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Dunkin' Issues Soft Q3 and 2015 Outlook; Falls 12%

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Dunkin' Brands Group, Inc.DNKN issued soft guidance for the third quarter and full-year 2015 during its Investor & Analyst Day held on Oct 1. It turned out to be one of the worst days in its trading history as the stock plunged more than 12%.

The coffee and donut retail chain announced disappointing sales outlook for the third quarter, wherein Dunkin' Donuts' U.S. comps is expected to rise 1.1% year over year. The soft comps growth was mainly due to the 70 basis points year-over-year traffic decline in the quarter. The expected comps growth was also much lower than the prior-quarter growth of 2.9% and the prior-year figure of 2.0%.

Dunkin' Donuts is operating in an intensely competitive breakfast segment, with Yum! Brands, Inc.'s YUM Taco Bell and McDonald's Corp. MCD gaining market traction with their breakfast platter. This has led to traffic declining at Dunkin' Donuts' stores.

2015 and Beyond

The quick service restaurant brand reiterated the 2015 adjusted earnings per share expectation in the range of $1.87-$1.91, that falls short of Zacks Consensus Estimate of $1.92. Dunkin' Brands also continues to expect 6% to 8% revenue growth and adjusted operating income growth of 7% to 8%. The company guided comps growth at both Baskin Robbins U.S. and Dunkin' Donuts U.S. in the range of 1-3% in 2015.

Additionally, 100 U.S. Dunkin' Donuts franchised stores located in Speedway convenience stores would be shuttered in 2015 and 2016. However, Dunkin' Brands reiterated its guidance of opening a total of 410 to 440 in the year. Internationally, 200 to 300 units in total are likely to be opened.

Will Digital Initiatives Offset Negatives?

The digital wave has hit the U.S. fast casual restaurant sector as more and more restaurateurs are deploying technology to enhance guest experience. It seems that the company is also trying to cash in on this trend. Dunkin' will also start testing mobile ordering this November in Portland and introduce it in U.S. stores next year. The company will also integrate Apple Inc.'s AAPL mobile payment and digital wallet service - Apple Pay - in the Dunkin' Donuts app this month. Apple Pay will be available at Dunkin' Brands' restaurants starting 2016.

In our view, this would translate into productivity gains and greater throughput for Dunkin', in addition to better customer experience. The company will be joining many industry heavyweights like Starbucks Corp. and McDonald's, which have successfully used the digital platform to drive productivity.

Dunkin' currently carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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