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Dunkin' Brands' (DNKN) Q1 Earnings & Revenues Beat Estimates

Zacks Equity Research

Dunkin' Brands Group, Inc. DNKN reported first-quarter fiscal 2020 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The top line remained on par with the prior-year level, while the bottom line grew year over year. 

Adjusted earnings of 67 cents per share surpassed the consensus mark of 62 cents by 8.1% but remained flat on a year-over-year basis.

Revenues were up 1.3% year over year to $323.1 million, which beat the consensus mark of $309 million by 15%. The top-line improvement can be attributed to rise in sales of ice cream and other products, as well as an increase in other driven primarily driven by license fees related to Dunkin K-Cup pods and retail packaged coffee.

Due to the uncertainty related to the duration and impact of the COVID-19 pandemic, the company has revoked its fiscal year 2020 targets and long-term targets. Following the release of the quarterly results, shares of the company declined 2.9% on Apr 30.

Dunkin' Brands Group, Inc. Price, Consensus and EPS Surprise

 

Dunkin' Brands Group, Inc. Price, Consensus and EPS Surprise

Segmental Performance

Dunkin' U.S. reported revenues of $151.8 million, up 1.4% from the prior-year quarter’s figure. The increase was primarily backed by an increase in franchise fees and royalty income.

However, comps declined 2% in the quarter owing to decline in traffic due to the impact of COVID-19, partially offset by an increase in average ticket sales.

Dunkin’ International division reported revenues of $5.5 million, down 20% from the prior-year quarter’s level. Additionally, comps declined 7.1% compared with 2.9% gain in the year-ago quarter.

Baskin-Robbins U.S. revenues inched up 5.5% from the prior-year quarter to $10.8 million. Comps grew 1.8% against 2.8% loss reported in the year-ago quarter.

Baskin-Robbins International division revenues amounted to $27.3 million, up 6.7% year over year. Comps rose 2.5% against 2% decline in the year-ago quarter.

Operating Performance

Adjusted operating income declined 0.4% from the year-ago quarter’s level to $106 million, mainly owing to a rise in reserves for uncollectible receivables and training expense associated with the rollout of new high volume brewers. This was offset by increase in net margin on ice cream and other products, net income from its South Korea and Japan joint ventures as well as increase in other revenues. Adjusted operating income margin contracted 50 basis points (bps) to 32.8%.

Balance Sheet

Dunkin' Brands ended first-quarter fiscal 2020 with cash and cash equivalents of $601.2 million compared with $621.2 million at the end of 2019. Restricted cash totaled $72.8 million, down from $85.6 million as of Dec 28, 2019. Long-term debt was approximately $3,005 million.

In the fiscal first quarter, the company returned $97.4 million to shareholders, of which $33.1 million was returned through dividends and $64.3 million through repurchases of approximately 881,000 shares. As of Mar 28, 2020, it had 82,087,373 shares outstanding. 

However, due to uncertainty revolving around the COVID-19 pandemic, the company has suspended its share repurchase activity as well as dividend payment program.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the Retail-Wholesale sector are Sprouts Farmers Market, Inc. SFM, Domino's Pizza, Inc. DPZ and Yum China Holdings, Inc. YUMC. Sprouts Farmers sports a Zacks Rank #1, while Domino's and Yum China carry a Zacks Rank #2 (Buy).

Sprouts Farmers has a three-five year earnings per share growth rate of 3.7%.

Domino's has a trailing four-quarter positive earnings surprise of 12.7%, on average. The company’s earnings beat the Zacks Consensus Estimate in the last four quarters.

Earnings in 2021 for Yum China are expected to surge 153%.

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