Dunkin’ Brands is Firing on All Cylinders

Look at trends for average revenue per store and store counts and you will find a formula that should lead to future success.

Dan Moskowitz
Dan Moskowitz
Apr 6, 2014 at 11:00AM
Consumer Goods


Dunkin' Brands (NASDAQ:DNKN), th has delivered in several ways over the past several years, and these trends are likely to continue, which should pique the interest of investors.  

Is it possible that Dunkin' Brands will be a better investment than Starbucks (NASDAQ:SBUX) over the next several years? Nobody truly knows the answer to this question . However, the information below should prove that it's a possibility. 

Average revenue per store
The focus here will be on Dunkin' Donuts, which is a subsidiary of Dunkin' Brands (along with Baskin-Robbins). The chart below shows a very interesting trend for average revenue per store at domestic Dunkin' Donuts locations.


Average Revenue Per Store











2014 (projected)


Source: Trefis

The only thing to say about these numbers is that they're good. However, Dunkin' Donuts still hasn't caught Starbucks, which had average revenue per store of $1.2 million back in 2012. That said, Dunkin' Brands still might be more appealing for one simple reason.

Geographical expansion
If Dunkin' Brands is seeing its average revenue per store consistently increase as it expands geographically, then this should be a formula for top-line growth. Dunkin' Brands drives its top line via franchise fees and royalty income, but it still all begins with the success of the franchisees.

Fortunately, Dunkin' Brands has intensified its franchisee training program, which might be part of the reason for the improved performance of franchisees. With that in mind, consider the potential for the growing number of well-trained franchisees in the future.


Domestic Store Count











2020 (projected)


Source: Trefis

Starbucks currently has 13,279 domestic stores. Therefore, Dunkin' Donuts still has a long way to go to catch its biggest rival -- again. On the other hand, this leaves more domestic growth potential for Dunkin' Donuts. Currently, Dunkin' Donuts is well known on the East Coast, but it's just beginning its westward expansion. Since Dunkin' Donuts is almost 100% franchisee-based, costs remain low. This leads to impressive margins, as you will see below.

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Impressive margins
The chart below shows the EBITDA (earnings before interest, taxes, depreciation, and amortization) margin for Dunkin' Donuts since 2011. There is no reason to think the margin will contract in a meaningful manner in the near future. Dunkin' Brands doesn't just outperform Starbucks in this area but Tim Hortons (UNKNOWN:THI.DL) as well.

DNKN EBITDA Margin (TTM) Chart

Dunkin' EBITDA Margin (trailing-12 months) data by YCharts

Tim Hortons is also aiming for geographical expansion, and it's only trading at 15 times forward earnings; Dunkin' Brands and Starbucks each trades at 24 times earnings. However, while Tim Hortons offers potential, it has only delivered top-line growth of 0.2% over the past year, well shy of Dunkin' Brands and Starbucks at 5.3% and 6.1%, respectively. If you're looking for dividend yield, then perhaps Tim Hortons should be considered. It currently yields 2.1%, whereas Dunkin' Brands and Starbucks yield 1.9% and 1.4%, respectively.

The Foolish bottom line 
If Dunkin' Brands is consistently showing improvements in average revenue per store (possibly thanks to improved franchisee training), and it's steadily increasing its store count, then logic would indicate that it should continue to deliver on the top line.

Furthermore, given the company's franchisee-based model, costs are likely to remain low while margins are likely to remain high. It appears as though upside potential outweighs downside risk for Dunkin' Brands. However, if you're looking for a company with even more growth potential, then consider the information below.