Will Dunkin' Brands Shine Brightly in Its Second Quarter Report, or Will 'Severe Weather' Hold It Back Again?

Dunkin' Brands is scheduled to release earnings on July 24, so let's see if the company is gearing up to beat the estimates.

Jul 21, 2014 at 9:00AM



Dunkin' Brands (NASDAQ:DNKN), the global quick-serve restaurant chain behind the Dunkin' Donuts and Baskin-Robbins brands, has watched its stock widely underperform the overall market in 2014. Weak first quarter earnings played a primary role in its decline. The company has just announced that second quarter results will be released on July 24; investors hope that if one weak report can send shares falling, then one strong report can send shares soaring. Let's take a look at Dunkin's most recent report and the expectations for the upcoming release to determine if the company is going to cook up an earnings beat and decide if it represents a long-term investment opportunity today.

Screen Shot

Source: Wikimedia Commons

Disappointing first-quarter results
On April 24, Dunkin' released its first quarter report and the results fell short of the consensus analyst estimates. Here's a summary:

MetricReportedExpected
Earnings Per Share $0.33 $0.36
Revenue $171.95 million $172.66 million

Source: Estimize

Earnings per share increased 13.8% and revenue increased 6.2% year over year as comparable-store sales increased just 1.2% at Dunkin' Donuts locations in the U.S. and decreased 2.4% internationally. The company blamed "severe weather" in the northeast for its weak performance in the U.S., but noted that this is not expected to be an ongoing issue. Operating profit increased 7% to $75.6 million and the operating margin flexed its muscles, expanding 30 basis points to 44%, helped by occupancy expenses rising just 1.8% for the quarter. 

Screen Shot

Source: Wikimedia Commons

The above financial results led to ample free cash flow generation. This, paired with Dunkin' $256.93 million in cash and cash equivalents to begin the quarter, enabled the company to repurchase approximately $22.04 million worth of its common stock and pay out $24.52 million in dividends. Dunkin' ended the quarter with over $202 million in cash and cash equivalents, so it could easily accelerate repurchases or raise its dividend in the second half of the year.

In terms of expansion, Dunkin' opened 96 new restaurants during the quarter; this included 69 new Dunkin' Donuts locations in the United States. The company now operates 18,254 locations worldwide between both of its brands, including 7,746 Dunkin' Donuts stores in the United States.

Overall, it was a fairly weak quarter for Dunkin' Brands. The market reacted by sending its shares 1.89% lower in the trading session that followed. Shares have continued lower in the weeks since, but strong second quarter results could point it back in a positive direction.

The expectations & what to watch for
Dunkin' announced that second quarter results will be released before the market opens on July 24, and the current expectations call for significant growth. Here's an overview:

MetricExpectedYear Ago
Earnings Per Share $0.47 $0.41
Revenue $198.74 million $182.50 million

Source: Estimize

These expectations call for earnings per share to increase 14.6% and for revenue to increase 8.9% year over year. This seems attainable and would result in a record-setting performance. Other than the key metrics, here are four other important things to watch for:

  1. Third-Quarter Outlook: It will be highly important for Dunkin' to provide outlook on the third quarter that meets analysts' expectations. Currently, the consensus estimates call for earnings per share of $0.50 and revenue of $201.61 million, representing year-over-year growth of 22% and 8.2%, respectively. 
  2. Full-Year Outlook: While providing adequate outlook on the third quarter, it will be important for Dunkin' to also reaffirm its full year outlook. This outlook was for earnings per share in the range of $1.79-$1.83, an increase of 17%-20% from fiscal 2013, along with revenue growth of 6%-8% and operating profit growth of 10%-12%.
  3. Expansion: Watch for the number of new stores opened during the quarter and make sure Dunkin' gets on pace to reach its expansion goals for the year. In its first quarter report, the company reiterated its intention to open 685-800 new stores globally between both of its brands; it opened just 96 in the first quarter, so it would be ideal if it were to open 195-235 new stores in the second quarter.
  4. Competitor Results: Investors will want to keep an eye on Dunkin's largest competitor, Starbucks (NASDAQ:SBUX), which is also scheduled to release earnings results on July 24. Starbucks has outpaced Dunkin' in comparable-store sales growth by a wide margin over the last several quarters, so it will be important to make sure that the gap does not widen further. In addition, since Dunkin' is focussed on expanding in the western United States and Starbucks is more focussed internationally, it would be ideal for Dunkin' to start taking share in this region.
If Dunkin' Brands can satisfy earnings per share, revenue, and outlook expectations, and I think it will, its stock will likely spike higher. With this being said, I also believe that Dunkin' Brands represents one of the best long-term investment opportunities in the quick-serve restaurant industry today because it trades at favorable valuations, has a healthy 2%+ dividend, and has expansion plans that set it up for continued success going forward. 

The Foolish bottom line

Img Pageheader Default

Source: Dunkin' Donuts

Dunkin' Brands is home to two of the world's most popular brands, but this has not led to a strong performance for its stock. Weak first quarter earnings sent its shares on a downward spiral, but I think strong second quarter results will put shares back on an upward track.

I must also add that I believe that Dunkin' Brands represents one of the best investment opportunities in its industry today. I don't say this for the purpose of trading around its upcoming earnings release, but instead because it trades at just 21 times fiscal 2015's estimated earnings, has a very healthy 2% dividend, and the company's planned expansion in the western United States will be a significant source of growth in the years ahead. Foolish investors should take a closer look and consider initiating positions immediately.

Not a fan of Dunkin'? Then check out these dividend dynamos...
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Joseph Solitro owns shares of Dunkin' Brands Group. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers