Dunkin' Q2 Earnings In Line on Weak International Results - Analyst Blog

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Dunkin' Brands Group, Inc. ( DNKN ) posted second-quarter 2014 results wherein earnings were in line with the Zacks Consensus Estimate, but revenues missed the consensus mark. The company's share price slid almost 5%, as it lowered its guidance for 2014, after the soft performance in the reported quarter.

The company's adjusted earnings of 47 cents per share were in line with the Zacks Consensus Estimate. However, the figure was higher than the prior-year figure of 41 cents, mainly due to higher revenues.

Dunkin' Brands Group, Inc - Earnings Surprise | FindTheBest

The restaurateur's revenues increased 4.6% year over year to $190.9 million driven primarily by increased royalty income due to system-wide sales growth. However, it missed the Zacks Consensus Estimate of $199.0 million by 4.1%.

Inside the Headline Numbers

Dunkin' Brands operates through its Dunkin' Donuts and Baskin-Robbins brands.

System-wide comps increased 5.7%, better than the previous-year quarter's increase of 5.5%. The comps growth was primarily due to global store development and Dunkin' Donuts U.S. comparable store sales growth.

Dunkin' Donuts

Comps increased 1.8% in the Dunkin Donuts U.S. division, compared with 4.0% growth in the prior-year period. The decline was due to the sale of all company-owned restaurants in the Atlanta market early in the second quarter.

In the Dunkin' Donuts International division, comps declined 3.1%, worse than a decline of 1.7% in the prior-year quarter. Poor results in South Korea primarily led to the decline.

Baskin Robbins

Comps increased 4.2% in the Baskin Robbins U.S. division, better than the 1.6% growth in the prior-year period. Baskin-Robbins U.S. comparable store sales growth was driven by sales of Cups & Cones, Cakes, and Beverages as a result of a new program offering guests a free waffle cone with the purchase of a second scoop of ice cream, the Mother's and Father's Day holidays as well as the launch of online ice cream cake ordering.

At the Baskin Robbins International division, comps declined 1.6%, which was worse than a rise of 2.6% in the prior-year quarter. Poor performance in Japan led to the decline in comps.

Store Update

In the second quarter, Dunkin' Brands franchisees and licensees opened 151 restaurants worldwide. This includes 75 Dunkin' Donuts U.S. locations, 47 Baskin-Robbins International locations, 17 Dunkin' Donuts International locations and 12 Baskin-Robbins U.S. locations. Additionally, Dunkin' Donuts U.S. franchisees remodeled 94 restaurants during the quarter.

Share Repurchase and Dividend Update

Dunkin' Brands repurchased a total of 1.3 million shares.

The company's board of directors declared a third-quarter dividend of 23 cents per share. The dividend will be paid on Sep 3, 2014 to shareholders of record as of the close of business on Aug 25.

Guidance for 2014 Lowered

The company expects adjusted earnings per share in the range of $1.73 to $1.77, down from the previously guided range of $1.79 to $1.83. The new guidance represents roughly 13%-16% year-over-year growth.

Dunkin' Brands expects revenue growth in the range of 5%-7%, down from the previously expected range of 6-8%. Adjusted operating income growth is expected to be within 7-9%, down from the prior target of 10-12% growth.

Dunkin' Donuts U.S. comparable store sales growth is expected in the range of 2% to 3%, down from the prior expectation of 3-4% comparable store sales growth. However, the company continues to expect Baskin-Robbins U.S. comparable store sales growth of 1% to 3%.

Our Take

A major share of Dunkin' Brands revenues comes from the breakfast segment, where companies like McDonald's Corp. ( MCD ), Starbucks Corporation ( SBUX ) and Yum! Brands, Inc.'s ( YUM ) Taco Bell also operate. Such a crowded breakfast segment coupled with a sluggish macroeconomic environment and reduced consumer spending, hurt Dunkin' Brands top line to some extent. However, the company has been working to expand its doughnut-and-coffee brand in the U.S. and improve its performance globally .

Also, we are encouraged by the company's efforts to drive traffic by trying to speed up service at its shops and redesigning prep stations to meet busy morning hours. Additionally, menu innovation and addition of healthier items will perk up sales in the coming quarters.

Dunkin' Brands currently has a Zacks Rank #4 (Sell).

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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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