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Dunkin' Brands: California Dreaming

If at first you don't succeed, try and fry again. Dunkin' Brands Group (NASDAQ: DNKN  ) is back in Southern California.

When a Dunkin' Donuts opened in Santa Monica on Tuesday morning it became the first traditional stand-alone store to open in the populous hotbed of Southern California since the doughnut giant retreated from the area several years ago. 

Dunkin' Brands didn't have a problem drawing a crowd. It was able to milk plenty of media attention with dozens of doughnut seekers camping out ahead of the open. They did have some incentives to wait it out. Dunkin' Donuts handed out free tote bags with gifts to the first 100 customers, and the very first to arrive was promised a free year of Dunkin' Donuts' signature coffee.

The shop on Wilshire Boulevard and 12th Street will have its work cut out for it. This is a hotly contested area for makers of round treats. Krispy Kreme (NYSE: KKD  ) and a pair of Starbucks (NASDAQ: SBUX  ) locations are within two blocks of the new store. There are also some local faves in the area. 

Despite the glut of options for morning commuters, hope springs eternal for Dunkin' Brands. Let's just hope that it also has a keen sense of history.

California whirls
Dunkin' has given the Golden State a shot before. It had a handful of franchised stores in the area before bowing out in the late 1990s. An attempted return to the state in 2002 -- started and ended with a couple of locations in Sacramento -- that proved to be short lived. 

Investors are hoping that it's different this time. Dunkin' Brands returned to the stock market with its IPO three summers ago. A big reason for market excitement is that the prolific doughnut giant had most of its stores east of the Mississippi at the time. Westward expansion was supposed to be a logical gold rush

Dunkin' Brands announced that it would going back to Cali in late 2013, and this summer announced a deal with four franchisees that would bring several dozen locations to Southern California. A store opening upstate in Modesto late last month and the new store in Santa Monica are just two of the hundreds of stores that Dunkin' Brands sees franchisees opening in the coming years.

Don't bet on failure. The third time may be the charm for Dunkin' Brands, but it may have more to do with the growing popularity of its coffee than its namesake eats. Dunkin' has become a player in the premium coffee market, making Starbucks as big a competitor as Krispy Kreme in recent years. Dunkin' Brands has struck deals for packaged retail coffee and even Dunkin' Donuts K-Cups to expand its brand far beyond its storefront stronghold.

Analysts see slow yet modest growth here. Wall Street sees revenue climbing 6% this year, accelerating to a nearly 8% clip next year. They see profitability growing even faster, expanding at roughly 15% clip this year and again in 2015. Starbucks and Krispy Kreme are expected to grow faster, but a successful push into California could start to move the needle for Dunkin' Brands once several more locations begin to open.

Dunkin' Brands is back in the state where it has come up short two times before, but this time it's bigger and with a more powerful and diversified brand.

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  • Report this Comment On September 04, 2014, at 11:48 PM, bostontrip wrote:

    Dunkin' has the best coffee by Far. I think they will succeed this time. now is a great time to get in, or add, before it takes off $$$$$$$

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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8/28/2015 10:47 AM
DNKN $51.09 Down -0.44 -0.85%
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