), which owns Dunkin' Donuts as well as Baskin-Robbins, announced
its Q4 and full year results on January 31. Although consolidated
revenues fell 4% to $161.7 million, operating income jumped 52% to
$67.8 million. Revenues declined due to a one-time delay in
revenue recognition that impacted sales of ice cream products in
the fourth quarter.
Net income swelled to $34.3 million from $11.6 million in the
previous year quarter, helped by cheaper material costs and lower
taxes. The company opened a total of 256 new stores in the quarter,
including 149 new Dunkin' Donuts in the United States and 89
See full analysis for Dunkin' Brands
Dunkin' In The US
Dunkin' Donuts' stores across the U.S. generate more than 75% of
total revenues and account for 80% of the profits. Prior to
the announcement of the results, there were concerns over Dunkin'
Donuts' sales since the chain's same-store sales growth was
declining with each quarter in 2012. However, a continued focus on
breakfast sandwiches helped the chain post 3.2% growth in
same-store sales, taking the full-year figure to 4.2%.
Comparable sales or same-store sales growth is an important
measure to gauge a restaurant's performance since it only includes
the restaurants open for more than a year and excludes the effect
of currency fluctuation. Since Dunkin' Donuts' expansion in
the U.S. involves setting up stores in new markets (such as
California and Texas), we estimate that same-store sales growth of
3.5%-4% is feasible in the long run since the company is less
likely to face cannibalization.
The company accelerated its expansion rate in the fourth quarter
with 149 new Dunkin' Donuts added across the U.S. For the full
year, the number stood at 291. In 2013, the company plans to
continue expanding with 330 to 360 new additions. Since Dunkin'
Donuts' effective royalty rate comes out to be 7.4% and each store
generates average sales of about $0.9 million, we expect the new
openings to add between $22 million and $24 million to the top-line
Since most of the stores are franchised, Dunkin' Donuts enjoys
high margins. Its operating margins remained relatively stable at
73.6% in the fourth quarter. To lure franchisees, the company is
offering special incentives such as reduced royalty rates in the
initial stages, but we don't expect this to have a significant
impact on overall margins since the addition of new restaurants, as
a percentage of existing restaurants, is pretty small.
Dunkin' Donuts has more than 7,300 stores in the U.S.
We have a $35 price estimate for Dunkin Brands
, which is about 5% lower than the current market price. We are in
the process of revising our estimates to incorporate the latest
How a Company's Products Impact its Stock Price at