Dunkin' Brands (DNKN) Up on Q3 Earnings Beat, Upbeat View

Dunkin' Brands Group, Inc. DNKN reported mixed results in third-quarter 2019, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Notably, this marked its eighth straight quarter of earnings beat. Following the earnings release, shares of the company increased 6.3%.

Its adjusted earnings of 90 cents per share surpassed the consensus estimate of 81 cents by 11.1%. The bottom line also improved 8.4% on a year-over-year basis, driven by a rise in net income.

Revenues were up 1.7% year over year to $355.9 million but missed the consensus mark of $359 million. The top-line improvement was primarily owing to a rise in royalty income from higher system-wide sales at Dunkin’ U.S. and rental income growth. The revenue growth was partially offset by a decline in advertising fees and related income.  

The company’s global system-wide sales rose 4.7% from the prior-year quarter. Its system-wide sales were favored by global store development, and comps growth at Dunkin’ U.S. and Dunkin’ International.

Segmental Performance

Dunkin' Brands operates through Dunkin’ and Baskin-Robbins brands.

Dunkin' U.S. reported revenues of $166.4 million, which reflect an improvement of 5.8% from the prior-year quarter. This upside can be attributed to higher royalty income, driven by system-wide sales growth and increase in rental income, offset by a decrease in franchise fees. Comps also grew 1.5% in the third quarter of 2019, owing to increase in average ticket, which was driven by strong performance of premium beverages like espresso and cold brew, as well as sales of breakfast sandwiches backed by the success of national Go2s value platform.

Dunkin’ International division reported revenues of $6.7 million, mirroring a gain of 7.9% from the prior-year quarter. The improvement was primarily backed by a rise in royalty income, driven by system-wide sales, partially offset by a decrease in franchise fees. Additionally, comps rose 7.3% compared with 2.5% gain in the year-ago quarter.

Baskin-Robbins U.S. revenues grew 4.7% from the prior-year quarter to $14.3 million, owing to rise in ice cream sales, rental income and other products. Comps grew 3.6% year over year due to an increase in average ticket and flat traffic.

Baskin-Robbins International division revenues were $31 million, marking a year-over-year decrease of 0.5% due to a decline in sales of ice cream and other products. However, comps grew 3% compared with 7.5% growth in the year-ago quarter.

Operating Performance

Adjusted operating income rose 7.8% from the year-ago quarter to $126 million, mainly owing to increase in royalty and other operating income. Adjusted operating income margin expanded 200 basis points to 35.4%.

Balance Sheet

Dunkin' Brands ended third-quarter 2019 with cash and cash equivalents of $523.4 million compared with $517.6 million at the end of 2018. Restricted cash totaled $93.9 million, up from $79 million as of Dec 29, 2018. Long-term debt was approximately $3 billion.

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

2019 Guidance

The company expects adjusted earnings within $3.10-$3.12 per share, up from prior expectation of $3.02-$3.05.

The company continues to expect low-single digit comparable store sales growth for Dunkin' U.S. and flat to slightly negative comparable store sales improvement for Baskin-Robbins U.S. It expects to open at the low end of 200-250 net new Dunkin' U.S. units. It also anticipates that the new Dunkin' U.S. restaurants opened during the year will contribute nearly $130 million to systemwide sales.

Zacks Rank & Other Key Picks

Dunkin' currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks from the Restaurant space include Chuy's Holdings, Inc. CHUY, Cracker Barrel Old Country Store, Inc. CBRL and Denny's Corporation DENN. Chuy’s sports a Zacks Rank #1 (Strong Buy), while Cracker Barrel and Denny’s carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chuy’s, Cracker Barrel and Denny’s has an impressive long-term earnings growth rate of 17.5%, 10% and 9%, respectively.

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