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Dunkin' Donuts (DNKN) Announces Expansion Plans for Missouri

Zacks Equity Research

Fast food giant, Dunkin’ Donuts, which is part of Dunkin’ Brands Group, Inc. DNKN, is set to expand further in Missouri. The company has inked a multi-unit store development agreement with franchisee Sandwich Group, Inc. to build nine restaurants in St. Louis, MO, including one multi-brand location with Baskin-Robbins, over the next five years.

Sandwich Group, Inc., consists of established Dunkin' Donuts franchisees Yonas Hagos and Haresh Patel, and new franchisees Faisal Raja and Kieron James. The group's first outlet is slated to open in 2018.

Presently, there are 17 Dunkin' Donuts located in the Greater St. Louis area, and the company is continuing to recruit more franchisees in the surrounding areas, as well as in Kansas City, Joplin, and Kirksville, MO, and in Des Moines, IA. It is also offering special development incentives to fuel growth in the market.

Notably, Dunkin' Brands is placed among the well-established global quick service restaurant brands. Apart from foraying into domestic markets, the company is also looking to expand its footprint internationally in the emerging markets of Asia and the Middle East. The company also considers the untapped market of South Africa a great potential.

At the end of first-quarter 2017, there were in excess of 12,200 Dunkin' Donuts points of distribution and over 7,800 Baskin-Robbins points of distribution, across more than 60 countries worldwide.

The company’s shares have outperformed the broader Zacks categorized Retail–Restaurants industry over the past one year. While the stock has rallied 30.8%, the broader market has witnessed a gain of 12.9% in the same time period.



However, Dunkin' Brands’ international comps growth has suffered mostly over the last few years at both its Dunkin’ Donuts and Baskin Robbins divisions. Discretionary spending is under pressure due to a number of factors including sluggish local economies, currency devaluation and oil prices.

Further, a soft consumer spending environment in the domestic restaurant space along with intense competition from similar food & beverages companies like Starbucks Corporation SBUX, McDonald’s Corporation MCD and Jack in the Box Inc. JACK, might continue to put pressure on revenues.

Nonetheless, the company’s continued expansion strategies, along with various sales and digital initiatives like product launches, increased focus on its beverage portfolio, the ongoing loyalty program and mobile ordering service are expected to attract customers and positively support earnings and revenue growth.

Meanwhile, the company is emphasizing the improvement of its core menu, introduction of more customization options and promotional offers as well as adding further variations to the value and premium segments, which should boost comps.

Besides, multi-brand restaurants that combine Dunkin' Donuts with the world's largest chain of ice cream specialty shops -- Baskin-Robbins -- under one roof, present better opportunities to propel traffic during various day parts.

The full-fledged franchise model should also continue to facilitate earnings growth and return on equity expansion due to lesser capital requirements.

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

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