Dunkin' Brands ( DNKN ), despite the sustained customer traffic growth and positive performances in the domestic market, is one of the few restaurant chains whose stock has not shown much net price improvement in the last one year. During the last 12 month period, DNKN stock has traded in the range of $42 and $48 for the initial six month period, after which the stock rose to its all-time high of $56. Then, on fears of a slowing China and market worries, the stock has declined to its current price close to $48. We feel this recent fall may be future opportunity.
Trefis estimates the company's stock price at $57 , with an expected non-GAAP diluted EPS of $2.04 for 2015. Here are some of the reasons why we expect the company's stock to perform better in the coming few quarters:
See full analysis for Dunkin' Brands
The company has been enjoying a good phase in terms of quarterly financial performances owing to its strong comparable sales growth in the domestic market. The only area that has been troubling the company's top-line growth is its international markets. With increasing customer traffic growth year-over-year (y-o-y), strong breakfast market share, and increasing market share in the single-serve K-Cups segment over the summer season, Dunkin' Brands is riding high on confidence stepping into this winter season.
Gradual Improvements In International Businesses
Dunkin' Brands has been reporting positive revenue growth consecutively for the last 10 quarters, with a 5% year-over-year (y-o-y) growth in the 2014 fiscal year. The flourishing comparable store sales growth of both the brands in the U.S. is getting offset by the sluggish performance of both brands internationally. Over the past 8 quarters, when Dunkin' Donuts and Baskin-Robbins U.S. were reporting strong and significant comparable store sales growth, both the brands internationally were witnessing slower growth, or a sales decline for most of the period. However, the Dunkin' Donuts International segment showed some improvement during the last three quarters, whereas Baskin-Robbins International segment was facing temporary headwinds. (See: U.S. segments help drive Dunkin' Brands' top-line growth in Q2 2015)
Even though, the company's international segments account for less than 20% of the total revenue, they still are vital drivers to boost the company's current stagnant growth. According to Trefis estimates, the profit contribution of Dunkin' Donuts International has declined from 3.8% in 2011 to 2.5% in 2014, whereas that of the Baskin-Robbins International segment has declined from 14% in 2011 to 8.8% in 2014.
Now the important thing to note is that on one hand, the U.S. segments are coming up with innovative offers and new menu additions to keep the customer traffic count robust, and on the other hand, the company is confident that the next few quarters will witness a strong comeback from the international segments, as the temporary headwinds seem to subside.
Dunkin' Donuts International generated close to $20 million in revenues in 2014, with an 8.4% y-o-y growth, whereas Baskin-Robbins International generated $122.5 million in revenues, with a moderate 1.8% growth. The interesting fact is that this revenue growth came despite the decline in comparable sales for the majority of the year. Considering that this year both the segments are performing better than last year, as the numbers suggest, we can say that there will be comparatively higher revenue growth. Also, not to forget, the price hikes in the menu items, due to commodity inflation, especially that in meat prices, will play its part.
We estimate the average revenue per outlet for Baskin-Robbins International to rise from $0.27 million in 2014 to $0.28 million in 2015. On the other hand, we estimate a 10% revenue growth in Dunkin' Donuts International in 2015, with a 2.5% estimated growth in average revenue per outlet for the segment.
K-Cups To Lead Growth In U.S.
In a recent research report by UBS group, Dunkin' Brands, along with its competitors McDonald's ( MCD ) and Starbucks ( SBUX ) further gained some market share in the single-serve K-Cups segment from Keurig Green Mountain ( GMCR ). One of the UBS analysts, Keith Siegner, commented that sales of the overall U.S. single-serve cup segment grew by 16% y-o-y, which was slower than the 18% figure over the prior 12 months. However, Dunkin' Brands was one of the restaurant chains who continued to get a bigger share of the pie. The company gained 80 basis points over the 4 week period ended September 5, 2015, and now has a 5.4% market share in this category, owing to the solid momentum of its K-Cups. The market expects the company to further improve this number in the coming few months.
With the winter season coming, the sales of K-Cups might further accelerate, providing a further boost to average revenue per outlet for the Dunkin' Donuts U.S. segment. Trefis estimates the average revenue per Dunkin' Donuts U.S. outlet to increase 3% y-o-y from $0.91 million/year in 2014 to $0.94 million/ year in 2015.
Keeping all these factors in consideration, it is safe to say that the company has a lot to offer in the coming few quarters. In fact, Dunkin' Brands, with its sustained customer traffic, new menu options, innovative beverages, and strong coffee demand, has everything to please its customers, as well as investors.
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