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.
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 -0.78%) 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.
