Dunkin' Brands warns on U.S. Dunkin' Donuts sales

(Recasts, adds company comment, context on fast-food industry)

By Lisa Baertlein

Oct 23 (Reuters) - Dunkin' Brands Group Inc on Thursday warned that this year's sales at established U.S. Dunkin' Donuts coffee shops will be weaker than forecast as more chains try to take a bite out of the fast-food breakfast business.

Shares in the company, which reaps roughly three-quarters of total revenue from its U.S. Dunkin' Donuts business, dropped 3.5 percent to $45.15 in Thursday morning trading on the Nasdaq.

McDonald's Corp, the undisputed king of the fast-food breakfast, has responded to new competition from the likes of Taco Bell and others by giving away free coffee and running other promotions.

But breakfast sales gains are hard to come by in a fast-food market that is not growing.

The industry's generally lower-income customers are not seeing their wages rise as the U.S. economy recovers. That limits their spending on fast food and makes it difficult for McDonald's and many other chains to raise prices to offset higher costs.

"It will be a challenge" to hit the low end of the company's 2014 forecast for Dunkin' Donuts U.S. same-restaurant sales growth of 2 percent to 3 percent, Dunkin' Brands Chief Financial Officer Paul Carbone said in a statement on Thursday.

In July, Dunkin' Brands cut its 2014 forecasts as Dunkin' Donuts battled stiff competition and high milk prices softened profits from its international Baskin-Robbins ice cream business.

Despite the softer-than-expected sales trends at Dunkin' Donuts, the company stood by its 2014 forecasts for earnings of $1.73 to $1.77 per share.

And, executives said the company is well-positioned to weather volatility in the commodity coffee market.

For the third quarter, company profit grew a bigger-than-expected 36 percent to $54.7 million, or 52 cents per share.

Excluding items, earnings were 49 cents per share, or 2 cents better than the average estimate compiled by Thomson Reuters I/B/E/S.

Total revenue was up 3.4 percent to $192.6 million.

Sales at established U.S. Dunkin' Donuts franchised restaurants in the United States were up 2 percent in the third quarter, less than expected, but better than the 3.3 percent drop for McDonald's U.S. unit.

"We're growing share," said Nigel Travis, Dunkin' Brands' chairman and chief executive officer, who raised the company's long-term target for U.S. Dunkin' Donuts shop counts to 17,000 from 15,000 previously.

(Reporting by Lisa Baertlein in Los Angeles and Nayan Das in Bangalore; Editing by Saumyadeb Chakrabarty and Jonathan Oatis)