion of 175-200 basis points
- Approximately 1,500 net new stores
Even though Dunkin's earnings disappointed, the company reaffirmed its full-year outlook which shows that it does not expect this situation to continue. Here's what Dunkin' expects to accomplish in fiscal 2014:
- Earnings per share in the range of $1.79-$1.83, an increase of 17%-20% from fiscal 2013
- Revenue growth of 6%-8%
- Comparable-store sales growth of 3%-4% at Dunkin' Donuts locations in the U.S. and 1%-3% growth at Baskin-Robbins locations in the U.S.
- Operating income growth of 10%-12%
- 685-800 new locations globally across its two brands
And the winner is...
After reviewing these companies' quarterly results and outlooks on the rest of the year, Starbucks wins this match-up. Both companies showed strong growth in earnings per share and revenue, but the determining factor was comparable-store sales growth, where Starbucks outpaced Dunkin' by a mile.
I believe Starbucks represents one of the best investment opportunities in the market today, as it sits more than 13% below its 52-week high, yields a healthy 1.5%, and trades at favorable multiples on both a current and forward basis; for these reasons, Foolish investors should take a deeper look at it and plan on holding for the long term because this company cannot be stopped.
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