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Dunkin' Beats by a Penny, Revs Down

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Dunkin' Brands Group, Inc. (DNKN - Free Report) posted fourth-quarter 2012 adjusted earnings of 34 cents per share, beating the Zacks Consensus Estimate by a cent and the year-ago quarter earnings of 30 cents. The earnings in the quarter were driven by the company’s high net adjusted income. Moreover, Dunkin’s low share outstanding also helped enhancing the earnings further. On a reported basis, during the quarter, the company has earned 32 cents per share compared with 10 cents per share in the prior-year quarter.

For full year 2012, the company reported an adjusted net income of $149.7 million or $1.28 per share compared with $101.7 million or 94 cents per share in the prior-year period. Reported earnings for 2012 were ahead the Zacks Consensus Estimate of $1.24.


Quarterly total revenue came in at $161.7 million, down 4.0% year over year, owing to the low sales of the company’s ice cream products. The revenue figure missed the Zacks Consensus Estimate of $171.0 million.

During fourth quarter, Dunkin' Donuts U.S. revenues increased 3.4% annually to $128.1 million on the back of high royalty income, rise in other revenues and company-owned restaurants sales. The segments’ comparable store sales grew 3.2% versus 7.4% in the prior year period. The comps improved with the rise in the average ticket, innovative menu offerings and higher customer traffic. Revenues from the Dunkin' Donuts International surged 2.9% year over year to $4 million led by high royalty income and improved system wide sales. Comparable store sales at the segment remained flat.

Baskin-Robbins U.S. segment’s revenues amounted to $7.8 million, down 10.8% year over year, owing to the fall in royalty and licensing income. The segment’s comparable store sales rose to 1.5%. The comps were led by introduction of new menu items. Baskin-Robbins International’s sales plunged 35.9% to nearly $18 million. The sales in the segment were affected by low ice cream sales in Afghanistan and the company’s change in manufacturing over to Dean Foods.

In 2012, net sales were $658.2 million, up 4.8% year over year but below the Zacks Consensus Estimate of $665 million.


In the reported quarter, operating income expanded 52.0% year over year to $67.8 million, driven by an increase in royalty income and non-cash impairment expenses. Operating margin was 41.9% versus 26.4% in the prior year period.

Store Update

The company’s franchisees and licensees have launched 256 new restaurants worldwide during the fourth quarter, including 47 Dunkin' Donuts in the international market, 149 in U.S. locations and 89 Baskin-Robbins outlets in international locations. This also includes the shut down of 29 Baskin-Robbins stores in U.S. In addition, during the quarter, Dunkin’ Brands’ franchisees have renewed 205 units in U.S. As of December 31, 2012, the company owned 10,400 Dunkin' Donuts restaurants and 7,000 Baskin-Robbins restaurants worldwide.


Dunkin’ Brands ended fourth quarter 2012 with cash and cash equivalents of $252.6 million and shareholders’ equity of $321.8 million. Long-term debt at the end of the quarter was $1,823.3 million.


Dunkin’ Brands increased its dividend to 19 cents per share for the first quarter 2013, which will be paid on February 20, 2013 to shareholders of record as of February 11, 2013.


The company projects adjusted earnings in the range of $1.48 to $1.51 per share for 2013, up 15.6% – 17.9% year over year. Revenue growth is projected to be 6%- 8% and adjusted operating income is likely to grow by 10% - 12% in 2013. The company anticipates that comps at Dunkin' Donuts and Baskin-Robbins in U.S. will grow 3% - 4% and 1% - 3%, respectively.

The company expects to open nearly 700 - 860 new stores worldwide with 400 - 500 units outside U.S. Dunkin' Donuts U.S. is likely to introduce nearly 330 and 360 units with net unit growth of 4.5% - 5%. It also anticipates that Baskin-Robbins U.S. will witness shut down of 0 and 30 stores in 2013. The company has recently declared its intention to extend its footprint in Southern California and it has also entered into new franchise agreements to open new units in Los Angeles, Riverside, San Diego, San Bernardino, Ventura and Orange counties by 2015.

Our Take

Canton, Massachusetts-based Dunkin’ Brands remains focused on its expansion plan, marketing innovation and menu innovation. Although the company has experienced low sales due to the company’s ice cream business, we remain bullish on the company’s growth prospect in future.   One of the company’s peers AFC Enterprises Inc. recently declared its preliminary fourth quarter and full year 2012 results. AFC provided a rosy outlook for 2013. AFC currently holds a Zacks Rank #2 (Buy).

Dunkin’ currently holds a Zacks Rank #2 (Buy). Other restaurateurs, which are expected to perform well moving ahead include Krispy Kreme Doughnuts, Inc. and Burger King Worldwide, Inc. which carry a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2 (Buy), respectively.

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