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Dunkin' Brands' (DNKN) Q2 Earnings Beat Estimates, Fall Y/Y

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Dunkin' Brands Group, Inc. (DNKN - Free Report) reported second-quarter fiscal 2020 results, with earnings and revenues surpassing the Zacks Consensus Estimate. However, both the metrics declined on a year-over-year basis.

Adjusted earnings of 49 cents per share surpassed the consensus mark of 47 cents by 4.3%. However, the metric declined 43% on a year-over-year basis.

During the fiscal second quarter, total revenues of $287.4 million beat the consensus mark of $271 million by 6.1%. However, the top line declined 20% on a year-over-year basis. The decline can be primarily attributed to the dismal performance of the Dunkin' U.S. segment. Following the release of the quarterly results, shares of the company declined 4.2% on Jul 30.

Dunkin Brands Group, Inc. Price, Consensus and EPS Surprise

 

Dunkin Brands Group, Inc. Price, Consensus and EPS Surprise

Dunkin Brands Group, Inc. price-consensus-eps-surprise-chart | Dunkin Brands Group, Inc. Quote

Segmental Performance

Dunkin' U.S. reported revenues of $134.1 million in the fiscal second quarter, down 19.5% from the prior-year quarter’s figure. The decline can be primarily due to a decrease in royalty income, rental income and other revenues.

Comps in the segment declined 18.7% year over year in the quarter owing to lower traffic due to the impact of COVID-19, partially offset by an increase in average ticket sales.

Dunkin’ International division reported revenues of $2.8 million in the fiscal second quarter, down 62.6% from the prior-year quarter’s level primarily attributed to a decline in royalty income (owing to a drop in system-wide sales), and franchise fees (owing to deferred revenue recognition in the prior-year period).

Comps in the segment declined 34.9% against 5.6% rise in the year-ago quarter. Notably, sales in Latin America, South Korea, and Europe were impacted by unfavorable foreign exchange rates.

Baskin-Robbins U.S. revenues declined 13.2% year over year to $12.4 million in the fiscal second quarter owing to decreases in system-wide sales, licensing income, rental income and the number of leases, and sales of ice cream and other products. Comps in the segment declined 6% compared with 1.4% fall in the prior-year quarter.The decline was primarily attributed to a fall in traffic, partially offset by a rise in average ticket.

Baskin-Robbins International division revenues amounted to $26.6 million in the fiscal second quarter, down 18.7% year over year. The decline was primarily attributed to decrease in sales of ice cream and other products as well as a drop in royalty income and franchise fees. Comps in the segment declined 5.3% against 3.2% growth in the year-ago quarter. Notably, comps were impacted by unfavorable foreign exchange rates.

Operating Performance

Adjusted operating income declined 31.9% from the year-ago quarter’s level to $86.7 million owing to a decline in royalty income and rental margin. However, this was partially offset by a reduction in incentive compensation and non-essential spending on account of the pandemic. Adjusted operating income margin contracted 520 basis points (bps) to 30.2%.

Balance Sheet

Dunkin' Brands ended fiscal second quarter with cash and cash equivalents of $515.9 million compared with $621.2 million at the end of 2019. Restricted cash totaled $95.1 million, up from $85.6 million as of Dec 28, 2019. Net long-term debt was reported at $2,998.9 million, compared with $3,004.2 million as on Dec 28, 2019.

On Jul 30, the company reinstated its dividend program and declared a cash dividend of $0.4025 per share. The dividend will be payable on Sep 9, 2020, to shareholders on record as of Sep 1, 2020.

As of Jun 27, 2020, it had 82,257,776 shares outstanding. In order to preserve cash amid the ongoing crisis, the company refrained from share repurchase activity during the fiscal second quarter

Other Updates

As of Jul 25, 2020, 96% of Dunkin' U.S. locations, 98% of Baskin-Robbins U.S. locations and approximately 90% of each of Dunkin' and Baskin-Robbins International locations remained open.

Since the start of the fiscal third quarter to Jul 26, comparable store sales for Dunkin' U.S. and Baskin-Robbins U.S. locations were declining in low-single digits for open stores.

Going forward, the company intends to shut down 800 Dunkin' U.S. locations (or 8% of the Dunkin' U.S. restaurant footprint) in 2020 in order to sustain strong profitable growth in the future. Notably, this initiative will be implemented in conjunction with its franchisees as part of its real estate portfolio rationalization.

Internationally, the company expects to close 350 restaurants permanently on a gross basis during the second half of 2020. Majority of the closures are expected to be from low-volume sales locations.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the same space include Dine Brands Global, Inc. (DIN - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Yum China Holdings, Inc. (YUMC - Free Report) . Dine Brands and Domino's sport a Zacks Rank #1, while Yum China carries a Zacks Rank #2 (Buy).

Earnings in 2021 for Dine Brands are expected to surge 208.6%.

Domino's has a trailing four-quarter earnings surprise of 18.6%, on average.

Yum China has a three-five year earnings per share growth rate of 9.5%.

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