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Dunkin' Brands Banks on Digitization, Comps Woes Linger
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Dunkin' Brands Group, Inc. is likely to benefit from increased focus on beverage portfolio, digital offerings and third-party delivery services. However, dismal comps along with high debt levels raise concerns.
Let us delve into factors highlighting why investors should hold on to the stock for the time being.
Key Catalysts
Dunkin' Brands continues to focus on product launches to boost sales. With the demand for coffee expected to keep growing, the company is continuously adding new coffee beverages to the menu, both in the value and premium offering segment, like the Macchiato's line of products and the recent — Cold Brew coffee. The company has already introduced ready-to-drink bottled iced coffee and Fruited Iced Teas, Dunkin' Energy Punch powered by Monster Energy and frozen coffee last year.
It also continues to focus on digitization through DD card, DD mobile app, DD Perks rewards program, On-the-Go ordering and delivery. During third-quarter 2019, the company added guest ordering for mobile on-the-go app. These initiatives make Dunkin' Brands convenient and accessible to customers. It also introduced multi-tender payment flexibility for the DD Perks program, which will provide more choice and convenience to its on-the-go guests. Additionally, the company anticipates a large percentage of Dunkin’ restaurants to open with drive-thrus.
Furthering its delivery program, Dunkin’ has expanded its delivery service to Miami, in partnership with DoorDash, covering more than 70% of Baskin-Robbins stores across the United States. Meanwhile, the company partnered with Grubhub to create a Dunkin’ delivery system with POS integration. In May 2020, the company partnered with Uber Eats. During the second quarter of 2020, the company doubled its delivery footprint from 4,000 to 5,000 stores.
Backed by the above-mentioned initiatives, it is worth noting that during second-quarter 2020, delivery sales increased more than 250%, while online sales of cakes, quarts and novelties were up more than 150% versus the prior year quarter.
In the past six months, shares of the company have gained 53.4% compared with the industry’s 35.9% growth.
Concerns
The coronavirus pandemic affected the company’s business, financial condition and operational results in second-quarter fiscal 2020. Although the company’s domestic footprint and high drive-thru mix positioned it favorably to be able to weather the crisis, sales were hurt by the temporary closure of restaurants and decline in traffic.
From the beginning of the fiscal third quarter to Jul 26, comparable store sales for Dunkin' U.S. and Baskin-Robbins U.S. 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 to sustain profitable growth. Notably, this initiative will be implemented in conjunction with its franchisees as part of its real estate portfolio rationalization. Internationally, the company anticipates 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.
Moreover, high debt remains a concern for the company. At the end of Jun 27, 2020, the company’s long-term debt stood at $3 billion, almost flat with the Mar 28 level. Moreover, the company ended second-quarter fiscal 2020 with cash and cash equivalent of $611 million, which may not be enough to manage the high debt level.
Some better-ranked stocks in the same space include BJ's Restaurants, Inc. (BJRI - Free Report) , Chuy's Holdings, Inc. (CHUY - Free Report) and Jack in the Box Inc. (JACK - Free Report) , each sporting a Zacks Rank #1.
BJ's Restaurants has a three-five year earnings per share growth rate of 15%.
Chuy's Holdings has a trailing four-quarter earnings surprise of 87.3%, on average.
Jack in the Box’s 2021 earnings are expected to surge 16.1%.
Just Released: Zacks’ 7 Best Stocks for Today
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Dunkin' Brands Banks on Digitization, Comps Woes Linger
Dunkin' Brands Group, Inc. is likely to benefit from increased focus on beverage portfolio, digital offerings and third-party delivery services. However, dismal comps along with high debt levels raise concerns.
Let us delve into factors highlighting why investors should hold on to the stock for the time being.
Key Catalysts
Dunkin' Brands continues to focus on product launches to boost sales. With the demand for coffee expected to keep growing, the company is continuously adding new coffee beverages to the menu, both in the value and premium offering segment, like the Macchiato's line of products and the recent — Cold Brew coffee. The company has already introduced ready-to-drink bottled iced coffee and Fruited Iced Teas, Dunkin' Energy Punch powered by Monster Energy and frozen coffee last year.
It also continues to focus on digitization through DD card, DD mobile app, DD Perks rewards program, On-the-Go ordering and delivery. During third-quarter 2019, the company added guest ordering for mobile on-the-go app. These initiatives make Dunkin' Brands convenient and accessible to customers. It also introduced multi-tender payment flexibility for the DD Perks program, which will provide more choice and convenience to its on-the-go guests. Additionally, the company anticipates a large percentage of Dunkin’ restaurants to open with drive-thrus.
Furthering its delivery program, Dunkin’ has expanded its delivery service to Miami, in partnership with DoorDash, covering more than 70% of Baskin-Robbins stores across the United States. Meanwhile, the company partnered with Grubhub to create a Dunkin’ delivery system with POS integration. In May 2020, the company partnered with Uber Eats. During the second quarter of 2020, the company doubled its delivery footprint from 4,000 to 5,000 stores.
Backed by the above-mentioned initiatives, it is worth noting that during second-quarter 2020, delivery sales increased more than 250%, while online sales of cakes, quarts and novelties were up more than 150% versus the prior year quarter.
In the past six months, shares of the company have gained 53.4% compared with the industry’s 35.9% growth.
Concerns
The coronavirus pandemic affected the company’s business, financial condition and operational results in second-quarter fiscal 2020. Although the company’s domestic footprint and high drive-thru mix positioned it favorably to be able to weather the crisis, sales were hurt by the temporary closure of restaurants and decline in traffic.
From the beginning of the fiscal third quarter to Jul 26, comparable store sales for Dunkin' U.S. and Baskin-Robbins U.S. 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 to sustain profitable growth. Notably, this initiative will be implemented in conjunction with its franchisees as part of its real estate portfolio rationalization. Internationally, the company anticipates 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.
Moreover, high debt remains a concern for the company. At the end of Jun 27, 2020, the company’s long-term debt stood at $3 billion, almost flat with the Mar 28 level. Moreover, the company ended second-quarter fiscal 2020 with cash and cash equivalent of $611 million, which may not be enough to manage the high debt level.
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 BJ's Restaurants, Inc. (BJRI - Free Report) , Chuy's Holdings, Inc. (CHUY - Free Report) and Jack in the Box Inc. (JACK - Free Report) , each sporting a Zacks Rank #1.
BJ's Restaurants has a three-five year earnings per share growth rate of 15%.
Chuy's Holdings has a trailing four-quarter earnings surprise of 87.3%, on average.
Jack in the Box’s 2021 earnings are expected to surge 16.1%.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>