Dunkin' (DNKN) Q4 Earnings Lag Despite Solid US Revenues - Analyst Blog
Dunkin' Brands Group, Inc. (DNKN) posted mixed fourth-quarter 2014 results wherein earnings missed the Zacks Consensus Estimate, but revenues beat the same. Shares of Dunkin’ slid 2% in response to the company’s results.
The company's adjusted earnings of 46 cents per share missed the Zacks Consensus Estimate by 2.1%. However, the figure was higher than the prior-year figure of 43 cents by 7%, mainly due to higher revenues.
Dunkin' Brands Group Inc. - Earnings Surprise | FindTheBest
The restaurateur's revenues increased 5.5% year over year to $193.2 million, driven primarily by increased royalty income resulting from system-wide sales growth and higher ice cream sales. Further, it beat the Zacks Consensus Estimate of $190.0 million by 1.5%.
Inside the Headline Numbers
Dunkin' Brands operates through its Dunkin’ Donuts and Baskin-Robbins brands.
System-wide comps increased 4.5%, primarily due to global store development and Baskin Robbins’ U.S. comps growth. However, it was lower than the year-ago quarter’s increase of 6.5%. The company’s comps suffered from increased competition in the U.S., especially in the breakfast category.
Dunkin’ Donuts
Comps increased 1.4% in Dunkin’ Donuts U.S. division, driven by higher traffic and increased average ticket resulting from the company’s continued focus on product and marketing innovation. However, comps growth was much lower than the 3.5% improvement in the prior-year period. The decline was due to the sale of all company-owned restaurants in Atlanta early in the second quarter.
In Dunkin’ Donuts International division, comps increased 0.3%, better than a decline of the same magnitude in the prior-year quarter. Comps growth was driven by sales growth in the Middle East and Europe, offset by weak performance in South Korea.
Baskin Robbins
Comps increased 9.3% in the Baskin Robbins U.S. division, better than the 3.2% growth in the prior-year period, thanks to strong sales in the Cups & Cones, Cakes, Beverages and Take-Home segment.
At the Baskin Robbins International division, comps declined 2.2%, which compared unfavorably with 1.6% improvement a year ago. Poor performance in Japan, Middle East as well as South Korea led to the comps decline.
Expense and Margins Details
Total operating cost and expenses increased 1.9% year over year to $106.1 million, due to higher general and administrative expenses and cost of ice cream products.
Adjusted operating income increased 8.4% to $96.7 million, primarily as a result of increases in royalty income and margin on sales of ice cream products.
Adjusted operating income margin climbed 120 basis points year over year to 48.9%
Store Update
In the fourth quarter, Dunkin' Brands’ franchisees and licensees opened 260 restaurants worldwide. This includes 141 Dunkin' Donuts U.S. locations, 75 Baskin-Robbins International outlets, 46 Dunkin' Donuts International units. Also, two Baskin-Robbins U.S. locations were closed. Additionally, Dunkin' Donuts U.S. franchisees remodeled 172 restaurants during the quarter.
Full-Year 2014 Results
Revenues in 2014 were $748.7 million, up 4.9% year over year.
Adjusted earnings per share were $1.74, up 13.7% year over year.
Dividend Hike
Concurrent with the earnings, Dunkin' Brands’ Board of Directors declared a quarterly dividend of 26.5 cents per share of common stock, an increase of 15% from the prior quarter. The increased dividend will be paid on March 18, 2015 of record as of March 9.
2015 Guidance
The company expects adjusted earnings per share to be in the range of $1.83 to $1.87. Revenue growth is expected between 5% and 7%.
The company expects both Dunkin Donuts and Baskin Robbins U.S. comps to grow in the 1–3% range in 2015. Adjusted operating income growth is expected to range within 6–8%.
The company expects that Dunkin' Donuts U.S. will add 410 to 440 net new restaurants, while Baskin-Robbins U.S. to add 5 to 10 units.
Internationally, the company is targeting 200 to 300 net new restaurant openings across the two brands. In total, the company expects to open between 615 and 750 net new units.
Our Take
Dunkin’ Brands’ fourth-quarter earnings were hurt by a saturated fast food restaurant segment. Also, a major share of the company’s revenues comes from the breakfast segment, where it is losing market share to companies like McDonald's Corp. (MCD), Starbucks Corp. (SBUX) and Yum! Brands, Inc.’s (YUM) Taco Bell.
However, the company has been working to expand its doughnut-and-coffee brand in the U.S. and improve performance globally. 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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