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Dunkin' Brands Stock Pops on Earnings, Raised Outlook

By Joe Tenebruso – Oct 31, 2019 at 10:18PM

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The restaurant chain said its full-year profits would come in higher than it previously predicted.

Shares of Dunkin' Brands Group (DNKN) rose 6% on Thursday after the coffee and donut chain bested Wall Street's earnings estimates and boosted its full-year profit guidance.

Dunkin' Brands' revenue rose 1.7% year over year to $355.9 million. The gains were driven by new store openings and a 1.5% increase in comparable-store sales.

Comp sales rose as price increases and strong sales of premium espresso drinks helped to offset a decline in traffic. Tepid traffic trends have been a prevalent theme in the restaurant industry in recent years and a persistent challenge for Dunkin' Brands.

"The strategic investments we made in the business last year, including into our beverage and digital platforms, are enabling us to drive top-line results and deliver a better guest experience," CEO David Hoffmann said during a conference call with analysts.

A person holding an upwardly sloping digital chart in the palm of their hand.

New restaurant openings and rising sales at existing locations are helping to drive Dunkin' Brands Group's earnings higher. Image source: Getty Images.

The company, which also owns the Baskin-Robbins ice cream chain, is steadily expanding its store count. Franchisees opened 55 net new Dunkin' restaurants in the U.S. and a total of 122 combined Dunkin' and Baskin-Robbins stores globally in the third quarter. The company ended the period with more than 13,000 Dunkin' and 8,100 Baskin-Robbins stores.

Better still, Dunkin' Brands Group's profitability continues to improve. Companywide adjusted (non-GAAP) operating income -- which excludes amortization, impairment, and certain other charges -- grew 7.8% to $126 million, as adjusted operating margin increased to 35.4% from 33.4% in the prior-year period. Meanwhile, adjusted net income climbed 8.3% to $75.7 million, and adjusted earnings per share -- which benefited slightly from share repurchases -- increased 8.4% to $0.90. Analysts had expected EPS of only $0.81.

Perhaps most importantly, Dunkin' Brands Group's cash production remains robust. The company generated $75 million in free cash flow during the third quarter, $31 million of which was returned to investors via dividends.

Looking forward

These strong results prompted Dunkin' Brands Group to raise its 2019 full-year profit guidance. Management now expects the company to deliver adjusted earnings per share of $3.10 to $3.12, up from a prior estimate of $3.02 to $3.05.

Management also said that it expects new menu items -- such as its plant-based Beyond Sausage Sandwich, which Dunkin' will roll out in partnership with Beyond Meat (BYND -3.96%) to more than 9,000 of its U.S. stores in November -- to help drive growth in the year ahead.

Commenting on the deal with Beyond Meat, Hoffmann said:

We are excited to be the first nationwide U.S. restaurant brand to serve Beyond Breakfast Sausage beginning on Nov. 6, so look forward to that. I believe Dunkin' is a brand that can democratize trends. We did it with espresso, and we believe there is an opportunity to do more when it comes to giving consumers great-tasting, on-trend innovation like plant-based proteins, at an affordable price. This is exactly how we want to use our platform.

All told, Dunkin' Brands Group appears well-positioned to finish 2019 on a strong note. Investors have noticed, and so it's unsurprising that they're bidding the stock up today.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Dunkin' Brands Group. The Motley Fool has a disclosure policy.

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