Dunkin' Brands (DNKN) exited 2019 with admirable sales momentum, as its fourth-quarter 2019 earnings released Thursday revealed. The global coffee chain enjoyed a palpable boost in sales and reaped the rewards of menu innovation in both the beverage and sandwich categories. Management also provided investors with pleasant news on the share repurchase and dividend payment fronts. As we discuss results of the last three months below, note that all comparable numbers refer to those of the prior-year quarter.
Dunkin' Brands: The headline numbers
|Metric||Q4 2019||Q4 2018||Change|
|Revenue||$335.9 million||$319.6 million||5.1%|
|Net income||$57.7 million||$53.2 million||8.5%|
|Diluted earnings per share||$0.69||$0.64||7.8%|
Essential details from the quarter
- Sales were propelled by the performance of the Dunkin' U.S. segment, which achieved a same-store sales increase of 2.8% -- its highest quarterly comparable sales expansion in six years. Management attributed the comps gain to espresso and cold brew beverages, as well as the launch of the Beyond Sausage sandwich, which features alternative protein from Beyond Meat.
- Baskin-Robbins U.S. comps expanded by 4.1% on increases in both traffic and average ticket size.
- The company achieved global systemwide sales growth of 6% due to store additions and healthy international comps.
- Operating margin improved by 120 basis points to 31.4%, helped by higher royalty income and a decrease in general and administrative expenses as a percentage of sales.
- Dunkin' U.S. announced that will exit 450 limited-service units at Speedway locations throughout 2020 as it seeks to build out more of its own next-generation, or "NextGen" restaurants. The company characterized the Speedway units as low-volume stores that make up less than 0.5% of the segment's total annual systemwide sales.
- The Dunkin' U.S. system ended the year with over 500 NextGen stores in operation.
The 2020 outlook, share repurchases, and a dividend increase
Dunkin' provided 2020 financial and operational targets on Thursday. The quick-service specialist expects to notch low single-digit comparable sales growth over 2019 in both its Dunkin' U.S. and Baskin-Robbins U.S. segments. Overall, the organization anticipates revenue growth in the low- to mid-single-digit range in 2020.
Dunkin' U.S. projects that it will add 200 to 250 units this year, excluding the 450 Speedway-located closures. These units are expected to contribute $140 million to total systemwide sales in 2020.
As for earnings, management advised investors that the company is aiming for diluted earnings per share (EPS) of $2.96 to $3.05. At the midpoint of this range, earnings will exceed 2019's EPS by 4%. This slight projected increase may have contributed to a bit of shareholder disappointment, as Dunkin' stock was down roughly 2.5% at midday following the earnings release.
The modest growth framework is partly the result of a $60 million investment the company plans to make this year to supplement its successful foray into espresso-based beverages. The capital investment will primarily focus on the installation of high-volume coffee brewing equipment.
On the bright side for income-seeking investors, Dunkin' hiked its quarterly dividend by 7.3% to $0.4025 per share. At current stock price, this payout yields 2.10% annually. The organization paid out $124 million in dividends and completed $30 million worth of share repurchases in 2019. Alongside earnings, Dunkin' announced a new $250 million authorization to repurchase company shares, which will expire in two years.
With extremely stable royalty income from franchisees, consistent menu innovation, and the rollout of smaller, technology-laden NextGen stores, Dunkin' represents a fairly safe investment for those who prize steady growth. But it's an even more persuasive buy for advocates of significant stock repurchases, and for dividend investors who are able to reinvest Dunkin's handsome quarterly check to boost their annual total return.