A Snapshot of Dunkin Donuts Stores In The U.S.
Dunkin' Brands ( DNKN ) operates the Dunkin' Donuts and Baskin-Robbins brands globally. Since Dunkin' Donuts stores in the U.S. account for more than 70% of total revenues, it is the company's most important division. Revenues from Dunkin' Donuts stood at $438 million in 2011 and company-wide revenues were $628 million.
Dunkin Donuts is a fast food chain most famous for its doughnuts, coffee and breakfast sandwiches. Its menu is competitively priced and the brand positions itself as an affordable option for anyone looking to have a quality meal without splurging too much cash.
How It Makes Money
Almost all of Dunkin Donuts' outlets in the U.S. are franchised. The company collects royalties from the franchisees which is a percentage of the restaurant sales. It also collects rental income from the properties it gives out on rent or lease to its franchisees. Due to the franchising nature of the business, the company has pretty high margins.
Presence And Scope For Expansion
Dunkin Donuts is present at more than 7,000 locations in the U.S. and plans to double the store count in the next 20 years. The company still has no presence in California, where it is working on building infrastructural requirements needed to support its operations. The western part of the U.S., in general, represents a significant growth opportunity for Dunkin' since its penetration is only 1 store for one million people (as of 2011 end). There are other states too, like Texas, where the restaurant chain has a limited presence, so there is plenty of opportunity to expand. Around 280-300 new Dunkin Donuts stores will be added in the U.S. before the end of 2012.
The franchising model ensures the expansion process does not put a strain on the company's financials as only part of the costs are incurred by the company. For example, in 2011, it only incurred $18.6 million in capital expenditure even though it added 600 stores globally, out of which close to 250 stores were Dunkin Donuts additions in the U.S. The rest were Baskin-Robbins and Dunkin' Donuts international additions.
The company is looking to increase its same-store sales through a combination of menu innovation and attracting more footfalls, especially during the daytime and afternoon segment. At the end of 2011, it added Hillshire sausage sandwiches to its menu. Similarly, in 2012, the company has added Angus Steak, Egg and Cheese Breakfast Sandwich and Turkey, Bacon and Cheddar, and Ham and Cheese Bakery Sandwiches.
In the beverages section, the new additions include Undercover Black Cocoa Donut, Chocolate Lunarmax Donut and Black Cocoa Crème Iced Coffee. The company is also looking to boost top-line through the sale of its K-cups. K-cups are sold in its participating restaurants and contribute to the same-store sales growth as well.
Dunkin Donuts' comparable sales are up 4.5% in the first three quarters of the year and are on track to meet the company's guidance of 4% projected at the start of the year. Sales have decelerated in the second half of the year for a number of restaurant chains including McDonald's Corporation ( MCD ) and Chipotle Mexican Grill ( CMG ) due to weak consumer spending. Going forward, we expect comparable sales to rise by 3.5-4% in the long run.
We have a $32 price estimate for Dunkin Brands, which is about 5% higher than the current market price.