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Dunkin' Brands Well Poised; International Markets a Drag

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On Sep 19, we issued an updated research report on Dunkin' Brands Group, Inc. . Headquartered in Canton, MA, the company is a franchisor of quick service restaurants under the Dunkin' Donuts and Baskin-Robbins brands.

Dunkin’ Brands’ earnings beat the Zacks Consensus Estimate in the past six quarters, backed by consistent year-over-year revenue growth. The company’s licensing deals with Keurig Green Mountain and J.M. Smucker to sell Dunkin' K-Cup pods to retailers as well as online customers continue to expand Dunkin’s brand reach.

Notably, given its growing popularity, the company is expanding its footprint in the emerging markets of Asia and the Middle East. Such expansion strategies should boost the company’s top line.

Moreover, various sales and digital initiatives undertaken by the company like product launches, introduction of loyalty program and mobile ordering service bode well. The company is particularly focused on improving the quality of its core menu, introducing more customization options and promotional offers, and adding further variations to the value and premium segments, which should boost comparable store sales (comps).

Meanwhile, Dunkin' Brands operates mainly on a full-fledged franchise model. We believe re-franchising a large chunk of its system reduces the company’s capital requirements, and facilitates earnings per share growth and ROE expansion.

However, Dunkin' Brands’ international comps growth has suffered over the past two years at both its Dunkin’ Donuts and Baskin Robbins divisions due to sluggish macroeconomic growth in South Korea and other emerging markets. Also, the company has been looking to grow in Europe where the economic/political conditions are expected to be challenging post Brexit.

Moreover, the company is facing competition from larger fast casual companies like Panera Bread Company , which offer healthier menu options and are gaining popularity among consumers. Further, Dunkin' Brands’ coffee offerings face intense competition from Starbucks Corporation (SBUX - Free Report) , which boasts a much larger scale of operations.

Additionally, Dunkin' Brands generates a chunk of its revenues from the breakfast segment, which is gradually becoming more competitive. This is because bigger companies like McDonald's Corp. (MCD - Free Report) are gaining traction with their breakfast platter, which in turn is denting Dunkin' Brands’ top line.

Dunkin' Brands currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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