Will Soft International Comps Hurt Dunkin' Brands in Q3?

Dunkin' Brands Group, Inc.DNKN is scheduled to report third-quarter 2017 results on Oct 26, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 3.23%. In fact, the bottom line also surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 6.46%.

For the to-be-reported quarter, the Zacks Consensus Estimate is pegged at 63 cents per share of earnings, reflecting a rise of 5.2% year over year.

Dunkin' Brands Group, Inc. Price and EPS Surprise

Dunkin' Brands Group, Inc. Price and EPS Surprise | Dunkin' Brands Group, Inc. Quote

Factors at Play

Dunkin' Brands operates through the Dunkin' Donuts and Baskin-Robbins brands.Various sales and digital initiatives undertaken by the company such as faster and improved product innovation, targeted values and smart pricing, improving the restaurant experience, breakfast menu optimization, the loyalty program and mobile ordering service are expected to boost the quarter's results.

Additionally, increased focus on establishing itself as a beverage leader provides the company a great opportunity for growth. In keeping with this strategy, the company's Dunkin' Donuts division has launched a variety of products including ready-to-drink bottled iced coffee, frozen coffee and fruited iced teas in the recent past, which might enhance its top line in the third quarter. We anticipate Dunkin' Brands robust unit expansion as well as its deal with Amtrak to further drive revenues.

Thus, the Zacks Consensus Estimate for the quarter's revenue is pegged at $213.5 million, implying an increase of 3.1% over the prior-year quarter.

Dunkin' Brands has also introduced curbside delivery and has emphasized on drive-thru outlets in a bid to improve customer experience, expand convenience, and increase transactions. Further, Baskin Robbins has launched home delivery in partnership with DoorDash in more than 600 locations across 22 cities. These are expected to propel sales growth further.

Nevertheless, Dunkin' Brands' upcoming results are likely to be hurt by high labor expenses similar to the other restaurant chains. Also, the Breakfast segment, historically one of the company's most profitable divisions, is facing immense competition with more companies grabbing the market share. These, in turn, might continue to hurt the company's top line.

Additionally, challenging comps growth in international markets at both its divisions might hamper revenue growth, as has been the trend of late. In fact, the Zacks Consensus Estimate for Dunkin' Donuts and Baskin Robbins' international comparable store sales are pegged at a year-over-year decline of 0.3% and 0.2%, respectively.

Furthermore, a downward trend in the U.S. restaurant space might hurt traffic and, in turn, comps in the to-be-reported quarter. Currently, the Zacks Consensus Estimate for Dunkin' Donuts domestic comps is pegged at a mere rise of 0.2% year over year.

Dunkin Brands' carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank stocks here .

Stocks to Consider

Here are a couple of stocks, which, as per our quantitative model, have the right combination of elements to post an earnings beat this quarter - a positive Earnings ESP and a Zacks Rank #3 - or better. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Noodles & Company NDLS has an Earnings ESP of +66.67% and a Zacks Rank #3.

El Pollo Loco Holdings, Inc. LOCO has an Earnings ESP of +6.74% and a Zacks Rank #3.

DineEquity Inc. DIN has an Earnings ESP of +5.14% and a Zacks Rank #3.

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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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